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February 2010

Arce v. Kaiser Foundation Health Plan, Inc. ? Class Action Under UCL Against Health Care Provider's Categorical Denial of Coverage Sufficient

Plaintiff's Class Action Suit Made Sufficient Showing To State Cause Of Action Under The UCL Against Health Care Provider Allegedly Denying Coverage For Specific Categories of Therapies

(January 27, 2010) ___Cal.App.4th___; 10 C.D.O.S 1131

The Second Appellate District of the California Court of Appeal held the trial court erred by sustaining demurrer without leave to amend in a class action suit under the Unfair Competition Law ("UCL") (Bus. & Prof. Code § 17200 et seq.) alleging a health care provider denied coverage for certain behavioral and speech therapies.  The trial court's ruling, based on the doctrine of judicial abstention and the lack of commonality among class members, was reversed.  The appellate court held the complaint made a sufficient showing to state a cause of action under the UCL because 1) there was a reasonable possibility the plaintiff could establish the requisite community of interest for a class action suit; and 2) judicial abstention did not apply because resolution of the UCL claim would only require contractual and statutory interpretation.

Plaintiff-Appellant ("Arce"), a minor, had been a member of a health care service plan provided by Kaiser Foundation Health Plan, Inc., The Permanente Medical Group, Inc., and Southern California Permanente Medical Group, Inc. (collectively "Kaiser").  Kaiser's health care coverage excluded coverage for "custodial care," which was defined as "care that can be performed safely and effectively by people, who in order to provide the care, do not require medical licenses or certificates or the presence of a supervising licensed nurse."

When Arce's father requested a particular behavioral therapy called "Applied Behavior Analysis" ("ABA"), Kaiser denied coverage and informed Arce because ABA was a type of therapy that could be performed by a non-licensed individual, it fell within the "custodial care" exclusion.  As a result, Arce, through his guardian ad litem, filed a class action suit against Kaiser for violation of the UCL (which prohibits "unfair competition," including "any unlawful, unfair or fraudulent business act or practice") on behalf of himself and a proposed class consisting of all California residents who were Kaiser members who were denied coverage for similar therapies for an autism disorder and on similar grounds.

Kaiser demurred and the trial court sustained the demurrer without leave to amend on the grounds that: 1) Arce could not establish the requisite community of interest for a class action suit, and 2) the trial court declined to adjudicate the claim under the doctrine of judicial abstention because it would be required to make individualized determinations of "medical necessity."  Arce appealed.

On de novo review, the appellate court disagreed with the trial court's holding commonality of class was not established.  To survive a demurrer, all that is required for a party seeking class certification is the complaint have a sufficient showing there is a reasonable possibility plaintiffs can establish a prima facie community of interest among class members.  The appellate court held Arce's complaint satisfied this showing and would not require the trial court to make any individualized determinations of each class member because the complaint, on its face, alleged an across-the-board determination that specific categories of therapies were contractually excluded from coverage, not on any case-by-case determination of whether the therapies were medically necessary for each health plan member.

The appellate court further found there were two legal issues common to all class members: 1) whether Kaiser's health plan contract excluded coverage of certain therapies for autism disorders on the grounds the therapies were "custodial care," and 2) if these therapies were contractually excluded from Kaiser's health plan contract, whether the Mental Health Parity Act would allow Kaiser to categorically apply such exclusions on the basis the therapies are provided by non-licensed persons.

The appellate court found the trial court would be able to resolve the first legal issue through contractual interpretation, by deciding whether the therapies were "health care services" as defined in the contract and, if so, whether they were subject to the "custodial care" exclusion.  If the trial court were to find that ABA and similar therapies were covered under the terms of the health care contract, then Kaiser's alleged categorical denial of coverage of these therapies could constitute a breach of contract, which, if also shown to be a systematic breach, is sufficient to state a class action claim under the UCL.

In addition, the appellate court concluded Arce's complaint was sufficient to state a class action claim for violation of the UCL if Kaiser's alleged categorical denial of coverage was found to be unlawful under the Mental Health Parity Act ("MHPA").  The MHPA, codified in California's Health and Safety Code § 1374.72, obligates health plans to provide coverage for the diagnosis and treatment of mental illnesses, which specifically includes autism.  The appellate court noted the trial court would only be required to conduct a statutory interpretation of the MHPA to decide whether ABA and similar therapies would constitute "health care services" under the meaning of the statute.  Because both legal issues were common to the class and sufficient to state a claim under the UCL, the appellate court concluded Arce had shown a reasonable possibility he could establish the requisite community of interest for a class action suit.

Finally, the appellate court used an abuse of discretion standard to review the trial court's grounds for sustaining the demurrer on the basis of doctrine of judicial abstention.  Under the doctrine, a trial court may abstain from adjudicating a suit that seeks equitable remedies if granting the relief would require a trial court to assume or interfere with the functions of an administrative agency.  The trial court reasoned the injunctive relief sought by Arce would require the court to take over the function of determining what treatments were "medically necessary," which would interfere with or assume the functions of the legislature or DMHC.  The appellate court disagreed and held the trial court had abused its discretion because it would only be engaged in the "basic judicial functions" of contractual and statutory interpretations.

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This opinion is not final. It may be withdrawn from publication, modified on rehearing, or review may be granted by the California Supreme Court. These events would render the opinion unavailable for use as legal authority.

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