1 2 3 4 UNITED STATES DISTRICT COURT 5 NORTHERN DISTRICT OF CALIFORNIA 6 7 K.G., Case No. 23-cv-00299-JSC

8 Plaintiff,

ORDER RE: DEFENDANT’S MOTION

9 v. TO DISMISS OR FOR JUDGMENT, OR

PARTIAL JUDGMENT, ON THE

10 UNIVERSITY OF SAN FRANCISCO PLEADINGS

WELFARE BENEFIT PLAN,

11 Re: Dkt. No. 20 Defendant.

12 13 Plaintiff J.G. sued Defendant University of San Francisco Welfare Benefit Plan for denial 14 of health plan benefits under the Employee Retirement Income Security Act of 1974 (ERISA) and 15 for equitable relief under 29 U.S.C. § 1132(a)(1)(B). (Dkt. No. 1.)1 Defendant moves to dismiss 16 or for judgment on the pleadings. (Dkt. No. 20.) Defendant argues Plaintiff J.G. lacks Article III 17 and statutory standing, that his Federal Health Parity and Addiction Equity Act claim fails, and 18 that an abuse of discretion rather than de novo standard of review applies to the ERISA claim. At 19 oral argument on August 24, 2023, the parties agreed to substitute K.G. as the plaintiff. The 20 caption of this Order thus reflects the plaintiff is K.G. The parties further agreed the Court could 21 consider the merits of Defendant’s motion to dismiss as there is no dispute K.G. has Article III and 22 constitutional standing. 23 COMPLAINT ALLEGATIONS 24 K.G. has a long history of mental illness and emotional disturbance, and suffers from 25 autism spectrum disorder, generalized anxiety disorder, major depressive disorder, and 26 neurodevelopmental disorders. (Dkt. No. 1 at 50-51 ¶¶ 7-10.) Around age thirteen, when his 27 1 anxiety and depression made it difficult for him to attend school and complete schoolwork, K.G. 2 was admitted to multiple treatment centers. (Id. at 51 ¶¶ 11-12.) Despite treatment, K.G.’s mental 3 health worsened. (Id. ¶ 13.) At the end of his 12th grade year, K.G. discontinued his medication 4 and threatened suicide during an outburst, for which he spent 17 days at Stanford Hospital. (Id. ¶ 5 14.) Upon discharge, K.G. was admitted to a transitional living treatment center where he 6 attempted suicide. (Id. ¶ 15.) After the suicide attempt, K.G. was admitted to McKay Dee 7 Hospital for inpatient psychiatric hospitalization. (Id. ¶ 16.) Following his hospitalization, on 8 July 14, 2020, 18-year-old K.G. was admitted to Bridge House residential treatment center, where 9 he continued to express suicidal ideations and was found in possession of a homemade noose. (Id. 10 at 52 ¶¶ 17-20.) K.G.’s Bridge House treatment providers recommended transfer to two programs; 11 of the two, only Innercept Treatment Center was willing to accept K.G. (Id. ¶ 21.) K.G. was 12 discharged from Bridge House and admitted to Innercept on October 20, 2020. (Id. at 52 ¶ 22, 54 13 ¶ 30.) K.G. was discharged from Innercept on July 15, 2022. (Id. at 54 ¶ 34.) 14 J.G. is K.G.’s parent. (Dkt. No. 1 at 50 ¶ 4.) J.G. and his dependents, including K.G., 15 were insured under the University of San Francisco Welfare Benefit Plan, a health care service 16 plan administered by Anthem Blue Cross Life and Health Insurance Company. (Id. ¶¶ 4-5.) On 17 October 23, 2020, Anthem denied benefits for K.G.’s residential treatment at Innercept, saying the 18 “service is excluded or not covered under your plan benefits” because the Plan requires residential 19 treatment providers have accreditation with one of four national organizations. (Id. at 54 ¶ 35.) 