Merit Behavioral Care Corp. v. State of VT Independent Panel of Mental Health Providers
Annotate this Case
Merit Behavioral Care Corp. v. State Independent Panel of Mental Health
Providers (2002-271); 176 Vt. 221; 845 A.2d 359
2004 VT 12
[Filed 06-Feb-2004]
NOTICE: This opinion is subject to motions for reargument under V.R.A.P.
40 as well as formal revision before publication in the Vermont Reports.
Readers are requested to notify the Reporter of Decisions, Vermont Supreme
Court, 109 State Street, Montpelier, Vermont 05609-0801 of any errors in
order that corrections may be made before this opinion goes to press.
2004 VT 12
No. 2002-271
Merit Behavioral Care Corporation and Supreme Court
Magellan HRSC, Inc.
On Appeal from
v. Washington Superior Court
State of Vermont Independent Panel of March Term, 2003
Mental Health Providers, Austen Riggs
Center and Jane Doe
Matthew I. Katz, J.
Craig Weatherly of Gravel and Shea, Burlington, for Plaintiff-Appellant.
William H. Sorrell, Attorney General, and Bridget C. Asay, Assistant
Attorney General, Montpelier, for Defendant-Appellee State of Vermont
Independent Panel of Mental Health Providers.
Robert D. Rachlin and David W. Gartenstein of Downs Rachlin Martin PLLC,
Burlington, for Defendant-Appellee Austen Riggs Center, Inc.
Robert E. Manchester of Manchester Law Offices, P.C., Burlington, for
Defendant-Appellee Jane Doe.
PRESENT: Amestoy, C.J., Dooley, Johnson and Skoglund, JJ., and Allen, C.J.
(Ret.), Specially Assigned
¶ 1. DOOLEY, J. Merit Behavioral Care Corporation, a review
agent that contracted with the State during the relevant time period to
provide mental health care benefits to state employees, appeals the
superior court's summary judgment order dismissing its complaint seeking to
overturn an independent panel's decision that Merit should have provided
coverage for state employee Jane Doe's mental health treatment at the
Austen Riggs Center. Merit contends that the superior court erred in
concluding that (1) Merit had a statutory obligation to provide prospective
or concurrent review of Jane Doe's treatment at Austen Riggs, and (2) Merit
had waived the right to deny medical coverage for Doe by failing to provide
the required concurrent or prospective review. Merit also argues that the
court erred in dismissing, without explanation, its breach-of-contract and
indemnity claims against Austen Riggs. We affirm the superior court's
grant of summary judgment to the State, but reverse the court's summary
judgment ruling in favor of Austen Riggs and remand the matter for the
court to consider, in the first instance, Merit's claims against Austen
Riggs.
¶ 2. The State contracted with Merit to provide mental health care
benefits to state employees under the State's medical benefit plan. By
providing these benefits, Merit functioned as a "review agent" under 8
V.S.A. § 4089a(b)(4), thereby subjecting itself to the statutory
requirements set forth in § 4089a. For its part, Merit contracted with
Austen Riggs, a mental health care facility, to be one of its mental health
care service providers under the State plan. Austen Riggs specialized in
the care of seriously ill, treatment-resistant patients. Under its
contract with Merit, Austen Riggs agreed not to seek compensation directly
from a covered member for covered services, and to "cooperate actively"
with Merit's case management procedures, quality assurance protocols, and
pre-certification and concurrent review procedures and policies. Austen
Riggs also agreed to indemnify Merit "from and against any losses and
expenses whatsoever arising from and to the extent attributable to any
errors or omissions" by it in the provision of services under the
agreement.
¶ 3. Jane Doe, a state employee covered under the State's plan,
was referred to Austen Riggs in April 1997 for treatment of a long-term
mental disorder. Doe was in the midst of a major depressive episode of the
illness, which had proven to be resistant to various attempts at treatment
over the years. After Doe's initial admission to Austen Riggs, a dispute
arose between Merit and Austen Riggs over Doe's treatment plan. The
conflict centered around inconsistencies between, on the one side, Austen
Riggs' policy of having patients stay a minimum of thirty days at its
Center once they were found to be appropriate candidates for treatment
there, and, on the other side, Merit's policy of requiring daily review to
ensure that continued residential mental health care services are medically
necessary.
¶ 4. Shortly after Doe was admitted to Austen Riggs, Merit's medical
director informed it that he could not conduct concurrent review of Doe's
treatment because Austen Riggs's treatment plan did not fit Merit's method
of managing in-patient treatment. The director noted that Austen Riggs did
not share Merit's assumptions that "each day needed to be reviewed and a
patient should be discharged or at least stepped down to a lesser level of
care as soon as clinically indicated." Merit claimed that it had been
misled about Austen Riggs' "willingness to work with our system of review
and length of stay for admitted patients," while Austen Riggs countered
that Merit knew of its policies, including its minimum-stay policy, when
Merit contracted with it to be one of Merit's mental health care providers.
In the end, Merit informed Austen Riggs that it would approve Doe's initial
six-day stay and consider her claim for further treatment after
retrospective review of her medical record.
¶ 5. Several days later, Merit informed Doe that it had authorized
payment for her initial stay at Austen Riggs, but that "[b]ecause of
differences between us and Austen Riggs regarding our standards for
utilization review, we have pended the remainder of your stay." The gist
of the letter was that Merit would determine the medical necessity of Doe's
treatment after her discharge. Austen Riggs also sent Doe a letter stating
that because Merit had declined its request "for further approval of
medical necessity," she would have to pay for treatment herself if she
decided to stay at Austen Riggs. She agreed to do so, and remained at
Austen Riggs for the next several months.
