Contributor: Lee Grossman
Our law firm has written before on the obligations and responsibilities owed by a health insurance carrier to the policyholder. You can find blog articles on these topics here and here. The purpose of this article is to discuss the very recent fine imposed against Blue Cross Blue Shield of North Dakota (BCBSND), the largest health insurance provider in the State of North Dakota.
BCBSND Fined $125,000 By ND Insurance Commissioner
On July 3, 2019, the North Dakota Insurance Commissioner levied a fine against BCBSND in the amount of $125,000. The story was reported by the Fargo Forum, the Associated Press, and a press release from the Insurance Commissioner’s website, among others. According to the reports, the investigation by the Insurance Commissioner included claims by policyholders that coverage for mental health and substance abuse care were denied coverage. You can find a copy of the examination report here, which focused on whether BCBSND “fulfilled its obligations, based on the nature of its operations, to afford proper treatment to members, and its compliance” with North Dakota and federal laws.
The investigation found BCBSND did not treat mental health/substance abuse disorder (“MH/SUD”) inpatient services the same as medical/surgical (“M/S”) services. In particular, BCBSND required preauthorization for all MH/SUD inpatient services, which was not required for all M/S services. The preauthorization requirements for all in-network services for non-quantitative treatment limitations (“NQTL”) was more stringently applied to MH/SUD claims than M/S claims. This was a direct violation of federal law which required both types of claims to be processed in the same manner. Further, the policy limits for M/S claims could not provide greater coverage than limits for MH/SUD (with exemptions that do not apply to BCBSND). BCBSND also failed to provide substantial documentation to show why preauthorization was required for certain MH/SUD claims but not for M/S claims. According to the report, BCBSND’s “restrictions concerning preauthorizations for MH/SUD services indicated a lack of effective process governance concerning its practices and procedures related to regulatory oversight and compliance practices and procedures.”
The investigation took a random sampling of 108 claims (from a total of more than 9,800) where coverage was denied and 107 claims (from more than 2,100) where preauthorization coverage was requested. From this sample the investigation found:
- Ten of those denials did not allow medically necessary services. In one of those ten claims, BCBSND preauthorized coverage for the service, but then later denied coverage for the claim after the service was performed.
- Claims that were appealed under the internal administrative framework were denied and did not allow services that were medically necessary.
- One denied claim stated explicitly that the policyholder with a grandfathered plan was not entitled to an independent external review. This is a direct violation of N.D.C.C. § 26.1-36-44, which allows an independent external review mechanism to review whether medical care provided (and coverage denied) is medically necessary and appropriate.
- Three claims were denied for pre-existing conditions even though the claims were covered by grandfathered plans under the Affordable Care Act.
- BCBSND lacked appropriate regulatory oversight in the handling and processing of claims made for mental health and substance abuse.
As part of the Consent Order, BCBSND agreed to process MH/SUD claims “solely in the interest of members, with the exclusive purpose of providing benefits to members, and in accordance with the member’s policy.” A reasonable interpretation of this language is that BCBSND was processing these claims in the interest of BCBSND and its own bottom line. Denial of claims for these services meant less money BCBSND would have to pay to the treatment provider.
This is a lot to break down and I encourage you to read the press releases and investigation report. The rest of this article will attempt to explain the state and federal laws that were violated and explain how BCBSND’s denial of coverage affects a hypothetical policyholder.
State And Federal Statutes
The investigation cited several state and federal laws that were violated.
- Mental Health Parity & Addiction Equity Act Of 2008 – (MHPAEA) – The MHPAEA is a federal law that prevents group plans and group plan providers from utilizing a less favorable mechanism for processing and providing benefits for MH/SUD claims than what is used for M/S claims. The underlying insurance policy must include language related to MH/SUD claims to fall under this law.
