This Web site is a component of the SAMHSA Health Information Network
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This Web site is a component of the SAMHSA Health Information Network. |
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Medical Necessity in Private Health PlansIndustry Practices in the Managed Care IndustryInsurers have continued to customize and streamline their definition of medical necessity over time to expand their control over, and the allocation of, health plan resources. By defining medical necessity and controlling the coverage determination process, insurers can attempt both to stem what they perceive to be the unnecessary expenditure of resources and to improve the quality of health care.7 Analysis of the Structure of Medical Necessity DefinitionsInsurers and insuring organizations rarely make their medical necessity definitions and determination procedures public. The definitions and procedures are typically contained in contracts and internal operational documents such as provider manuals and operating guidelines that are considered proprietary and confidential.8 While many managed care organizations (MCOs) have Web sites, most require registration and passwords from contracted providers to access detailed information about their medical necessity definitions and procedures. Consumers and researchers usually are permitted Web site access only to general health plan information. Table 2 presents five insurer definitions obtained for this research. An exception to the rule, ValueOptions allows public access to its Web site, which contains the text of its provider manuals. Cigna Behavioral Health Care provides online access to its "Levels of Care Guidelines for Mental Health and Substance Abuse Treatment," which contains a definition of medical necessity.9 Table 2 also contains definitions from Highmark Blue Cross, an anonymous managed behavioral health plan, and United Behavioral Health. The Highmark definition was obtained from the proceedings of an Agency for Healthcare Research and Quality (AHRQ) User Liaison workshop on coverage decisions by Hill, Hanson, and O'Connell (2000). The third medical necessity definition in Table 2 was obtained from materials provided to one of this review's authors during a December 2001 meeting with behavioral health care providers to discuss medical necessity issues. The company's name is not disclosed for purposes of confidentiality. The United Behavioral Health (UBH) medical necessity definition was contained in a consent agreement that UBH entered into in 2000 with the Maine Bureau of Insurance, published on the Maine Department of Professional & Financial Regulation Web site.10 The consent agreement itself is discussed in Legal Settlements below. Despite the limited number of definitions available directly from the industry, those available suggest that insurers and insuring organizations use a definition of medical necessity far more complex than whether the prescribed treatment is consistent with accepted practice in the field. The use of a definition of medical necessity that extends well beyond the threshold question of whether the care is professionally sound can best be understood as an attempt to mitigate the "schools of thought" doctrine. This doctrine, a critical element of professional medical liability law, assumes the existence of multiple and equally professionally acceptable approaches to professional medical practice in any particular case (Rosenblatt, Law, & Rosenbaum, 1997). For this reason, insurers have adopted definitions that vest them with the power to select among various schools of thought for the approach that, in the insurer's view, also best satisfies the other elements of the definition. The first dimension of the medical necessity definition found in Table 2 (and the one reflected in the overall structure of agreements themselves) can be thought of as contractual scope. This dimension is concerned with whether the contract provides any coverage for certain procedures and treatments, such as those that prevent the worsening of a condition or that allow an individual to maintain or promote functioning. It is possible, in other words, for the definition to exclude any procedures that, in the view of the insurer, do not yield recovery or result in what the insurer considers a significant short-term improvement. Table 2 shows that Highmark, the anonymous managed behavioral health organization (MBHO), and UBH limit the concept of medical necessity to services necessary for the diagnosis or treatment of illness. Thus, a treatment necessary to respond to a condition not regarded as an illness (e.g., a developmental disorder in a child) might fall outside the furthest reaches of the contract no matter how necessary the care or effective the treatment. Similarly, if the treatment is designed to avert deterioration rather than treat illness to a point of significant improvement, it might also be considered outside the scope of coverage.11 ValueOptions, in contrast, will recognize as covered (if medically necessary) services aimed at preventing illness or avoiding deterioration. The Cigna definition, while still including a "reasonable expectation" for improvement, does include "level of functioning" in addition to a patient's condition or illness, an important criterion for persons with mental and physical disabilities whose treatment needs extend beyond the traditional medical model. The second dimension of the definition reflects whether the treatment is in accord with professional standards of practice. This dimension is most