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Copyright 1999 Federal News Service, Inc.  
Federal News Service



LENGTH: 18714 words

10:00 AM.


REP. JAMES JEFFORDS, (R-VT): Mr. Kramerich, pleased to have you with us.
Good morning to everyone.
We have a good participation from the public's perspective as I see as I look out and they're all now familiar that we are now the committee on health education. Labor and pensions are the health committee. So, you are the first witnesses on the health committee. So, I anticipate the committee with its jurisdiction of private health insurance and public health programs will have an active health agenda during the Congress. And one of the committee's top priorities will be the early consideration of consumer protection legislation.
Today's hearing on group health plan cooperative information and coverage determination standards will focus on legislation and proposed rules that would establish new information requirements and claims procedures under the Employee Retirement and Income Security Act fondly referred to as ERISA. Perhaps another title for the hearing would describe our efforts to give consumers a roadmap in order to help them navigate the health care maze.
People need to know what the plan will cover and how they will get their health care. They also need to know how adverse decisions by the plan can be appealed both internally and externally to an independent reviewer.
Last year, the President's Advisory Commission on Consumer Protection and Quality in the Health Care Industry, which tools today's witnesses have served, drafted a consumer bill of rights. Included in that bill was the right for the following statement. All consumers have the right to a fair and efficient process for resolving differences with their health plan, health care providers, and the institutions that serve them including a rigorous system internal review and an independent system of external review.
I agree with this statement, giving consumers a new right under ERISA to an external grievance appeals process is a right that I believe to be particularly important. This right forms a cornerstone of S 1712, the Heath Care Quest Act, which Senator Lieberman and I introduced during the last Congress. The limited set of ERISA standards may have worked well for the simple payment of health insurance claims out of the Fee for Service Systems in 1974. However, today our system is much more complex and there are many types of decisions being made, the routine reimbursements to pre authorizations for hospital stays. And it is in the context of these changes, particularly, the evolution of managed care that ERISA needs to be amended in order to give participants and beneficiaries the right to appeal adverse coverage and medical necessity decisions to an independent medical expert.
Today's hearing is intended to provide committee members with an opportunity to hear testimony on two areas that were common in both S 2330, the Senate Leadership Patients Bill of Rights and S 1890, the Senate Democratic Patients Bill of Rights, both introduced during the 105th Congress. Our witnesses have been asked to comment on the provisions of 1890 and 2330, which relate to these issues, especially the establishment of a new independent external appeal process under ERISA. In addition, the hearing will allow the committee's oversight of the Department of Labor, DOL's proposed rules on claims, procedures, and content of summary plan descriptions, which were published, in the federal register on September 9, 1998.
First, we will hear from the Department of Labor and Pension and Welfare Benefits Administration about the proposed regulations on internal claims and appeals procedures and the information disclosure requirements for ERISA plan. The DOL proposed regulations deal with some of the same issues addressed by proposed legislation 2330 and 1890. For instance, proposed legislation and the DOL regulation, which shorten timeframe for making claims and appeals decisions and would create new standards for how those decisions are made.
I intend to explore with the department their rationale for adding the new standard such as the requirement for a medical consultation to the eternal appeals process in light of the fact that such a requirement is part of the external review process and proposed legislation. In addition, I will ask the department about ERISA to preemption and explore concerns about the extent to what DOL's proposed regulation would preempt state laws, particularly laws governing utilization review and grievance and appeals procedures.
Our next panel will also help us answer those and other important questions regarding information requirements and grievance procedures. We will hear from the National Association of Insurance Commissioners about state efforts to regulate in these areas and we will also hear from business purchasers of health care, consumers' health plans and providers. These representatives will discuss problems associated with the information requirements and grievance procedures and how the proposed rules and various legislative proposals would address these issues.
Our goal is to give Americans the protection they want and need in a package that can afford and that we can enact. As the Health Education Labor Pensions Committee works on health care quality legislation I will keep in mind these three goals. First to give families the protections they want and need. Second, to ensure that the medical decisions are made by physicians in consultation with their patient. And finally, to keep the cost of this legislation low so that it displaces no one from getting health care coverage.
The hearing follow the committee's usual format. Each of the witnesses will speak five minutes and each member will have up to five minutes per round for questioning.

The hearing record will remain open for two weeks and any written statements and questions for the record should be submitted within that time. I welcome all our guests and Senator Kennedy.
SEN. TED KENNEDY (D MA): Thank you, Mr. Chairman. I'll just take a moment, I'd like to ask my complete statement be put in the record. And I just want to underscore some of the points that you've mentioned and raise very, very briefly some others. One the great desire that all of us have in terms of health care and protecting consumers as the information, the importance of information and the availability and accessibility in this. We're interested in seeing how this works. And then secondly, I think all of us understand that you don't have a right unless you have a remedy. And we are interested in these internal kinds of procedure s and how they work.
We're all interested in procedures that are going to be expeditious, work rapidly in a timely way that are going to be simple, that are going to be fair and are not going to be costly or bureaucratic. And I think all of us are looking at those. And I think we can all benefit from looking as we address one of the major areas that there has been some differences on in terms of the other issue in terms of Patients Bill of Rights. We can look at what is out there in the country, because we have different formulations and different constructs in a number of different situations. And I think it's very valuable for us as we're looking at how we're going to address this issue.
I've have my own views about this, but we all are trying to sort of find ways of moving this process forward and we ought to be in the situation where we're glad to listen and to learn, I certainly am. So, we want to be able to benefit from what's happening in the department. And we're very, very grateful for your presence here.
I just mention that finally, Mr. Chairman as I mentioned at the outset, we are in a situation because of the particular schedule in the Senate where we have a Caucus today. Generally, those are done during the lunchtime, but because of the other kinds of matters that are before the Senate we had to one this morning. So our side is unnecessarily absent, but we'll certainly review the material carefully and we're very glad that we started off with these hearings. We want to indicate to all of our witness our desire to work with them and we will study closely their recommendations. SEN. JEFFORDS: As I also mentioned earlier, also of course your members I understand their absence we will be allowed to provide questions to the witnesses so that in accordance with the time schedule of two weeks so that they will have an opportunity to participate under the circumstances.
Ms. Kramerich.
MS. LESLIE KRAMERICH: Thank you, Mr. Chairman. Mr. Chairman, Senator Kennedy and members of the committee, I want to thank you for inviting me to speak with you this morning --
SEN. JEFFORDS: Excuse me a minute. I didn't mean to ignore, but do either of you have a moment, would you like to comment or --?
SEN. SUSAN COLLINS (R-ME): I don't, Mr. Chairman.
I look forward to the witness' testimony.
SEN. JEFFORDS: Fine. Thank you very much.
Ms. Kramerich.
MS. KRAMERICH: I want to thank you all for inviting me to speak with you this morning about the Department of Labor's role in the administration's effort to ensure that American workers and families receive full and fair protections when their claims for benefits are denied.
The administration remains committed to the enactment of a strong and enforceable Patients Bill of Rights. We, like you, believe that American workers need and deserve nothing less. Now, as the President said just last evening in his State of the Union Address, we must not miss this opportunity to act. For the sake of our families, we must join together and pass a strong and enforceable Patients Bill of Rights.
Secretary Herman and I welcome the opportunity to work with you, Mr. Chairman, and the members of our authorizing committee to develop that legislation. We also welcome the opportunity to share with you what the Department is doing through the regulatory process to enhance the protections of American workers covered by ERISA plans.
As you know, we have proposed changing the current regulations that govern the processing of health and other benefit claims by ERISA plans. For us, the proposed regulation is a patient's right. It is a way of strengthening a very fundamental right, the right to a fair process for resolving problems when you feel you've been denied a promised benefit.
The regulation currently governing ERISA benefit claim determinations was adopted in 1977, but that was over 20 years ago. Since that time, there's been tremendous change in the practice of medicine and in the ways of designing health care and other benefit plans and containing cost increases and promoting quality. There have also been dramatic changes in the way request for benefit coverage are handled by employee benefit plans. Many plans have changed with the times and adopted better practices. But those changes have not been incorporated into our procedures and replicated throughout ERISA plans. For those plans who haven't adopted more appropriate safeguards, our procedure must be strengthened to ensure that they do so.
In 1997, with the report of the bipartisan Presidential Advisory Commission on Consumer Protections and Quality in the Health Care Industry, we began highlighting the ways in which patients' rights to full and fair review of benefit denials needed strengthening. We elaborated on that in subsequent commission reports, then put out a request for information on how to achieve that strengthening and studied the more than 90 replies we received.
Finally, last September, we published a proposed regulation detailing a new patient's rights claims process. We've proposed that the full and fair process to which ERISA participants are entitled should mean giving people faster responses when they need an answer about their health care coverage, giving people better information about why their claims are denied and how they can appeal, ensuring that people have a meaningful time in which to appeal, that their appeal is heard by someone other than the original reviewer, that it includes consultation with an appropriate health care professional if a medical judgement is involved and that it gets a timely response. And finally, making sure that internal reviews can't be used to deprive an individual of a meaningful external review.
This is a proposed regulation in which we, of course, invited comments on the variety of issues raised by the proposal and we got them. We've currently received almost 700 comments on this regulation and we'll hear more at our hearing that the Department will have on February 17 and 18 and 19, if necessary. That hearing won't be the first time that we meet with employers and plans and patient advocates and disability groups and participants to talk about this proposal and it won't be the last time.
We've tackled a lot of tough issues in the proposal and there are still a lot more that can only be done through legislation, problems that we can't resolve in this regulatory procedure. For example, several witnesses on your next panel have very valuable ideas and successes in implementing external review mechanisms as a check on the plan's internal process. A strong external review mechanism is something the administration considers vital to an appeals process that provides full and fair protection of the patient's rights. But that kind of mechanism is beyond the scope of what we can propose without legislative action.
We've heard from the National Association of Insurance Commissioners on this point and from several state insurance commissioners, including Vermont. And a real solution is going to require that we work together on a legislative solution. We welcome the opportunity to talk more about that and to work with you on the options that we see. We know that measures like our proposal can add cost and that it is important to balance the cost and complexity imposed on sponsors in what is a voluntary employee benefit system.