- 45 CFR § 146.136 — In its most basic sense, this very lengthy part of the MHPAEA states a group health plan that provides both M/S benefits and mental health or substance abuse disorder MH/SUD benefits must apply standards and policy limits in the same manner. The plan cannot provide a lower policy limit for MH/SUD treatment, with an exemption for small employers (50 of fewer) and increased cost for the total plan.
- 45 CFR § 147.160 — Under the MHPAEA, health insurance coverage offered in the individual market, large group market, and group health plans are all subject to 45 CFR § 146.136.
- N.D.C.C. § 26.1-04-03(7)(b) — It is unfair discrimination by the insurance provider to treat different individuals of the same class and “same hazard”, including domestic abuse, regarding premiums, fees, or rates, or any coverage provided by the policy. While this statute does not provide a definition for “discrimination,” this term has been defined in other statutes as discrimination based on race, color, religion, sex, national origin, age, the presence of a mental or physical disability, status with regard to marriage or public assistance, and participation in lawful activity during nonworking hours.
- N.D.C.C. § 26.1-04-03(9)(a) — It is an unfair settlement practice by the insurance provider to knowingly misrepresent facts or policy language related to coverage.
- N.D.C.C. § 26.1-04-07 — An insurance provider may not circulate any statement that misrepresents the terms of any policy issued by the provider with intent to deceive policyholders.
- N.D.C.C. § 26.1-36-44 — Grandfathered health plans are entitled to protection under the Affordable Care Act, including the right to an independent external review of whether medical care was medically necessary and appropriate.
The insurance provider has to comply with these (and other) statutes and regulations. Failure to do so not only results in a fine from the insurance commissioner, but it could also be a breach of contract by the provider to the policyholder and a breach of the provider’s duty of good faith and fair dealing.
Breach Of Contract And Breach Of Duty Of Good Faith And Fair Dealing
An insurance policy is a legal and binding contract between the insurance provider and the policyholder. When the provider does not follow its own policy language to process claims for coverage, this is a breach of contract. The elements of breach of contract are: “(1) the existence of a contract; (2) breach of the contract; and (3) damages which flow from the breach.” Swenson v. Mahlum, 2019 ND 144, ¶ 19, 927 N.W.2d 850. In order to prevail, the policyholder must prove the provider denied coverage for a legitimate claim and the provider did not follow the policy when it processed the claim for coverage. The policy satisfies prong (1); not processing the claim properly satisfies prong (2); and the out-of-pocket payments for which the policyholder is responsible to the hospital satisfies prong (3).
Insurance contracts are unique because the provider has a duty to act in good faith to uphold its end of the policy. Policyholders purchase insurance for, among other things, peace of mind. Every insurance carrier “has a duty to act fairly and in good faith in its contractual relationship with its policyholders.” Fetch v. Quam, 2001 ND 48, ¶ 12, 623 N.W.2d 357. “[It] is implied by law to include a duty of fair dealing in paying claims, providing a defense to claims, negotiating settlements, and fulfilling all other contractual obligations.” Id. North Dakota devotes an entire chapter of the Century Code to “Prohibited Practices In Insurance Business.”
A simple breach of the policy by the insurance provider is not in and of itself bad faith. The duty to act in good faith comes not from a contract, but an obligation imposed by the law which demands the provider act fairly and in good faith to uphold its contractual responsibilities. See, e.g., Corwin Chrysler-Plymouth, Inc. v. Westchester Fire Ins. Co., 279 N.W.2d 638, 645 (N.D. 1979). If the policyholder can show the provider acted in bad faith, and that bad faith was perpetuated by oppression, fraud, or malice, the policyholder would be entitled to damages for breach of the contract (the unpaid medical costs) and punitive damages to punish the provider.
If you were denied coverage by your insurance carrier for necessary medical treatment, visit our website or call SW&L at 701-297-2890. Or you can email us via the contact form below and one of our attorneys will try and help.
The information contained in this article and on this website is for informational purposes only and not for the purposes of providing legal advice. You should contact an attorney to obtain advice with respect to any particular issue or problem.