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Document 214 of 268.
Federal News Service,
Federal News Service
20, 1999, TUESDAY
IN THE NEWS
PREPARED STATEMENT OF
PRESIDENT, HEALTH POLICY ANALYSTS, INC.
ON BEHALF OF THE
CORPORATE HEALTH CARE COALITION
EDUCATION AND THE WORKFORCE COMMITTEE
EMPLOYER-EMPLOYEE RELATIONS SUBCOMMITTEE
SUBJECT - EMPLOYER HEALTH PLAN ACCOUNTABILITY:
DO PLAN PARTICIPANTS HAVE ADEQUATE PROTECTIONS?
Employers instill health plan accountability through purchasing Employers have expended considerable effort to increase accountability for the quality of medical decisions and patient outcomes at all levels of the health care system: health care professionals, health facilities, and health plans. Employers instill health plan accountability through their purchasing and oversight activities as plan sponsors.
The employer view of accountability is proactive. Quality is built into health care from the front end - through incentives to discover what works and to apply the right treatment in the first place. Quality and accountability can not be built from the back end - through the threat of litigation and punitive damages for lapses.
Organized systems and managed care provide a single point of accountability Purchasers have seen in managed care the opportunity to improve the value they receive for their health care dollars. With a single point of accountability, employers and employees can compare the performance of plans, select plans that show evidence of meeting certain performance targets, choose the more effective plans and providers, and encourage ongoing improvements in quality and efficiency.
ERISA provides a significant "toolkit" of rights and responsibilities to protect employee's benefits In the enactment of Employee Retirement Income Security Act of 1974 (ERISA), Congress acknowledged that the employer's sponsorship of health benefits was voluntary and a matter between the employer and employee. The role of federal law was not to dictate the agreement, but to ensure that if there was an agreement, it had to be understandable to the parties and enforceable. ERISA provides a "toolkit" to employees to help them obtain their benefits: information and disclosure, fiduciary obligations of the sponsor, rights to benefits, and remedies for participants.
Managed care has changed the nature of claims review and coverage decisions When ERISA was enacted, patients typically submitted claims to plan for reimbursement after they had paid for care that was provided. Managed care's move toward prospective decisionmaking, accelerated decisions on urgently needed treatment, and increased reliance on medical necessity determinations has raised questions of whether ERISA should be modified to accelerate current regulatory timeframes for review, and to ensure that medical necessity and appropriateness decisions are sufficiently evidence-based.Medical necessity decisions are the means by which plans elim inefficiencies, lower costs, and improve quality of care.
The Institute of Medicine National Roundtable on Health Care Quality recently identified several major quality problems in medical treatment where guidelines applied through medical necessity determinations could correct for under or overutilization. Medical necessity determinations also can help correct for some of the geographic variation in medical treatment. Medicare relies heavily on medical necessity determinations to reduce overutilization, unnecessary care, and fraud.
Efforts to create a statutory definition of medical necessity would seriously jeopardize the efforts of employers and health plans to improve health care quality.
The statutory definitions would put patients at risk by making "generally-accepted medical practice" the standard for medical necessity, instead of "current medical knowledge." They would enable evidence-based plan decisions to be blocked by physicians with conflicting views or training. The statutory definitions would create a static concept that could not respond to rapidly evolving medical knowledge, and would impede efforts to eliminate ineffective medical practice. A statutory definition of medical necessity would have no real value in establishing a standard for external medical review. Any external review procedure enacted by Congress would create its own standard of review for the independent medical reviewers.
External review is an effective process to ensure that medical necessity decisions are evidence-based.
Many health plans rely on an independent, external review of significant medical necessity, appropriateness, or experimental treatment decisions. External review, properly designed, is a more appropriate way to ensure that health plans are accountable to participants in a timely fashion for coverage and medical necessity decisions than reliance on state tort liability and punitive damages.
State tort liability for coverage decisions would reduce health plan accountability Creating health plan liability for coverage decisions in state court would not begin to solve the immediate problem for the patient - the need to get the best treatment when it can still do some good. Liability for coverage decisions would reduce health plan accountability by: curtailing quality assurance and plan selection activities of employers; encouraging plans to approve all treatments, and creating disincentives for evidence-based decision making by health plans. It would discourage plan sponsorship by employers and lead to a reduction in the availability and quality of health benefits to employees.
- Employers who sponsor health plans cannot be protected from health plan liability if ERISA preemption is waived; - Health plan liability would significantly raise health plan costs for employers; - Health plan liability will send the wrong signals to health plans - discouraging efforts to improve quality and base decisions on medical evidence.Mr. Chairman and Members of the Committee:
My name is Larry Atkins. I am President of Health Policy Analysts, Inc., a Washington based consulting firm. I also serve as the Coordinator of the Corporate Health Care Coalition (CHCC).
