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Copyright 1999 Federal News Service, Inc.  
Federal News Service



LENGTH: 2598 words

, MD


Mr. Chairman and members of the Committee, my name is Timothy T. Flaherty. I am the Secretary-Treasurer of the Board of Trustees of the American Medical Association (AMA). I am also a practicing, board- certified radiologist from Neenah, Wisconsin. On behalf of the three hundred thousand physician and medical student members of the AMA, I appreciate the opportunity to testify on the issue of "Employer Health Plan Accountability and Internal/External Appeals."
The AMA has always been a strong advocate for patient rights, and most recently has been championing patient protections in the midst of a rapidly evolving managed care marketplace. Among the many managed care reform issues currently being discussed, health plan accountability, internal and external appeals and medical necessity determinations rank at the top of the list. Virtually all other patient protections that have been raised in some way turn on these critical issues.
At the outset, let me emphasize that virtually all patient protections are interrelated in some manner. Whether we are discussing external appeals or health plan accountability, other patient rights will be affected in some way, and many will be significantly affected.
Consider for instance how intertwined medical necessity is with internal and external appeals programs. The AMA is on record as avidly supporting grievance and appeals systems that have rapid internal and external appeals mechanisms for patients who are unjustly and inappropriately denied treatment by their health plans. Several pieces of legislation provide for timely review procedures, and some also require that only a duly licensed physician may review denials for medical treatment. But regardless of how sound and effective the actual appeals procedures may be, if the "medical necessity" standard that is being applied in both the internal and external appeals is arbitrarily dictated by the plan administrator or plan documents, the patient will never be guaranteed a fair, objective evaluation of the appropriate level of covered treatment.
Consider also what would happen if Congress required health plans to establish internal and external appeals mechanisms. Patients would surely benefit from being able to appeal coverage denials, refusals to provide access to specialists, and other infringements on their rights to the health plan's benefit package. However, patients would still remain vulnerable to unnecessary health plan interference with medical decisions or health plans making negligent medical decisions that harm or injure the patients. Health plans should therefore also be held accountable for the decisions they make, and be made subject to state causes of action,
The Need for Grievance and Appeals Procedures
Patients are entitled to receive the benefits for which they have paid and therefore are rightfully owed. Plans and insurers must not be able to arbitrarily deny patients those health benefits. Consequently, patients must be guaranteed access to a timely, meaningful, independent and binding external appeals process when coverage has been denied.
In addition, patients and physicians have consistently expressed frustration over their inability to voice their concerns and make complaints about their health plans, and to obtain unbiased review of treatment denials. Current federal law fails to require health plans to provide comprehensive internal and external grievance and appeal procedures for review of plan decisions relating to coverage and access disputes. Internal plan decisions denying coverage or denying access to necessary care can therefore be final decisions, and patients who have received an adverse coverage or review decision have no recourse or opportunity for independent review.
The absence of independent review enables plans to make unfair and arbitrary decisions with virtually no consequences. Patients who are denied access to necessary care are then forced to pay out-of-pocket for necessary medical services, which may in fact be covered services. More important, patients who are forced to forego necessary care awaiting the outcome of a coverage or medical necessity dispute may suffer real, and sometimes irreversible, harm. In order to ensure that patients have timely access to medically necessary care, health plans must be required to maintain a procedure that will ensure the fair and prompt resolution of disputes.
Key Elements of Grievance and Appeal Procedures
To protect patients' right to meaningful grievance and appeals procedures, the following three elements must be present. First, patients must have adequate access to the grievance and appeals process. Second, the process itself must be timely and fair. And third, the reviewers must be independent and properly qualified.
For access to the appeals process to be adequate, all patients - those in health plans and those covered by health insurers - must have the right to appeal any adverse decision. Patients should be able to exercise this right for virtually any adverse benefits decision which they believe has been improperly rendered. At a minimum, appealable decisions must include denials based on a lack of medical necessity or that the proposed treatment is experimental or investigational. They should also include denials of access to specialists, scope of coverage disputes, as well as other benefit decisions.
Second, the process itself must be fair and equitable. Patients and their authorized representatives, including their physicians, must be permitted to initiate an external review of any coverage denial.
The process must also prevent plans or insurers from "slow-walking" the patients - or unnecessarily delaying the appeals process. Rather, appeals must be conducted in a timely manner, not to exceed specified and reasonable time limits. When the patient's health condition requires, those limits must be shortened accordingly. Similarly, if plans or insurers require that internal grievance procedures be exhausted before the patient can access the external review, the plans or insurers must also allow for expedited procedures when the patients' health requires.
And very important, the review entities' decision must be binding on the plan or insurer and enforceable. Patients would receive no benefit if their plan or insurer could whimsically reject an independent reviewer's decision overturning the plan's or insurer's initial coverage denial. As an aid to ensure that plans and insurers remain accountable, the AMA also believes that aggregated results of external reviews should be made available for public review and scrutiny. The third essential element for a meaningful external review process is "properly qualified reviewers." Independent external reviewers must be just that - external to and independent from the health plan or insurer. They should have no conflict of interest with or be beholden to the health plans or insurers. They should also have the proper professional qualifications.