¶ 6. In December 1997, Doe sought reimbursement from Merit for her
treatment at Austen Riggs. Merit denied Doe's claim because the available
documentation did not support "the medical necessity of this level of
care." Doe filed an additional claim for reimbursement in March 1998,
which Merit also denied. Merit explained that the medical records
submitted by Austen Riggs indicated that Doe's treatment failed to meet
Merit's utilization management guidelines, and that there were no unique or
special circumstances to justify departure from those guidelines.
¶ 7. In April 1999, Doe appealed to the Independent Panel of Mental
Health Care Providers, a statutory body established to promptly consider
adverse decisions made by review agents. See 8 V.S.A. § 4089a(c)(7).
Following a hearing, the independent panel concluded that Doe's treatment
at Austen Riggs was medically necessary and therefore covered under the
State's plan. The panel found that Doe was in acute need of treatment
because of her complete dysfunction and recent suicide attempts. The panel
also found that long-term treatment at Austen Riggs was appropriate because
Doe had previously failed to benefit from other treatment modalities,
including short-term hospitalization, residential/day treatment, aggressive
medication therapy, cognitive-behavioral therapy, and electroconvulsive
treatment.
¶ 8. Merit sought review of the independent panel's decision in
the superior court pursuant to V.R.C.P. 75, and added breach-of-contract
and indemnity claims against Austen Riggs. The State, representing the
panel, moved to dismiss Merit's complaint, and Merit cross-moved for
judgment on the pleadings. The superior court denied the motions, but
later granted summary judgment to both the State and Austen Riggs on the
parties' cross-motions for summary judgment. The court concluded that as a
"review agent," Merit was obligated to engage in "service review," which
must be "prospective or concurrent with the [patient's] treatment." See 8
V.S.A. § 4089a(b)(4)-(5), (c)(5). Because the statute does not provide a
specific remedy for a review agent's failure to conduct a concurrent or
prospective review, the court analogized to insurance law. Drawing on
Reynolds v. John Hancock Life Ins. Co., 117 Vt. 541, 548, 97 A.2d 121, 126
(1953), the court concluded that Merit had a statutory duty to "speak" and
make a coverage decision prospectively or concurrently with Doe's
treatment. According to the court, by failing to make a decision, Merit
waived any objections to Doe's request for coverage. The court also
granted summary judgment to Austen Riggs without discussing Merit's
breach-of-contract and indemnity claims. This appeal followed the court's
denial of Merit's motion to alter the judgment.
¶ 9. We review a grant of summary judgment using the same standard
as the trial court. Richart v. Jackson, 171 Vt. 94, 97, 758 A.2d 319, 321
(2000). Summary judgment is appropriate when, taking all of the
allegations made by the nonmoving party as true, there are no genuine
issues of material fact, and the movant is entitled to judgment as a matter
of law. Id.; V.R.C.P. 56(c). The non-moving party is "entitled to the
benefit of all reasonable doubts and inferences in determining whether a
genuine issue of material fact exists," and the "facts bearing on the issue
must be clear, undisputed or unrefuted." Toys, Inc. v. F.M. Burlington
Co., 155 Vt. 44, 48, 582 A.2d 123, 125 (1990).
¶ 10. Merit first argues that the superior court erroneously
concluded that it had a statutory obligation to conduct service reviews
prospectively or concurrently. According to Merit, the statutory provision
mandating such review is not self-implementing, but rather requires the
Commissioner of the Vermont Department of Banking, Insurance, Securities
and Health Care Administration to promulgate a rule establishing this
requirement. Merit maintains that because the regulation adopted pursuant
to this provision does not reiterate the prospective-or-concurrent-review
requirement, such review is not required. We disagree.
¶ 11. The provisions governing "mental health care services review"
are set out statutorily. See 8 V.S.A. § 4089a. As a "review agent," Merit
must perform "service review" activities, which include "reviewing the
appropriate and efficient allocation of mental health care services" for
the purpose of recommending or determining whether such services should be
provided, reimbursed, or covered. See 8 V.S.A. § 4089a(b)(4)-(5). Under §
4089a(c), the Commissioner must adopt rules concerning specified statutory
obligations, one of which requires a review agent to communicate with a
patient's attending mental health professional before concluding that care
rendered or to be rendered is inappropriate. 8 V.S.A. § 4089a(c)(5). That
statutory provision explicitly states that "[t]he review shall be
prospective or concurrent with the treatment." Id.
¶ 12. The regulation adopted by the Commissioner with respect to
this provision requires a review agent to "communicate" with a patient's
attending mental health care provider before determining that the care
should be altered or is inappropriate, and that the review agent must
notify the provider of an adverse decision within two business days of
obtaining all of the information needed for the review. Regulation of
Mental Health Care Providers (Regulation 95-2) § 7B(1), (6), 2 Code of
Vermont Rules 21 020 045-4, 045-5 (2000). The regulation, however, does
not restate the concurrent-or-prospective-review requirement contained in §
4089a(c)(5), except with respect to emergency treatment. See id., § 7B(11)
(a review agent shall "provide appropriate access for concurrent or
prospective emergency care review during non-business hours if service
review is conducted on emergency care").