The Coalition is an alliance of 25 companies formed in 1993 to reflect the views of large, multi-state, self-insured companies on national health care policy. Coalition members operate health benefit plans for employees and their families as well as retirees, covering over 6 million lives and providing over $12 billion in benefits annually. They have been in the forefront of efforts to provide high quality and cost-effective benefits for employees. Coalition members have extensive experience in designing, administering and delivering employee health benefits, and are a major force today in ongoing efforts to improve the health care system. I am here today to address the question of health plan accountability and whether employer health plan participants have adequate protection under the Employee Retirement Income Security Act of 1974 (ERISA).
I. Employer Purchasing and Quality
From an employer perspective, health plan accountability is created through the purchasing and oversight activities of employers.
Employers have expended considerable effort to increase accountability for the quality of medical decisions and patient outcomes at all levels of the health care system: health care professionals, health facilities, and health plans. CHCC companies have sought provider accountability through the managed care activities of health plans, and have sought plan accountabiltiy through the development of quality measures and the application of quality indicators as a factor in selecting health plans for employees.
The employer view of accountability is proactive. Quality needs to be built into health care from the front end: through clinical research to develop medical evidence on effective treatments, through development of guidelines and protocols, through selection and training of practitioners, through financial incentives that encourage quality, through monitoring and feedback on patient outcomes, through better comparative information for participants. Quality and accountability can not be built from the back end - through the threat of litigation and punitive damages for lapses in quality. We believe in incentives to discover what works and to apply the right treatment in the first place, rather than disincentives based on searching for the mistakes and seeking retribution for them after the fact.
A. Accountability through Managed Care
Organized health care delivery systems and managed care developed originally as part of an effort to bring accountability to medical practice. In fee-for-service medicine, solo practitioners were on their own to keep up with innovation and were specifically accountable to no one for the quality of their work. Managed care was intended to develop a system that routinely applied new knowledge to medical practice through the development of guidelines and protocols based on medical evidence in an effort to improve the quality of medical decisionmaking. The move toward "evidence-based medicine" has been the effort to subject medical treatment decisions to the test of what has been shown to work best.
Employers moved decisively to managed care plans in the mid 1980s to find efficiencies in health care that could lower costs and improve quality. The shift was a response to double digit medical inflation driven in part by excess capacity and increasing utilization; financial incentives in fee-for-service medicine that encouraged over- utilization; and research by the RAND Corporation showing that one- third of the health care in the U.S. was unnecessary and inappropriate. Employers believed that better patient outcomes and more cost-effective care would result from a change in the financial incentives to encourage management of care delivery.
The basic ideas behind the move to managed care are consistent with consumer protection initiatives at the state and federal level today. They included:
* Creating a singlepoint of accountability - In an indemnity world, patients coordinate their own care, moving from provider to provider. In a managed care environment, a health plan can be accountable for the procedures and outcomes for its enrolled population. Purchasers can set targets for the health plan and expect the organization to manage its members to meet those targets. Patients can have a single primary physician coordinating their care. This single point of accountability has created a more intense focus on health care quality than existed in a purely indemnity/fee-for-service environment.
* Shifting the focus from input to outcome - Services in an indemnity system were evaluated on the basis of the input -- the volume and type of service provided -without being able to know the ultimate impact on the patient's health. The service integration and improved patient record keeping of managed care makes it possible to manage and evaluate patient care on the basis of whether the patient's condition improves.
* Shifting from static quality to dynamic quality - Quality in an indemnity system was a state of practice that remained unchanged once attained - it was a function of the physician's training or the character of the health care facilities. The shift to organized service delivery with performance and outcome measures, has made quality a constantly evolving goal. Providers are encouraged to share information,learn from their collective experience, rethink their practices, and respond to new guidelines and protocols.
* Reliance on "benchmarking" and "best practices" - In the competitive world of managed care, no organization can assume that they are doing the best possible job. Plans can be compared to one another, and plans that have done the best job of treating a particular illness or attaining a particular health status for their population can be held out to others as an example. Purchasers can require visible progress on specific health problems as a condition for being awarded a contract. The whole concept of quality-based competition requires an organized system that can pursue strategies to achieve specified results.
Purchasers have seen in managed care the opportunity to improve the value they receive for their health care dollars. With a single point of accountability, employers and employees can compare the performance of plans, select plans that show evidence of meeting certain performance targets, choose the more effective plans and providers, and encourage ongoing improvements in quality and efficiency. B. CHCC Companies Pursue Health Plan Accountability
CHCC member companies are in the forefront of efforts to purchase health benefits on the basis of quality. Given the diversity of industries and types of workers in CHCC companies, a "one size-fits- all", "cookie-cutter" approach does not work. Member companies approach quality purchasing in a variety of ways that give testimony to the innovation that has developed among private purchasers. The following provides only a sample of the quality-based purchasing activities of CHCC member companies.
