In Ghazarian v. Magellan Health (No. G057113, filed 8/7/20), a California appeals court reversed summary judgment that had been granted for a health plan insurer in a bad faith and unfair business practices lawsuit on the genuine dispute doctrine where there was evidence that the standards of “medical necessity” adopted by the insurer did not meet proper criteria, and its supporting expert’s opinion was inconsistent with the insurer’s stated ground for denying coverage.
In Ghazarian, an autistic youth was receiving applied behavior analysis (ABA) therapy under a health insurance policy with Blue Shield, as administered by Magellan Health. By law, the policy had to provide all medically necessary ABA therapy. (Health & Saf. Code, § 1374.73(a)(1; (c)(1).) He was approved for 157 hours of ABA therapy per month but after he turned seven, his parents’ request for 157 hours was denied on grounds only 81 hours per month were medically necessary. In an independent medical review by the Department of Managed Health Care, two of the three independent physician reviewers disagreed with the denial, while the other agreed. As a result, the Department ordered Blue Shield to reverse the denial.
The parents sued Blue Shield and the administrators for bad faith and unfair business practices, alleging that they adopted unfair medical necessity guidelines that reduced the amount of therapy autistic children receive once they turn seven years old, regardless of medical need. The trial court granted summary judgment for the defendants, ruling that the fact that the third IMR doctor had agreed with Blue Shield demonstrated a genuine dispute, negating bad faith as a matter of law. But the appeals court reversed, finding triable issues of fact.
The claim administrator had adopted guidelines stating that “[ABA] Services may range from 21 to 40 hours per week, early in the recipient’s development (for example, under the age of 7). . . . The standard of care for comprehensive services has been for durations of 1 to 2 years.” But the parents argued that these guidelines conflicted with established medical standards set forth by the Behavior Analyst Certification Board (BACB), which is specifically mentioned in the statutory ABA scheme as a recognized ABA credentialing entity. The BACB standards state, “[ABA] treatment should be based on the clinical needs of the individual and not constrained by age. . . . ABA is effective across the life span. Research has not established an age limit beyond which ABA is ineffective.”
The Ghazarian court stated that “bad faith may also be found where an insurer ‘employs a standard of medical necessity significantly at variance with the medical standards of the community . . . . Such a restricted definition of medical necessity, frustrating the justified expectations of the insured, is inconsistent with the liberal construction of policy language required by the duty of good faith. . . . [G]ood faith demands a construction of medical necessity consistent with community medical standards that will minimize the patient’s uncertainty of coverage in accepting his physician’s recommended treatment.’” (Quoting Hughes v. Blue Cross of Northern California (1989) 215 Cal.App.3d 832, 845-846.)
The Ghazarian court went on: “To be clear, we do not mean to suggest that a health insurer cannot define medical necessity in a manner that embraces efficient practices or novel technologies or procedures that have support in the medical community. That is not the case here. Blue Shield provides no explanation or evidence in support of the reasonableness of the medical necessity guidelines at issue. It is entirely unclear why Blue Shield’s standards advise that comprehensive ABA therapy should be limited to children under the age of seven.”
Discussing the genuine dispute rule, the Ghazarian court pointed out that “Although one physician on the IMR panel arrived at the same conclusion as Blue Shield, that physician did not apply or evaluate Blue Shield’s medical necessity criteria.” The court stated: “Blue Shield arbitrarily reduces ABA treatment for autistic children after they turn seven years old. Based on this criteria, Blue Shield reduced A.G.’s treatment from 157 hours to 81 hours per month after he turned seven without regard for his actual medical needs. It then cited A.G.’s significant progress—progress the expert it now wishes to rely on said did not exist—as a pretextual reason for this reduction. . . . Blue Shield’s stated reason for reducing A.G.’s treatment was at odds with the concurring physician on the IMR panel. Defendants explained reduced treatment was warranted because A.G. had already significantly improved with ABA therapy. In contrast, the physician on the IMR panel found less treatment was appropriate because A.G. had only shown limited improvement with ABA therapy, indicating it had only been minimally effective. The stark differences between these evaluations raise questions as to whether Blue Shield thoroughly and fairly evaluated plaintiffs’ claim.”
Besides the inconsistency between Blue Shield’s stated reason for denying coverage and the IMR doctor’s justification, the Ghazarian court noted other indicia of bad faith, including a declaration from another insured who had been denied ABA treatment on similar grounds, evidence of a pattern and practice and evidence that the claim administrator had pressured the autism service provider into adopting its standards by threatening to terminate its provider agreement.
Finally, the Ghazarian court stated that “Since plaintiffs’ bad faith claim against Blue Shield survives summary judgment, its UCL claim against Blue Shield must too.”