¶ 13. We are not convinced that the Commissioner failed to perform
her rule-making responsibilities under the statute, as Merit argues. The
statute requires that the rules provide that "a determination by a review
agent that care rendered or to be rendered is inappropriate shall not be
made until the review agent has communicated with the patient's attending
mental health professional concerning that medical care." 8 V.S.A. §
4089a(c)(5). The Commissioner adopted such a rule. The statute goes on to
say that the review provided by the review agent must be "prospective or
concurrent with the treatment." Id. The language is at least ambiguous as
to whether the Legislature intended that the regulations also specify the
nature of the review. Although it would have been preferable for the
Commissioner to have explicitly restated the statutory requirement, the
Commissioner apparently concluded that doing so was not a statutory
requirement, and we must defer to the Commissioner's construction of the
statute. See Rock v. Dep't of Taxes, 170 Vt. 1, 5, 742 A.2d 1211, 1215
(1999).
¶ 14. Whether or not the Legislature expected that the
prospective-or-concurrent-review requirement be part of the regulations, we
hold that § 4089a(c)(5) obligates review agents to conduct their mental
health coverage reviews consistent with this requirement. The obligation
to provide prospective or concurrent review is clear and unequivocal and
does not require further elaboration by rule. Merit correctly points out
that the prospective-or-concurrent-review requirement is stated within one
of ten paragraphs enumerating areas in which the statute requires the
Commissioner to establish rules. The nature of the requirements in those
ten paragraphs vary, however. Some require the exercise of discretion by
the Commissioner, and thus have to be fleshed out in administrative
regulations. See, e.g., 8 V.S.A. § 4089a(c)(2) ("A time period within
which any determination regarding the provision or reimbursement of mental
health services shall be made."); § 4089a(c)(4) ("The type, qualifications
and number of personnel required to perform service review activities.").
But others, like the prospective-or-concurrent-review requirement, are
quite specific and thus do not need any further elaboration by regulation.
The statute may not be artfully drafted, but it plainly requires
prospective or concurrent review of requests for mental health services
coverage, and does not need a regulation to implement that requirement.
¶ 15. Moreover, while the regulation adopted by the Commissioner
does not mirror the statutory language, we do not interpret its provisions
to conflict with the clear statutory mandate. See Delozier v. State, 160
Vt. 426, 434, 631 A.2d 228, 232 (1993) (administrative body's
interpretation of statutory provisions will be sustained on appeal absent
compelling indication of error). Even if a conflict did exist, the
regulation would not undermine the statutory requirement. See id. (to
extent administrative rule conflicts with statute, rule cannot be
sustained); see also Martin v. Dep't of Motor Vehicles, 2003 VT 14, 15,
819 A.2d 742 (administratively adopted regulations that compromise intent
of authorizing statute will not be upheld). Hence, we conclude that Merit
was obligated to perform its service review activities prospectively or
concurrently with Jane Doe's treatment.
¶ 16. Determining the appropriate remedy for Merit's failure to
meet its statutory obligation presents a more difficult question. The
superior court concluded that, because Merit failed to make a coverage
decision at the start of Jane Doe's hospitalization, it had "given up its
right to challenge the appropriateness of Austen Riggs' regimen of
treatment, and its obligation of payment therefor." The trial court found
Merit analogous to an insurer, and explained:
In the insurance context, our court has held that when there is a
duty to speak, "simple fairness requires that the company should
point out any defects in the proof of loss or claim therein if it
would rely on them." Reynolds v. John Hancock Life Ins. Co., 117
Vt. 541, 548 (1953), citing Tyrell v. Prudential Ins. Co., 109 Vt.
6, 18 (1938). In Reynolds, our court held that silence by the
insurer constituted a waiver of objections to coverage. Here,
there was a statutory duty on the part of [plaintiff] as a review
agent to speak - it is the duty to make its decision prospective
or concurrent with treatment. "Pending" a decision is not an
option. By having failed to make a decision, the review agent,
being in a position analogous to an insurer, waived its objections
to the request for coverage.
¶ 17. Merit argues that Reynolds provides an inadequate basis for
summary judgment because the undisputed evidence does not establish the
facts necessary for the rule stated therein to apply. Merit asserts that it
did not "fail" to make a coverage decision at the outset of Doe's
treatment; rather, in Merit's view, it was prevented from doing so by
Austen Riggs' refusal to cooperate with its established concurrent-review
process. Merit further maintains that it was not "silent" in the face of a
duty to speak; rather, it advised Austen Riggs and Jane Doe that it would
withhold its determination of medical necessity until it could review Doe's
treatment records.
¶ 18. We do not perceive any factual dispute preventing the
superior court from granting summary judgment in favor of the State based
on Merit's failure to provide the prospective or concurrent review required
by § 4089a(c)(5). Whether or not Merit voluntarily relinquished its
opportunity to review Jane Doe's treatment at Austen Riggs, it had no right
to exercise that opportunity by "pending" its coverage determination. As
the trial court held, placing Jane Doe's coverage determination in a file
marked "pending" was not a lawful option for Merit. We have already
concluded that § 4089a(c)(5) compels prospective or concurrent review.
Merit cannot override this statutory mandate by notifying the patient or
the medical provider of its intent, in effect, to violate the statute.