1. Plan Accreditation
Many companies require health plans to have National Committee for Quality Assurance (NCQA) accreditation or be in the process of pursuing accreditation as a condition for purchasing. Employers have worked closely with NCQA in developing accreditation standards for health plans. A number of companies also require or review Utilization Review Accreditation Commission (URAC) and the Joint Commission on Accreditation of Healthcare Organizations (JACHO) accreditation.
2. Purchasing Standards
Some companies set performance standards for health plans they offer. These standards may be extensive - covering such things as standard benefits, governance, financial solvency and fiscal operations, access, credentialing, network requirements, data monitoring and evaluation, UR and claims processing, grievance and appeals processes, quality assurance processes, and a number of other factors. Some companies require health plans to operate a program of continuing quality improvement or continuing targets for quality.
3. Employee education - plan comparisons
Employers in the CHCC offer choices to their employees and provide their employees substantial comparative information to select plans. Some companies provide a benchmarking process in which they compare each plan's results to results for a designated "preferred plan" on a number of dimensions, including: employee satisfaction, provider access, network coverage, and HEDIS (Health Plan Employer Data and Information Set) measures. Other companies provide an HMO fact sheet or simplified report card, with exceptional plans identified.
4. On-Going Quality Improvement Activities
Some companies work closely with their plans on efforts to identify best practices and modify plan practices to meet agreed upon performance targets. Others help their plans develop an action plan for correcting problems identified in employee satisfaction surveys. One company provides incentives for health plans that meet their targets, works on improvement plans with the health plans that are mediocre, and eliminates poor plans from their group of suppliers. 5. Prevention and Disease Management Programs
Some companies require that plans adopt specific preventive services and disease management programs. Others develop preventive and disease management programs in conjunction with their plans. Disease management programs have been effective in dramatically improving health outcomes and reducing medical costs for chronically ill patients with specific medical problems.
6. External Review
Most companies provide for external review by qualified outside medical groups in cases where an employee contests a coverage decision with regard to significant medical treatment issues. The external review addresses medical treatment issues raised by the case and is advisory to the plan in making a final coverage decision.
7. Centers of Excellence and Specialized Providers
Most employers have contracts with treatment centers that have specialized in specific procedures and have a high volume of cases, evidence of high quality, and a willingness to contract for comprehensive treatment of particular illnesses. These centers can improve patient outcomes and manage overall costs of expensive medical care.II. Accountability through ERISA Claims and Appeals Procedures
The Employee Retirement Income Security Act of 1974 (ERISA) provides a structure of responsibilities, rights and remedies for the employer's sponsorship of employee benefits. The purpose of ERISA is to protect benefits that are promised by employers to participants. In the enactment of ERISA, Congress acknowledged that the employer's sponsorship of health benefits was voluntary and a matter between the employer and employee. The role of federal law was not to specify what was in that agreement - but to ensure that if there was an agreement, it had to be understandable to the parties and enforceable.
Employers, as voluntary sponsors of health plans, and their benefits administrators have the responsibility for designing the health plan, determining the benefits that will be provided under the plan, and determining when a claim for an item or service is a covered benefit under the plan. ERISA was intended to provide a "toolkit" to employees to help them obtain their benefits: information and disclosure, fiduciary obligations of the sponsor, rights to benefits, and remedies for participants.
A. ERISA Requirements for Claims Processing and Appeals
ERISA imposes a number of the information and procedural requirements on plan sponsors to protect participants. CHCC member companies operate their claims processing and appeals procedures to meet the needs of their employees for prompt and fair decisions. Their procedures easily meet ERISA requirements. Several of the information and procedural requirements sought in the Patients' Rights legislation are further enhancements of requirements already imposed by ERISA. ERISA's statutory and regulatory requirements include:
- Information to participants on their rights and the appeals process - the ERISA statute requires that plan sponsors provide each participant with a summary plan description (SPD). The SPD must be "written in a manner calculated to be understood by the average plan participant, and shall be sufficiently accurate and comprehensive to reasonably apprise such participants of their rights and obligations under the plan." (ERISA Section 102(a)(1)). The plan description and SPD must include "...the procedures to be followed in presenting claims for benefits under the plan and the remedies available under the plan for the redress of claims that are denied in whole or in part." (ERISA Section 102(13)).
- Fiduciary Duties and Liability - the ERISA statute requires that a plan fiduciary: "...discharge his duties with respect to a plan solely in the interest of plan participants and beneficiaries and ... for the exclusive purpose of...providing benefits to participants and their beneficiaries." (ERISA Section 404(a)(1)). A fiduciary is personally liable for any breach of any duties imposed by ERISA. These duties include fair and consistent administration of the claims and appeals procedures required under ERISA. Courts can override decisions of a plan fiduciary or remove a fiduciary who fails to perform these duties.