directly related to professional opinion and clinical judgment. In the case of ValueOptions and Cigna, the specific frame of reference is national practice standards, although the fact that Highmark does not specifically reference national standards is probably not particularly important, since the professional standard of care has been recognized as a national benchmark for more than 40 years.12 The UBH definition specifically refers to its own internal guidelines as the standard to measure the appropriateness of the type, frequency, and duration of treatment.13 The third dimension can be thought of as patient safety and setting. It considers whether the prescribed treatment will be delivered in a manner that the insurer considers to be safe and effective. The fourth dimension is whether, in the insurer's view, the treatment is medical in nature and not prescribed either as a matter of convenience or as a result of social or environmental considerations. In all of the definitions, convenience is measured in terms of the patient, the family, or the provider, not in terms of the managed care organization. The fifth dimension of the definition is cost. Table 2 suggests that a review of treatment should include consideration of whether there is an equally effective and safe, but less costly, alternative to the recommended treatment. It is unclear whether the UBH reference to "of demonstrated medical value" refers to treatment effectiveness, cost-effectiveness, or both. The various sources of information that suggest the existence of these definitional dimensions also suggest that the terms tend to remain undefined, allowing an insurer tremendous leeway to define the terms within the context of each determination. Consistent with the issue of contractual scope, the ValueOptions definition explicitly considers whether care, no matter how necessary, is a service that falls outside the contractual limits of the plan. This consideration can be seen in that portion of the definition that authorizes consideration of whether the recommended course of treatment would result in "non-treatment services addressing environmental factors." It is unclear how this element of the definition would work in practice. An example might be refusal to cover in-home care to a patient unable to obtain transportation to an out patient provider, while providing the same services in-home to a patient medically unable to travel. Even though the care is technically medically necessary in both cases, ValueOptions could refuse to cover the in-home care to the first on the grounds that such care results from environmental (i.e., lack of transportation) rather than medical need. These dimensions of the medical necessity definition delineate the criteria to be fulfilled for an individual to be eligible for coverage. By choosing a high evidentiary, or tightly limited, standard regarding the evidence that must be present in order to satisfy coverage eligibility, such as the evidence-based medicine standard of requiring two controlled, randomized clinical trials before a medical intervention can be proven effective, insurers could impose limits on many types of care. Figure 1 summarizes the five dimensions of the medical necessity definition derived from the preceding analysis of industry practice. Interviews With Managed Care Officials on the Processes of Medical Necessity DeterminationsIn mid-June 2002, semistructured telephone interviews were conducted with three officials (two medical directors and a chief executive officer) of two large MBHOs and one nationally based integrated health plan.14 These officials, who, due to scheduling difficulties, were unable to participate in the May 7 meeting of the expert panel, also reviewed the draft of this document. The interview questions focused on the processes used in the managed behavioral health care industry for making initial medical necessity determinations and resolving appeals of claims denials, as well as internal quality management procedures used to incorporate and update treatment guideline information into decisionmaking processes. One official noted that his MBHO prefers to use the term "clinical appropriateness" rather than "medical necessity." In the official's view, the latter term implies a restrictive orientation relating to the question of whether or not a patient needs care (a clinical decision that can only be made by the provider and the patient). The official emphasized that, in his opinion, the pivotal question is what level of services in which settings are most clinically appropriate for a given patient in light of his or her clinical and social needs. Thus, as the definition suggests, the MCO medical director views his task as analyzing the health professional's recommendations in accordance with those dimensions of the medical necessity definition that focus on how the care will be furnished, by whom, and in what settings, not whether the professional was justified in concluding that some particular approach to treatment was needed. In this vein, the coverage decision concentrates more on the form and manner of treatment than whether any treatment at all will take place. The interviews confirmed that managed care executives view their jobs not as determining the necessity of care from a professional point of view but as determining whether the professional's treatment judgment is consistent with the terms of coverage in the contract. The organizations view their task as administering and managing a package of contractual benefits to determine what is included in the benefit package purchased by an employer, not to determine what the benefit package should contain. Within that determination is the task of ensuring that the levels of care and treatments provided are appropriate for an enrollee's needs and covered in the benefit package. When asked why behavioral health medical necessity definitions have been the subject of a higher level of discussion and scrutiny than in general medicine, the interviewees offered several reasons:
The officials from all three organizations stated that requests for authorization of services are handled by clinical intake staff with at least a master's degree, supplemented by ongoing in-house training. The guidelines used to "vet" a request for authorization focus on two criteria: a) level of care criteria (e.g., inpatient, partial hospitalization, outpatient therapy in individual or group settings), and b) treatment guidelines (e.g., crisis intervention, psychotherapy, prescription drugs). One MBHO preauthorizes 10 outpatient visits, requiring the provider to request and justify additional needed visits. In all three organizations, board-certified or board-eligible staff psychiatrists must review all denied claims. The vast majority of disputed claims arise for inpatient admissions. As one interviewee noted, in behavioral health, unlike general medicine, most inpatient admissions are unplanned and occur because a person (or family member or provider on behalf of that person) seeks emergency crisis admission. Typically the inpatient facility calls for authorization. While the initial admission usually is approved, disputes may arise over length of stay, treatment plans, and care management. The interviewees stated that many of these disputes are later resolved when additional information regarding the patient's clinical needs is provided. If such information had been provided at the outset, the claim would not have been denied. Most claims disputes are resolved through internal appeals processes; only a few go to the external appeals process. Interviewees cited a variety of sources for the treatment guidelines used in the care management and review processes: among them guidelines developed by provider organizations, such as the American Psychiatric Association and the American Psychological Association; guidelines promulgated by accreditation organizations; and ongoing feedback and advice from contracted providers. One MBHO reported the use of local clinical advisory committees in each location, including subject matter specialists (e.g., addiction disorder providers) who provide feedback and information on treatment advances. Guidelines are updated annually based on actual practice and expert opinion. Interviewees stated that guidelines are not mandates or absolute protocols; rather, they are considered "guideposts" to be informed by, and adapted to, individual circumstances and psychosocial needs of patients. Ongoing audits, performance measurement of in-house care managers and contracted providers, and member and provider satisfaction surveys are used to monitor the appropriate use of treatment guidelines in medical necessity decisions and to build in quality improvements at all levels of decisionmaking. Managed Care Accreditation OrganizationsAccreditation organizations such as the National Committee for Quality Assurance (NCQA) and the Joint Commission on the Accreditation of Healthcare Organizations (JCAHO) have not formulated a medical necessity definition. For example, NCQA officials say they want to avoid conflicts with existing laws governing the definition of medical necessity (Pawlson, 2002). Instead, the accreditation bodies focus on the medical necessity review process, including both utilization management and internal appeals. In addition, NCQA and JCAHO specify the existence of an external appeals process as a condition of accreditation. Figures 2 and 3 and Appendix B excerpt utilization management and external appeals standards promulgated by NCQA and JCAHO (JCAHO, 1997, 2001; NCQA, 2000, 2001). NCQA's procedural standards for MBHOs stress the individualization of the process. The entity must consider evidence from the individual patient's case (as well as the characteristics of the local delivery system) and therefore, presumably cannot rely on national treatment guidelines for specified conditions.15 NCQA standards also assume involvement of practitioners in the development of criteria, though not necessarily in the evaluation of individual cases. The JCAHO standards are written from the point of view of providers and provider networks, typically the focus of JCAHO accreditation. Standard CC 1 stipulates provision of health care appropriate to the sociocultural needs of the provider's patient population and consistent with the provider's mission and contractual obligations, as well as being based on an individual patient's needs. Disclosure of the review criteria used in adverse determination decisions, timely notice, and a review of adverse decisions by a physician, dentist, or behavioral clinician prior to notification to the enrollee or prescribing provider are all required by JCAHO. The JCAHO guidelines for MBHOs are very similar to its general MCO guidelines. However, in some instances the MBHO guidelines are somewhat more explicit. Decisions regarding a member's eligibility for entry into specific treatment programs can be interpreted as a frame of reference for meeting medical necessity criteria. CC 2.1: Criteria define the information necessary to determine a member's eligibility for entry to a program or service within the delivery system. JCAHO takes a