¶ 19. In discussing the appropriate remedy for Merit's statutory
violation, the parties compare the common law doctrines of waiver and
equitable estoppel. We have long recognized that waiver and equitable
estoppel, though they have different elements, are often used
interchangeably in insurance law. See Liberty Mut. Ins. Co. v. Cleveland,
127 Vt. 99, 102, 241 A.2d 60, 63 (1968); Beatty v. Employers' Liability
Assurance Corp., 106 Vt. 25, 31, 168 A. 919, 922 (1933). Regardless of
which doctrine is applied in this case, however, Jane Doe should not, and
cannot, be the one to assume the risks resulting from a statutory violation
that arose out of a dispute between the mental heath care review agent and
its own medical care provider. Whatever the outcome of that dispute, Doe
should not be denied coverage for treatment that was not reviewed as
prescribed by statute. Section 4089a(c)(5), which unequivocally requires
prospective or concurrent review of mental health care services, is
presumed to be incorporated into the contract between Merit and the State.
See 2 L. Russ, Couch on Insurance 3d § 19:1, at 2 (1997) ("Existing and
valid statutory provisions enter into and form a part of all contracts of
insurance to which they are applicable . . . ."). Merit was obligated to
abide by this statutory provision, and its failure to do so is sufficient
to support a finding of waiver. In essence, the violation of the statute
itself satisfies any requirement that Merit must have intended to waive its
right to deny coverage. See KPC Corp. v. The Book Press, Inc., 161 Vt.
145, 148, 636 A.2d 325, 327 (1993) ("A waiver is a voluntary relinquishment
of a known right."); cf. City of Burlington v. Hartford Steam Boiler, 190 F. Supp. 2d 663, 679 (D. Vt. 2002) (where evidence supporting waiver is
derived from insurance policy and correspondence between parties, issue "is
ripe for summary judgment").
¶ 20. Merit contends, however, that equitable estoppel, rather than
waiver, is the applicable principle in this case, and that estoppel cannot
support the superior court's summary judgment ruling in favor of the State
because there is an unresolved factual question as to whether Jane Doe
detrimentally relied upon her right to prospective or concurrent review.
Merit prefers an estoppel analysis because the doctrine's element of
detrimental reliance requires a showing of prejudice, and there is support
in Vermont case law for the proposition that an insurer is not estopped
from disclaiming coverage for violating a statutory notice provision unless
the insured can demonstrate prejudice. See Cleveland, 127 Vt. at 102-03,
241 A.2d at 63-64 ( insurer's failure to abide by statute requiring
confirmation of coverage with commissioner within fifteen days of notice of
accident did not estop insurer from disclaiming coverage, given that
insurer had timely notified parties and commissioner that accident was not
covered under policy); see also City of Burlington v. Arthur J. Gallagher &
Co., 944 F. Supp. 333, 338 (D. Vt. 1996) (denying summary judgment because
there was question of fact as to whether insured was prejudiced by
insurer's alleged failure to respond to claims and to affirm or deny
coverage within reasonable time, as required by Vermont's unfair trade acts
provision).
¶ 21. Nevertheless, Merit fares no better when estoppel is assumed
as the preferred approach in considering the appropriate remedy for the
statutory violation. Detrimental reliance and prejudice must be presumed
in these circumstances. The general statutory purposes for mental health
care services review are to promote the delivery of quality, cost-effective
mental health care; to enhance the effectiveness of clinical treatment; and
to protect the patients, employers, and mental health care providers by
ensuring that review agents are qualified to make informed decisions on the
appropriateness of mental health care. 8 V.S.A. § 4089a(a). The specific
provision in question was plainly intended to ensure that patients (and, to
a lesser extent, mental health care providers) receive prospective or
concurrent coverage decisions so that they can make fully informed choices
on how to proceed. Cf. 14 L. Russ, Couch on Insurance 3d § 198:39, at
198-70 (1999) ("The obligation to timely issue adequately informative
denials of coverage is generally intended to benefit the insured by means
of providing sufficient information to allow the insured to evaluate
alternatives and to do so at a time that is advantageous.").
¶ 22. Prejudice exists as a matter of law in this case because
Merit's refusal to abide by the statutory mandate compelled Jane Doe to
make a medical treatment decision without knowing whether coverage would be
forthcoming, and we cannot know what her decision might have been had Merit
made a timely decision to deny her claim. Cf. Carr v. Peerless Ins. Co.,
168 Vt. 465, 477, 724 A.2d 454, 461-62 (1998) (determining that appropriate
remedy for insurance financing company's violation of statutory
notice-of-cancellation provision is to declare cancellation ineffective,
without getting into "expensive, difficult and ultimately speculative
process of trying to determine what would have happened if the premium
finance company had complied with the law"). By the time Merit ultimately
denied Jane Doe's claim, it was too late for her to choose another
treatment or to seek expedient review of the denial - options she would
have had if Merit had complied with its statutory obligation. As the
independent panel concluded, if Merit decided that Austin Riggs' care was
inappropriate, "it follows that it was clinically indefensible for [Merit]
to fail to provide her with an alternative."