- Claims Procedures - the ERISA statute requires that a plan: "(1) provide adequate notice in writing to any participant or beneficiary whose claim for benefits under the plan has been denied, setting forth the specific reasons for such denial, written in a manner calculated to be understood by the participant, and "(2) afford a reasonable opportunity to any participant whose claim for benefits has been denied for a full and fair review by the appropriate named fiduciary of the decision denying the claim." (ERISA Section 503).
Department of Labor (DoL) Regulations (29 CFR Sec. 2560.503-1) provide a specific set of requirements for claims determinations and review procedures. The regulations require:
- A plan must have a reasonable claim filing procedure - If a claim is wholly or partially denied, a notice must be furnished to the claimant with a reasonable period of time, but not more than 90 days after receipt of the claim (unless special circumstances warrant an extension of time for processing the claim). - The written notice furnished to the claimant must include, in a manner calculated to be understood by the claimant: - the specific reason for the denial, a reference to pertinent plan provisions, - a description of additional material needed to perfect the claim, and - information on the steps to be taken if the participant wishes to submit the claim for review. - A plan must establish and maintain a procedure by which a claimant or authorized representative has a reasonable opportunity to appeal a denied claim. - The review procedure must include provisions allowing a claimant to: - Request a review in writing - Review pertinent documents - Submit issues and comments in writing. - The period within which the plan can require the participant to file the request cannot be shorter than 60 days after receipt of written notice of the denial. - A named fiduciary must render a decision promptly, and in no case may respond later than 60 days, unless special circumstance require an extension of the review time). - Notification of the decision on the review must be in writing and must include the specific reasons for the decision written in a manner to be understood by the average plan participant and include specific references to pertinent plan provisions.
- Judicial Remedies - Once the participant or beneficiary has exhausted the internal appeal process, ERISA statute (Section 502) enables the individual to bring a civil action in federal court against the health plan to: - Recover benefits due under the terms of the plan; - Enforce rights under the terms of the plan; or - Clarify rights to future benefits under the terms of the plan.
The time limits required by DoL for processing claims and appeals are outside time limits. With improved information systems and changes in claims processing techniques, health plans today typically process claims more rapidly than required by the Department.
CHCC member companies typically require claims processing contractors to meet specific targets for speed in processing claims and deciding appeals. We generally expect that our initial claims can be processed within 30 days, and appeals of those decisions can be reviewed and decided within another 30 days, given that the decisionmakers have all of the information they need. CHCC member companies also typically provide for an expedited review where prior authorization is required and the participant is in urgent need of medical care. Only rarely will a claim or appeal take as long as allowed by regulation. This may occur when complete information has not been provided by the patient or physician or when very complicated coverage issues require more extensive fact-finding and deliberation.
B. The Impact of Managed Care on Coverage Decisions
The emergence of managed care has brought significant changes in the nature of claims review and coverage decisionmaking. ERISA was enacted when indemnity plans were dominant, and patients typically submitted claims to the plan after receiving medical care and paying the physician and hospital themselves. Managed care has brought four major changes in structure of health benefits and the way coverage decisions are made:
1. Increased Reliance on Medical Necessity Determinations - Old indemnity plans covered specific medical activities or procedures within specified limits, and controlled costs by modifying the plan to narrow coverage.
Managed care has moved toward comprehensive benefits covering medical treatment for the whole patient, and has sought to improve care by eliminating inappropriate or ineffective treatment that was common in a fee-for-service environment. As a result, managed care has placed a greater reliance on determining the appropriateness or medical necessity of treatment at the point of care.
2. Prior Approval - By integrating the insurance and service delivery functions, managed care has moved toward prospective decisionmaking on coverage and treatment and away from the retrospective claims adjustment that was characteristic of indemnity coverage.
3. Accelerated Decisionmaking - The shift to prospective review has necessitated a faster decision on coverage issues where treatment is urgently needed and prior approval is required for coverage.
4. Accountability - Managed care has increased the reliance on scientific evidence of effectiveness as a factor in coverage determinations, in the effort to remove inappropriate and unnecessary care,
The changes brought by the growth of managed care have raised a number of issues with current federal law requirements for claims review and appeals. One set of issues relate to the adequacy of current regulatory timeframes for review, given the shift to prior approval. The second set of issues relates to the need to ensure that medical necessity and appropriateness decisions are evidence-based.
Employers have invested in the effort to improve the accountability of providers and plans for the quality of medical care and ensure that decision making is based on the best medical evidence available. Changes in the process for resolving coverage questions should ensure that we continue to move in both coverage and treatment decisions toward a reliance on "evidence-based medicine."