20 Though Anthem approved K.G.’s benefits for his first two weeks of residential treatment at Bridge 21 House, Anthem denied further benefits in a February 9, 2021 letter also claiming the Plan requires 22 residential treatments have accreditation with one of four national organizations. (Id. at 52 ¶ 24.) 23 On February 24, 2021, Plaintiff appealed Anthem’s denial, challenging the Plan’s accreditation 24 requirement as violative of the Federal Mental Health Parity and Addiction Equity Act on the 25 grounds the Plan did not enforce the same accreditation requirement for treatment of physical 26 conditions at skilled nursing facilities. (Id. at 53 ¶ 25.) On May 28, 2021, Anthem denied 27 Plaintiff’s appeal, saying Bridge House was a Wilderness Treatment Center not covered under 1 letter to say Bridge House was not properly accredited as a residential treatment center. (Id. ¶ 27.) 2 On June 22, 2021, Anthem denied the first level appeal of the Innercept claims, saying K.G.’s 3 residential treatment was not medically necessary. (Id. at 55 ¶ 37.) On August 6, 2021, Anthem 4 denied the second level appeal of the Bridge House claims on the same accreditation grounds. (Id. 5 ¶ 29.) On June 28, 2022, a second level appeal of the Innercept claims demonstrating the medical 6 necessity of K.G.’s treatment at Innercept was submitted. (Id. ¶ 38.) Anthem has not issued a 7 decision on the second level Innercept appeal. (Id. ¶ 39.) 8 K.G. sues Defendant for denial of health plan benefits under 29 U.S.C. §§ 1132(a), (e), (f), 9 and (g) of the Employee Retirement Income Security Act of 1974 (ERISA) and seeks equitable 10 relief under 29 U.S.C. § 1132(a)(1)(B). Defendant now seeks dismissal or judgment, or partial 11 judgment, on the pleadings pursuant to Federal Rules of Civil Procedure 12(b)(1) and 12(c). The 12 motion to dismiss on statutory and constitutional grounds is moot in light of the substitution of 13 K.G. as the named plaintiff. 14 DISCUSSION 15 I. Motion to Dismiss the Health Parity Act Claim 16 The First Amended Complaint alleges Defendant’s accreditation requirement for 17 residential treatment centers violates the Parity Act because Defendant does not require 18 accreditation of skilled nursing facilities. (Dkt. No. 1 at 53-55 ¶¶ 25, 36.) Defendant argues 19 Plaintiff fails to allege a plausible disparity between the Plan’s requirements for skilled nursing 20 facilities and residential treatment centers and thus the claim must be dismissed under Federal 21 Rule of Civil Procedure 12(c). 22 In analyzing a Rule 12(c) motion, the Court applies the same standards as apply under 23 Federal Rule of Civil Procedure 12(b)(6). Cafasso, U.S. ex rel. v. Gen. Dynamics C4 Sys., Inc., 24 637 F.3d 1047, 1055 (9th Cir. 2011). For Plaintiff’s Parity Act claim to survive, the complaint’s 25 factual allegations must raise a plausible right to relief. Bell Atl. Corp. v. Twombly, 550 U.S. 544, 26 554–56 (2007). Though the Court must accept the complaint’s factual allegations as true, 27 conclusory assertions are insufficient to state a claim. Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). 1 reasonable inference the defendant is liable for the misconduct alleged. Id. 2 a. The Parity Act 3 Under the Parity Act, health plans providing medical and surgical benefits as well as 4 mental health and substance abuse disorder benefits must not impose more restrictions on the 5 latter than the former. 29 U.S.C. § 1185(a)(3)(A); Danny P. v. Cath. Health Initiatives, 891 F.3d 6 1155, 1157 (9th Cir. 2018). The Parity Act states:

7 In the case of a group health plan (or health insurance coverage offered in connection with such a plan) that provides both medical 8 and surgical benefits and mental health or substance use disorder benefits, such plan or coverage shall ensure that-- 9 (i) the financial requirements applicable to such mental health or 10 substance use disorder benefits are no more restrictive than the predominant financial requirements applied to substantially all 11 medical and surgical benefits covered by the plan (or coverage), and there are no separate cost sharing requirements that are applicable 12 only with respect to mental health or substance use disorder benefits; and 13 (ii) the treatment limitations applicable to such mental health or 14 substance use disorder benefits are no more restrictive than the predominant treatment limitations applied to substantially all medical 15 and surgical benefits covered by the plan (or coverage) and there are no separate treatment limitations that are applicable only with respect 16 to mental health or substance use disorder benefits. 17 29 U.S.C. § 1185(a)(3)(A). The statute’s language unambiguously directs benefits and treatment 18 limitations for mental health shall be no more restrictive than those for physical health. Danny P., 19 891 F.3d at 1158. More specifically, the Parity Act requires:

20 A group health plan (or health insurance coverage) may not impose a nonquantitative treatment limitation with respect to mental health or 21 substance use disorder benefits in any classification unless, under the terms of the plan (or health insurance coverage) as written and in 22 operation, any processes, strategies, evidentiary standards, or other factors used in applying the nonquantitative treatment limitation to 23 mental health or substance use disorder benefits in the classification are comparable to, and are applied no more stringently than, the 24 processes, strategies, evidentiary standards, or other factors used in applying the limitation with respect to medical/surgical benefits in the 25 classification. 26 29 C.F.R. § 2590.712(c)(4)(i). Nonquantitative treatment limitations include “medical 27 management standards limiting or excluding benefits based on medical necessity or medical 1 reimbursement rates,” and any criteria limiting the scope or duration of benefits for services 2 provided under a plan. 29 C.F.R. § 2590.712(c)(4)(ii). 3 Treatment limitations are compared across “classifications of benefits,” requiring 4 consistent treatment of mental and physical health within each classification. 29 C.F.R. § 5 2590.712(c)(2)(ii)(A). Residential treatment centers and skilled nursing facilities exist within the 6 same classification, and thus the treatment limitations applied to each are comparable under the 7 Parity Act. Final Rules Under the Paul Wellstone and Pete Domenici Mental Health Parity and 8 Addiction Equity Act of 2008; Technical Amendment to External Review for Multi-State Plan 9 Program, 78 FR 68240-01 (“For example, if a plan or issuer classifies care in skilled nursing 10 facilities or rehabilitation hospitals as inpatient benefits, then the plan or issuer must likewise treat 11 any covered care in residential treatment facilities for mental health or substance user disorders as 12 an inpatient benefit.”); see, e.g., Danny P. v. Cath. Health Initiatives, 891 F.3d 1155, 1158 (9th 13 Cir. 2018) (“[A]s we read, interpret, and fill any gap in the language of the Parity Act, we are 14 satisfied that it precludes the Plan from deciding, as the Plan does, that it will provide room and 15 board reimbursement at licensed skilled nursing facilities for medical and surgical patients, but 16 will not provide room and board reimbursement at residential treatment facilities for mental health 17 patients.”). 18 b. The Plan’s Plausible Violation of the Parity Act 19 Violations of the Parity Act can arise from a health plan “as written and in operation.” 29 20 C.F.R. § 2590.712(c)(4)(i). To bring a Parity Act claim, K.G. must show Defendant imposes a 21 discriminatory financial requirement, quantitative treatment limitation, or nonquantitative 22 treatment limitation on mental health or substance use disorder benefits. Smith v. United 23 Healthcare Ins. Co., No. 18-CV-06336-HSG, 2019 WL 3238918, at *4 (N.D. Cal. July 18, 2019). 24 “[I]t is enough to plausibly plead that there is a categorical exclusion for mental health benefits but 25 not for medical benefits.” Id. at *6. 26 Defendant repeatedly denied benefits to K.G. for residential treatment at Bridge House and 27 Innercept on the grounds the Plan requires residential treatment centers have accreditation with 1 accreditation requirement violates the Parity Act because it is not required of skilled nursing 2 facilities. (Dkt. No. 1 at 53-55 ¶¶ 25, 36.) The Plan requires residential treatment centers “be 3 licensed according to state and local laws” and “fully accredited by The Joint Commission (TJC), 4 the Commission on Accreditation of Rehabilitation Facilities (CARF), the National Integrated 5 Accreditation for Healthcare Organizations (NIAHO), or the Council on Accreditation (COA).” 6 (Dkt. No. 20-2 at 164, 172.) The Plan requires skilled nursing facilities “be licensed according to 7 the state and local laws and be recognized as a skilled nursing facility under Medicare.” (Id. at 8 173.) Unlike residential treatment centers, the Plan does not require skilled nursing facilities to be 9 accredited by one of four accreditation agencies. (Dkt. No. 20-2 at 164, 172-73.). As alleged, the 10 Plan categorically denied mental health benefits to Plaintiff by discriminatorily imposing a 11 treatment limitation not applied to physical health benefits. (Dkt. No. 1 at 52-55 ¶¶ 24-25, 27, 35- 12 36.) Plaintiff has thus sufficiently stated a Parity Act claim by alleging a disparity between 13 limitations applied to mental and physical health treatments within the same classification. Smith, 14 2019 WL 3238918, at *6 (“Here, Plaintiff has pled that only mental health services—and not 15 medical or surgical services—are subject to the reimbursement reductions. Plaintiff’s allegations 16 of categorical disparate treatment are sufficient to state a claim for a Parity Act violation.”). 