What's the appeal? Trying to control managed care medical necessity decisionmaking through a system of external appeals.

• Author: Kesselheim, Aaron Seth

[Ralph] Benedetto, 44, a disabled Medicaid patient, contracted hepatitis B 10 years ago from a blood transfusion he received after he was struck by a drunken driver. Two years ago, his doctors said his disease had progressed to the point where he could die at any moment without a liver transplant. But his health maintenance organization refused to pay for the treatment.

The H.M.O. ... cited guidelines issued by the state of Florida recommending against liver transplants to hepatitis B patients....

...

[But e]xperts say there is now wide agreement that hepatitis B, in and of itself, is no longer a valid reason to deny someone a liver transplant.

...

In the end ... the case had prompted senior agency officials to make an immediate change in the agency's rule on hepatitis B [and the H.M.O. had agreed to move forward with the transplant] ... [b]ut now Mr. Benedetto may no longer be a viable candidate.(1)

INTRODUCTION

Armed with Mr. Benedetto's story and similar anecdotes, the United States Senate and House of Representatives each passed landmark patient protection legislation during the 106th Congress(2) to support the interests of Americans who receive their health insurance from a managed care organization ("MCO").(3) MCOs had grown in popularity through the 1980s and 1990s due in part to their promise to reduce medical costs by contractually restricting payment to medical treatment that they considered to be "medically necessary."(4) As a centerpiece of their new patient protection efforts, however, federal legislators have granted MCO enrollees the right to appeal such denials of insurance coverage and have established independent review organizations to judge the true necessity of the medical service.(5)

Consumer advocates had long endorsed the concept of independent review organizations to which patients could appeal their MCO's medical necessity determinations as a way of ensuring the scientific basis of such determinations.(6) Commentators had envisioned neutral arbitration panels empowered to analyze the relevant objective scientific evidence in order to ensure that MCOs were not violating their enrollee contracts and denying patients medically necessary care.(7) For patients otherwise trapped in the red tape of their MCO--such as Mr. Benedetto--a well delineated, timely appeals procedure and an impartial mediator could help overturn potentially life-threatening decisions.

As evidenced by the specific provisions enacting the external appeal privilege, however, federal legislators were not satisfied simply to grant patients the right to appeal to a neutral, third-party decisionmaker.(8) The language of both federal patient protection bills is striking in its departure from the commentators' conception of an appeals body as a neutral, scientific adjunct. Rather, the House and Senate bills expand the right to appeal and secure the superiority of the patients' position in the appeals process through such tactics as explicitly assigning burdens of proof for external reviews,(9) listing sources and types of evidence on which the reviewers must rely,(10) and giving independent reviewers wide-ranging authority to overturn MCO coverage determinations.(11) For example, the House Bipartisan Consensus Managed Care Improvement Act of 1999 requires external reviewers to make a "fair and de novo" determination, lists the types of evidence the reviewers should consider, and notes that the reviewers are not bound by the definitions of "medical necessity" included in the health plan's insurance contract.(12) What happened to the modest goals and the neutral, scientific ideal that characterized the movement toward independent review organizations?

This Comment examines the origin and evolution of the laws that permit appeals of MCO determinations to external bodies in order to explain the astonishing adversarial stance seen in the recent legislative efforts. Such historical analysis suggests that Republican and Democratic(13) legislators' implicit goal in creating external appeals systems is to use independent review organizations as proxies for taking medical decisionmaking control away from MCOs and returning it to physicians. This Comment suggests, however, that because of inherent shortcomings in the external appeals system, granting MCO enrollees the right of independent review is not an appropriate means of achieving that end. Part I details the emergence of MCOs and patient advocates' concomitant efforts to promulgate external grievance procedures for MCO enrollees. Part II investigates representative examples of state laws instituting the right to appeal adverse MCO benefit determinations to independent review organizations. While before 1997 only Rhode Island had an official external review process, by 1999 thirty states and the District of Columbia had established rights to external review for private health plan enrollees.(14) This Part reveals how state legislators generally expanded the rhetorical and actual scope of authority of independent review organizations over time. Part III looks at the development of patient protection acts proposed in the United States Congress during the same time frame.(15) Part IV posits an explanation for the trend toward granting independent review organizations more authority to overturn MCO "medically necessary" determinations, characterizing it as an attempt by legislatures to impose a fee-for-service regime onto the managed care health care coverage system. Finally, Part IV also interprets legislative efforts to institute interventionist external appeals processes as a futile attempt at improving health care delivery to the vast majority of people in managed care systems, and explains that the attempt fails because of procedural and theoretical deficiencies in the appeals system.

