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Medical Necessity in Private Health Plans

Endnotes

¹ Legislation to establish simplified review procedures for all health benefit plans maintained by private employers is currently pending in the 107th Congress. Since 1997 the Medicare program has offered an informal administrative review system, and courts have consistently held that external impartial review of health plan treatment decisions is a legal right of Medicaid managed care enrollees (Rosenblatt, Law, & Rosenbaum, 1997). Back

² Review of the medical and health services literature was conducted via searches on MEDLINE, HealthSTAR, and PsycINFO. Legal cases and decisions were retrieved using LEXIS-NEXIS. Additional research included retrieval of information from State attorneys general Web sites. A unified database was created using EndNote 5 to facilitate organization and analysis of medical necessity definitions across all sources of information. Back

³ It is worth noting that the Senate mental health parity legislation would appear to allow contractual treatments to vary by diagnosis, even as it constrains insurer discretion to formulate mental illness-specific coverage limitations for broad classes of benefits. Thus, an insurer presumably could specify covered contractual treatments in the case of mental illness while using a broader and more flexible individualized "medical necessity" decisionmaking approach in the case of physical illness. Back

⁴ Available at http://www.ama-assn.org/ama1/pub/upload/mm/368/supplement1.pdf. Accessed December 19, 2001. Back

⁵ The plausibility of this distinction has been most recently called into question in Fitts v. Fannie Mae, No. 98-00617, 2002 U.S. Dist. LEXIS 3071 (D. D.C. Feb. 26, 2002). Back

⁶ According to the American Psychiatric Association, "the DSM-IV (Diagnostic and Statistical Manual of Mental Disorders, Fourth Edition), published in 1994 was the last major revision of the DSM. It was the culmination of a six-year effort that involved over 1,000 individuals and numerous professional organizations. Much of the effort involved conducting a comprehensive review of the literature to establish a firm empirical basis for making modifications. Numerous changes were made to the classification (i.e., disorders were added, deleted, and reorganized), to the diagnostic criteria sets, and to the descriptive text based on a careful consideration of the available research about the various mental disorders." The APA has recently begun considering "relational disorders" as a new diagnostic code in the future DSM-V (expected for publication in 2010). See http://www.psych.org/clin_res/dsm/dsmintro81301.cfm. Back

⁷ The fact that the industry views the utilization review process as linked to both health care quality and cost is best evidenced in industry accreditation standards, which identify an appropriate utilization management program as an essential feature of health care quality and thus, of accreditation. See, e.g., JCAHO (1997, 2001) and NCQA (2000, 2001). Back

⁸ Full and fair hearing review regulations issued in 2000 by the U. S. Department of Labor require ERISA health benefit plans to disclose any relevant information to claimants appealing a benefit denial through the plan's internal review system. See 65 Fed. Reg. 70246 (Nov. 21, 2000); 29 C.F.R. Part 2560 (2001). When a health plan denies a claim based on a protocol or guidelines, the plan must disclose such reliance and inform the claimant that a copy of the protocol or guideline is available upon request. Similarly, when the denial is based on medical necessity, the rule requires the plan either to explain the scientific or clinical judgment used in applying the plan's terms to the claimant's medical circumstances or to include a statement that such an explanation will be provided free of charge if requested. These regulations are effective for claims filed under an ERISA health plan on or after July 1, 2002. The regulations effectively reverse a series of judicial decisions holding that under ERISA, health plans' fiduciary obligations do not require disclosure of treatment guidelines. See Jones v. Kodak, 169 F.3d 1287 (10th Cir. 1999); Doe v. Travelers Ins. Co., 187 F.3d 53 (1st Cir. 1999). Back

⁹ Available at http://apps.cignabehavioral.com/web/basicsite/provider/pdf/levelOfCareGuidelines_2003.pdf. Accessed September 22, 2002. Back

¹⁰ In RE: United Behavioral Health, Consent Agreement with Maine Bureau of Insurance, Docket No. 00-3005. Available at http://www.state.me.us/pfr/ins/ins003005.htm. Accessed April 16, 2002. Back

¹¹ It is typical for insurers to limit the concept of treatment to interventions that are calculated to yield either a full recovery or a significant improvement. See McGraw v. Prudential Ins. Co., 137 F.3d 1253 (10th Cir. 1998) and Bedrick v. Travelers Ins. Co., 93 F.3d 149 (4th Cir. 1996). Where the patient cannot improve or show significant recovery, an insurer may deny the coverage as unnecessary. Courts that have considered this limitation have tended to uphold it where it is explicit in the contract and have rejected it when it is not an express limitation on coverage. See McGraw v. Prudential Ins. Co., 137 F.3d 1253 (10th Cir. 1998) and Bedrick v. Travelers Ins. Co., 93 F.3d 149 (4th Cir. 1996) (rejecting limitation when not explicit in contract's medical necessity definition). Back

¹² In Shilkret v. Annapolis Emergency Hospital, 349 A.2d 245, 249-50 (Md. 1975), Maryland's highest court set forth what is still viewed as the seminal articulation of the modern standard of care for measuring professional liability:

"...that degree of care and skill which is expected to a reasonably competent practitioner in the same class to which he belongs, acting in the same or similar circumstances. Under this standard, advances in the profession, availability of facilities, specialization or general practice, proximity of specialists and special facilities, together with all other relevant considerations, are to be taken into account."

