Medical Necessity in Private Health Plans

Synthesis and Implications

As recently as 30 years ago, health professionals had virtual autonomy to determine whether health care was medically necessary. Today the evidence suggests that this autonomy had a profound impact on both health care cost and quality. After tentative incursions on decisionmaking through retrospective utilization review, the health insurance industry has moved to prospective review and has developed increasingly tight coverage provisions and definitional terms. Some commentators such as Eddy, Singer, and Bergthold have focused on the importance of scientific evidence in decisionmaking. Others such as Rosenbaum and Frankford have readily acknowledged the need for external review of clinical judgment.

The evidence presented in this literature review suggests that the modern definition of medical necessity is multidimensional and turns only in part on the consideration of whether the treating professional's recommendations fall within professionally accepted standards. Whether in State statutes, insurance contracts, case law, or peer-reviewed literature, the modern medical necessity definition assumes external control of the ultimate decision. Furthermore, relatively widespread consensus has been reached that the definition of medical necessity should have certain specific dimensions.

The first dimension (and the one that is most embedded in the structure of the agreement itself and often the most elusive) is best thought of as contractual scope. Does the agreement cover treatments that prevent worsening and maintain or promote functioning, or is the agreement limited to treatments that show recovery or at least significant improvement in the short term?⁴³ The second dimension is the professional standard. Is the treatment in accord with professional standards of care in the relevant area of practice? The third dimension can be thought of as patient safety and setting. Is the prescribed treatment gauged to be delivered in the safest and most effective setting? The fourth dimension is that the treatment be medical and not a convenience matter or one that emanates from social or environmental factors.

The fifth dimension is cost. Here, however, most of the definitions (and the literature as well) are vague on exactly what is meant by cost. Ford (2000) attempts to grapple with what is meant by cost, emphasizing long-term over short-term in order to permit coverage of care and services that, while not capable of producing immediate improvements, show long-term payoff. At this point, of course, one begins to cross over from questions related to the necessity of covered services to the underlying issue of coverage itself, since coverage may be structured to categorically exclude services of certain duration or services that do not show recovery or significant improvement within a brief period of time.

One of the notable aspects of this review is that there is little to suggest that health insurers, State legislators, accreditation bodies, or the experts consider behavioral disorders to be so unique that the general multidimensional test used to measure medical necessity is not appropriate. A number of commentators call for a broadening of coverage to include services related to the treatment and management of chronic conditions, where the goal is to attain or maintain functioning over the long term. Such goals can be thought of as a form of significant improvement: attaining the ability to function better can be thought of as a significant improvement in the case of individuals with serious and chronic behavioral health disorders. But the improvement in such cases is not on a "recovery" trajectory (in the sense that the insurer may equate "recovery" with "leading to cure") and so may continue to fall outside the scope of coverage. This represents an inconsistency with treatment for many persons with severe mental illness, wherein recovery, as evidenced by improved functioning, is a primary treatment goal.

The evolution of a multidimensional definition of medical necessity reflects the problems inherent in a standard that measures the proposed treatment simply against the prevailing standard of care. As the schools-of-thought doctrine in liability law underscored, the professional standard is built on custom, practice, clinical observation, and consultation and may embody several possible approaches to a single condition. Were an insurer to seize on one school of thought to the exclusion of all others, its determination would be vulnerable on appeal. Even if the plaintiff carries the burden of proof, it is possible to introduce evidence showing the full range of possible and professionally appropriate approaches to a particular problem, thereby undermining the insurer's insistence on one particular approach.

The modern definitions found in the industry's own materials, the case law, State statutes, and the literature all point to an emerging standard of medical necessity that effectively permits an insurer or health plan vested with decisionmaking discretion to select among a series of professionally accepted approaches to care and to choose the approach that best satisfies other considerations, including cost, safety, and convenience factors. This power to choose one specific approach to treatment, as opposed to being obligated to recognize the full range of treatments that fall within the professional standard of care, is the essence of what separates the modern definition from its predecessors.

Furthermore, depending on how the definition is drafted, an insurer or health plan can exclude all evidence from its consideration other than evidence gleaned from certain sources of information such as randomized controlled studies (Harris v. Mutual of Omaha Co., 1993).