We also believe that there is room for us to modify the proposal to improve it's workability and to work together with employers, plans, practitioners and participants to make sure that all benefit from a procedure that promotes fair and appropriate answers up front and minimizes the harm to be remedied later. There are significant benefits here that are hard to quantify, but are very important. Trust in your managed care provider, more fair, impartial and informed decision making that is able to consider a broader array of medical evidence and fewer costs for plans and patents in litigation. This proposal is sometimes described as permitting litigation. ERISA itself already provides access to court. It always has and participants are suing and plans are defending, but not on the human issues at stake.
We don't approach this assuming that plans are out to harm participants. On the contrary, they are voluntarily established to help participants. We do believe though that things don't always go right and we believe that when things go wrong, the right safety net needs to be in place. Our proposed regulation is one important piece of that safety net and we welcome the opportunity to work with you, with the other witnesses here today and with all who are interested in developing the best contribution we can to our shared efforts to improve patients' rights.
In considering how to shape our starting point proposal, we looked closely at the bills introduced in the last Congress by members in both Houses and on both sides of the aisles, including, of course, S 1890 and S 2330. And we looked at the model standards developed by the NAIC as well as alternatives proposed by employers and others in the private sector and that's a partnership we plan to continue.
I want to thank the committee for the opportunity to appear here today and to express our desire to work with you on, both the legislative and regulatory improvements, that will promote patients rights for all. I'm happy to try to answer any questions you have and I'm honored to be the first witness before the Health Committee.
Thank you.
SEN. JEFFORDS: Well, thank you. SEN. TIM HUTCHINSON (R-AR): Mr. Chairman, I'm going to have to excuse myself. I have another commitment and I do have several questions I'd like to submit for the record for this panel.
SEN. JEFFORDS: They certainly will be answered.
SEN. HUTCHINSON: And thank you for calling the hearing today and I regret I'm going to have to excuse myself.
SEN. JEFFORDS: I know this is a busy time for everyone and you have been one of my most loyal attendees, so I, certainly, excuse you.
SEN. JEFFORDS: In your testimony, you cite comments that indicate many plans currently fail to provide claims processing that meets the standards of the 1977 regulations and that claimants are not well informed about their rights. Since your proposed regulations are much more detailed than the 1977 regulations, what additional enforcement and educational activities do you anticipate the Department will be engaged in after you issue the final regulation?
MS. KRAMERICH: Senator, once we've had our hearing and considered all the comments, we would hope that in the final regulation what we've designed is really a procedure that in most cases enforces itself. We will have the authority to step in and take a plan to court, if necessary, and get an order directing that they conform their practice to the final process. But what we would hope is the process itself that we all agree to is something where the participant gets more information on what they need to do to supplement their own claim submission and get a different decision if they think that's justified.
SEN. JEFFORDS: Just reminiscing, I think for the 20 odd years that ERISAs been in, I think finally people may understand what it is and hopefully everyone does. Right now everybody glazes over when you mention ERISA, but I think more and more people are beginning to understand what it does or doesn't do. So, we appreciate your help in that regard. What data and or studies did the department use to arrive at the cost impact assumptions in the proposed regulations?
MS. KRAMERICH: We commissioned several reports by outside groups. We looked at BLS data. We looked at some of our own data on plans and practices. We looked at comments that were filed in response to our request for information last year. But it's something that we're hoping to develop much more fully with the comments that we have received as a result of our September proposal too. I mean, this is our best effort on the state of what we now have beginning with the Advisory Commission in '97 and every thing we can develop to come up with a cost estimated. So, I don't expect that it's our final cost estimate on this. And we're very open to other data sources that can be suggested. SEN. JEFFORDS: Did the primary cost benefit analysis include a survey of plans, employers, and service providers process plans?
MS. KRAMERICH: A survey? Excuse me one second, let me just consult on this. No, I don't think that we've done a survey where we literally designed a questionnaire and submitted it to everyone. I think, probably, the better source of how our data began was with the Advisory Commission and with other bodies like it. And it's subsequent reports that attempted to gather, not only anecdotal evidence, but sort of the other ERISA cases and specific factual situations where it's been brought to our attention of examples where the process didn't work. And that's something that we're clearly open to developing and trying to do right now.
SEN. JEFFORDS: It's going to be important for us to fully understand the implications of one of the big problems we're going to have is what costs are involved here so we can better understand what we can and should do as far as the legislation goes. Last month my staff gave you a copy of a letter dated December 2, 1998 from Elizabeth Costal (sp), Vermont's Commissioner of Insurance. In her letter, Commissioner Costal recommended that the Department of Labor's proposed rules only apply to self-insured group health plans and that they not apply to insured group health plans. You understand this is a relatively important issue for the states. Have you a comment to make on that?
MS. KRAMERICH: Yes, we did look at that letter. And I appreciate your calling it to our attention. And we've gotten several others like it. And it's a big problem for us that we want to work with the Vermont Insurance Commissioner and you and the NAIC and others on, because here's the problem that we're having. Ideally, we would like to be able to say that with ERISA we can help design an internal claims process, patients rights process that's going to help participants, but not be outrageously unworkable for plans. And we'd like to be able to say that we can design or facilitate an external process. And that we can make meaningful remedies available at the Hill under that. We can't.
Under ERISA what we can do is say for the ERISA universe insured and self-insured plans we can design a minimum standard that's a good internal claims review process. There's no legislative language there that let's us design an external review process. And we know that a lot of the states are experimenting with different ways of doing that. I think I've had at least six different models called to my attention. And those are wonderful successes. We'd like to learn from that. We don't have the authority to come up with a federal external claims review process with the state of the federal law that exists now, we'd need to work together on that.
The problem is we also have a Supreme Court decision that's 12 years old that interprets ERISA as saying that ERISAs remediesclusive and many have said that what that means is for an ERISA plan the state external review mechanism is going to be preempted, wiped out. We don't want to see external review mechanisms not made available to ERISA plan participants. But that's one of the things where we will have to work together in a legislative solution to make that happen.
SEN. JEFFORDS: That's good. As you know Senator Collins is extremely interested in these issues having been commission in the state of Maine.
MS. KRAMERICH: I understand.
SEN. JEFFORDS: So, I can assure you, you will have a rather active member of this committee with respect to that aspect.

The department's proposed regulations establish different timeframes and some of the timeframes in the proposed legislation and in regulations governing Medicare. How did the department arrive at the decision to use these timeframes, for instance 15 days for a retrospective determination? Did the department consider the timeframes in S 2330, which allow 30 days for initial determinations?
MS. KRAMERICH: We did. We looked at S 2330, S 1890, S 1712 many, many other bills. Medicare, FEHB, CHAMPUS, as many things as we could find. And I can't tell you that there's a particular mechanical science to 15 versus 16 versus 14 as some plans use, versus 30 as someone else uses. We're very open to continuing to talk to people about that. We're different too in that we talk about urgent claims where most other programs talk about pre-authorization or concurrent review or retrospective review. That's a change that we're open to, too and we've invited comment on.
We tried to make a cut at figuring out what kinds of things need the fastest response. Because I think we're all trying to prioritize who needs a quick answer and how do we target resources to that truly needy population, needy in terms of a medical timely response. To us one important population is, of course, urgent care. If someone's life or health is hanging in the balance then that would seem to be the population you'd have to focus on. Also, if somebody has submitted a claim that the plan considers incomplete and they need to submit more information before the clock starts running then we would hope they get that word that they need to do something else. There's no reason that the other ways of making a cut at this aren't appropriate and we would hope to talk about that more with you and with the other designers of other systems.
SEN. JEFFORDS: You mentioned an area that's of concern to me, what about emergency situations?
MS. KRAMERICH: Emergency situations are -- I know that a number of the bills include a 24-hour turn around time on emergency situations and while we are less explicit, our regulation currently and our proposal doesn't use things like 15 days and 30 days as a general rule. That is the outside. The required turnaround time is still what's appropriate to the facts of the individual patient's needs. So, I would think that our rule could accommodate that, but it's something where we could be more explicit. SEN. JEFFORDS: Senator Brownback.
SEN. SAM BROWNBACK (R-KS): I don't have any questions of the witness. I thank you very much.
SEN. JEFFORDS: I want to thank you and I can assure you that we're going to have some active conversations as we go forward, because this is, the one thing everybody agrees is that something's wrong, it should be fixed. And thus, it's incumbent upon all of us that are working on this to find a solution as soon as possible.
So, we'll be in contact, and welcome. We look forward to working with you.
MS. KRAMERICH: Thank you, Mr. Chairman.
SEN. JEFFORDS: I would ask the next panel to please come up and be seated, and we'll get the name cards up, so I know who I'm talking to. I would like to ask you to introduce the good Kansas commissioner, and --
SEN. JEFFORDS: --we'll start with Kathleen as soon as we're arranged here. You can go right ahead, Senator Brownback, with the introduction.
SEN. SAM BROWNBACK: Thank you, Mr. Chairman. I appreciate the opportunity to do this during my first meeting. The leadoff witness on the second panel is the commissioner of insurance for Kansas, which is Kathleen Sebelius. She just was reelected to a second four-year term on that job. She brings a wealth of experience to the first term and through legislation, as a role as a legislator in the state legislature in Kansas. I think she's going to present very well, and I believe also serving today as the national spokesperson for the Insurance Commissioners Nationwide, State Insurance Commissioners Nationwide. So, Kathleen, I want to welcome you to the panel, and welcome you to the committee.
Mr. Chairman, I'd also note, I have another committee that's going on at the present time, the Commerce Committee is hearing the reauthorization for FAA, so I will have to slip out during the middle of this panel, because the FAA reauthorization is a critical issue to us nationwide and in my state of Kansas, (especially ?) Wichita, which manufactures more airplanes, civil aviation, small aircraft, than anywhere else in the country. And this is a very important issue. So, my apologies to the panel, but I will have to slip out in the middle of this.
SEN. JEFFORDS: Well, Senator, if you do have a question that you would like to ask of her, I will ask her to give her testimony, and then start questioning on that. Or if you have to leave now, that's fine. SEN. BROWNBACK: I'm going to have to leave probably in the next five to ten minutes. I think it's best probably to go ahead with all the presentations, would be the best route to go.
SEN. JEFFORDS: Thank you very much.
Ms. Sebelius.
MS. KATHLEEN SEBELIUS: Thank you, Senator Jeffords, and thank you, Senator Brownback. I hope you do go take care of the aviation industry for Kansas. I was telling Senator Brownback, sitting here, that I didn't realize he was a recent addition to the committee. I had the opportunity, I think a couple times last year, to testify. And I didn't realize until I read the new committee membership on the plane that we now have, again, a Kansas member. So, it's a nice coincidence.
I am Kathleen Sebelius. I'm the elected insurance commissioner of Kansas, I'm also the secretary treasurer of the National Association of Insurance Commissioners. And testifying today on behalf of NAICs special committee on health insurance. I really want to talk about three main things, the relationship between states and the federal government concerning the regulation of health insurance. Then the federal external grievance proposals that appeared in legislation before Congress. And the DOL regulations regarding claims handling.
And I want to say at the outset, Mr. Chairman, that, while we appreciate the Department of Labor and congressional efforts to provide protections for consumers, currently with limited recourse, those in self-funded ERISA plans, we're concerned about the preemption of state laws. If Congress or the Department of Labor ends up preempting state laws, millions of Americans who now rely on the states to handle health complaints and to resolve grievances, will find those protections have suddenly disappeared.
We recognize that the passage of ERISA over 20 years ago created a dual regulatory structure in the country for health insurance and health benefits. And we said in the past that if it weren't for the dual structure, we might question any federal role in setting quality standards, including grievances. But because we recognize that states lack jurisdiction over self-funded ERISA plans, our position remains that Congress should provide consumers in self-funded plans with the same level of protections they would receive if they were under state authority.
We continue to believe that states are better able to determine what works best in the market places. The delivery of health care continues to be a very localized activity, and a single federal standard may be difficult to apply nationwide. States have long recognized the importance of providing all consumers with the ability to appeal an unfavorable determination. Seventeen states currently have laws mandating the external grievance process, and 22 additional states, including our state of Kansas, have external grievance legislation pending in the current legislative session.
NAIC has had a grievance model in place for a number of years, and we're currently developing the external focus of that grievance model. The issues are contentious, without a proper dialogue between the federal government and the states, new federal laws or regulation could actually leave consumers with fewer protections rather than more. We've looked, Mr. Chairman, at the external grievance mechanisms in last year's bills, Senate Bill 1890 and Senate Bill 2330, and compared them to the NAIC model. And the written testimony details several areas where we feel that the federal law is weaker than the model, and would urge Congress to look at them, such as the establishment of a grievance register.