¶ 23. Merit's failure to abide by § 4089a(c)(5) placed Jane Doe in
the position of having to decide whether to pay for costly mental health
care services without knowing whether her insurer would eventually
reimburse her for the cost of those services - solely because the medical
care services review agent and one of its participating medical care
providers were engaged in a dispute over "standards for utilization
review." As the independent panel found, the decision "produced
considerable anxiety for" Doe. This is precisely the consequence that §
4089a(c)(5) was intended to avoid. Cf. Jipac, N.V. v. Silas, 174 Vt. 57,
64, 800 A.2d 1092, 1098 (2002) (allowing private remedy for statutory
violation where offending conduct was plainly within area of Legislature's
policy concern, such that denying remedy would seriously undermine intended
policy); State v. Gilman, 173 Vt. 110, 117, 787 A.2d 1238, 1244 (2001)
(exclusion of breath test was appropriate remedy for statutory violation
because "[n]oncompliance with statute produced exactly the situation the
Legislature sought to avoid"). It is particularly important that those
seeking mental health coverage are not placed in a position of uncertainty
with respect to coverage. Unfortunately, mental illness often affects a
patient's willingness to seek appropriate medical care to respond to the
mental illness. The financial risk of losing insurance coverage adds
another barrier to the pursuit of appropriate care.
¶ 24. Thus, the instant situation is qualitatively different from
those presented in the cases cited by Merit. Here, as the result of
Merit's actions, Jane Doe was deprived of the benefit the statute was
intended to confer. In contrast, in Cleveland, 127 Vt. at 103, 241 A.2d at
64, although there was a technical violation of a statutory notice
provision, none of the parties involved in the dispute were affected by the
violation because the insurer had already sent notices to them disclaiming
coverage. The other case relied upon by Merit also centered around
allegedly tortious after-the-fact claim-processing conduct. See City of
Burlington, 944 F. Supp. at 338. There, the insured asserted that the
claim-processing agent had engaged in an unfair insurance trade practice by
not investigating and then affirming or denying coverage within a
"reasonable amount of time," in violation of 8 V.S.A. § 4724(9)(B), (E).
The court denied summary judgment because this assertion necessarily raised
a factual question as to what amount of time was reasonable under the
circumstances, which, in turn, depended to some degree on whether the
insured had been prejudiced in any way. Neither case governs the situation
here, where, as explained above, there was prejudice as a matter of law.
¶ 25. Generally, "where an insurer fails to provide a timely
disclaimer of liability, the insurer is estopped to deny liability." 14 L.
Russ, supra, § 198:58, at 198-98. Further, when a statute imposes a duty
to disclaim coverage, and does not require a showing of prejudice, no such
showing is required, unless the insurer is claiming that the terms of the
policy are not applicable - in other words, in situations where the statute
does not apply because the insurer has no duty to disclaim coverage. Id.
§§ 198:59, 198:60, at 198-100-01, 198-103. For example, the New York Court
of Appeals has determined, both in the context of no-fault and liability
coverage, that an insurer's failure to disclaim coverage within an explicit
statutory time frame precludes the insurer from later disclaiming coverage.
See Presbyterian Hosp. v. Md. Cas. Co., 683 N.E.2d 1, 4-5 (N.Y. 1997). The
court concluded that the preclusion remedy, though not explicitly provided
in the statute, was necessary to prevent frustration of the purposes of the
statute, which were to avoid prejudice and risk to the insured resulting
from unnecessarily delayed payments or disclaimers of liability. Id. at
5-7 ("Insurers simply have no precedential or statutory recourse to sit on
their many procedural rights and requirements and then belatedly deny
claims they should have acted upon earlier."); cf. Jipac, 174 Vt. at 64,
800 A.2d at 1098 (while statute does not explicitly provide private remedy
for particular Act 250 violation, Legislature clearly established direct
connection between violation and unenforcability-of-contract remedy).
¶ 26. The situation here, to an even greater degree, calls for a
similar remedy. The statutory administrative penalties that the
Commissioner may impose under 8 V.S.A. § 4087 (fines not to exceed $750 for
each violation and revocation of licenses for willful violations) are not
specified as exclusive and are not directly responsive to the violation in
this case. The only way to assure the effectiveness of § 4089a(c)(5) is to
preclude insurers from disclaiming mental health medical care coverage in
untimely and unauthorized retrospective decisions.
¶ 27. We are not persuaded by Merit's argument, accepted by the
dissent, that Regulation 95-2 prevented it from acting at the time Jane Doe
entered care, or shortly thereafter. In relevant part, the regulation
requires the review agent to "communicate" with the provider before
determining that the care is inappropriate, and to notify the provider of
any adverse decision after obtaining all of the information needed for the
review. Merit did communicate with Austen Riggs, and Austen Riggs informed
Merit of its determination that Jane Doe was an appropriate candidate for
treatment at the Center, which required a thirty-day minimum stay. We
cannot agree with Merit that the regulation prevented Merit from acting on
the information it had available and making a decision to deny or grant
coverage of Jane Doe's treatment there. If Merit was not convinced that
the provider had made a sufficient showing of medical necessity, Merit
could have denied coverage, and Jane Doe would have had the opportunity to
challenge that decision and obtain prompt review before the independent
panel.
¶ 28. To the extent that Merit considered the information provided
by Austen Riggs deficient for an effective review, its dispute was with
Austen Riggs, not Jane Doe. Any problems Merit had with Austen Riggs'
approach to long-term care should not have been resolved by putting Jane
Doe in the position of not knowing whether she was going to obtain coverage
for her treatment. As noted, the patient should not have to suffer the
consequences of a statutory violation resulting from a dispute between the
mental health services review agent and one of its providers.
¶ 29. We are also unpersuaded by the dissent's assertion that
material issues of fact prevent summary judgment. The dissent has confused
the requirement of communication contained in Regulation 95-2 with its view
of the inadequacy of that communication. Merit knew that Austen Riggs did
not intend to provide daily reviews of the appropriate level of care for
Doe, and ultimately denied coverage on the grounds that Austen Riggs'
failure to do so violated the "review criteria and standards" and
"procedures and methods" established by Merit. See 8 V.S.A § 4089a(c)(1).