External reviewers should therefore be licensed physicians, of the same specialty, or subspecialty if appropriate, and actively practicing in the same state as the practitioner whose decisions are being reviewed. A decision based on ignorance will rarely be a good decision.
The AMA believes that patients are better served by relying exclusively on properly qualified individuals for all external reviews, because this ensures that determinations of medical necessity are made only by qualified professionals equipped with the knowledge and experience to make decisions in accordance with generally accepted standards of medicine. Additionally, a grievance system must ensure that plans cannot retaliate against patients for asserting their rights under the grievance and appeal system.
Proper Medical Necessity Determination - Critical for Internal and External Reviews
Within the review process, the issue of who determines medical necessity and how it is decided remains critically important. Currently, some plans are focussing primarily on cost criteria to define medical necessity and are then unfairly denying medical care to patients. The AMA believes that health plans should not be allowed to continue this practice. This practice is unacceptable and becomes even more repugnant when the plan's arbitrary definition of medical necessity has to be used by the external reviewer.
The AMA believes that medical necessity decisions are ultimately medical decisions and should continue to be treated as such. Medical necessity decisions must always be made in accordance with those generally accepted standards of medical practice that a prudent physician would follow when treating a patient. Legally and medically, this is an objective standard consistently relied upon by the courts and not subject to the abuses alleged by plans and insurers.
Health care quality legislation must include strong patient protections, and enable patients to avail themselves of those protections through a legitimate appeal and grievance system. Unbiased and accessible internal grievance procedures would ensure that patients will have the opportunity to voice their concerns about health care plans and provide a forum for prompt resolution of coverage disputes; external grievance and appeal procedures would ensure that coverage and medical necessity determinations are based, not on the cost of the medical care, but on appropriate considerations of the individual patient's health care needs.
ERISA Liability Reform
Access to grievance and external appeals systems would be a significant advancement in a patient's ability to have his or her benefit coverage denial reviewed in a systematic and expeditious manner. While the AMA believes that stronger internal and external appeal rights will help prevent health plans from ultimately denying medically necessary care, sometimes an ERISA plan's initial negligent medical decision causes irreparable harm. In this case, Americans covered by ERISA plans should have the same right of redress as those who are covered by non-ERISA plans. This is a matter of fundamental fairness.
The ERISA liability preemption issue is certainly not new to this committee. At the February 24, 1999, hearing, this committee heard from several witnesses on the issue of ERISA liability preemption. Taken together, these witnesses provided a fairly comprehensive overview of the ERISA statute and how the federal courts have varied their interpretation of the "relate to," "savings," and "deemer" clauses. We do not believe it is necessary to repeat a legal and case law analysis of ERISA for the purposes of this heating. In short, we believe that this previous testimony revealed that, despite claims to the contrary, Congress never intended that ERISA allow group health plans to escape accountability under state negligence laws. As professor Rosenblatt stated in his testimony, "... a momentous policy decision (ERISA preemption), and perhaps the most sweeping federal preemption provision in American history, were (sic)enacted without hearings, consultation with the major stakeholders, public awareness, or even understanding by most (or perhaps all) of Congress."
We would like to emphasize that there is strong evidence (see testimony of Leslie Kramerich, Deputy Assistant Secretary for Policy, Department of Labor, before this committee on February 24, 1999) that Congress' true intent in passing ERISA was to protect employees from unfair and unscrupulous pension administrators. However, as it turns out, the very law that was meant to protect employees has produced the unintended consequence of undercutting their ability to hold their health plan accountable for negligent medical decisions.
The argument can also be made that when ERISA was enacted, the shift from a fee-for-service environment to a managed care environment among group health plans could not have been anticipated. This is significant because under traditional fee-for-service, patients were provided direct access to their physician or other health care provider and payment issues were dealt with after treatment. Today, however, health plans generally require that coverage decisions be made prior to the medical service being provided. Thus, under today's health plan structure, a denial of a claim equates to a denial of benefits, especially for those who cannot afford to pay out of their own pockets. Health plans are increasingly encroaching on the medical treatment decisions historically made by physicians and other health care providers. When physicians are found negligent in making health care treatment decisions, we are held accountable through the legal system. Health plans should be held to the same standard--to exercise ordinary care when making health care treatment decisions about covered services--and should be held responsible for their failure to meet this standard.
We find it sadly ironic that trade groups representing health plans claim that they do not make medical decisions when they deny covered medical items or services. In these cases, health plans are making decisions that directly affect the care that patients receive, including: inappropriately limiting access to physicians and blocking patient access to specialists; refusing or delaying needed covered medical services; arbitrarily drawing treatment protocols; offering payment incentives or creating deterrents (disciplining physicians who refer patients for necessary medical care); and discouraging physicians from fully discussing health plan treatment options (gag rules and gag practices).
Another argument advanced by the group health plan industry is that health care costs will increase significantly if this bill is enacted. In Texas, the first state to adopt managed care accountability legislation, this issue was hotly debated. Milliman and Robertson completed an actuarial determination of the cost of the Texas liability legislation to a Texas-based HMO and set the cost at only 34 cents per member per month. A study prepared by William M. Mercer, Inc. and the American Medical Association demonstrates that managed care accountability legislation will only increase premiums between .5%-1.8%. Care is being paid for, but not provided, while health plans continue to work to protect their immunity from the ill-effects on patients when medically necessary care is denied or delayed.
For a full analysis of nine recent studies of the impact of managed care reform legislation, including ERISA liability reform, we commend a reading of the AMA's recently published Economic Impacts of Managed Care Reform. We have attached a copy of this analysis to our testimony and respectfully request that it be included in the permanent Record.
Throughout any discussion of managed care reform, the patient has to be our number one concern. We have to remember that those who are ill and need medical treatment are the most vulnerable among us. They need and deserve these protections.
Thank you for the opportunity to comment on the important issue of"Health Plan Accountability and Internal/External Appeals." We look forward to continued participation in the bipartisan effort to develop health care quality legislation that incorporates strong patient protections, and we commend the Chairman and the rest of this committee for their continued leadership on this issue. On behalf of the AMA, I offer you our services in working further with the Congress to effectively address this important matter.

LOAD-DATE: April 22, 1999

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