If Congress decides to adopt these protections for the self- funded ERISA plan, we would highly recommend that some of the provisions that are in the current model be added to the congressional legislation. We've also spent a good deal of time, and you've heard the assistant deputy secretary from the Department of Labor testify, working on the Department of Labor proposed regulations. And we're very concerned about the potential preemption of this issue.
We currently have 50 states with internal grievance processes, 17 and another 22 pending with external processes that are in place. And the mechanism is there to respond to consumers. Although the assistant secretary mentioned a 12-year-old Supreme Court case, the current court is looking again at ERISA jurisdiction. And we're very pleased with the solicitor general's position on this issue, which we think is very strong, and support the view that the Department of Labor regulation would not interfere with a state's ability to regulate the business of insurance. They advocate a common sense interpretation of the savings clause, and specifically recognize the legitimate role of dual federal and state regulation of the insurance industry as set forth by ERISA. We've also, our organization, has filed an amicus in this very important case, the (UNIM ?) Life Insurance Company v. Ward Case, which is currently pending in the court.
Mr. Chairman, Congress expressly allowed for federal and state regulation of ARISA planned by virtue of the savings clause. It was to preserve the state's traditional regulation of insurance, including regulation of insurance policies purchased by ARISA plan.
The members of our special health committee are interested in preserving the distinction between self-funded ARISA plans, which clearly are under congressional exemption and outside the purview of state law and insured plans, which Congress specifically intended for states to regulate.
The NAIC members want to insure that citizens in our state, who are covered by ARISA insured plans, have the abilities to have their claims and grievances addressed. States should be given the flexibility to continue the development of innovative solutions to complex problems, including the development of independent external grievance procedures for health plans. Thank you very much for your time.
SEN. JEFFORDS: Thank you for a very helpful and very excellent statement from an area that's of deep concern to us.
Our next witness is Mr. J. Randall MacDonald, who is testifying on behalf of the Association of Private Pension and Welfare Plans -- APPWP. Mr. MacDonald is executive vice president of human relations and administration for GTE in Irving, Texas. Mr. MacDonald directs GTE's world wide human resources administration activities, which include overseeing the company's benefits and compensation program.
Mr. MacDonald received a presidential nomination to serve on the advisory commission of the Consumer Protection Quality and Health Care Industry. He serves on a number of executive boards, including ARISA Industry Committee and its board of directors and is chairman of the executive committee of the Business Round Tables Employees Relations Committee.
Welcome and we look forward to your comments.
MR. J. RANDALL MACDONALD: Thank you, Chairman Jeffords and members of the committee.
As stated, I am here today on behalf of the Association of Private Pension and Welfare Plans. Its members provide benefit services for more than 100 million Americans, but I just don't represent employers. I'm here on behalf of 350,000 health care consumers, including myself and my family, covered by GTE's health care plans.
The message that many of us have been trying to deliver from outside the beltway on employer sponsored health care plans is simply put, in my mind, not getting through. Our nation's health care system is sending us a wake up call and in our mind we better start listening. In fact, the biggest wake up call recently that I received is when I've learned that despite the prosperity of the United States economy, the number of Americans without health insurance increased by 4 percent from 1996 to 1997 because costs are rising again.
Well, that's alarming. What's even more alarming is the un- insurance rate is increasing the fastest in states with most regulations and most mandates. At a 4 percent increase may not sound like much, but its more than that. It's 43 million Americans, who don't have health care coverage versus 32 million Americans just 10 years ago.
Let me be clear. Consumers lose when health care costs rise. Yet, we seem hell bent, if you will, on regulating those that have, while forgetting the growing number of those who have not. According to published reports, the average health care premium for federal employee health benefit plans will increase 10.2 percent, an increase well above the increase in the federal revenue, as well as the overall percentage increase of salaries.
In a competitive telecommunication business, GTE cannot and more importantly will not accept a 10.2 percent increase on health care costs. If we face numbers like that, frankly, one of two things will happen. We either redesign or, if you will, downsize the plan or we ask our employees to cover more of the cost or we do both. We're the lucky ones. For a struggling small company, the option is more simple -- drop the health care coverage.
Now, add to this a steady drum beat of managed care scare stories, constant bashing of employers and health plans by the press, and the prospects of a heavy dose of legislation and regulation for those who over health care coverage, and, frankly, you've created a recipe to get out, employers to get out quickly. Simply put, why offer something on a voluntary basis, when it's constantly attacked, adds to our cost position, and, frankly, and if some have their way, get us sued.
And, oh, by the way, we offer coverage voluntarily and yet some of our company competitors don't even offer it. One major non-union long distance competitor doesn't offer medical coverage for retirees. Penalizing us with regulations gives them a competitive advantage. We should focus with people who don't have the coverage and stop demonizing employers who give it to them voluntarily.
To those who continue to say that the problem is managed care, I'm here to tell you that I believe they have it wrong. Employers have abandoned the unsustainable strategy of providing increasingly more costly benefits through the unmanaged indemnity plans of the past. The only reason that GTE and thousands of other employers do not have $250 deductibles and 50 percent co pays or fixed fee schedules like Medicare is because we are managing health care.
We've moved away from the health care that's rewarded more volume and more payment to one that is focused totally on performance. Is managed care perfect? No. Far from it. Ask many of the 100 plans that do business with us now, but more importantly ask the 30 or 40 plans that no longer meet our standards that we've dropped because of it. But if we continually tie up the health plans in regulatory knots and threaten them and the employers that sponsor the coverage voluntarily with strict and unlimited legal liability, I ask you where do we turn next?
The irony is that employers that provide coverage are under attack for what we do voluntarily and how we do it and how we provide it. One hot issue for debate right now is the patient bill of rights, as was discussed last night in the state of the union. My colleague, who just testified, and I were on the President's Commission. I believe that we know what the words say and what they mean. I also know that why a number of ideas were not included.
The one reason that the commission's form at work is because we started with one very basic principal. The most common consumer protection is having health care coverage. We're not looking for mandated popular benefits or any willing provider provisions or unlimited liability.
Mr. Chairman, you have asked for views on the extensive information that would be required by regulation. We are very strong in our support of that, but we believe that it must be balanced.

