Medical Necessity in Private Health Plans

Appendix D. State Investigations and Legal Actions Regarding Medical Necessity Issues

State

Description

New York

A significant legal development regarding medical necessity was the series of October 2001 settlement agreements reached between the New York State Attorney General's Office and six large MCOs.¹ Following a two-year investigation into how these MCOs informed their providers and enrollees of adverse determination decisions on the grounds of medical necessity, Attorney General Eliot Spitzer found that these MCOs were not in compliance with New York State's utilization review law (discussed in more detail in Part 3 below). The focus of the investigation was on the processes used by the MCOs in making their determinations and informing providers and enrollees of them, rather than the content of the medical necessity definitions themselves. Spitzer's office found, for example, that MCOs were often denying authorization or reimbursement for inpatient mental health and substance abuse treatment and offering nothing more than a generic explanation that the service was "not medically necessary." There was often no disclosure of the underlying reasons or clinical rationale used by the MCOs in making their decisions, which is required in New York's utilization review law. An example of such an inadequate disclosure, as contained in Exhibit A of the settlement agreements, was:

Denial of continuation of stay at psychiatric inpatient facility: Patient was cooperative throughout stay with no overt psychiatric symptom according to the attending Doctor. Medication was discontinued during the stay. This referral does not meet either severity of illness, or intensity of service and is therefore denied.²

The settlement agreements defined "reasons and clinical rationale" as follows, stipulating consideration of individualized medical assessments and disclosure of sufficient information in adverse determination notices:

"Reasons and Clinical Rationale" means the individualized medical basis for an Adverse Determination. A statement of Reasons and Clinical Rationale must demonstrate that the UR [Utilization Review] Agent made an individualized medical assessment of the Enrollee by referring to the specific medical data relating to the Enrollee, which the Clinical Peer Reviewer took into consideration when making the Adverse Determination. Merely stating that the service at issue is not medically necessary is not sufficient, nor is a statement that the proposed service does not meet the UR Agent's criteria. A statement of Reasons and Clinical Rationale must be sufficiently specific to enable the Enrollee and/or the Enrollee's health care provider to make an informed decision about whether or not to appeal the Adverse Determination and to determine the issue or issues to address in the appeal.³

Rather than take the cases to trial, the Attorney General's Office and the MCOs agreed to settle out of court. Under the terms of the settlement agreements, the MCOs (while admitting no wrongdoing) agreed to reform their notification practices to bring them into compliance with state law and to each pay $1 million towards the cost of the investigation. The Attorney General's office will continue to monitor their practices until January 2004, with a possible one-year extension of the monitoring for MCOs still found to be noncompliant.⁴

Maine

In 2000, both United Behavioral Health and Cigna Behavioral Health, Inc., entered into consent agreements with the Maine Bureau of Insurance.⁵ Health plan enrollees had filed complaints with the Bureau concerning denials of coverage based on medical necessity grounds. A subsequent determination by the Bureau that the denials were not in conformance with Maine rules regarding utilization review led to the agreements.

In the UBH case, two separate enrollees were denied coverage for mental treatment of two or more family members by the same therapist. At the time, UBH had a written guideline that it was generally necessary for family members to receive concurrent treatment by separate therapists. The Bureau found that the denial notices did not adequately conform to the state agency rules⁶ in that they did not contain the qualifying credentials of the reviewer; did not include a statement of the reviewer's understanding of the consumer's reasons for appeal; did not clearly state the decision and clinical rationale in sufficient detail to allow the consumers to respond further; did not include a reference to the evidence or documentation used for the adverse determination; did not include a description of the procedures, time frames, and consumers' rights for second level grievance review; and did not include a notice of the right of the consumers to contact the Bureau of Insurance. UBH was fined $10,000, and further adjudicatory proceedings were dropped.

In the Cigna case, an enrollee was denied benefits for the last three days of her minor child's five-day inpatient stay at a hospital on the grounds that the child ostensibly could have been transferred to a psychiatric facility after the first 48 hours. On the fifth day, the child, who was suicidal, was transferred to a non-Cigna-contracted facility on the first day that facility had a vacant bed. There were no other contracted or non-contracted facilities in Cigna's network within 60 minutes travel distance from the enrollee's home (required by Maine law). Following a series of reviews and appeals, Cigna reversed its original denial nearly a year later. The Bureau of Insurance found that:

By reversing its denial of benefits, CBH acknowledged the need for holding Consumer's child on an inpatient basis until her move to Acadia. Participation by CBH in the unsuccessful effort on July 24th for an immediate transfer shows it then knew or should have known that: 1) until the transfer could be effected, it was medically necessary for the child to continue receiving inpatient care at EMMC; and 2) CBH's guideline for transfer to a psychiatric facility within 48 hours of admission to an acute care hospital could not be met where, as here, through no fault of Consumer there was no psychiatric facility reasonably available to accept her daughter prior to July 27th.

The Bureau also found that the content of Cigna's denial letters was not in conformance with Maine law, for many of the same reasons as the UBH case. Cigna was fined $5,000, and further adjudicatory proceedings were dropped.

In distinguishing these two cases, it is notable that in the UBH case, its "separate therapists" guideline was not called into question on the grounds of reasonableness or appropriateness. Rather, the company was cited for deficiencies in the processes it used to notify the enrollees of the benefit denials. In the Cigna case, however, the Bureau found the application of the "48-hour rule" for transfer in medical necessity decisions to be substantively inappropriate in light of the inadequacy of the provider network, which did not meet state standards.

¹ Aetna/U.S. HealthCare Inc./Prudential Health Plan of Hartford, CT; Excellus Health Plans of Rochester; Group Health Inc. of Manhattan; HIP Health Plan of Greater New York, Inc.; Oxford Health Plans of Trumbull, CT; and Vytra Health Plans of Long Island, Inc. See: "Landmark Agreements Give Consumers New Protections in HMO Disputes." NY Attorney General's Office Press Release. October 16, 2001. Available at http://www.oag.state.ny.us. Accessed October 29, 2001.

² Attorney General of the State of New York, Health Care Bureau. "In the matter of Group Health Incorporated: Assurance of Discontinuance Pursuant to Executive Law Section 63, Subdivision 15 (Exhibit A)." August 27, 2001.

³ Id., p. 4.

⁴ NY Attorney General's Office Press Release. October 16, 2001. op. cit.

⁵ In RE: United Behavioral Health, Consent Agreement with Maine Bureau of Insurance, op. cit. In RE: Cigna Behavioral Health, Inc., Consent Agreement with Maine Bureau of Insurance, Docket No. 00-3003. Available at http://www.state.me.us/pfr/ins/ins003003.htm. Accessed April 17, 2002.

⁶ Bureau of Insurance Rule Chapter 850(8) and (9).

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