condition/treatment-specific view for substance abuse services as well. In discussing how an MBHO can provide access to the appropriate level of care to meet an enrollee's needs, it provides the following example: The alcohol/drug program of a community mental health center established separate admission criteria for subpopulations. Separate criteria are in place for alcoholism, cocaine dependence, dual diagnosis, and heroin dependence. Members are placed in levels and sites of care in accordance with the primary substance(s) being abused. In sum, neither NCQA nor JCAHO provide prototypical medical necessity definitions but rather focus on the adequacy of the decision processes used by the organizations they accredit. As is shown in the discussion of case law below, the procedures used to make these decisions are as important as, and at times more important than, the structure and content of the definitions upon which they are based. Judicial Case Law, Official Investigations, and Legal ActionsSince the introduction of the concept of medical necessity into insurance contracts, countless challenges have been made to insurer and health plan denials of coverage based on medical necessity criteria. In deciding a medical necessity case, a court must construe the terms of an agreement; consequently these decisions offer a rich source of contractual medical necessity definitions, since the court's opinion almost invariably sets out the relevant contract terms. Judicial Case LawTwo types of medical necessity cases predominate. The first type of case involves challenges to the actual decision on the merits, with the claimant arguing that the insurer's conclusions about a treatment's medical necessity are not supported by the evidence in the record. The second type of challenge goes to alleged flaws in the decisionmaking process, such as a decisionmaker's failure to follow applicable legal procedural standards in reviewing the case or considering the evidence. In all such cases the claimant (i.e., the provider and/or the patient) carries the burden of proving that the insurer's decision was contrary to the terms of the agreement. Other cases raise questions of medical necessity in a malpractice context. In such cases, a managed care organization's allegedly negligent treatment (and subsequent coverage) decisions are claimed to be a proximate cause of death or injury. These cases typically appear in the case law at a threshold point (i.e., before there is any review on the merits of the claim) and are decided on ERISA preemption grounds. For this reason, these cases are omitted from this review. Two of the best known managed care liability cases involving behavioral health services are Moscovitch v. Danbury State Hospital (1998) and Lazorko v. Pennsylvania Hospital (2000). Both cases involved suicides by individuals covered by ERISA health plans. The patients were ordered to be discharged from treatment following a determination by the MCO that care was not medically necessary. Both cases were permitted to proceed as malpractice actions after a judicial determination that the claims in question fell outside of the scope of ERISA because they raised issues of State law professional liability rather than ERISA coverage claims. For this review, an online search was conducted for all cases decided since 1992 involving challenges to medical necessity coverage decisions. The search was confined to the past decade in order to avoid examining contracts whose terms may be significantly outdated. A total of 54 medical necessity cases were identified, 21 of which involve appeals by insurers and health plans seeking reversals of treatment orders issued by lower courts, and 33 of which are cases brought by providers and patients that seek to reverse a claims denial. Insurers are slightly more likely to prevail in these cases with 29 of the 54 cases decided in favor of the insurers while in only 25 of the cases the insurers' denials were reversed. A summary of all of the cases reviewed can be found in Appendix C. The fact that insurers are somewhat more likely to prevail in medical necessity cases may reflect the merits of their decisions. It may also reflect the difficulties claimants encounter in challenging a medical necessity denial. For example, the plaintiff carries the burden of proof and generally is barred from introducing new medical evidence on appeal, since review is limited to the evidentiary record before the court. Thus, if the insurer or plan failed to consider certain evidence or misconstrued the evidence before it, the plaintiff typically cannot rectify the shortcoming in court. Furthermore, under principles of contract and trust law (the two bodies of law that apply to decisions on coverage in the case of employee health plans) (Firestone Tire and Rubber v. Bruch, 1989), insurers and health plan administrators are vested with considerable power to decide whether contract beneficiaries are entitled to the benefits they seek. A court's scope of review is therefore limited under judicial principles, and a court will generally scrutinize a record closely if it considers the insurer or plan to have a clear conflict of interest that has colored its views (Bedrick v. Travelers Ins. Co., 1996).16 Of the 54 identified cases, 28 contain a definition of medical necessity (Table 3). Jones v. Kodak Medical Assistance Plan (1999), not included in Table 3 but summarized in Appendix C, is the leading case for the proposition that insurers have the power to contractually limit the types of necessary treatments they will cover by building their guidelines