C. Accountability through Medical Necessity Decisions
All health plans provide access within limits to medical care. Plans have specific limitations for some services (e.g. one influenza vaccine annually for adults over age 65; up to twenty outpatient mental health visits per year); and will additionally exclude any covered item or service that is not medically necessary or appropriate. With the move to comprehensive benefits, there is increasing emphasis in coverage determinations on the decision about what is medically necessary and appropriate care.
Different plans define their coverage in different ways.1 The following are examples of three different definitions of medical necessity. Note that these programs and plans all rely on physicians to determine medical necessity, but reserve to the payor, and not to the treating physician, the final determination of what the program or plan will pay for.
Medicare - specifically excludes some services (e.g. cosmetic surgery, outpatient prescription drugs) and has quite a few explicit coverage restrictions. In addition, Medicare payment is prohibited for covered services that "are not reasonable and necessary for the diagnosis or treatment of illness or injury or to improve the functioning of a malformed body member." The Secretary of Health and Human Services has the responsibility for determining what is medically reasonable and necessary care. Decisions on medical necessity are made on a case-by- case basis by the insurance carriers that operate as Medicare intermediaries and carders.
Medicaid - each state defines coverage in its own way. A typical definition is:
"those services and items that are required for diagnosis or treatment of illness or injury, and which, in the judgment of the Medical Assistance Program, are:
(a) consistent with the diagnosis and treatment of the patient's condition, and (b) appropriate with regard to standards of good medical practice, and (c) not primarily for the convenience of the patient or a provider .... and (d) the least costly of alternative...service which can be safely provided to the patient, and (e) will significantly improve the basic health status of the client. The fact that a licensed practitioner...recommends or approves a service or item does not, in itself, make the service or item medically necessary."(Oregon).
- Health Net - an HMO - defines medically necessary services as covered services which are determined by the participating medical group and/or Health Net to be: (a) appropriate and necessary for the symptoms, diagnosis or treatment of a condition, illness or injury, and are not experimental and/or investigative; (b) provided for the direct care and treatment of a condition, illness, or injury; (c) not primarily for the convenience of the member, member's physician or other provider, (d) the most appropriate level of supply or service which can safely be provided to the member.
All of these plans rely on judgments about medically necessary and appropriate care to avoid paying for outdated procedures or for untested medical technologies while, at the same time, readily incorporating major innovations in health care treatment that are shown to work. Decisions on medical necessity are the means by which plans eliminate inefficiencies, lower costs, and improve quality of care.
Quality is a central focus of medical necessity decisionmaking. The Institute of Medicine National Roundtable on Health Care Quality 2 recently identified several areas of major quality problems in medical treatment in the U.S. where guidelines based on medical evidence and applied through medical necessity determinations could improve the quality of medical care.
- The IOM noted for example that despite ample evidence of the benefit of beta blockers for the survival of heart attack patients, 79 percent of elderly heart attack patients in a recent study did not receive them. - The IOM cited another study that showed large percentages of patients particularly those in fee for service settings -- were not receiving scheduled mammograms or blood pressure controls for hypertensive patients. - The IOM also cited examples of unnecessary and inappropriate care: studies showing that 23 percent of children referred for insertion of ear tubes were referred for inappropriate reasons; 20 percent of cardiac pacemakers were inserted for inappropriate indications; and 16 percent of hysterectomies were inappropriate.
Medical necessity determinations are also important in the effort to correct some of the geographic variation in medical treatment. The Dartmouth Atlas of Health Care - a compendium of health care practices by geographic area - found, for example, that breast cancer patients in Rapid City, South Dakota are 33 times more likely to undergo radical mastectomies - and therefore at greater risk for complications -- than patients in Elyria, Ohio. Patients in Elyria are more likely to have less-invasive breast-sparing surgery with chemotherapy or radiation.
Medicare relies heavily on medical necessity determinations to reduce overutilization, unnecessary care, and fraud. Following are a few examples where Medicare has eliminated unnecessary or inappropriate care: - Seat-lift chairs - in response to an Office of the Inspector General, HHS (OIG) investigation of over-utilization of seat-lift chairs mechanized chairs that assist elderly patients to stand), tightened coverage rules and medical necessity guidelines reduced Medicare spending for these chairs from $122 million to $14 million in 3 years.
- Nebulizer drugs - a 1997 OIG report found that Medicare paid more than $30 million in drugs for nebulizers that may be inappropriate or harmful when taken together. Medicare paid over $10 million for nebulizer equipment that may not have been medically necessary.
- Endoscopy and colonoscopy - the OIG found that 23 percent of upper gastrointestinal endoscopies and 8 percent of the colonoscopies Medicare paid for were not medically necessary.
D. Problems with a Statutory Definition of Medical Necessity
A number of the
Patient Bill of Rights
bills include a provision that would establish a statutory definition of "medically necessity or appropriateness." Generally this provision has two parts: 1) it states that a plan: "may not arbitrarily interfere with or alter the decision of the treating physician...if the services are medically necessary or appropriate for treatment or diagnosis..."; and 2) it defines define medical necessity or appropriateness as: "a service or benefit which is consistent with generally accepted principles of professional medical practice."