17 Defendant argues the accreditation requirement for residential treatment centers is no more 18 onerous than the Medicare recognition requirement for skilled nursing facilities. Whether a 19 material distinction exists between these requirements cannot be answered as a matter of law and 20 is instead a factual question requiring discovery. The requirements are at least facially different in 21 that one demands accreditation from an approved national accreditation agency and the other 22 demands recognition under Medicare. The Court cannot conclude as a matter of law that 23 “recognition under Medicare” is just as restrictive as accreditation by one of the four identified 24 entities because the pleadings do not establish what “recognition under Medicare” means or even 25 what is required for accreditation by the four entities. Drawing all reasonable inferences in K.G.’s 26 favor, accreditation by a specific entity is more restrictive than mere “recognition,” whatever that 27 means. 1 issue in J.W. required residential treatment centers and skilled nursing facilities to be licensed by 2 the state or approved by a national organization or program. J.W. v. Bluecross Blueshield of 3 Texas, No. 1:21-CV-21, 2022 WL 2905657, at *6 (D. Utah July 22, 2022) (“In each case, the 4 facility must thus be licensed by the State or approved by a national organization or program. 5 Plaintiffs do not allege that eligibility for Medicare is meaningfully more lenient than accreditation 6 by a national organization.”) Thus, coverage was the same for mental health care and physical 7 care: the facility need only be licensed by the state. Here, in contrast, the Plan requires 8 accreditation or recognition on top of state licensure for both residential treatment centers and 9 skilled nursing facilities. (Dkt. No. 20-2 at 164, 172-73.) Additionally, the accreditation 10 requirement in J.W. was not as specific as that which the Plan seeks to impose here. In J.W., the 11 plan accepted accreditation from “a national organization” for residential treatment centers. 2022 12 WL 2905657, at *6. Here, the Plan accepts accreditation for residential treatment centers only 13 from one of four national organizations. In any event, J.W.’s reasoning fails to persuade the Court 14 the accreditation requirement at issue here is no more restrictive than Medicare recognition as a 15 matter of law. 16 Defendant’s invocation of James C. is likewise unhelpful for two reasons. James C. v. 17 Anthem Blue Cross & Blue Shield, No. 2:19-CV-38, 2021 WL 2532905 (D. Utah June 21, 2021), 18 appeal dismissed (Nov. 30, 2021). First and fatally, the court determined whether a meaningful 19 difference constituting a disparate treatment limitation existed on a motion for summary judgment. 20 Id. at *19. This undermines Defendant’s insistence discovery is unnecessary to determine whether 21 the requirements applied to residential treatment facilities are more stringent than those applied to 22 skilled nursing facilities. Second, the accreditation of the residential treatment facility in James C. 23 was “immaterial to Anthem’s decision to deny coverage.” Id. Indeed, it was ambiguous under the 24 health plan “whether such accreditation was actually required.” Id. Here, Defendant 25 unambiguously requires accreditation as a prerequisite for coverage and repeatedly denied 26 coverage to K.G. based on the accreditation of Bridge House and Innercept, making accreditation 27 of residential treatment facilities directly material to K.G.’s case. (Dkt. No. 1 at 52-54 ¶¶ 24, 27, 1 At this stage in these proceedings, and on this record, whether the accreditation of 2 || residential treatment facilities is comparable to, and applied no more stringently than, the 3 Medicare recognition requirement is a factual question the Court cannot resolve on the pleadings. 4 || 29 C.F.R. § 2590.712(c)(4)(); see, e.g., M. v. United Behav. Health, 2020 WL 5107634, at *4 (D. 5 || Utah Aug. 31, 2020) (“[D]iscovery is necessary to evaluate whether the Plan treats mental health 6 || and substance abuse claims differently than medical/surgical claims.”). Accordingly, Defendant’s 7 12(c) motion for judgment on the pleadings is DENIED. 8 Il. Standard of Review 9 After Innercept gained accreditation, Anthem denied Plaintiffs Innercept claims from 10 March 20, 2021, to June 15, 2021, on the grounds K.G.’s residential treatment was not medically 11 necessary. (Dkt. No. 1 at 55 938.) Defendant requests the Court review Anthem’s denials of 12 Plaintiff's Innercept claims after March 20, 2021, for abuse of discretion. 13 As discussed at oral argument, the Court requires further briefing on this issue. K.G. may 14 || file a further opposition on or before September 29, 2023. Defendant’s further reply must be filed 3 15 on or before October 13, 2023. K.G. may file a further response, not to exceed five pages, on or 16 before October 20, 2023. The Court will take the issue under submission at that time or will 17 || advise the parties of a further oral argument date. 18 CONCLUSION 19 Defendant’s 12(c) motion for judgment on the pleadings of Plaintiffs Parity Act claim is 20 || DENIED because the Court cannot resolve, on these pleadings and at this stage, whether the 21 accreditation of residential treatment facilities is comparable to “Medicare recognition” for skilled 22 || nursing facilities. 23 This Order disposes of Docket No. 20. 24 IT IS SO ORDERED. 25 || Dated: August 28, 2023

fA CQWELINE SCOTT CORLEY, 27 United States District Judge 28