Regulations just won't do it. Simply, we need to understand that we have to commit dollars to quality health care, not to the bureaucracy that supports it.
At GTE we work hard to give our employees the information they need to make informed decisions about their health care plans by providing quality report cards, similar to what the President suggested last night for education. We're already there. We're doing it without regulation. And we require that health care plans that do business with GTE make evidence based decisions about health care services for our employees.
I strongly favor working out the details of patient information and claims adjudication directly with the healthcare plans that offer them. But if you believe we must go further, then we'll send the working group of interested parties to the Department of Labor to work with them; because as they are proposed now, they are unworkable and far from pragmatic.
Market-based reform is happening every single day. Not because of laws and regulations but because a small group of advocates are making it happen. And we're fixing it when we see it's broken. Innovation needs encouragement, not penalties.
Finally, the real outrage is that the cost of compliance with unnecessary and encumbering regulations diverts money from quality medical care. We must be stewards of healthcare resources and make fair decisions on how those resources are equitably used.
Dollars for healthcare, not for compliance with regulations. There is no pot of gold out there. There is no silver bullet. We need to empower, encourage and enable those who are trying to do the right thing; not encumber them with the fear that if they make a single mistake, they will be facing debit saving, legal and financial consequences. No employer, no consumer can risk that consequence if we go down that road.
Thank you for inviting me.
SEN. JEFFORDS: Thank, you. Certainly a stimulating conversation will be created by your remarks. But anyway, I'd like to interrupt, just briefly, for Senator Collins who has been extremely valuable to this committee and also serves with me on the leadership healthcare committee as well. She would like to ask Ms. Sebelius a question.
SEN. COLLINS: Thank you very much, Mr. Chairman. I, very much, appreciate your accommodating my schedule.
Commissioner Sebelius, I, once again, appreciate the opportunity to have you come testify before the committee. As I mentioned to you at a previous time, I spent five years as commissioner of a department in the state of Maine that included the Bureau of Insurance. And I'm very concerned about federal preemption of state insurance laws unless there's a very good reason to do so.
I also know from personal experience that the states do an excellent job of protecting consumers in that consumers would much rather deal with state governments than with the federal government to resolve their complaints.
Having said that, let me ask your opinion on an issue that is slightly outside the scope of this hearing. But it has to do with the various patient protections that have been included in state laws. For example, it's my understanding that some 44 states have enacted legislation to prohibit gag rules. My question to you is should the federal government preempt state patient protections? Or would it be better for the federal government to only provide the kinds of patient protections that are in state laws to those ERISA plans, which the states cannot regulate?
MS. KATHLEEN SEBELIUS: Senator Collins, I think that in the past and we continue to believe that the focus, hopefully, of Congress will be on those consumers who really for the last 24 years have been under congressional jurisdiction that we often get calls from and cannot help other than by attempting to negotiate with human resources directors like probably the ones at GTE. Sometimes, we are able to prevail just on a reasonableness basis.
So, our preference would be not to wipe out the state protections that are in place; which often again are, I think, sensitive to the marketplace features. I mean, Kansas does not have a large penetration of managed care that's very different from California or some East Coast states. So what we may see coming through our consumer division or the legislator see as good public policy for Kansas is probably very different from what might be required in some other states.
So while there may be some uniform standards that states already have that Congress should look at. But with the protections, I think there also needs to be some marketplace flexibility. And that often comes through that state system. So, we would urge you not to preempt state law. Consumers comes to us, and if anything, it would be very helpful to have a mechanism whereby the enforcing mechanism for what was put in states could maybe be funneled through the state departments because the infrastructure is already there. Although my colleagues, if they heard me say that out loud, would probably shoot me with a large gun. So --
SEN. COLLINS: I appreciate your comment in that regard and I agree with them as well. I think that is a message that I would strongly encourage the National Association of Insurance Commissioners to get out to Congress. I think there is a lack of understanding of the good work that the states have done in this area. And the fact that a patient protection in one state may not be needed in another state, which I think is your point.
A good example of that is it is my understanding that Florida law mandates direct access to a dermatologist in cases for suspected skin cancer. That may well be a needed mandate in Florida. Unfortunately, it's not a needed mandate in Maine. We don't have that much sun --
MS. SIBELIUS: We'll just have to mandate the sun and then mandate the dermatologist.
SEN. COLLINS: Right, exactly.
But my point is that conditions do differ and I think a one-size fits all approach is not necessarily the right way to go and could be harmful.
The final question I have, which I would ask, all of the panel to provide information for the record, since I do, unfortunately, have to go, concerns the point that Mr. MacDonald just raised. I am very concerned that as Congress attempts to respond to very real concerns about consumers' ability to access the care that they need in a managed care environment that we not so over burden the system that we drive up the cost of healthcare and cause some people to lose their insurance altogether. That's certainly the worst of all worlds.
I would be interested in and ask each of you, to address for the record; whether you or the organizations you're involved with have done any analysis of the cost of adding various mandates. For example, whether it's the mandates in Senator Kennedy's bill or in the Republican's bill, which is the Republican bill obviously tries to avoid that problem and strike the right balance.
But, we desperately need from you hard data on which we can base our decision. And if, for example, state governments have some evidence looking at their rate filings of what the impact of adding certain mandates has been, that would be very helpful to this Congress and this Senate in making sure that we do strike the right balance.
So, again, Mr. Chairman, thank you very much.
SEN. JEFFORDS: You're welcome. Our next distinguished panelist is Professor Rand E. Rosenblatt, profess of law and associate dean for academic affairs at Rutgers University Law School in Camden, New Jersey where he teaches courses in health law, managed care, constitutional law, and law, justice and society. That's a great combination for us here today.
Professor Rosenblatt has written and spoken extensively on heath law. He is the lead author of the Case Book Law and the American Health Care System, and co-author of American Health Law. Professor Rosenblatt, it's a pleasure to have you here, and we look forward to leaning you at times here for your expertise.
MR. RAND ROSENBLATT: Thank you, Senator Jeffords. I agree with the previous witnesses that market-based health care changes have accomplished some remarkably good things.

But they've also created some remarkable dangers that fully justify regulatory change and initiatives. I think one example speaks very loudly here.
In 1997, the state of Texas enacted legislation that, among other things, prohibited health insurers and other managed care entities from removing or refusing to renew a physician or other health care provider from its plan for advocating on behalf of enrollees for appropriate and medically-necessary health care. In other words, we're talking about a situation where a physician is advocating, not deciding, he doesn't have the power to decide, but is simply trying to bring a perspective or persuade an insurer or an HMO that a certain kind of care is necessary.
This, by the way, is really an essential counterpoint to the cost containment pressures of managed care. The Institute of Medicine recognized this in its early studies of managed care many years ago. Now, it's troubling enough that the Texas Legislature thought it was necessary to pass such a law in response to apparently market-driven forces that were removing or penalizing physicians for doing this kind of advocacy.
However, the insurance companies, lead by the Etna Insurance Company, it's concept of what Mr. MacDonald called stewardship of health care was to go into federal court and seek an injunction against this law and many other aspects of the Texas legislation on the grounds that it was preempted by ERISA, and preempted not only with respect to self-insured plans, but with respect to all insured plans that were serving ERISA-based employees.
And a visibly uncomfortable federal district judge, Judge Vanessa Gilmore, who admitted that this law would clearly serve to enhance the quality of care that could be provided, felt constrained by Fifth Circuit precedent to rule that such a law found employers to purchase health plans of a certain structure, the structure, that is, that couldn't fire doctors for advocating for their patients, and that that, therefore, was preempted by ERISA Section 514. Thus, the Texas law will not go into effect for more than half the population of Texas who have their health insurance from private employment. That's the corporate health insurance case.
Now, when I teach these cases to my law students and to lawyers, and even to federal and state judges, they're frankly horrified that this state of the law and of the health care marketplace. I teach at a state university where my students represent a cross section of Middle America, and they can't believe that this is the current law.
Last October, I had the privilege of actually going to the Kansas State Judicial Conference and addressing the Kansas State judges, who like most of whom, I think, probably identify themselves as conservatives. They were quite shocked at this and many other ERISA preemption cases. And as you are probably aware, there are many, there are a number of federal judges who are writing opinions now expressing great discomfort at the opinions, the judgments they're being forced to render by current ERISA law and doctrine in terms that I don't think have been used in American law since the fugitive slave cases before the Civil War when the northern judges had to enforce that law.
These questions bear, as my written testimony indicates, the problem goes much deeper than one or two discrete problems such as gag rules or punishing doctors for advocating on behalf of their patients. The Bedrick (sp) versus Traveler's Insurance Case, which I appended to my written testimony, shows that the systematic, corporate operating procedures of insurance companies are often not in line, even with the current, rather modest protections of ERISA, let alone, the Department of Labor enhanced regulations.
Let me make a comment on the discussion we've been having here about the role of the states versus the federal government. It relates directly to that Texas case I was just talking about. I agree with Commissioner Sebelius. I think many states are doing an excellent job of consumer protection, and I would like to see the state role enhanced. Unfortunately, the current state of ERISA doctrine is not clear that the states are going to be able to protect even private employees who's plans are insured, and who, in theory, should be under state regulation because of the insurance savings clause. The reason is there is a split in the circuits. A number of the Circuit Courts of Appeals, notably, the Fifth Circuit, which covers Texas, take a very restrictive view of the insurance savings clause, and actually, courts in that circuit have been striking down state consumer protection laws that apply to insured plans.
Some of the other circuits, the Ninth Circuit, for example takes a different view. So, it's critical that Congress clarify the issue here. Either the authority should be with the states for the insured plans or the authority should be with the federal government, but it shouldn't be nowhere, which is the real danger that a number of these decisions and doctrines are going to lead to. I would just add a similar issue with respect to the one of the issues I addressed in my written testimony about the definition of an appealable decision or an adverse benefit determination in the DOL regs.
Again, much of industry is saying that should be narrowed, and so forth. At the same time, they run into federal court and preempt state claims based on these same issues. A manner in setting a decision and so forth, when they are in litigation, they say, oh yes, that's an ERISA claim. You can't go into state court on that. When DOL tries to regulate it, they say it's not an ERISA claim, and it can't be regulated. You can't have it both ways. And if you do, you create this zone where there's no regulation at all.
Thank you very much.
SEN. JEFFORDS: Well, thank you.
Our next witness is Dr. Stephen J. deMontmollin.
MR. STEPHEN DEMONTMOLLIN: deMontmollin. Just Stephen, it's not a doctor.
SEN. JEFFORDS: All right. Well, you can be for a while here. Speaking today on behalf of the American Association of Health Plans, we welcome back Mr. deMontmollin, who returns to testify before the committee as he has done in the past. He is vice-president and general counsel of the AvMed Health Plan in Gainesville, Florida. He was appointed by the late Governor Lawton Chiles, as Florida's first chief inspector general to combat fraud, waste, and mismanagement in state government. Wow. I'm pleased to have you have you here, and tell us how to do it.
MR. DEMONTMOLLIN: Thank you, Mr. Chairman and members of the committee.
AVMed Health Plan is Florida's oldest and largest not for profit HMO, and it serves about 375,000 members, including federal employees, as well as approximately 75,000 Medicare members. Today, I'm testifying on behalf of the American Association of Health Plans, or AAHP, which represents approximately 1000 HMOs, PPOs, and similar network plans, providing care to more than 140 million Americans.
AVMed, like AAHPs other member plans, strongly supports plan processes that address enrollees coverage needs and concerns in a timely fashion, and that ensure that consumers have the information they need to understand the terms of their plans and make affective choices. However, we are concerned that the proposed DOL regulations, as well as legislation from 105th Congress falls short in achieving those important goals.
I would like to focus my initial remarks on the DOL regulations and then briefly discuss key issues and external review and information disclosure. AAHPs members support the DOLs goal of enhancing ERISA claims procedures. Unfortunately, as proposed, the regulation is contrary to the interest of enrollees and raises serious concerns for health plans. First, the proposed regulations force state licensed health plans into a needlessly complex and oftentimes conflicting regulatory matrix. And I believe the colloquy between Senator Collins and Commissioner Sebelius is to this point. Health plans providing services to ERISA plans under an insured arranged must comply with state law requirements and many health plans contracting with self-insured plans utilize state mandated grievance and appeal procedures.
And I will hasten to say that we are privileged to operate medical offices on behalf of GTE in the Tampa, Florida area. And when we get an RFP from GTE, even for their self-insured plans, I can assure you that it has the same kinds of mandated requirements that the states have routinely adopted. As well, I might say, as the National Committee on Quality Assurance, the National Association of Insurance Commissioners, and the JCAHC, Joint Commission on Accreditation of Health Care Organizations, as external private accreditation agencies.