1. MANAGED CARE ORGANIZATIONS AND THE DEVELOPMENT OF THE APPEALS PROCESS

   This Part tracks the development of the external appeals mechanism as it emerged in response to changing American health care reimbursement practices. First, it examines traditional fee-for-service health insurance and the principal justifications for the MCOs that led the managed care revolution in the late 1980s and early 1990s.(16) Second, it focuses on one novel MCO practice, prospective and concurrent utilization review, in which MCO officers review prescribed medical services to ensure that enrollees receive only those that are truly "medically necessary." This practice leads many to call for a mechanism by which MCO enrollees could appeal such determinations to independent, neutral experts, thus ensuring that MCOs were not prioritizing cost-containment and profitability over the health of their enrollees.(17) Third, this Part analyzes the efforts of legal commentators and champions of patients' rights who suggested certain substantive and procedural features fundamental to an equitable appeals process.(18) Ultimately, patient advocates found widespread success, as over thirty states and, most recently, the U.S. Congress, passed legislation setting up the right to external appeal.(19)

   1. The Evolution of Health Care Insurers' Control over Physician Decisionmaking

      In the traditional "fee-for-service" design of reimbursement for medical services, health care providers charged a certain fee for each aspect of the medical care they rendered, and patients generally entered into contracts with indemnity insurers to cover their medical costs.(20) The physician prescribed a course of treatment and then undertook to deliver that care, submitting the bill to the insurer after the completion of the medical service.(21) While indemnity insurers reimbursed physicians only for services considered "medically necessary," two features of the fee-for-service system helped avoid disputes over reimbursement and the propriety of physician prescription practices. First, fee-for-service insurers by nature examined the medical necessity of a particular treatment only after the patient had received it.(22) Second, traditional insurers usually abided by the health care provider's judgment as to the proper medical care, rarely denying payment for services.(23) Thus, under the fee-for-service system, providers freely undertook the medical treatments or procedures they thought necessary.

      While fee-for-service medicine emphasized the primacy of the provider/patient relationship by not questioning the health care provider's prescribed course of action, the fact that reimbursement for physicians was not limited to those services that were medically necessary undeniably provided an incentive for physicians to overuse medical resources.(24) Partly as a result, by the early 1980s, the health care system generated massive costs--reaching 13.5% of America's total gross domestic product--that threatened the continued availability of health insurance to Americans.(25) Consequently, in the late 1980s, managed care organizations grew in popularity among purchasers of health insurance because of the managed care industry's promise to rein in the costly excesses of the fee-for-service insurance system.(26)

      MCOs offered enrollees lower cost health insurance by exerting more control than their indemnity insurance competitors over the delivery of medical services.(27) MCOs restrained "the kind, volume, and manner in which services are provided"(28) either directly through rules and organizational controls limiting the options available to health care providers or indirectly by modifying health care providers' behavior through financial incentives.(29) MCOs implemented cost-saving strategies across the entire spectrum of health care delivery, including fixing payments for services(30) and limiting access to more expensive medical specialists.(31) Most significantly, however, MCOs worked to eliminate excessive services through a stronger commitment to reviewing care recommended by physicians and refusing to authorize treatments deemed unnecessary.(32) The...