directly into the structure of the plan documents. As a result, Jones, which concerned treatment of alcoholism, contained no medical necessity definition per se but instead a provision construed by the court as limiting treatment to the guidelines used by the managed behavioral health subcontractor. Other cases shown in Table 3 contain a more traditional definition of medical necessity and reflect the multidimensional approach seen in Table 2. This finding suggests that rather than being isolated events, the multidimensional definitions found in Table 2 are the prevailing industry standard. That is, the insurance industry today uses an approach to defining medical necessity that goes beyond assessing whether treatment meets a professional standard of care and permits the insurer to select among the treatments that ostensibly are all appropriate in favor of one that is the safest, the least costly, and not only for the convenience of the member or provider. Four of the definitions drawn from the case law contain an explicit reference to the site of care, identifying treatment delivery in outpatient settings as preferable to inpatient care (Dettmer Clinic v. Associated Insurance Companies, Inc.; Kornman v. Blue Cross Blue Shield of Louisiana; Milone v. Exclusive Health Care, Inc.; Scalamandre v. Oxford Health Plans, Inc.). For example, in the 1995 case Kornman v. Blue Cross Blue Shield of Louisiana, the insurer's third criterion for medical necessity was as follows: "as to inpatient care, could not have been provided in a Physician's office, in the Outpatient department of a Hospital, or in a lesser facility without affecting the patient's condition or quality of medical care rendered."17 Forty-two of the 54 cases reviewed-the single largest subgroup-involved a challenge to a medical necessity determination based on a treatment exclusion clause or an alleged flaw in the insurer's decisionmaking processes. Twenty-two cases focused on exclusions based on the allegedly experimental status of the requested treatment and thus dealt with the proper application of an exclusionary term rather than a medical necessity denial on the merits. Twenty cases involved allegations that the insurer improperly applied the definition in its determination procedures. Plaintiffs most typically alleged that the insurer acted in an arbitrary or capricious manner by unfairly denying claims in some cases while approving them in equivalent cases. Four of the 54 cases involved mental health and substance abuse services (Heil v. Nationwide Life, Koenig v. Metropolitan Life, Burrell v. United Health Care Insurance, and Jones v. Kodak Medical Assistance Plan). The Heil and Burrell cases involved denials of inpatient hospitalization for a mental condition, and the Koenig and Jones cases involved denial of substance abuse treatment services. All four were concerned with alleged flaws in the insurers' determination procedures. Investigations and Official Legal ActionsIn addition to cases decided in courts of law, State attorneys general and bureaus of insurance have responded to complaints filed by providers and patients regarding adverse determinations based on MCOs' medical necessity criteria. In New York, Maine, and Connecticut, official investigations were launched in response to alleged instances of arbitrary and capricious decisionmaking, inconsistent application of criteria, failure to meet disclosure requirements, and conflicts of interest on the part of MCO decisionmakers. In New York and Maine, MCOs entered into settlement agreements with the States; in Connecticut, an MCO's alleged abuses formed the basis for remedial legislation. Figure 4 summarizes the most common problems identified from these investigations of the procedures used by health plans and insurers to make medical necessity determinations, followed by descriptions of each of these States' legal actions. New YorkThe series of October 2001 settlement agreements reached between the New York State Attorney General's Office and six large MCOs was a significant legal development regarding medical necessity.18 Following a 2-year investigation into how these MCOs informed their providers and enrollees of adverse determination decisions on the grounds of medical necessity, the Attorney General found that these MCOs were not in compliance with New York State's utilization review law (discussed in more detail in Part V below). The focus of the investigation was on the processes used by the MCOs to make determinations and to inform providers and enrollees, rather than the content of the medical necessity definitions themselves. The Attorney General'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 the MCOs used in making their decisions, which is required in New York's utilization review law (see Appendix D for more details). A representative of the New York Attorney General's Office indicated that although their investigation did not review the underlying substance of claims denied owing to medical necessity, behavioral health patients appeared to be more vulnerable to abusive medical necessity practices than patients with physical conditions. In the representative's view, medical necessity is harder to define and measure in behavioral health. The representative cited New York's utilization review law as an effort to overcome this difficulty by ensuring that all patients receive individualized medical necessity decisions based on specific clinical facts and individualized assessments. Despite this statute, the New York Attorney General's office continues to receive complaints from providers and