The intent of this provision is to ensure that: "...an insurer (can) set aside the recommendations of a treating physician only in restricted circumstances.
"3 Advocates of a medical necessity standard contend that the standard would: prevent plans from denying benefits based on "arbitrary" plan guidelines; provide a standard for external review decisions; and shift the burden of proof in external review or judicial action to the plan.
The statutory definitions of medical necessity offered in these bills would seriously jeopardize the efforts of employers and health plans to improve health care quality. Health plans would be limited in their ability to deny coverage for the recommendation of a treating physician as long as that recommendation was consistent with "generally accepted principles of professional medical practice," regardless of guidelines or protocols to the contrary.
With no arbiter of "generally accepted principles", any practice a treating physician contended was "generally accepted" would be medically necessary unless the plan could prove it was not. Where there were genuine differences of opinion among specialists about treatment (where each alternative could be considered "generally accepted" the choice of the treating physician would prevail, regardless of the medical evidence. The consequences for health care quality could be significant:
- The statutory definitions would put patients at risk by making "generally-accepted medical practice" the standard for medical necessity, instead of "current medical knowledge." This would enshrine practices that are still common but out-of-date, and limit the ability of plans to disseminate best practices and eliminate unnecessary and ineffective medical care. The "generally accepted practice standard" was a broad standard developed as a legal defense against a medical malpractice claim; it is not the appropriate benchmark for care that should be provided.
- The statutory definitions would enable evidence-based plan decisions to be blocked by physicians with conflicting views or training. Plan efforts to improve the quality of medical decisionmaking could be blocked. Disease management programs implemented by plans to manage patients with chronic illness could be disrupted by specialists whose interests were threatened by changes in treatment approaches.
- The statutory definitions would create a static concept that could not respond to rapidly evolving medical knowledge, and would impede efforts to eliminate ineffective medical practice and encourage improvements in health care quality.
A statutory definition of medical necessity would have no real value in establishing a standard for external medical review. Any external review procedure enacted by Congress would create its own standard of review for the independent medical reviewers. By basing the decision of the independent reviewer on an assessment of plan guidelines, treating physician recommendations, external guidelines and protocols, and medical evidence, the conclusion of the medical reviewer would become the definition of medically necessary care.
Even with a statutory definition, the concept of"generally-accepted medical practice" would have to be defined in external review by the reviewer. The level of care suggested to the reviewer by a standard of general practice would be less advanced than the level of care identified through a review of the current medical literature and the consensus opinions of leading experts.
Concerns about who makes medical necessity decisions and about the basis for those decisions can be more effectively addressed through an independent, external, evidence based review of the medical decision than through a rigid, statutory definition of medical necessity.
III. Independent, External Review
Many health plans rely on an independent, external review of significant medical necessity, appropriateness, or experimental treatment decisions. External review, properly designed, is a more appropriate way to ensure that health plans are accountable to participants in a timely fashion for coverage and medical necessity decisions than reliance on state tort liability and punitive damages. External review ensures that medical necessity decisions will be evaluated by medical experts on the basis of the best medical evidence.
- External review should be a medical, evidence-based review that resolves tough medical necessity questions. It should not be used as a way to challenge a plan's explicit limitation in coverage or exclusion of a treatment.
- External review should be limited to treatment issues where there is substantial cost for the treatment or substantial risk to the participant's health. It should not be available to review denials of payment for small amounts where the cost of reviewing the denial exceeds the amount in dispute. Without a limitation to significant issues, external review merely becomes a weapon to force plans to pay for small claims for inappropriate treatment. If external review becomes impractical or expensive, it will force plans to explicitly limit coverage to avoid these issues.
- External review should uphold the plan's decision on medical necessity unless the reviewer determines on the basis of the medical evidence that the denied item or service would be of substantially greater benefit to the patient.
- External review should be a uniform process available on a consistent basis nationwide. Any federal rules should clearly preempt state procedures to avoid confusion by participants, duplication of procedures, or conflict of jurisdictions.
- An independent, external review that is evidence-based should fully resolve the coverage and treatment questions. Access to judicial review (other than through existing ERISA remedies) would throw these evidence-based judgments before untrained parties in an adversarial environment and undercut the objectivity achieved through the external review process. If the best-informed judgment available is to be made by a qualified external panel, there should be no value in second- guessing this medical judgment in state courts before juries.IV. Health Plan Liability for Coverage Decisions
Currently under ERISA, participant suits on benefit issues are tried in federal court and damages are not available. Similarly, Medicare and Medicaid beneficiaries, federal employees, and military personnel have remedies available under federal law, with access in certain circumstances to federal courts once internal appeals are exhausted. Participants cannot bring an action for benefits in state courts under state tort laws for denial of plan benefits.
