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United Behavioral Health (UBH) is facing a major legal setback as a California federal judge has ruled that a proposed class action lawsuit—challenging its denial of residential mental health treatment coverage—can move forward. The case, now widely referred to as the UBH Residential Treatment Coverage Lawsuit, centers on allegations that the insurer used overly restrictive guidelines and bundled billing practices to wrongfully deny insurance claims.

On Monday, U.S. District Judge Richard Seeborg rejected UBH’s motion to dismiss the Employee Retirement Income Security Act (ERISA) case brought by Barbara Beach and five anonymous plan beneficiaries. The plaintiffs claim that UBH bundled reimbursement requests in a way that obscured valid claims for lower-level care, resulting in widespread denials for medically necessary residential treatment.

According to the lawsuit, which was filed in November 2021, the denials were based on internal UBH guidelines that were significantly more restrictive than the generally accepted standards of care for mental health and substance use disorder treatment. Plaintiffs argue these practices were both arbitrary and capricious.

“These aspects of the complaint plausibly allege that UBH used an arbitrary and capricious standard to deny plaintiffs’ claims,” Judge Seeborg wrote. He emphasized that the plaintiffs’ claims must be taken as true at this stage and noted that UBH failed to fully disclose all reasons for denial in its communication with plan members, as required by law.

Beach and other plan participants say they were forced to either pay out of pocket or end treatment prematurely due to UBH’s refusal to cover the costs. In one tragic case, Beach had to withdraw her daughter from residential treatment for major depressive disorder and related conditions. A year later, her daughter attempted suicide.

The lawsuit draws comparisons to the earlier Wit v. United Behavioral Health case, which also challenged UBH’s internal coverage criteria. However, Judge Seeborg clarified that the class definitions and records in the two cases differ, allowing the current case to proceed independently.

Whether the plaintiffs can ultimately secure a reprocessing of denied claims remains to be seen. “Presently, however, plaintiffs need not demonstrate such entitlement,” Seeborg stated.

The plaintiffs are represented by Caroline E. Reynolds, D. Brian Hufford, Jason S. Cowart, Samantha Gerencir, and M. Moore of Zuckerman Spaeder LLP, along with Meriam Bendat of Psych-Appeal Inc. UBH is represented by Jennifer S. Romano, Andrew Holmer, Jazmine Buckley, and Marlee Santos of Crowell & Moring LLP.

The case is Beach et al. v. United Behavioral Health, Case No. 3:21-cv-08612, in the U.S. District Court for the Northern District of California.