(FN1) Under the dissent's analysis, the review agent could continue to
ask questions and never make a concurrent review because it did not like
the answers it received. Such a procedure would protect the review agent,
but not Doe or others in her position, as the dissent claims.
¶ 30. Moreover, we find unavailing the dissent's claim that Doe
should have appealed Merit's notice of its intent to delay its coverage
decision - a claim never made by Merit. We doubt that the delay in
rendering a decision was itself an "adverse decision," as described in 8
V.S.A. § 4089a(c)(7). In any event, the record before us demonstrates the
inadequacy of such a remedy in response to a review agent's failure to
render a timely, substantive decision. The period of care in dispute
extended seven months until the end of November 1997. Doe sought
reimbursement for the care in December 1997, and again in March 1998.
Merit did not complete its internal review and reach its final decision
until the end of January 1999. The independent panel did not render its
decision until November 19, 1999, almost two years after completion of the
mental health services in dispute. Although the statute describes the
panel's review as a "prompt reconsideration," id., it cannot be
characterized as a prompt remedy for improper delay in rendering a
decision.
¶ 31. Finally, we turn briefly to Merit's claims against Austen
Riggs. In count two of its amended complaint, Merit sought a declaratory
judgment that Austen Riggs was liable to Jane Doe for her treatment costs
because Austen Riggs violated its contract with Merit by charging Doe
directly and refusing to cooperate in Merit's utilization review process.
In count three, Merit asserted, alternatively, that Austen Riggs was liable
to Merit under the indemnification provisions of its contract for all
benefits paid to Doe as a result of Austen Riggs' breach of the contract.
The superior court did not address these claims and did not provide any
basis for its grant of summary judgment in favor of Austen Riggs. Because
there may be material facts in dispute concerning these claims, we reverse
the court's entry of judgment in favor of Austen Riggs, and remand the case
for the court to consider, in the first instance, counts two and three of
Merit's complaint.
The superior court's grant of summary judgment in favor of the State
in its May 22, 2001 decision is affirmed; the court's grant of summary
judgment in favor of the Austen Riggs Center is reversed, and the matter is
remanded for further proceedings consistent with this opinion.
FOR THE COURT:
_______________________________________
Associate Justice
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Dissenting
¶ 32. ALLEN, C.J. (Ret.), Specially Assigned, dissenting in part
and concurring in part. Because I believe there is a dispute of fact as to
whether Merit Behavioral Care Corporation had sufficient information to
determine the medical necessity of Jane Doe's treatment concurrent with her
stay at the Austen Riggs Center, I dissent.
¶ 33. As a review agent, Merit is charged with "reviewing the
appropriate and efficient allocation of mental health care services" for
the purpose of recommending or determining whether such services should be
provided, reimbursed, or covered. See 8 V.S.A. § 4089a(b)(4)-(5).
Pursuant to 8 V.S.A. § 4089a(c)(5), Merit cannot make a determination "that
care rendered or to be rendered is inappropriate" until it "has
communicated with the patient's attending mental health professional
concerning that medical care." Regulation 95-2 implements this statutory
requirement. See Regulation of Mental Health Care Providers (Regulation
95-2) § 7B(1), 2 Code of Vermont Rules 21 020 045-5 (2000) (A review agent
must "communicate with the client's/patient's attending mental health care
provider about mental health care and any relevant medical care provided or
to be provided, before the review agent determines that the care should be
altered or is inappropriate."). In making a coverage determination, a
review agent is guided by written standards and criteria but it must
"consider any unique or special circumstances of a client/patient before
determining requested care is inappropriate." Id. § 7B(7)-(8). After a
review agent has obtained "all information needed for the review[,]" it
must notify a provider of an adverse decision within two business days.
Id. § 7B(6).
¶ 34. In this case, the record shows that Merit informed Austen
Riggs shortly after Doe's admission that it could not conduct a concurrent
review of Doe's treatment because Austen Riggs' treatment plan did not fit
Merit's method of managing in-patient treatment. Merit asserted that it
could not conduct a concurrent review in its usual manner because Austen
Riggs did not share its assumptions that "each day needed to be reviewed
and a patient should be discharged or at least stepped down to a lesser
level of care as soon as clinically indicated." Consequently, Merit
informed Austen Riggs and Doe that it would approve Doe's initial six-day
stay and consider her claim for remaining treatment costs after
retrospective review of her medical record.
¶ 35. Based on these facts, Merit argues on appeal that it was
prevented from making a coverage determination concurrent with Doe's stay
at Austen Riggs because Austen Riggs refused to provide it with the
information necessary to conduct a proper service review. Merit asserts
that it would have violated Regulation 95-2 if, in the face of Austen
Riggs' refusal to communicate about Doe's treatment, it had nonetheless
advised Austen Riggs and Doe that the proposed treatment was inappropriate.