Second, the proposed regulation has a significant cost impact. This inevitably will result in more employers offering less comprehensive health benefits and increasing the share of premiums paid by employees. Third, the proposed regulation directs claimants to federal court. Judicial review should not drive the entire claims process. And I might say that our first speaker today, Ms. Kramerich, talked about this process as being a safety net. What our concern is that it not become a straightjacket for both employers and health plans.
Fourth, the proposed regulation's timeframes do not provide enough flexibility to ensure optimal decision-making. The proposal applies the same restrictive timeframes to both request for pre- authorization of services, and claims for payment of services already provided. Greater flexibility is needed to account for these differences and for the need to obtain information from both health care providers and claimants when making benefit determinations. There's even a five day period in there where you've got to make a decision within five days of whether or not there's additional information that's needed. There are any number of things that fly in the face of prudent regulations in the various states. The ability to do fraud and abuse investigations on claims, the ability to do coordination of benefits and subrogation, all of these are things that the rules would make it virtually impossible at the health plans.
Fifth, the process designed by the proposed regulation leave little room for the use of innovative methods of resolving claims. The proposal implies, erroneously, that multiple levels of review are detrimental to claimant's interests and fails to account for some state grievance and appeals procedures that require more than one level of review or independent external review. The prohibition against mandatory binding arbitration also is an inflexible and narrow approach. In light of these and other serious issues, AAHP has urged DOL to withdraw the proposed regulation and allow a second period of public comment on a new proposed regulation that addresses the issues raised.
With respect to external review proposals, whether public or private, state or federal, they should be examined with respect to the following critical issues. First, the external review process should be limited to coverage determinations involving medical necessity issues and experimental treatments. Allowing virtually any plan decision to be appealed externally makes the external review panel arbiters of insurance law and dictators of plan design and operation. Second, health plans internal procedure should be allowed to work. Often, disagreements about such determinations can be resolved immediately and with minimal cost. Exhaustion of plans internal processes should be required.
Third, external review entities should make coverage recommendations in accordance with the terms and conditions of health plans benefit contracts with purchasers. Doing otherwise essentially allows external review entities to make decisions contrary to the terms of the health plan contract, and could result in expansion of contractually agreed upon coverage. Fourth, there should be only one external review available for each set of facts that produce a claim.
With respect to information, recognizing that information is the underpinning of an affective market, AAHP believes that health plans should provide consumers with information so they can understand their health plans and make affective choices both within and among health plans. There are three key issues in particular that deserve emphasis. First, quantity of information does not equal quality of information. A recent GAO report supported this in its finding that too much information becomes overwhelming. Second, plan and provider level information are needed if the information is only provided on plans but not doctors and hospitals, then consumers will be making choices based on incomplete information. Third, comparison across plans promotes informed choice. If information is only provided on some types of health plans but not others, consumers will be making choices based on incomplete information.
Thank you for the opportunity to testify today.
SEN. JEFFORDS: Well, thank you. It's very helpful.
Our final panelist is Dr. Bohn V. Allen of Arlington, Texas, who is a practicing physician in general and vascular surgery. Dr. Allen will be testifying today on behalf of the Texas Medical Association. Dr. Allen has held numerous professional posts, including the chief of surgery, chief of staff, and chairman of the board at Arlington Community Hospital, and chief department of surgery at Arlington Memorial Hospital. He has been an active member of the county, state, and national levels of a variety of advisory committees, boards of trustees, and boards of directors. He is the author of papers and essays on various clinical matters. Dr. Allen, it's a pleasure to have you with us, and look forward to your testimony.
Please proceed.
DR. BOHN ALLEN: Good morning, Senator. Thank you
My name is Bohn Allen. I am an actively, practicing general surgeon from Arlington, Texas. I have been a practicing physician for 32 years. I want to thank this Senate committee for the privilege to testify. I chair the counsel on social economics, Texas Medical Association, where I hear the concerns and complaints of Texas physicians every day. I meet several times monthly with health plans in an attempt to resolve these disputes for patients and physicians in Texas. I am down in the trenches daily dealing with these problems.
Over the past year you've heard many so-called horror stories of patients who died or were horribly injured as the result of health plan policies and practices. I have examples of these, I have recently had experience with a 56 year old woman with pancreatic cancer that it took three months, from the time she saw her primary care physician, to work her through the system of pre-authorization to get her operated on and cared for. These abuses take place daily in the offices of practicing physicians all across the country as health plans disregard the medical record, disregard the scientific, clinical opinion of the doctors at the bedside, and in some cases disregard generally accepted standards of medical practice.
Two-thirds of the physicians the Texas Medical Association surveyed last month reported that managed care plans practices continue to adversely impact the quality of patient care. Doctors number one complaint is the plans' use of improperly qualified reviewers working from a computer screen with guidelines that have nothing to do with the individual patient's problem. Our patients need a documented, understood and observed stepwise system of appealing health plan decisions on medical necessity.
The process starts when I've seen the patient and done a history and physical examination, and reviewed the pertinent laboratory and x- ray information and reviewed any other extenuating circumstances. Then, I give the patient my best clinical and treatment opinion and recommendation. If the managed care organization or health plan denies it, they have effectively destroyed the patient/physician relationship, which we, as physicians hold sacred. Medical ethics, commonsense and human dignity demand that these private and personal decisions, be made solely by the patient with his or her physician. There is no place in the examining room for an insurance company, or government agencies.
Plans should overturn a physician's treatment plan only, if they can show that it would be dangerous to the patient's health or if they have a scientific proof that it violates generally accepted standards of prudent medical care. To go beyond these bounds destroys the patient/physician relationship. Health plans need strong and clear timelines to respond to claims through their internal appeals process. The patient needs ongoing education so they're aware of their rights and responsibilities. The plans must explain completely and accurately their reasons for denials. A two paragraph form letter that says simply, not medically necessary, will neither educate physicians nor provide the patients with information they need to understand or appeal the process. Even with the strong and observed internal grievance procedure, the plans inherit conflict of interest requires a completely independent objective and fair external review system in which the decision-makers have absolutely no financial stake in the outcome. Unfortunately, neither the Department of Labor nor state legislators can accomplish this without changes in ERISA.
The independent review system recently adopted in Texas is working well. During it's first year and half of operation about half of the cases were decided for the patient, half upheld the health plans positions. This shows that the reviews are objective and the health plans are making inappropriate medical necessity decisions.