This shift to a multidimensional test of necessity can be expected to affect any condition where there are multiple professionally recognized approaches to the treatment of any particular condition. Because professional opinion varies to a disproportionate degree in the area of behavioral health, the issue of medical necessity has generated heightened attention in this area. However, experts in behavioral health who write about medical necessity do appear to advocate a definition that allows a decisionmaker to select among competing approaches in accordance with numerous other factors.

The cost dimension of the modern medical necessity definition also may have an especially strong impact in behavioral health if treatments for such illnesses vary widely in cost. A course of treatment that emphasizes prescribed medications and brief therapy may have radically different costs from one that is long-term and emphasizes psychotherapy over medication. Similarly, a requirement of prior failure as a precondition to the use of more expensive prescription drug therapies may have a greater impact in behavioral health, depending on the cost of emerging medication treatments compared to existing treatments. A corollary consideration is that of consumer choice, which is rarely, if ever, addressed in medical necessity definitions except in the context of exclusions for "convenience."

The concept of convenience is a difficult one. For example, could a "fail first" policy be designed to limit "convenience" treatments for patients and thus be a basis for denying access to emerging and professionally accepted treatments? There has been a rapid increase in the development of a new generation of psychopharmaceuticals used to treat unipolar and bipolar depression, anxiety, schizophrenia, and alcohol and opiate addictions. These drugs have usually been found in clinical development testing to have greater effectiveness and fewer negative side effects than previous drugs, thus increasing the likelihood that patients who use them will be able to adhere to the treatment regimen. Since these drugs are new to the market and not yet widely prescribed, they are typically relatively expensive. A "fail first" test used as part of the convenience or cost dimension of the medical necessity review would result in a denial of access to certain advanced medications. The impact of this decision might extend beyond the immediate denial of certain forms of recognized treatment. Because the modern medical necessity definition turns in part on what is the accepted treatment, the fact that insurers and health plans reject use of the treatment on a widespread basis may lengthen the delay before the treatment becomes "accepted."

The evidence also shows a consensus in the law and literature for an independent review of an insurer's medical necessity decision. More than 40 States have enacted legislation that, to varying degrees, establishes an independent review process and the ability to introduce additional relevant and reliable evidence. While the burden of proof is not specifically addressed in these laws, these statutes lean toward creating an independent second opinion process, in which the original determination is given no benefit of weight or presumption. Federal regulations revising the full and fair review process in the case of ERISA plans also emphasize (to the extent possible given the internal nature of these reviews) independence, fresh evidence, and claimant access to the plan's evidence and information. On June 20, 2002, the U.S. Supreme Court ruled that Illinois's independent review statute is not preempted by ERISA. The majority opinion (five justices) stated that: "[A]n HMO is both: it provides health care, and it does so as an insurer.... [R]egulating insurance tied to what is medically necessary is probably inseparable from enforcing the quintessentially state-law standards of reasonable medical care." (Rush Prudential HMO, Inc., Petitioner, v. Debra C. Moran et al., 2002) The practical effect of the decision is to leave intact the status quo regarding States' abilities to enact independent review statutes, thus preserving consumers' right to pursue State-level appeals of claims denials, which occur in behavioral health care cases more often than in general medical care.

Regardless of how the process is structured, however, the importance of the modern medical necessity definition is the power it affords an insurer or health plan to select from among professionally accepted treatments the one treatment that it will elect to cover. Depending on the quality of the evidence pointing to one treatment as preferable to all others, this power may represent an advance in the effort to standardize the approach to the treatment of certain conditions. But to the extent that the evidence is weak, unreliable, or irrelevant, or that little focus is given to a particular patient's condition (or conditions) in the course of evaluating possible treatments, the power to select on the basis of factors other than the professional standard of care may result in the rejection of possible treatment approaches that are beneficial in the long run.

Finally, even the broadest definition of medical necessity that tolerates multiple schools of thought and that calls for extensive consultation with the treating physician in arriving at the right treatment cannot overcome contractual terms that limit or exclude long-term maintenance treatments designed to avert deterioration or maintain functioning in the case of persons with chronic behavioral health conditions. This is a wholly separate issue, and one that is of increasing importance for behavioral health care services.

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