¶ 36. The majority rejects this assertion and concludes that
summary judgment was appropriately granted for the State. See ante, at
27. While acknowledging that a review agent must "communicate" with a
treatment provider and make its decision only after it has obtained "all of
the information needed for the review," the majority nonetheless concludes
that Merit should have made its determination based on "the information
that it had available." See id. According to the majority, Austen Riggs'
acceptance of Doe as a patient and its requirement that she stay for a
minimum of thirty days provided a sufficient basis to deny Doe's claim for
coverage as medically unnecessary. See id. The majority suggests that if
Merit considered this information insufficient, it should have nonetheless
denied Doe's request for coverage and allowed her to challenge this
decision before the Independent Panel of Mental Health Care Providers, a
body that considers adverse decisions made by review agents. In this way,
the majority asserts, it is protecting Doe from "suffer[ing] the
consequences of a statutory violation resulting from a dispute between the
mental health services review agent and one of its providers." See ante,
at 28.
¶ 37. The approach endorsed by the majority undermines the goals of
the mental health services statute and ignores the statutory and regulatory
requirements imposed on Merit as a review agent. See 8 V.S.A. § 4089a(a),
(c)(5); Regulation of Mental Health Care Providers (Regulation 95-2) §
7B(1), (6)-(8), 2 Code of Vermont Rules 21 020 045-5 (2000). Instead of
protecting Doe and others like her, the Court's decision provides review
agents with an incentive to deny requests for coverage whenever they lack
sufficient information to make a coverage determination. This contravenes
the requirements set forth in 8 V.S.A. § 4089a(c)(5) and Regulation 95-2
and it conflicts with the Legislature's goal of fostering the practice of
mental health services review as a "professional collaborative process"
designed to enhance the effectiveness of clinical treatment. See 8 V.S.A.
§ 4089a(a)(2).
¶ 38. It is important to note that Merit's decision to "pend" its
coverage determination was an adverse decision that Doe, Austen Riggs, or
someone acting on Doe's behalf with her consent, could have immediately
challenged through Merit's internal appeal process and through an appeal to
the independent panel. See Regulation of Mental Health Care Providers
(Regulation 95-2) §§ 3(A)1; 12-13, 2 Code of Vermont Rules 21 020 045-5, 21
020 045-8 (2000); 8 V.S.A. § 4089a(c)(7). An adverse decision is "a
decision by a review agent not to certify or authorize payment for an
admission, service, procedure or extended stay as requested by the
client/patient, provider or representative of the client/patient."
Regulation of Mental Health Care Providers (Regulation 95-2) § 3(A)1, 2
Code of Vermont Rules 21 020 045-5 (2000). In this case, Merit did not
authorize payment for Doe's treatment concurrent with her stay at Austen
Riggs, despite Austen Riggs' request that it do so. Had this decision been
challenged, Doe would have known whether her treatment would be covered
concurrent with her stay at Austen Riggs. This would have assured the
effectiveness of 8 V.S.A. § 4089a(c)(5) and allowed the parties to avoid
the predicament that concerns the majority. See ante, at 26.
¶ 39. The majority finds it "doubtful" that Merit's decision to pend
coverage was an adverse decision within the meaning of 8 V.S.A. §
4089a(c)(7), and asserts that the record nonetheless demonstrates the
"inadequacy of such a remedy in response to a review agent's failure to
render a timely, substantive decision." See ante, at 30. I disagree.
Austen Riggs justified its decision to demand payment directly from Doe on
the adverse nature of Merit's decision to pend coverage. In its April 1997
letter to Doe asking her to pay for her own treatment, Austen Riggs
asserted that "[a]lthough we requested further approval of medical
necessity, [Merit] declined." Thus, it appears that, in Austen Riggs' view
at least, Merit's decision to pend coverage constituted an adverse decision
within the meaning of Regulation 95-2. At this juncture, Austen Riggs
could have appealed Merit's decision rather than asking Doe to pay for her
own treatment.
¶ 40. The majority does not explain why Merit should be punished
for the amount of time that it took Doe to receive a final decision on her
claim, particularly if one credits Merit's argument that it lacked
sufficient information to make a coverage determination concurrent with
Doe's treatment. The record shows that in December 1997, Austen Riggs
requested that Merit approve coverage for the costs of Doe's care. Merit
rejected Austen Riggs' request in January 1998, asserting that Austen Riggs
had already been paid by Doe, and Austen Riggs was an improper party to
submit a claim. Doe and her family then submitted a claim, which Merit
denied in March 1998 after concluding that the "available documentation
does not support the medical necessity of this level of care." Merit
conducted an internal appeal of its decision at Doe's request, and affirmed
its denial of her claim in January 1999. In April 1999, Doe appealed to
the independent panel, which conducted a hearing and issued its decision in
November 1999.
¶ 41. The record shows that Merit acted in a timely fashion once
Doe's request for reimbursement was filed. That it took the independent
panel seven months to decide Doe's appeal should not be held against Merit.
In any event, the majority does not explain how this delay demonstrates the
inadequacy of a remedy that would allow Doe or Austen Riggs to challenge
Merit's initial decision to pend coverage. An earlier appeal could have
obviated much of the delay altogether.
¶ 42. I disagree with the majority that the undisputed facts
establish that Merit ultimately denied Doe's claim on the same basis that
it decided to pend coverage. See ante, at 29. In its May 1997 letter to
Doe, Merit stated,
[b]ecause of differences between us and Austen Riggs regarding our
standards for utilization review, we have pended the remainder of
your stay. We shall not be performing concurrent utilization
review; however, following your discharge from their system of
care, we shall review your medical record and determine insurance
coverage following that review.
Merit ultimately denied Doe's claim for reimbursement in March 1998 after
reviewing the medical information that she provided and concluding that the
"available documentation does not support the medical necessity of this
level of care."