This independent review program was included in our 1997 patient protection legislation by mutual agreement of all parties. Shortly after those bills passed Aetna US Health Care sued Texas alleging that ERISA plans were exempt from the liability provisions of the law. In September, the federal judge upheld the liability section, but said the ERISA preempts the independent review program, both sides have appealed the judge's rulings. But, it would be truly unfortunate if the external appeals process was permanently eliminated.
In most cases, an independent external review system obviates the need for lawsuits that's exactly why the Texas legislature enacted it. You cannot address appeals of health plan decisions without including the issue of liability, without meaning accountability there's no incentive for the health plans to comply with the internal and external review process, no matter how well they're corrected. The Texas law holding health plans accountable for their negligent medical necessity decisions has been in effect for a year and a half. Exactly one law suit has been filed, the case involves a suicidal man discharged from the hospital against his psychiatrist's strong advice when the health plan decided he no longer needed care to be in there and denied payment for further care. He was home less than 24 hours when he drank a half-gallon of antifreeze and subsequently died. Sadly, this life could have been saved if the plan had complied with Texas internal and external review procedures.
Thank you, Senator, for your attention.
SEN. JEFFORDS: Well, thank you, doctor, a very helpful testimony, and I want to thank all of you. This is obviously a very difficult area as move into it.
I was around when ERISA was created and on one of the committees that had jurisdiction, had nothing to do with health care at the time, it all had to do with Employer Retirement Income Security Act. And at the end of the conference committee, as they were about to go out the door, somebody said, oh, shouldn't we cover health as well, and so they added a few words in. And it didn't cause much problems for a while, but all of the sudden we have such controversy and conflicts between the states and all, it depends on where the plans are, who they cover and all this. It's now up to us to try and figure out what a rational system is to ensure that we can take care of the differences between those plans that only under state and those they are only under ERISA and how we try to work out the solution. So, I'm one of the few that does not pile over or wonder what ERISA is and why in the world we're in this mess. Knowing that we're in this mess or why we're in this mess does not create necessarily the solutions, so that's why you're here today.
Ms. Sebelius, if DOL's regulations are applied only to self- funded group health plans, will multi-state employers that offer a range of coverage options, including HMOs, be required to comply with both federal and state requirements pertaining to claims and appeals procedures.
MS. SEBELIUS: If the DOL regs apply to self-funded plans, then they would apply to those areas in a state or in a multi-state arrangement that is organized under ERISA protection.
The fully insured plans, whether it's a single employer or a multi-state employer, would comply with state laws the way they do now. So there would not be two levels of regulations, because either it would be a self-insured plan or a fully insured plan, and either state or federal law would apply.
SEN. JEFFORDS: Is there clarity needed?
MS. SEBELIUS: Pardon me.
SEN. JEFFORDS: Is there clarity needed in the law?
MS. SEBELIUS: Well, I think the current dispute is really those fully funded plans that are organized under ERISA. There is the Pilot Life decision, which suggests, which seems to suggest, that even if you are a fully insured plan, that there may be some ERISA preemption.
We feel, as members of the National Association of Insurance Commissioners and their subsequent state law, and again the issue is pending currently before the Supreme Court, that the distinction is fairly clear that if the plan is fully insured, it falls under the savings clause and is under state jurisdiction. If it's self-insured, self-funded, it falls under the congressional exemption.
I think, depending on the Supreme Court ruling it may be an area that Congress would like to, should clarify again. We would certainly urge you to clarify it and reinforce, I think, the savings clause that has been there and has been part of the congressional structure for a long time, contemplating those two sets of regulatory structures.
REP. JEFFORDS: Obviously, the problems created by those that are self-insured and all are having to deal in different states. Isn't there some strong argument for at least pretty close to uniformity and how we handle all these different situations
MS. SEBELIUS: Well, Senator Jeffords, we've testified in the past that we think it's quite appropriate for Congress to look at to direct their efforts in patient protection, external grievances, a whole gamut of issues toward those plans which are in the self-insured marketplace, which are under an ERISA exemption, which cannot be legislated or regulated at the state level, so we think that is an appropriate area. Congress created that exemption to allow multi- state employers to have one set of regulations. In the patient protection area or in the health plan area there really haven't been specific protections or remedies ever put in place. So we've always thought that that was an appropriate area of concentration.
Our plea to Congress is, in doing that, don't preempt the system, the framework, the infrastructure, the complaint handling system that's in place and really working very well for the fully insured market.
SEN. JEFFORDS: The NAIC, I'm not familiar with what they've done, have they tried to promote uniformity or do they recognize the state's need to do different ways?
MS. SEBELIUS: Senator, we as you know, the NAIC organization, does not have lawmaking authority in and of ourselves. Individual commissioners take model laws back to the states and promote them. But in the area of patient protection, we have five model laws which many states have adopted in whole or part and that's really our attempt to carve out some uniform standards, developing the models with a great deal of input from consumers, from insurers, from providers, from regulators. And then those models are taken into various legislators.
As you well know, it's very difficult to say to any group of lawmakers, here's the model, don't touch it, don't amend it, don't discuss it, just pass it. The likelihood of that happening is quite slim, but I would say certainly the framework for the models is very similar from state to state and the same kinds of issues are network adequacy, grievance procedures. The variety of issues are now appearing all over the country in state laws. Fifty states now have grievance mechanisms, mandated for fully insured plans.
SEN. JEFFORDS. You said DOL regulations should apply only to the self-funded plan, in your testimony. How does the NAIC distinguish its self-funded group health plan from an insured group health plan under ERISA?
MS. SEBELIUS: If a plan is buying an insured product in the marketplace, we would argue that they fall under state jurisdiction as opposed to the employer really bearing the fiduciary duty to pay the claims and using often an insurance company for a third party administrator for claims handling and paper processing. That would be the distinction that we would see. If they're purchasing plans in the marketplace, then we think they fall under state jurisdiction and have maintained that position pretty consistently, both in court briefs and congressional testimony.
SEN. JEFFORDS: What information does NAIC Model Act require that is not included in S2330 or 1890?
MS. SEBELIUS: Mr. Chairman, on page 11 of the written testimony, there are a couple of issues that are outlined. First of all the reporting requirements are different. In the NAIC model, the carriers must submit grievance procedures including all forms to the insurance commissioners along with future modifications. Neither Senate bill contains the requirement.

We also, and we feel this is a very important distinction, establish a grievance register requiring a health carrier to maintain records that are accessible to the commissioner as a way of tracking performance.
Senate Bill 2330 requires a plan to maintain grievance records, but doesn't require access to data by the regulators. So there is an enforcement issue, I think, that maybe distinction, and Senate Bill 1890 doesn't have a provision at all requiring the register. And there's also a different, in reporting requirements when an appeal is decided. We require that plans provide, and you've heard Dr. Allen testify, that consumers need complete information. If you deny a claim, it doesn't really help very much to just have a form I'll quote the doctor checking off a form saying, "It's not medically necessary." That doesn't give much information to either the provider or the consumer to use in an appeal, so our Model Act requires a good deal more information to the complainant than either of the Senate bills. Those are really the three primary areas of difference.
SEN. JEFFORDS: Generally speaking what have the state insurance commissioners gleaned from state grievance registers and annual reports filed by the plan? Specifically, do these registers track the number of grievances resolved on behalf of the consumer versus the carrier? And have any states used this information to improve their law?
MS. SEBELIUS: I can certainly tell you how we use it in Kansas, Senator. I'm not sure I can speak for my colleagues, but I would assume it's somewhat similar. We use it in a variety of ways. We publish a complaint record every year by insurance company, by line of insurance that's available as one of our consumer publications. We sort of see it as our consumer reports on insurance companies. You get a price comparison but you also get a complaint listing, and we track the information from year-to-year so people can get a sense. Consumers can get a sense if plans cost approximately the same and the provisions are about the same, but one company may have four times as many complaints as another company. We think that's a potential indicator that the consumer wants to be cautious about entering that plan.
We also use it for our market conduct studies. As you know, insurance regulators have the authority to send teams in both to monitor solvency, but also to look at claims handling, to look at whether the advertisements in the marketplace match what's actually being sold, to look at the timeliness of claims procedures. So, our complaint register is used as a trigger for those market conduct. We can find things suddenly showing up at the marketplace, a rash of complaints that may be an indication of consumer dissatisfaction. It may also be indication of some solvency problems. So, it's used as an internal and external model. And most of the issues that I take to the legislature come directly from our consumer division, calls that come to our department and highlight problems in the marketplace, whether health or otherwise are the kind of pulse-point that I use to analyze every year in terms of what to take into the Kansas Legislature. We were one of the states that did not pass an external mechanism last year. It is one of my proposals this year. And we felt that there were a number of situations in our department where there's a clear medical dispute.
We have Dr. Allen on one side treating a patient, we have a medical director of a health plan on another side. There are two sets of medical information. We neither have, we don't have the expertise frankly in our department to wade into that situation very competently. We want an independent panel of health providers with no financial tie to the plan to make a timely and appropriate decision. So, that that's also one of the triggers that we can look at the complaint register to find.
SEN. JEFFORDS: What percentage of the states have adopted the NAIC Utilization Review Model Act and the Health Carrier Grievance Procedure Model Act?
MS. SEBELIUS: I can't give you that off the top of my head. We'd be glad to provide that --
SEN. JEFFORDS: Could you provide it for us?
MS. SEBELIUS: Absolutely.
SEN. JEFFORDS: Thank you very much. Didn't mean to pick on you so much.
MS. SEBELIUS: Sure, thank you.
SEN: JEFFORDS: But you have an important area that we are very interested and obviously --
Dr. MacDonald, you make the point that health care plan information standards need to be flexible enough to accommodate the differences between network managed care plans and non-network plans, such as Preferred Provider Plans, while being consistent enough to give consumers the information they need to make well informed choices. Do you have any additional recommendations that would assist us in solving this problem? MR. MACDONALD: Well, first my parents are very proud of what you read earlier and now the fact that you just acknowledged me as a doctor. They're really proud.
SEN. JEFFORDS: That's all right.
MR. MACDONALD: I didn't even have to go medical school.
You know, I think --
Excuse me?
MS. SEBELIUS: I said, I don't want you treating me.
MR. MACDONALD: I'm not going there.
You know, I think the issue of adaptability and flexibility is what the primary statement that we were trying to make, is that we believe within GTE at least that we have varying designs that we have for our employees. And the key is that we want to make sure that we're providing them information that is relevant. One of our biggest fears is that we're going to go on information overload. It's the quality of the information that's provided so that people can make an informed decision and that's what we're ultimately trying to create for them. And so the only other quote, "advice", that I would provide is, is that in concept of flexibility is that we need to make sure that the information is relevant. Because too many of us in this day and age are getting information that is put before and we don't understand it.
SEN. JEFFORDS: As a member of the President's Advisory Commission on Consumer Protection and Quality, you supported the right of all consumers to have access of fair and efficient process for resolving differences with their health plan, including a rigorous system of internal review and an independent system of external review. What design elements do you feel should be included in the independent external appeals process?
MR. MACDONALD: Well, I want to make sure that it is understood and that support was in the concept of the Patient Bill of Rights. But the position has always been from the outset that this is a voluntary compliance approach, is that the feeling is that that represented a framework for employers like myself to evaluate and use within our own system. With respect to GTE is that we have already even prior to the Patient Bill of Rights, to be candid with you, already had a view of external appeals. We think again the marketplace demands the ability for the employer, who again I emphasize voluntarily offers these coverages to kind of design what's appropriate that fits their particular needs, their particular sets of employees. I think that what we have done in the past where internal review has indicated that we needed to go out, we go out and find the experts and ask for opinions on that basis. It is an independent view. We take that input and make those decisions.
To give you some sense of that, Senator, last year we only had eight cases where we had to go for external review.
SEN. JEFFORDS: Okay. That's excellent.
In your testimony you provide evidence based medicine and you recommend that I work in conjunction with the Department of Labor to develop the details of patient information and claims adjudication standards.