patients regarding the medical necessity decision process used by MCOs in behavioral and physical health cases. The Attorney General's Office representative cited the lack of a uniform medical necessity definition in State insurance laws as the most significant problem in medical necessity decisionmaking and investigation of abusive practices. External appeal statutes, utilization review regulations, and other insurance laws use medical necessity definitions and standards that are often conflicting or confusing. No uniform criteria are required. As a result, each health plan uses its own definition, and this variation makes regulation of medical necessity practices difficult. MaineIn 2000, both United Behavioral Health and Cigna Behavioral Health, Inc., entered into consent agreements with the Maine Bureau of Insurance.19 These agreements were reached as a result of complaints filed with the bureau by health plan enrollees concerning denials of coverage based on medical necessity grounds. The bureau determined that the denials were not in conformance with Maine rules regarding utilization review (see Appendix D for more details). A representative from the Maine Bureau of Insurance indicated the potential for medical necessity abuses is similar in the physical and behavioral health care contexts, but that behavioral health medical necessity determinations in Maine are qualitatively different from those in other jurisdictions. Both the rural character of the State and general shortage of behavioral health care providers have a significant effect on the application of medical necessity criteria. For example, there is only one practicing psychiatrist in Washington County, which has a population of over 30,000 people. Since outpatient settings are scarce, national MCOs that do business in Maine often apply medical necessity and "appropriate setting" criteria to resist coverage of inpatient behavioral health treatment, sometimes all that is available in certain regions of the State. The paucity of providers also affects grievance procedures. Maine requires MCOs to offer an independent medical review as part of their internal grievance process (it also has an external review statute for further appeals after the internal process has been exhausted). The shortage of providers leads MCOs to find reviewers from other jurisdictions. These reviewers often question the medical necessity or appropriateness of inpatient behavioral health care even though outpatient care is not available or not practical owing to distance. Maine consumers and providers file complaints with the Bureau of Insurance over these issues and the general shortage of behavioral health care providers and services. Maine's Insurance Code contains a definition of "medically necessary health care," and according to the representative, insurers generally appear to understand the definition and the statute's process requirements (despite the frequent struggle over inpatient behavioral health services). The representative indicated that several high-profile consent agreements with insurers that failed to follow Maine's definition or process requirements have had a deterrent effect on other insurers. ConnecticutA recent case that dramatically highlights the potential for misconduct in the area of medical necessity decisionmaking by health plans involves an investigation conducted by the Connecticut Attorney General into the activities of the State's largest insurer, Anthem Blue Cross/Blue Shield, and its subcontractor, Psych Management, Inc. (PMI). In a widely disseminated report issued in February 2002, the Attorney General reported that Anthem Blue Cross/Blue Shield (which enrolls 600,000 State residents), prompted by desires for significant savings and profit maximization, contracted with PMI to administer the behavioral health component of its product line following a notably low project bid. The investigation found that PMI's president had serious financial conflicts of interest and engaged in inappropriate use of aggressive utilization management and denials of medically necessary care solely to improve PMI's profit margin (Blumenthal, 2002) (see Appendix D for more details). A representative of the Connecticut Attorney General's Office indicated that their investigation showed that the potential for abuses of medical necessity is greater in the behavioral health context than in physical health cases. In the view of the office, not only is it harder to define what is medically necessary in behavioral health, but the patients involved are more vulnerable and politically weak. In addition, the representative indicated that the behavioral health provider lobby in Connecticut is relatively weak and not effectively organized. The Connecticut Attorney General's office receives more complaints from providers and consumers regarding behavioral health care than physical health care. The complaints include a failure to pay claims in a timely manner, arbitrary coverage denials (citing medical necessity), and difficulties in finding behavioral health providers due to out-of-date provider lists given to consumers (commonly known as "phantom panels"). Finally, the representative indicated that the arbitrary financial goals, phantom panels, and lack of regulatory oversight of subcontractors are the most pressing problems they found during their investigation. The Connecticut Department of Insurance has taken the position that the State's laws regulating managed care practices do not give the department jurisdiction over subcontractors. |
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