Health insurers' assessment of medical necessity.

• Author: Hall, Mark A.
• Position: The Law and Policy of Health Care Rationing: Models and Accountability

One can hardly imagine a more difficult choice than that faced by the district court in Rollo v. Blue Cross/Blue Shield.(1) In the judge's own words:

I was called upon to decide whether eight year old Tishna Rollo could live or whether she must die, a humbling and sobering decision. Tishna, I was told, had virtually no chance of surviving the relapsed Wilms' tumor [of the kidney] from which she is suffering and Blue Cross/Blue Shield had denied coverage for autologous bone marrow transplant ("ABMT") with accompanying high dose chemotherapy, a treatment which could well prolong and quite possibly save her life and which, concededly, provided her only realistic hope of either. The University of Nebraska Medical Center ... would not admit her without coverage, her parents could not afford to pay the projected $130,000--$140,000 costs of the treatment, and there was simply no time to wait, for Tishna's "window of opportunity" would soon close. The coverage issue had to be litigated and litigated quickly.(2)

Blue Cross denied coverage because the insurance policy covering Tishna Rollo explicitly excluded "experimental" procedures, and Blue Cross had concluded that the use of autologous bone marrow transplant (ABMT)(3) to treat Wilms's tumor had not yet been proven medically appropriate.(4) The "experimental" exclusion common in health insurance policies responds to a growing concern that most current medical procedures were adopted without ever having been tested rigorously and that at least some of the procedures commonly used today have limited or no medical value.(5) In the view of many health policy analysts, one reason so many unproven medical procedures have diffused into common medical practice is that insurers have been unwilling or unable to deny payment for care whose clinical efficacy is still in doubt.(6)

By requiring clinicians to prove that new procedures are efficacious before they are covered, the hope is that existing resources will be better allocated to maximize the health status of the overall population.(7) Thus, efforts to spend health dollars more wisely may ultimately enable the approximately 35 million Americans without health insurance to obtain coverage,(8) foster adequate prenatal care,(9) and make long-term-care insurance affordable.(10) Nevertheless, the judge in Rollo decided that Blue Cross should pay for the treatment.(11) Sixteen other courts over the past two years have also ruled that ABMT is not experimental, and they have ordered private insurers to pay the costs of administering it to terminally ill cancer patients, most often for metastatic breast cancer.(12) In about a dozen similar cases, however, judges have ruled that the use of ABMT is still experimental and denied coverage.(13)

These dramatic rulings have been viewed by the popular press and the health policy community alike as an extraordinary development.(14) From a legal perspective, however, these rulings are merely the latest in a long series of ordinary contract disputes over the interpretation of terms such as "medical necessity" or "experimental," which determine the coverage of health insurance policies.(15) For the most part, these previous contract disputes involved treatment at the periphery of traditional medicine with only modest amounts of money at stake.(16) Now, however, the stakes are much higher on both sides. The treatments now being questioned are very expensive new procedures that if performed on a widespread basis could leave more people uninsured and drive up costs for those who remain covered. These treatments, however, may also offer an individual patient's only hope of survival. Thus, bone marrow transplant cases present one of the core problems that perplex this country's health care financing policy: should we rely on rigorous empirical evidence before making collective decisions to spend our limited health care resources, or should we continue to rely on the individual physician's and patient's judgment about the appropriate treatment in each case?

This Article examines whether courts should allow both public(17) and private insurers to control health care costs by denying payment for specific services based on the insurers' judgments of medical appropriateness. Our primary focus in on private insurers; however, there is significant overlap with public sector activities because private insurers rely on governmental assessments to guide their decisions, and because the statutory terms of coverage under public programs resemble the coverage terms in private insurance contracts. Therefore, although we concentrate on the case law that interprets private insurance contracts, the Article's conclusions and policy implications extend to the public sector.

First, we set in perspective the most recent litigation by describing how the cases have evolved from the interplay of litigation and insurers' responses to prior cycles of judicial decisions. Next, we develop a normative model of who should decide questions of medical appropriateness for the purposes of insurance coverage and what criteria they should employ. In particular, we critique the role the courts have played in making and reviewing medical appropriateness determinations. In the final section, we set forth a proposal for reforming the process of determining medical appropriateness. We specify a new medical necessity review mechanism and analyze how this initiative is likely to fare in the present legal climate.

Our focus is on the policy dimensions of how insurers currently, and in the future are likely to, make medical appropriateness determinations. As such, this analysis differs from other articles that focus on the doctrinal elements of the case law(18) or addressing collateral legal issues such as the potential malpractice or antitrust liability exposure that results from making medical appropriateness determinations.(19) Our principal concern is with the core contractual questions of whether and under what terms the courts will allow insurers to play any significant role in assessing medical judgment through their coverage policies.

Other articles in this Symposium address more explicitly the theme of rationing medical care--that is, withholding useful treatment based solely on its cost. Because our primary focus is somewhat different, we prefer not to frame our discussion in terms of rationing. We consider whether insurers may exercise independent judgement on questions of medical benefit or comparative cost effectiveness (concepts we define with more precision later). We do not necessarily advocate that insurers should play an explicit rationing role. To the extent this Article is conceived of in terms of rationing, however, the issue properly framed is whether potential subscribers should be allowed to seek more superior forms of rationing than those that presently exist, not whether insurer rationing should be permitted at all. The traditional coverage terms of public and private health insurance, as those terms have been interpreted by the courts, presently ration by rendering insurance unaffordable for entire categories of medical care (nursing home, mental health, and dental, for example), or by rendering health insurance entirely unaffordable for thirty-five million people. Even if allowing public and private insurance to exercise greater oversight of medical appropriateness were viewed as tantamount to insurer rationing (which is not necessarily the case), this could only improve the existing blunt form of rationing.

1. POLICY CONSIDERATIONS UNDERLYING OLD AND NEW JUDICIAL RULINGS

   Although the ABMT cases seemed to emerge overnight, they are a logical outgrowth of decades of litigation involving private insurers' coverage decisions. Understanding this history and the policy issues underlying this large body of case law helps set the present controversy in its proper framework. This analysis will show that the inclination of judges to adopt every conceivable argument in favor of coverage has essentially precluded insurers from exercising any meaningful oversight of medical appropriateness.

   1. Retroactive Denials of Coverage

      Because the hospital industry gave birth to modern private health insurance in the United States, it is not surprising that private insurers were initially very deferential to both hospitals and physicians.(20) At first, insurance policies contained no explicit medical necessity limitations or review mechanisms. Instead, they covered, within defined monetary and service limits, all care ordered by any physician.(21) To the extent that private insurers restricted coverage in any form, it was through design of their benefit package. For example, a package might have covered only hospital care or only specified diseases.(22) Insurers first began questioning the judgment of individual physicians in the 1960s when they were asked to pay for the use of hospital facilities for such purposes as weight reduction or resting up from a fall.(23) Even these mild protests were generally unsuccessful in court, however.(24) Judicial deference to the practicing physician in this period reached its pinnacle in Duncan v. J.C. Penny Life Insurance Co.,(25) where the court required coverage for two three-week periods of hospitalization for a husband and wife for bruises and sprains, under facts that "strongly indicate[d] a motive on the part of the Duncans ... to reap financial gain."(26) The court ordered the insurer to pay even though the Duncan's doctor admitted that the care could have been administered at home and five other doctors agreed that hospitalization was medically unnecessary.

      In response to these rulings, insurers began to revise their contracts by inserting an explicit requirement of "medical necessity."(27) This, they thought, would give them the flexibility to deny potentially unnecessary medical care or care that might actually be harmful to patients. They continued, however, to lose their...