Healthcare insurers are used to dealing with claims for reimbursement by hospitals, providers, and patients. Medical marijuana treatment provides another vehicle for such claims.
New Mexico passed the Behavioral Health Services Equity Act (BHSEA) last April, effective January of 2022, which mandates that health insurance must cover in full the cost of services or medication used to treat behavioral health services. In February, New Mexico Top Organics – Ultra Health sent a letter to several insurers and the Office of the Superintendent of Insurance seeking affirmation that the insurers will provide coverage as prescribed by the act for the 74,000+ patients currently enrolled in the medical marijuana program as a result of PTSD. The request was denied. Now, several New Mexico health insurance companies are defending against a class action lawsuit filed by New Mexico Top Organics – Ultra Health, and six medical marijuana patients, seeking “recovery for themselves, and for every other similarly situated behavioral or mental health patient unlawfully subjected to paying for the entire cost of medically necessary cannabis in violation of state law” for failing to pay for the cost of medical marijuana as provided under the act.
Other legislatures are discussing similar laws that provide for insurance coverage of medical marijuana programs. For example, New York has pending legislation that if passed, would define medical marijuana as a “prescription drug,” “covered drug,” or “health care service” that would qualify for coverage under public programs. The United States Supreme Court recently deniedcertiorari for a pair of cases concerning workers’ compensation for medical marijuana, an issue that has not been decided uniformly amongst the states. For example, Minnesota and Maine have determined that the Federal Controlled Substance Act preempts the state law requiring reimbursement for medical marijuana due to a work-related injury, while New Hampshire and New Jersey have ruled in favor of reimbursement regardless of federal preemption.
The passage of New Mexico’s Act mandating behavioral health coverage in full and subsequent lawsuit brings a new wrinkle into cannabis litigation, with broad implications across the healthcare industry. Indeed, early clinical reports and case studies have shown positive results from the use of medical marijuana to treat PTSD, a disorder that effects an estimated 12 million Americans, and with medical marijuana available in 37 states, the class action lawsuit seeking reimbursement under the BHSEA may serve as a preview of a type of cannabis-related litigation that may be brought against healthcare insurers.
As a commercial litigator who has handled a broad range of claims in highly regulated industries over the past 20 years — particularly in complex matters such as class actions involving claims brought by consumers and shareholders — and given my experience spearheading the development of Duane Morris’ cannabis industry group, which has included providing regulatory and business advice to a number of businesses and individuals with cannabis-related interests, I have been expecting the maturing cannabis industry to eventually mirror other industries when it comes to using commercial litigation to resolve disputes between businesses and to address claims of injury allegedly experienced by aggreived consumers and shareholders. It appears the time has come. Now, as opposed to even just a few months ago, not a day goes by when the daily legal news outlets that report on litigation matters filed in federal and state courts around the country do not include matters pertaining to adult use marijuana, medical marijuana, and/or hemp.
Today alone, legal news outlets are reporting about a shareholder deriviative action being filed against the manufacturer of cannabinoid-containing transdermal patches, a maker of mobile hemp dryers suing a distributor for alledgedly stealing trade secrets, a publicly-traded company that owns cannabis brands being sued for breach of contract by an MSO arising out of a failed merger agreement. Claims like these are among the many product liability, stock-drop and securities fraud, tradmark infringement, FLSA, and employment litigation matters to be filed in 2020 relating to cannabis; not to mention the federal and state regulatory cannabis-related enforcement actions also commenced. Just as in other industries, COVID-19 is likely to spur litigation in the space because of strains on resources and performance caused by business disruptions and the slower economy. To be sure, the plaintiffs’ bar has cannabis on its radar.
Thus, now more than ever, it is critically important for cannabis businesses to implement the necessary compliance measures, including making sure appropriate insurance coverage, e.g. premises, products, and D&O, has been obtained, that could protect their businesses from the cost and disruption of commercial litigation. Likewise, cannabis-specific nuances, such as the enforceability of contracts and jurisdictional questions, require careful evaluation by experienced counsel advising plaintiffs and defendants who are considering filing, or who have been brought into, a commercial litigation.
As I note in the linked article, insurers only stand to gain, and in big ways, from underwriting cannabis businesses. Growers, processors, dispensaries and ancillary businesses need a full range of coverage, and are ready to obtain it! Just as in any industry, insurance is a critical component to success in the cannabis space and will hasten the growth of markets already expanding at warp-speed. There are ways for insurers to cover the medical and recreational marijuana markets notwithstanding the regulatory uncertainty. It may require some creativity, but given the financial upsides, it should be well-worth the time and effort it takes to find the optimal pathway.