Please expand on this suggestion, please?
MR. MACDONALD: Well, one of the things that I think is particularly troubling is you look at the regulations that are at least being discussed right now. You sit here and one of the things that Senator Collins raised is the whole issue of costs. What does it mean incrementally? Well, the problem with these arguments is that incrementally something that cost a penny doesn't sound like a lot. But if you do that 10 times suddenly it's 10 cents, you do it a hundred times it's a dollar. And you know with all due respect, I understand how people feel that well, it's only a penny; it's only two cents. But that cost has to go somewhere. We just don't have the ability to pass it on. We can pass it on to the employee, but then we may actually be hurting ourselves in that respect because those employees are going to drop out of the plan. They can opt out.
Some of the regulations that we're looking at right now, one that in my mind that is just particularly mind boggling is that if one of the regulations goes through is that I will have to be able to retain records for a period of five years. So, if there is an appeal, I have to go back five years ago to decide how I have consistently applied it in 50 cases in order to uphold it. Now you begin to think about that if you have 100,000 people, you have turnover, say it's 120,000. You begin to put the dependent care on all that; we're talking about 500,000 cases over a period of five years. I have to maintain records to decide if I've maintained a consistent pattern.
That's a cost. Somebody's got to do that. Somebody pays for that. And when you're running a business, which you're trying to be competitive, you say to yourself why do I want to be in this business because when I look at my competitor, my competitor doesn't offer the plan. So why do I want to be regulated? Why do I want to absorb that cost? Now I think it's practical to say that we think we attract quality people and one of the ways we do it is through competitive benefits and compensation. So we would like to keep that.
So if we have to work with the DOL, our view is bring some of the experts in that work with this day in and day out so that we can have pragmatic approaches to solving the problem. We just don't want to say no to everything. What we're really saying is that if it is necessary, let's step back and say how does business work and how does it make it happen? Make it practical in its application so that if indeed it is a cost let's make it a half a cent instead of a penny. SEN. JEFFORDS: Please expand on this statement. You indicated that the proposed rules issued by the Department of Labor significantly expand and extend the scope of claim determination beyond their statutory authority. Please expand on this statement and indicate those areas where you feel the Department's proposed rules exceed their authority.
MR. MACDONALD: Well, I think that one area that I could focus on would be as I understand it, is before, after the first determination of whether or not it was accepted or not, assuming that it was not and it has to go on for appeal, before the second determination is made, is that I understand the regulations they are saying, they are suggesting, that they are requiring an outside opinion. And in our opinion that is not within the jurisdiction of those regulations.
SEN. JEFFORDS: Well, thank you. You've been most helpful, Mr. MacDonald.
MR. MACDONALD: Thank you, Senator.
SEN. JEFFORDS: I'm not degrading you now or -
Professor Rosenblatt, in your testimony you said that it would be nearly impossible to distinguish between coverage decisions involving medical necessity and coverage decisions involving contract interpretation. How would you design an external review process that applies to all types of decisions, as you seem to suggest, and not result in a plan having to cover benefits and services that are specifically excluded in the plan contract?
MR. ROSENBLATT: Well I don't think the plan should have to cover benefits and services that are explicitly excluded in the contract. And presumably that should be an issue that would be part of the appeals process as it is today. Today ERISA beneficiaries can eventually get into federal court where they can, if they've gone through whatever internal processes there are in the plan and sometimes these issues are medical necessity and sometimes they're issues of contract interpretation and very often they're intertwined. And the decision-makers at various levels have to deal with that mixture.
SEN. JEFFORDS: Some have suggested DOL proposed regulations would encourage litigation and increase costs. Do you agree with that assessment?
MR. ROSENBLATT: Well I think it's hard to say, but I think there's a good chance that it would decrease litigation. As I suggested in my written testimony, the Bedrick (sp) case is a great example. Here you have a situation where a physician utiliiewer makes a couple of telephone calls to two treating physicians. This is all based, of course, on the record as exerted in the Fourth Circuit opinion. The quotes from the doctors are rather ambiguous. The physician makes a decision to drastically reduce benefits and from them on it's appeals and litigation, whereas a more dialogic process where, as Dr. Allen was suggesting, where the docd actually interact with the plan the utilization reviewer through some sort of process, which is what I think the DOL regs are trying to set up, would actually decrease the amount of litigation because presumably if the doctors had a strong case the plan would agree.
SEN. JEFFORDS: The Department of Labor's proposed rules on claims procedure provide that the review upon appeal be conducted de novo. How important do you feel this requirement is?
MR. ROSENBLATT: I think that's very important. Again, the Bedrick case is a great example. The quality of the records, so to speak, made initially is often very thin and often may be dependent on what that initial reviewer asked, the questions they asked and how people responded. If that record is frozen, if that then becomes the only the record, you're likely not to get good quality decisions. It's actually only when the case becomes appealed, so to speak, often that the doctors and others start focusing on it and start building a proper record. And the decision-maker should, of course, be able to consider a well-constructed record rather than something that just by happenstance you know happened originally.
SEN. JEFFORDS: We have heard concerns from the National Association of Insurance Commissioners that the proposed regulations would undermine the progress already made by the states. How do you view the impact of the proposed regs on employers that fully insure?
MR. ROSENBLATT: I think that is, it's a very important issue. And there ought to be a way of integrating these two systems so that they work together rather than across purposes. But I think it's very dangerous to try to set up these different categories, you know fully insured versus self insured with markedly different systems of regulation because as we know already from our experience, and as Mr. MacDonald, I think, would agree with, when you set up basically different cost structures for different types of plans, you're going to start influencing the market. And plans will start going either self insured or fully insured depending on the economic incentives and plus you'll get very complex marginal intermediate forms that aren't clear what they are and there are a number of new forms as Commissioner Sebelius, I'm sure knows very well, and new forms of networks and delivery systems that have escaped state regulation altogether because they don't fall into the classic licensed HMOs or insurers.
So it seems like what we need is a system that perhaps where there is a some sort of federal floor that applies to everybody and then allow the states to do more and indeed to be the implementers of the regulation, much like we have in other statutory areas, such as HIPA and some of the environmental areas where the states and the federal government work together and the states are the frontline regulators. But there's a kind of national uniform floor so that nobody can escape completely.

SEN. JEFFORDS: Ms. Sebelius, what do you think about that?
MS. SEBELIUS: I don't know that the HIPAA model can work as effectively in the patient rights area. I mean part of, I think, what was able to be determined pretty clearly in the HIPAA framework is do you have guarantee issue or not? Do you offer what portability or not? When you move into, I think these more subjective areas making a determination of what is floor and what's a ceiling is the state law, in compliance, out of compliance, more consumer friendly, less consumer friendly, if they use an entity like Florida has, which is a state agency to do independent review does that meet a federal standard.
I am concerned that a lot of what's in place right now in the states reflects individual marketplaces and it becomes very difficult to translate into a uniform federal kind of approach that may or may not recognize those differences. I think having consumer protections for all consumers in the country is certainly an area that I would strongly support what Professor Rosenblatt has suggested. I don't know that the distinctions are that difficult to reach. They've been in place for some period of time. I think that those jurisdictional issues can be reclarified. Our problem is that they've gotten somewhat fuzzy in the lasts number of years with some conflicting court cases where there has been a suggestion than ERISA of preemption even applies to those fully insured plans that may be under some sort of ERISA organization. That's really where I think the conflict comes.
SEN. JEFFORDS: Professor, do you have any other comments?
MR. ROSENBLATT: Well, I agree with Commissioner Sebelius that actually working this out might be quite a challenge. But I think whether you go with a sort of somewhat separate systems or some kind of integrated system, I think the important thing is not to create radically different incentives so that the market get driven toward. Basically more and more people get pulled into the less well-protected system or out of the system all together.
MS. SEBELIUS: Senator, if I might back that up. We see that right now with sort of a no specific protections issues rules on the ERISA side and state legislators moving in the patient protection arena fairly aggressively. I mean what we see currently is exactly the situation that Professor Rosenblatt has subscribed where they are and certainly employers opting into the self-insured market to escape following certain rules and procedures. So having some floor directed toward the plans that are under ERISA jurisdiction, I think would in fact correct the situation, which has been escalating in the past couple of years. I don't think it would enhance it. I think it would help to make a more level playing field because one of the cost complaints that we hear from employers in our states who are under state law is that they are being competitively disadvantaged by the fact that they follow what Kansas lawmakers think is good public policy and other self-insured plans primarily large employers, may not have those same rules and regulations to follow. So they're currently is a competitive issue in the marketplace that may in fact help be corrected, not escalated by the protections contemplated in Congress.
SEN. JEFFORDS: Mr. Montmollin, regarding the proposed Department of Labor regulations, your testimony predicts that complex and potentially conflicting regulatory structure for state license insurance companies that provides service to induce ERISA plan. Please expand on those potential conflicts.
MR. DEMONTMOLLIN: I think that we've discussed a lot of them today. AvMed my particular health plan, in the state of Florida requires external accreditation by an agency like the national committee on quality assurance or the joint commission on accreditation of health organizations. They both have proposed guidelines for internal appeals and how information should be decimated and the come in and take your plan apart and put it back together based on those standards. Certainly the state of Florida has been a leader in this area of requiring health plans to have standards of information, internal appeals, as well as external appeals, the regulations that have been proposed by the Department of Labor. And this is consistent with their previous testimony to this committee about a year ago where they were in favor of civil liability against health plans. Yet it appears that there is an opportunity to go in with these internal rules and regulations and do your discovery. If you look at the detailed information and the manner in which it's supposed to be provided to the member or to the recipient, it's clear that he would have or she would have to have an attorney to accomplish that.
In the preamble to the proposed rule, the department talks about providing reasonable access to and copies of all documents and records relating to previous claims involving the same diagnosis and treatment. And under this proposal plans and insurers would be required to provide information on up to 50 claims in the past, things that you would more likely find in the litigation arena.
In the rules that require the information that you have to give to the member on the adverse determination, what kind of language should you use and what backup to that should you provide them. And in Florida again, one of the states as Mr. Commissioner Sebelius has already talked about has strict criteria about what information is provided when this adverse determination is made. But in the rule, it talks about requiring reference in your letter to internal rules, guidelines, protocols, criteria and for the first time in any reg. I've seen before et cetera. So I guess you're supposed to say and you know stuff like that, just get it all together and ship it over to them in boxes and their attorneys will break it down, then determine that the utility of profiling a lawsuit because that seems to be the train that this rule is clearly on.
SEN. JEFFORDS: You stated in your testimony that information is the underpinning of an effective market. Given that many beneficiaries do not read, let alone comprehend the information distributed to them by the health plan, what other steps should plans take to educate participants about their rights?
MR. DEMONTMOLLIN: Let me just take it in the Medicare context, cause GAO was very concerned about the amount of materials that were provided. Congress passed the Balance Budget Act in '97, issued 850 pages of regulations among other things, how we're going to educate seniors to the Medicare plus choice plans that are available.
Seventeen percent of all seniors in Medicare eligibles are in HMOs. Yet the Congress imposed through HCFA, the cost of that entire $95 million education program on the health plans. Only 17 percent of the members, but pay the 100 percent of it, so that when there was a 2 percent increase in the amount that was made available to the plans, immediately a half of that percent was taken back for the education program. But at the same time no effort was made to include the plans and how should that educational program be carried on.
In my plan and in a number of plans, it is our desire to help seniors understand that the managed care arena is different for them. Younger people coming up can adjust themselves and get used to having someone coordinating their health care. They can read a little better. The print doesn't need to be quite as large.
Those are things that health plans because they care about patient satisfaction. And there seems to be a suggestion by many that the only industry in the entire world that doesn't care about patient satisfaction or improving the quality of its product are making sure that the customer is satisfied or delighted, seems to be for some reason the belief that it's the managed care industry. And that's simply completely wrong.
My point simply is we have a number of programs where there are one on one opportunities for our Medicare members to come in. We do the same thing with our commercial members, giving them an opportunity to understand the plan one on one, make sure that it's easy reader materials that are provided to them. NAIC has been a leader in this area as well.
SEN. JEFFORDS: You state in your testimony that the proposed Department of Labor regulation limits innovative approaches and unnecessarily inflexible. Please elaborate on how proposed legislation could build on involuntary efforts undertaken by group health plans to protect their participants, including accreditation processes, quality assurance programs, and participant education.
MR. DEMONTMOLLIN: I think the Commissioner Sebelius has addressed a lot of this, and I have already talked about external accreditation agencies like the National Committee on Quality Assurance and JCAHO and others. And (clear hetus ?) is a perfect example in the outcome measures and trying to do things on population based medicine.