Several Patient's Rights bills would waive ERISA preemption of state causes of action to permit participants in employer-provided health plans to sue the plan in state court for harm allegedly caused by an adverse benefit denial. The effect of these provisions would be to permit lawsuits for coverage decisions to go forward in state court, with access to jury trials and punitive damages. Some of these bills would also attempt to protect the plan sponsor (the employer) from liability for decisions made by the health plan.
The coverage decisions at issue are the most difficult decisions to make in health care. They relate to treatments that may have a very small chance of success for a critically ill patient with little hope of survival, at a very substantial cost to the plan. They relate to treatments where experts disagree and there is no consensus on a widely- accepted standard of care. They relate to emerging untested treatments where there is no evidence of success and questionable value for a patient.
Adding substantially to the liability for claims decisions and enabling patients to bring these questions before juries with large punitive damage awards is the wrong way to resolve these difficult questions. It is often after-the-fact - of little value to the patient. It is punishing the plan for what medical science cannot do.
Tort liability for health plan coverage decisions would enable physicians who resist plan guidelines and accountability to encourage retaliatory lawsuits for adverse coverage decisions. It would encourage physicians with a financial stake in untested new treatments to encourage suits to discourage plan denials of coverage. Indeed, any effort of a health plan to bring a more systematic and disciplined approach to medical decision making could conceivably be challenged.
- Patients could sue a health plan if they believe that a better outcome would have resulted from a different treatment, regardless of whether the treatment they received was the most effective known therapy for their condition.
- Patients could sue over the use of protocols or guidelines, no matter how well designed they were, if treating physicians could be found to disagree with them.
- Patients could sue to punish plans that followed the right process in making medically-based decisions, if the provider or patient disagree with the decision.Creating new avenues for litigation would not begin to solve the immediate problem for the patient - the need to get the best treatment when it can still do some good. Litigation would only offer the patient or their survivors hope after-the-fact.
Creating health plan liability for coverage decisions in state court will set changes in motion that will have the reverse effect of what the advocates of liability seek:
- It will reduce health plan accountability by reducing or eliminating the quality assurance and plan selection activities of employers; - It will encourage plans to approve all treatments, and create a disincentive for quality improvement and evidence-based decision making by health plans. - It would discourage plan sponsorship by employers and lead to a reduction in the availability and quality of health benefits to employees.
Before the Congress sets forces in motion that will erode health care coverage further, we urge you to carefully weigh the consequences of creating liability for benefit decisions.
1. Employers who sponsor health plans cannot be protected from health plan liability if ERISA preemption is waived -- Many of the bills pending in Congress and the Texas and Georgia laws include language intended to protect the employer from liability. In some cases this is intended to be a blanket protection, in others it would be limited to employers who exercise no discretion regarding plan benefits. I believe no effort to protect plan sponsors from liability would work. Employers could protect themselves from liability in only one of two ways:
- Terminate the health plan and no longer sponsor a plan; or
- Amend the plan to cover only specifically stated items and services, so that failure to provide a service that was not explicitly covered would not be actionable in the courts.
There are several reasons why plan sponsors cannot be protected from health plan liability 4:
- Some bills would specifically create liability for employers who "exercised discretion." Many employers review the decisions of their third party administrators, and would be liable for this reason alone. Indeed, any involvement of an employer's in-house benefits personnel in the actions of a third party administrator- even unauthorized -- may subject the employer to liability for the acts of its employee. (Cf. Crocco v. Xerox Corp., 956 F.Supp. 129 (D. Conn. 1997)). - Employers have already sued under ERISA for the actions of a health plan or third-party administrator they selected using "negligent selection" and "negligent retention" theories. Under any of the health plan liability provisions before the Congress, these suits could go forward in state courts. The liability would exist even if the employer were shielded from liability for any particular negligent act of the plan or administrator. - Once Congress has created a cause of action against third party administrators, this could become the starting point for an expansion of the tort to provide a common law cause of action against employers as well. "A court may look to statutes not only as mandates on issues directly addressed but also as sources of 'establishment of policy (that) carries significance beyond the particular scope of each of the statutes involved.'" Burkhart v. Harrod, 110 Wash. 2d 381,402, 755 P.2d 759 769 (1988)
2. Health plan liability will lead to a reduction in the accountability of health plans to employers. Ironically, the logical response of employers who continue to sponsor plans will be to put the managed care organizations at greater arms length and reduce their own potential liability by: - Ceasing activities to monitor or overturn the benefit denials of the health plans; - Reduce their selection activities - providing a wider array of health plans for employees, with less effort to evaluate plans or guide employee selection toward higher quality plans; - Reduce the comparative plan information they provide to employees that might be interpreted as guiding or influencing employee choice.