¶ 43. As part of Merit's internal appeal process, two outside
doctors reviewed Doe's claim and both recommended that coverage be denied.
The internal appeals focused on Austen Riggs' failure to establish
compliance with requirements necessary to establish the medical necessity
of inpatient care. These requirements, as identified by Merit in a March
1998 letter to Doe, included the following: (1) a patient must be seen and
evaluated by a physician within twenty-four hours of admission and seen
daily thereafter; (2) there must be a thoroughly documented treatment
record; (3) active discharge planning must be initiated at the time of
admission; and (4) daily assessments and active interventions must be
completed by nurses, therapists, and physicians based upon the
comprehensive treatment plan.
¶ 44. The first outside doctor recommended denial based on the
absence of daily psychiatric follow-up. The second outside doctor, Dr.
Susan Legacy, concluded that based on the available documentation, Austen
Riggs' treatment of Doe did not meet the necessary requirements for acute
treatment, nor did it satisfy requirements for long-term residential
treatment. Specifically, Dr. Legacy found no evidence that the following
requirements had been met: evaluation by a physician within twenty-four
hours of admission; daily documented contact with a physician thereafter,
and documentation of contact with staff for therapy, groups, etc., which
included daily assessments and active interventions by staff; and
initiation of active discharge planning near the time of admission. Dr.
Legacy also expressed concern with Austen Riggs' general approach to
treating Doe, explaining that Austen Riggs did not attempt to prevent Doe
from becoming "hospital-dependent," nor did it address the regression that
frequently accompanies such dependency. For these reasons, Dr. Legacy
concluded that Doe's treatment between April and November 1997 did not meet
"criteria for acute treatment at any level of treatment." Based on the
absence of evidence that Austen Riggs had created a treatment program that
would allow Doe to eventually progress to community-based treatment, Dr.
Legacy did not find sufficient documentation to support authorization of
Doe's treatment at Austen Riggs as long-term non-acute residential
treatment.
¶ 45. The record indicates that Austen Riggs challenged Merit's
assessment that its treatment of Doe failed to comply with Merit's
guidelines. In a February 1999 letter to Merit, Austen Riggs asserted that
Merit should reverse its coverage decision because it had complied with
Merit's requirements for inpatient care, including the requirement that Doe
be seen daily by a physician. Austen Riggs identified, and sought to
rebut, the following additional reasons underlying Merit's denial of Doe's
claim: it had not provided Doe with an individualized treatment plan; its
treatment had not been delivered by qualified licensed professionals; and
Doe had not received treatment in the most appropriate manner as provided
by Merit's review criteria.
¶ 46. Thus, while the record reflects that Merit's review of Doe's
claim for reimbursement focused on the application of Merit's utilization
review criteria, the undisputed facts do not support the majority's
assertion that Merit ultimately denied Doe's claim based solely on
information that it possessed at the outset of Doe's treatment. Indeed, it
seems unlikely that Merit could legitimately base a "medical necessity"
decision on the undisputed facts identified by the majority - Austen Riggs'
acceptance of Doe as a patient and its requirement that she stay for at
least thirty days. Among other factors, Merit must consider the unique or
special circumstances of a client before determining that requested care is
inappropriate. Thus, notwithstanding the fact that the treatment program
provided by Austen Riggs was apparently inconsistent with Merit's standards
for utilization review, Merit could not deny Doe's claim on this basis
consistent with Regulation 95-2. In any event, I believe that it is for
the factfinder, not this Court, to determine whether Merit possessed all of
the information necessary to conduct a service review and make a coverage
determination concurrent with Doe's stay at Austen Riggs. Therefore, I
would reverse and remand the trial court's grant of summary judgment for
the State for a determination of whether Merit had sufficient information
to determine medical necessity.
¶ 47. I agree with the majority that the trial court erred in
granting summary judgment for Austen Riggs and concur in that portion of
the majority opinion. I am authorized to state that Justice Skoglund joins
this dissent.
________________________________________
Chief Justice (Ret.), Specially Assigned
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Footnotes
FN1. The dissent disagrees with our statement that Merit ultimately denied
coverage on the same grounds that it initially elected to pend its
decision. As the dissent states, Merit's medical director informed Doe in
May 1997 that Merit was pending its coverage decision because of
differences between Merit and Austen Riggs "regarding standards for
utilization review." The meaning of this phrase is revealed in an April
30, 1997 letter from Merit's medical director to Austen Riggs' medical
director, in which Merit explains that it could not do concurrent review of
Doe's request because Austen Riggs "did not share our assumptions that each
day needed to be reviewed and a patient should be discharged or at least
stepped down to a lesser level of care as soon as clinically indicated."
Merit's medical director states the same reasoning in a December 19, 1997
memorandum recommending no payment beyond the initial authorization period
because "[t]here is no data that [Doe] received daily physician
(psychiatric) review." Accordingly, in a March 30, 1998 letter, Merit's
medical director informed Doe that her claim was being denied because
Austen Riggs had failed to meet certain requirements established by Merit,
including that patients be seen and evaluated on a daily basis by
physicians. Moreover, the primary reason for the continued denial of Doe's
claim provided by Merit's regional executive director and two other doctors
hired by Merit during its internal review was that Doe had not been seen
and evaluated on a daily basis by a physician. In short, the record before
us demonstrates that Merit ultimately denied Doe coverage for essentially
the same reason that it initially elected to pend its decision.
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