Evidence based or scientifically based medicine is what the health plans are trying to accomplish. If we can only move the fee for service industry into practice medicine, into the idea of a controlled managed health care based on outcome measures and based on evidence, I think that the members are going to benefit.
SEN. JEFFORDS: You state in your testimony that a patient's complaint may lead to improvements and quality of care. How should outcomes of independent external reviews be utilized by planned consumers to improve quality of care?
MR. DEMONTMOLLIN: We use them on a regular basis. Every time and in Florida there is an external review system called the State Wide Provider and Subscriber Assistance Panel -- three representatives from the Department of Insurance, three employees from the Agency for Health Care Administration, chaired by the Consumer Advocate in Florida. They contract with a primary care physician to be at every one of the meetings. They contract with a specialist in the particular area that involves that particular member.
Constant review of those decisions back at my plans through the corporate quality improvement committee, just as we take every decision by the CHDR, which reviews Medicare decisions, just like we take decisions that are approved or made by the Federal Employees Health Benefit Program. We take those back, talk about issues like C- PAP (ph) machines or sleep apnea.
Should we change our benefit with respect to DME and make this available? We have a disease management program in my plan for congestive heart failure because we know that if a patient goes into the hospital three times with a diagnosis of congestive heart failure, their chances of living six months is cut by 50 percent after that third admission.
That's just evidence based medicine that we're talking about; therefore we say in this corporate quality improvement committee, in the flexibility that the Senator has asked about, we say what about those members that don't have pharmacy benefits or will exceed their pharmacy benefits that they have under the plan.
We need to make sure that she has access to Lasix or this disease management program isn't going to work. We need to make sure that she has a scale, so that when the nurse calls her up and says would you mind stepping on the scale for me -- it's Tuesday -- and answers the questions about her daughter and all the other things that go on when nurses and patients talk, she steps on the scale and she says, Ms. Bradshaw, you've gained three pounds. Are you taking your Lasix? Yes, I am. Are you eating pickles? Well, yeah, I have been eating some pickles. Well, you know you need to stop doing that.
So, it gives an opportunity for that kind of information to be shared. It gives the opportunity for paying for the scale if she doesn't have one and to go outside of the contract for the Lasix. But the only way to do that is to have flexibility in how your internal and external appeals processes work and not that there is a rigid, formalized system that you have to put the square peg in the round hole.
SEN. JEFFORDS: Dr. Allen, the health care quality bills that I worked on in the last Congress proposed that the right to independent external review of health plan coverage determination to be extended to participants covered by ARISA health plan.
Given the September 18th decision by the US District Court Judge Gilman to overturn the Texas legislation that created an independent review process, do you support amending ARISA to extend the right through independent external review for customers?
DR. ALLEN: Yes, sir, Senator, as I think I said earlier in my testimony, in Texas we established the external review process called the Independent Review Organization. This was done in an attempt to bring an unbiased, independent view with review to controversies that constantly arise between health plans, providers, and the patients.
This process lends fairness to the program, so that we have an external review organization, which can look at all the parameters. A lot of times, the problem is that information is not gathered on one side or the other to make the appropriate determination and that leads to part of the problems.
With the Independent review organization that we have set up in Texas, where full information can be obtained, where the facts can be determined, then this independent body can make a reasonable determination as to what was necessary or is necessary. We have found this to be extremely helpful in eliminating controversy between the providers, between consumers, and sheds light to the whole process. And in our experience, it has dramatically cut the problem of having to go to the courthouse to try and resolve this problem.
So, yes, we strongly support an external review program in a form that does not necessarily have to be the independent review organization that we have in Texas, but some type of external review program, which gives an unbiased opinion. SEN. JEFFORDS: Your testimony states that the independent review system of health plans decisions recently adopted in Texas in working extremely well. How can the outcomes of the reviews be utilized by plans, physicians, patients, to improve the quality of health care provided to patients?
DR. ALLEN: Well, all of these I think can be incorporated in evidence based studies. In Texas, we have established what's called the Texas Health Quality Institute where we are looking at practice parameters, outcomes data, to determine best practices. And whenever we accumulate information, such as from the independent review organization, we begin to see outcomes and things that can be applied to improving the quality of care for the individual patient, which is the focus of what we're really after.
Its great to talk about treating large numbers of patients and doing broad based studies, but where the rubber meets the road is the individual patient and his needs. That's what the physician and what our organization is all about. And that's why we need to preserve that.
SEN. JEFFORDS: I agree with the statements in your testimony that we need strong and clear timelines for health plans to respond to complaints through the internal appeals process and that the external review process must be expedient.
I am particularly interested in your comments regarding the importance of expedited review in certain cases. What timeframes do you consider appropriate for an effective review system?
DR. ALLEN: Well certainly, for emergency situations and in patients who are hospitalized or patients who are in urgent medical situations, it has to be expedited in a rapid manner; i.e., in the emergency room, we frequently see patients that are there because of their plan. They have an emergency situation. You need a one-hour turn around time on authorization to do whatever it is you need to do with the patient because it may be a lifesaving situation.
Then there are situations that come up with continuation of care, further authorization of hospitalized patients where it's critical that you get the information and the authorization done in a timely manner. And frequently, because of other extenuating circumstances, it needs to be done within 24 hours. Then, there are other circumstances where patients are hospitalized where it's not critical, where it may be three to five days that you need that type of authorization or review.
For the majority of cases that probably do not threaten a patient's life or limb, we think that 15 days to 30 days is a reasonable period of time for the process to work itself out, to get the information and make the determination.
SEN. JEFFORDS: Thank you all. If anyone has a parting comment they would like to make, that is of positive nature --
DR. ALLEN: I would like to, Senator if you will allow me, to address one thing about what Mr. MacDonald said with regard to the liability situation.

In Texas, our law, as we passed it, exempts the employer from liability unless the employer is the one actually managing the program and make the medical necessity decision. And in looking at what has happened in Texas, so far, the additional cost of this liability to the plans has been about 32 cents per member per month to give protection to those patients.
So, we only had one case filed. We've adjudicated most of them in the IRO process so that we don't perceive this liability issue being a big problem or a big money driver for the employer.
SEN. JEFFORDS: Mr. MacDonald, do you agree with that?
MR. MACDONALD: Well, I think that my answer is relatively consistent. You know if you take things incrementally, 32 cents here, six cents here, it all adds up.
I mean at some point, we have to look at how we manage our cost. And the problem with it is, is that I sit here and I listen. We are fundamentally doing this for competitive reasons to offer these benefit plans. But we're at a point now where people just want to continue to regulate and legislate what we need to do, add cost to our overall total cost in pack to the corporation.
You say to yourself, why do I want to be in the business. Yes, if I step back as just an average citizen, it doesn't sound like a lot of money to me. I agree with that. But the reality of it is, is that when you start multiplying it by 350,000 people and it's more incremental cost each and every time, ultimately, somebody has to pay. That's what it all comes down to is somebody pays. And we have to find ways of doing that. And one of the ways we're doing it is constantly redesigning it.
One of my fears is, is that we may go back to a fixed fee system before it's all over, because then it'll be real clear. This is what we cover and this is what we pay, period, paragraph, sentence. And everybody understands that. And I think that's what we have to be careful when we -- I think employers, generally, want to play in the debate and they want to work in the debate. But I think there's a level at which we just can't arbitrarily say the costs are immaterial. MR. MACDONALD: I want to just add a comment about the concern about the cost of these kinds of regulations. There are actually fairly large numbers of people in the United States whoa re not now covered by ERISA, namely the state and local government employees, school teachers, public school teachers, federal employees and so forth; many of whom are under the kind of regulatory and patient protection that we've been talking about today that are somewhat similar to the DOL system.
As far as I know, the health insurance market has not dropped below the floor for these people. There are still insurance companies in there selling health insurance to these people and so forth. It seems like it would be possible to do some studies about the cost of different kinds of regulatory arrangements based on our actual experience to see and make some estimates about this.
Senator, if I could just tell you that Governor Pete Wilson wrote to the California legislature after his reform commission met and said, quote, "Any managed care reform measure worthy of your vote and my signature must meet the following three criteria. One, it must safeguard or improve high quality of care. Two, it must not diminish access to care. Three, it must make the cut as a competing component of the cumulative cost of added benefits so that we do not enact dozens of legislative mandates, that however well intended, end up bankrupting our healthcare system and punishing the very people we seek to help by making healthcare unaffordable and inaccessible. This would produce a bitter irony. It is a major trap we must avoid." And I believe that those are wise words.
SEN. JEFFORDS: Anyone else?
I want to thank you and I don't want to leave you scared either. We have, as you know, I think, 17 other members of this committee who will have the right to send you questions. But I wouldn't wait by your mailbox necessarily.
But, they do have that right. We have such terrible conflicts now that we're in the middle of the impeachment process, that it compacts our time so tremendously. It is very difficult to get to everything you'd like to. But, I want to apologize on behalf of the members that couldn't be here, because this has been an extremely worthwhile hearing. And I appreciate it very, very, much all the effort you have put in through your work and your efforts for being here today. You have been a big help. Thanks.


LOAD-DATE: January 23, 1999

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