Ninth Circuit Affirms Denial of ERISA Medical Benefits for Residential Mental Health Treatment Under “Medical Necessity” Guidelines.

In R.R.; E. R. v. California Physicians’ Service, d/b/a Blue Shield of California, No. 24-6337, 2026 WL 207507 (9th Cir. Jan. 27, 2026), Plaintiffs-Appellants R.R. and his son E.R. sued California Physicians’ Service d/b/a Blue Shield of California (“Blue Shield”) under ERISA § 502(a)(1)(B) seeking payment of benefits for E.R.’s residential mental health treatment at Innercept, a residential treatment facility. Blue Shield denied the claim, finding that the residential stay was not “medically necessary” under the plan. The district court granted summary judgment in favor of Blue Shield, and Plaintiffs appealed. The Ninth Circuit affirmed in an unpublished memorandum disposition.

As a threshold matter, the Ninth Circuit held that abuse-of-discretion review applied because the plan granted Blue Shield discretionary authority to interpret plan terms and determine eligibility for benefits. The court also recognized that Blue Shield operated under a structural conflict of interest because it both evaluated claims and paid benefits. However, the court gave the conflict little weight because Plaintiffs did not present evidence showing that the conflict affected the decision, and Blue Shield retained an independent physician reviewer during the administrative appeal process.

Turning to the merits, the Ninth Circuit held that Blue Shield did not abuse its discretion in determining that E.R.’s residential treatment was not medically necessary. Blue Shield relied on the Magellan Care Guidelines, which provide that residential treatment for adolescents is medically necessary only if the patient meets one of three criteria: (1) danger to self, (2) danger to others, or (3) moderately severe psychiatric or behavioral conditions resulting in serious dysfunction in daily living. Reviewing the administrative record, the Ninth Circuit concluded that Blue Shield reasonably determined that E.R. did not meet these criteria at the time of admission or during the course of treatment. The court emphasized that Blue Shield’s decision was supported by the contemporaneous Innercept records and the independent reviewing physician’s conclusions.

The Ninth Circuit rejected Plaintiffs’ arguments that Blue Shield acted unreasonably by relying on Innercept’s records (which Plaintiffs argued were unreliable because they relied in part on E.R.’s self-reporting), failing to credit later-submitted letters and statements from E.R.’s treating providers and parents, and allegedly violating ERISA’s “full and fair review” requirements. The court further held that Blue Shield did not rely on an improper post hoc rationale, because it consistently grounded its denial in the lack of medical necessity under the plan’s guidelines.

Judge Paez dissented. He would have held that Blue Shield abused its discretion, arguing that the majority failed to apply meaningful skepticism to Blue Shield’s conflict of interest and that Blue Shield did not meaningfully engage with evidence supporting residential treatment, including evidence that lower levels of care were ineffective.