Meridian Treatment Services v. United Behavioral Health

Background

Meridian Treatment Services, Desert Cove, and Harmony provide behavioral-health services, including substance-abuse and mental-health treatment. They alleged that United Behavioral Health (UBH) used proprietary guidelines to decide coverage and treatment levels based on actuarial predictability rather than generally accepted medical-care standards. According to the providers, UBH presented the guidelines as consistent with those standards and used them to deny coverage for medically necessary services, depriving the providers of reimbursement.

The providers reasserted California unfair-competition, implied-contract, oral-contract, intentional-misrepresentation, negligent-misrepresentation, concealment, and intentional-interference claims. They also alleged promissory estoppel and violations of the Racketeer Influenced and Corrupt Organizations Act (RICO). UBH moved to dismiss the second amended complaint under Federal Rule of Civil Procedure 12(b)(6), which tests whether the complaint adequately states a legally recognized claim.

RICO claims

The court dismissed the RICO claims with prejudice. It held that the providers had not alleged facts showing that they were the direct targets of the alleged RICO violations or that UBH’s conduct proximately caused their injuries. The court reasoned that the alleged injury appeared derivative of patients’ injuries, particularly because the providers’ inability to collect payment followed UBH’s denials of claims. The court also noted the risks of duplicative recoveries and complicated damages calculations. Because this was the third version of the complaint, the court found further amendment futile.

ERISA preemption

The court granted UBH’s motion in part based on preemption under the Employee Retirement Income Security Act (ERISA), the federal law governing many employee-benefit plans. The court accepted the allegation that some patients had non-ERISA plans and stated that state-law claims relating to those plans would not be preempted. But it concluded that claims based on coverage denials under ERISA plans would require interpreting the patients’ plans and effectively sought unpaid benefits under those plans. It therefore dismissed the providers’ state-law claims with prejudice to the extent they arose from denials of coverage for claims covered by ERISA plans.

Contract and promissory-estoppel claims

The court denied UBH’s motion to dismiss Counts IV, V, and VI, covering implied-in-fact contract, oral contract, and promissory estoppel. The providers alleged that they agreed to provide medically necessary treatment to UBH’s insureds and that UBH would reimburse them for that treatment. The court found those allegations sufficient at the pleading stage. It stated that disputes about the meaning of medical necessity concerned whether UBH breached an agreement, rather than whether an agreement had been formed, and that breach was not yet ready for resolution on this motion.

Intentional-interference claim

The court granted UBH’s motion to dismiss Count X, the claim for intentional interference with prospective economic relations, with prejudice. It held that the providers still had not alleged how their relationships with patients were disrupted and that UBH was not a true stranger to those relationships. Because the complaint had already been amended twice, the court found further amendment futile.

Fraud-based claims

The court granted UBH’s motion to dismiss the intentional-misrepresentation, negligent-misrepresentation, and concealment claims. These claims were subject to the heightened pleading requirement of Rule 9(b), which requires fraud to be described with particularity, including the basic details of who made the statement, what was said, when and where it was said, and how it was misleading. The court held that Meridian and Harmony still had not pleaded the claims with sufficient particularity. It also held that Desert Cove’s allegations concerning patient M.D. did not adequately show reliance because its communications with UBH occurred after treatment began and it did not allege that it would have stopped treatment if it had known UBH would not pay. The court stated that any plaintiffs seeking to amend these claims must request permission and submit a proposed amended complaint; it did not state in this section that dismissal was with prejudice.

Unfair-competition claim and conclusion

The court granted UBH’s motion to dismiss the California unfair-competition claim. It stated that the claim depended heavily on findings from an earlier related proceeding, and that the dismissal of the RICO and fraud-based claims, together with a later appellate decision in that related proceeding, supported dismissal. The court stated that any request to amend the unfair-competition claim would require a motion for leave and a proposed amended complaint. It also noted that the providers had not alleged sufficient facts to show that UBH applied different guidelines to physical and mental-health claims, and that any attempt to apply the unfair-competition law outside California would require additional facts.

The order therefore granted UBH’s motion to dismiss in part and denied it in part. The court left Counts IV, V, and VI in the case, dismissed the specified other claims as described above, and set an initial case-management conference for May 20, 2022.