3. Health plan liability will significantly raise health plan costs for employers. The increase in costs will come in two ways: - Large punitive damage awards -recent judgments against state employee plans have revealed a potential for substantial punitive damage awards in benefit denial cases: including a recent California court judgment of $116 million in an Aetna case involving a bone marrow transplant 5; a $13 million Kentucky court award in a Humana case involving a hysterectomy.6 - Defensive utilization review - an increase in the approval of unnecessary, inappropriate and expensive procedures to avoid liability. Advocates of liability have championed the 1997 Texas liability law as an example of how liability can be passed with little effect on costs. Quite the opposite is true. Cases only now begun to appear in Texas, having waited until last October for a district court to uphold the law. Since then, two cases have cleared the federal appeals court and have been remanded to state courts for trial.
Even without litigation, the law has had an effect on plan behavior and premiums. A physician group health plan in Texas that announced a 15 percent premium increase for employers in 1999 determined that half of the increase was attributable to a rise in the utilization of services driven by the new liability law.7 The plan found that their Medical Directors were unwilling to review or deny a request for benefits for fear of delaying the process or triggering a lawsuit. The plan also eliminated requirements for prior approval and provided automatic coverage for some costly diagnostic procedures to avoid delay - a factor in the Texas law that creates considerable risk of liability for the plans. The plan considered that the cost of defending itself- even against unfounded cases -would average $100,000 a case.8
4. Health plan liability will send the wrong signals to health plans: State juries have already shown their tendency to override plan decisions on medical necessity that are consistent with consensus guidelines or have been upheld in external review.
- In the Humana case, a patient with pre-cancerous cells on her cervix was approved for conization and denied a hysterectomy by Humana. The patient had the hysterectomy anyway and sued Humana. Even though tissue samples introduced in court clearly indicated the hysterectomy was inappropriate, the court awarded $13 million in punitive damages, not on the basis of this case, but to represent all hysterectomies denied by Humana in Kentucky over 3 years. - In the Aetna case, the patient was denied an autologous bone marrow transplant for a rare stomach cancer by Aetna. Aetna had referred the patient to an out-of-network cancer expert who determined the cancer had spread too much. Aetna had this decision reviewed by two outside experts who concurred. Nevertheless, the patient had the procedure performed under his wife's health plan and subsequently died. The jury awarded $116 million in punitive damages anyway.
If the response we want from plans is to improve the quality of their coverage decisionmaking, how do plans get that message from these jury awards? In both cases, the message to the plan was "cover everything, and deny nothing." Indeed, these juries made it clear to plans that coverage decisions supported by sound medical judgment backed by medical evidence and the consensus of external reviewers can not protect the plan from liability.
If the Congress truly wants plans to make coverage decisions that are right for the patient, it should enact an effective external review requirement. It should only provide health plan liability for these decisions, if it intends to discourage plans from relying on consensus panel recommendations, national guidelines, and medical evidence in making coverage decisions.
As the 1st Circuit Court stated in its decision ine case of Turner v. Fallon:
"...the real problem confronting the Turners was not one of judicial remedies but a larger and more intractable one. It is a society-wide problem of when and how to provide last-chance health care for a courageous patient faced with a mortal disease who may have a small chance at survival if provided an expensive cutting edge treatment that she cannot afford out of her own resources. This is not the kind of problem to which the courts can supply the solution."9
1 Center for Health Policy, Stanford University. "Implementing Medical Necessity in Managed Care Plans." Draft Work Plan, July 31, 1998. Appendix A, Exhibit A: "General Definitions of Medical Necessity in Public and Private Contracts." 2 MR Chassin, RW Galvin, and the National Roundtable on Health Care Quality. The Urgent Need to Improve Health Care Quality. Journal of the American Medical Association. 280:1000-1005; September 16, 1998. 3 S. Rosenbaum, D. Frankford, B. Moore, P. Borzi. "Who Should Determine When Health Care is Medically Necessary," New England Journal of Medicine. 340:229-232. January 21, 1999. 4 Memorandum on "employer's exposure to lawsuits for negligent claims reviews," prepared by Rosina Barker, Esq., Ivins, Phillips and Barker, February 26, 1999. 5 Goodrich v. Aetna/USHEalthcare - January 20, 1999. 6 Johnson v. Humana Health Plans, Ky. Cir. Ct., No. 96-CI-00462, 10/20/98. 7 Internal memorandum, Scott & White Health Plan, Temple Texas, December 23, 1998. 8 Letter from Jim Rohack, MD, Scott & White Health Plan to the Honorable Dale VanVyven, Chair, Ohio House Health, Retirement & Aging Committee. March 3, 1999. 9 Turner v. Fallon Community Health Plan (127 F.2d 196 (1st cir. 1997).
April 22, 1999
Document 214 of 268.
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