¹³ Since the UBH guidelines were not available to the authors, it is not known to what extent they refer to professional or national standards of care. Back

¹⁴ For purposes of confidentiality, we do not identify the managed care organizations or the officials by name. Back

¹⁵ Of course, if the contract limits coverage for specified conditions to certain treatments, this limitation in coverage would take precedence. Back

¹⁶ It would probably seem that any insurer has an inherent conflict of interest because it is at risk for the cost of its decision. In fact, courts do not perceive the dual role of insurers as risk bearers and decision makers as a fatal flaw, although many will more closely review a record as a result. Back

¹⁷ Advocates note the qualitative advances inherent in emphasizing outpatient over inpatient care wherever appropriate. Chris Koyanagi, Bazelon Center for Mental Health Law. Personal communication. April 5, 2002. (By the same token of course, on the outpatient side, providers of long-term psychotherapy and psychoanalysis have seen restrictions put on the scope and duration of their treatments, with a particular emphasis on short-term behavioral and cognitive therapy as preferred.) Back

¹⁸ 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. Back

¹⁹ 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. Back

²⁰ In Metropolitan Life Insurance v. Massachusetts, 471 U.S. 724 (1985), the Supreme Court affirmed the power of states to set minimum content standards in the case of insured ERISA plans. The case involved a Massachusetts state law mandating inpatient hospitalization coverage up to certain levels in the case of mental illness. Back

²¹ A recent decision illustrating the still common practice of insurers to leave critical terms undefined is Bynum v. Cigna Healthcare of North Carolina, Inc., 287 F.3d 305 (4th Cir., 2002) in which an insurer denied reconstructive facial surgery for a severely deformed infant on the grounds that the construction was excluded as "cosmetic" without ever defining the term. Back

²² See Dallis v. Aetna Life Ins. Co., 574 F.Supp. 547 (N.D. Ga. 1983), aff'd, 768 F.2d 1303 (11th Cir. 1985) (finding "no consensus among the courts" as to the definition of "necessary" care). Back

²³ The prospective nature of utilization review means that managed care affects not only coverage but access to the care itself. Courts therefore might consider professional liability law as a relevant source of law from which to derive an insurance standard of medical necessity. In recent years, courts have repeatedly noted the "two hats" of managed care, affecting both coverage and health care quality through their conduct. See Pegram v. Herdrich, 530 U.S. 211 (2000). Back

²⁴ Mass. Ann. Laws ch. 176O (1) (2001). Back

²⁵ HRS § 432E-1.4 (2000). Back

²⁶ We limited our review of state regulations to those available in the LEXIS-NEXIS legal databases. Back

²⁷ Md. Ins. Code Ann. § 15-10A-03(e) (2001). Back

²⁸ 28 Pa. Code § 9.504 (2001) and VT. Stat. tit. 8, § 4089f (2001). Back

²⁹ 29 U.S.C. § 1133 (2001). Back

³⁰ Individuals may seek judicial review of a claim's denial. In such a case the review is on the record rather than de novo. Under the standard of review set forth by the United States Supreme Court in Firestone Tire and Rubber v. Bruch, 489 U.S. 101 (1989), the plan administrator's decision is upheld unless the claimant can demonstrate that it is arbitrary and capricious or an abuse of discretion. Courts may conduct a more rigorous review when a claimant is able to demonstrate a conflict of interest; however, although the fact that the internal review was conducted by the insurer or the health plan administrator raises the potential for conflict, the interest is not sufficient to compel a more rigorous review in every case. See Firestone Tire and Rubber v. Bruch, 489 U.S. 101 (1989); Bedrick v. Travelers Ins. Co., 93 F.3d 149 (4th Cir. 1996). Back

³¹ Pending patients' bill of rights legislation before Congress would establish independent review as a basic element of ERISA for all covered plans and health insurance arrangements. See H.R. and S. 1052, 107th Cong., 1st sess. Back

³² 29 C.F.R. § 2560.503-1(b) (2001). Back

³³ See 29 C.F.R. §§ 2560.503-1(f), (i) (2001). Back

³⁴ See 29 C.F.R. §§ 2560.503-1 (i) (2001). Back

³⁵ 29 C.F.R. §§ 2560.503-1(h) (2001). Back

³⁶ See id. Back

³⁷ See id. Back

³⁸ See id. Back

³⁹ 5 U.S.C. § 8901 (2001). Back

⁴⁰ 5 C.F.R. § 890.105 (2001). Back

⁴¹ Id. Back

⁴² 5 C.F.R. § 890.107(c) (2001). Back

⁴³ Several cases have focused specifically on the use of "significant improvement" and "recovery" by insurers to narrow the scope of the treatments that can be considered medically necessary. See McGraw v. Prudential Ins. Co., 137 F.3d 1253 (10th Cir. 1998) and Bedrick v. Travelers Ins. Co., 93 F.3d 149 (4th Cir. 1996). Where the concept is not contractual but is a "gloss on the contract" imposed by utilization management review, courts have tended to overturn the insurer's decision. But where the contract documents actually specify recovery or short term improvements, courts will honor the limitation. Back

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