Title: Merit Behavioral Care Corp. v. State of VT Independent Panel of Mental Health Providers

State: vermont

Issuer: Vermont Supreme Court

Document:

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,