Key Components of Regulatory Control
House bill contains more regulatory requirements and would reach
more plans than the Senate version of the Patients' Bill of Rights;
but both versions would mean sweeping increases in federal
Consider the main regulatory components of
the House bill.
Private health plans normally evaluate the utilization of medical
services, treatments, and procedures. This process is essential for
the cost-effective practice of medicine and helps restrain
increases in insurance premiums. Under the House bill, however,
managed care and fee-for-service plans would be able to conduct
utilization review only as specified by the federal government.
term "utilization review" is defined more broadly in the bill than
one might expect, and includes efforts to monitor or evaluate the
"use or coverage, clinical necessity, appropriateness, efficacy, or
efficiency of health care services, procedures, or settings...."
This would include almost all the normal activities of
fee-for-service plans, including determinations of whether a
particular service is medically necessary in an individual case or
plan--including a fee-for-service plan--would be required to have
written policies and procedures governing all aspects of its
utilization review program, including clinical review criteria
developed with input from a "range of appropriate actively
practicing health care professionals." These criteria would have to
be based on "valid clinical evidence" including "gender-specific
criteria." Utilization review can be conducted only by "qualified
health care professionals" who would "oversee" review decisions by
"personnel who are qualified and have received appropriate
training...." Different deadlines would be set for making UR
determinations in cases of prior, concurrent, and retrospective
review, with special rules for emergency services, maintenance
care, and post-stabilization care. The failure to meet any of these
deadlines would constitute the denial of a claim.
The House bill requires plans to provide internal appeals of
denials of coverage and specifies in precise detail the procedures
to be followed. If the issue
involves a medical judgment, the review must be made by a
physician. In general, an internal appeal must be decided within 14
days, but an expedited appeal process is required where the normal
time frame for a decision "could seriously jeopardize the life or
health of the [patient or his] ability to regain maximum
External Appeals. The bill also requires
private plans, including fee-for-service insurance, to provide
external appeals of decisions made in the internal appeals process,
and it stipulates in detail how those appeals are to be handled:
- Qualified Review Entities. A plan
is required to contract with one or more "qualified external appeal
entities" to conduct the appeal. To qualify, an entity dealing with
a group health plan must be certified (and periodically
re-certified) by the U.S. Department of Labor or a private
organization certified by DOL. The entity also must have sufficient
legal and other expertise, as well as sufficient staffing, and meet
such other requirements as DOL or the U.S. Department of Health and
Human Services may set. If the plan is an insurance plan, the
external review entity with which it contracts must be certified
(and periodically re-certified) by the state insurance commissioner
(or other official) or, in the absence of state action, by HHS or a
certified private agency. DOL and HHS (or the state agency) must
assure that the plan's process for selecting its external appeals
entity does not create an incentive for a "decision [to be made] in
a biased manner." These agencies also must audit a sample of the
entity's review decisions to ensure they have not been made in a
The external review is conducted by a
panel of at least three physicians or health care professionals who
are practicing actively, hold a non-restricted license, and are
"appropriately credentialed" in the same specialty or subspecialty
that typically handles the medical condition or treatment at issue.
Since different types of physicians often treat the same condition
(e.g., medical oncologists, surgeons, and radiation oncologists
treat cancer), it is not clear from the language of the bill which
subspecialty would be required.
It also is unclear what the requirement
that the health care professional be "appropriately credentialed"
means. Physicians are not credentialed in a specialty, although
they can earn certification from a specialty board and may have
been credentialed by a hospital to use its facilities or, as
required by Medicare, by a Medicare+Choice plan to participate in
- Biased Independence. The appeal
entity--and the "peers" it hires to conduct the reviews--must meet
standards of independence that are complex as well as confused and
one-sided. Compensation received by the entity or the peers it uses
must be "reasonable." This means as a practical matter that
compensation rates will be fixed by the two federal agencies with
primary responsibility--the Department of Health and Human Services
and the Department of Labor. Neither the peers nor the entity can
have what is considered to be a conflict of interest, or have a
"familial, financial, or professional relationship" with the
insurer, the health plan, the plan sponsor (or any officer,
director, or management employee of the plan or the insurer), the
doctor who "provided" the treatment involved, the institution at
which care "is provided," or with the manufacturer of a drug or
medical supplier involved in the coverage decision. HHS and DOL can
add other prohibited interests to the list.
A remarkable feature of the bill, however,
is that there is no statutory prohibition against the peer
reviewer's having a relationship with the patient involved. Since a
coverage decision is likely to have much greater financial and
personal impact on the patient than it would on a plan, a provider,
or the supplier, this is surprising. The peer reviewer presumably
could not own stock in the drug company whose drug was at issue or
have privileges at the hospital where the care at issue would be
provided, but could, it seems, be married to the claimant.
The bill also requires that there be no
"apparent" conflict of interest (as determined by DOL or HHS). This
open-ended standard, combined with the authority of HHS to issue
regulations to list other prohibited relationships, gives the
government extraordinary power to prohibit additional
relationships--although the bill apparently contemplates that this
would apply only on the provider-supplier side of the equation.
- Appeal Procedures. The
external review process must be "fair," but the bill does not
specify what that vague term means. It does not specify, for
instance, whether witnesses may be called, whether they may be
cross-examined, whether parties may conduct "discovery," whether
testimony will be taken under oath, and whether transcripts of the
proceedings must be made. All of these matters will be dictated by
HHS and DOL.
The external review must be de novo. In
common legal parlance, this means that the appeal starts from
scratch as if the previous proceeding (here the internal review)
had not taken place. However, the bill also requires the external
review entity to "consider" the decision made by the internal
reviewer. It does not say how much weight should be given to that
decision. The standard of review is unclear. HHS and DOL will
decide how the appeal is to be conducted. One can only imagine the
intricacy these regulations may entail: HHS and DOL as
- The Medical Necessity
Quandary. The only standard for review is that the
external review entity must determine whether a denial of coverage
"is in accordance with the medical needs of the patient involved
(as determined by the entity)...." In making this determination,
the external review body is explicitly authorized to disregard any
provisions in the plan defining what is medically necessary: "In
making such determination, the external appeal entity shall
consider (but not be bound by) any language in the plan or coverage
document relating to the definitions of the terms medical
necessity, medically necessary or appropriate...."
This constitutes a remarkable intrusion by
the federal government into private arrangements. The final
determination on what is covered by a plan is to be made by a peer
review entity that is certified and regulated by--and answerable
to--the federal government. This requirement would subject private
health plans (and employers that pay for the plans) to an
incalculable contingent obligation.
Moreover, "medical necessity" is a phrase
that has no accepted meaning. It may sound like a standard, but it
is not. The factors that go into determining what treatment will be
provided in a particular case often are too subjective and too
variable to be reduced to such a conclusory term.
Many health policy experts think highly of
"outcomes" data--studies of the effectiveness of treatments in
curing patients or in alleviating the conditions of disease. But
while outcomes studies can provide valuable guidance, they are
percentages based on the cases included in the study. By
definition, the derived averages cannot match the characteristics
of a particular patient. And even if the outcomes data were somehow
to precisely match the characteristics of the patient, they do not
automatically answer what is medically necessary. Is a treatment
that has a 5 percent chance of success medically necessary? And
what is success? Prolonging life for three months? There is no
scientific answer to such questions. But, of course, these are
precisely the kinds of questions that doctors, patients, and
third-party payers must face.
The legislation would punt these crucial
questions to the subjective consideration of external reviewers.
The bill will turn the determination of what is covered over to
government-controlled external reviewers who are directed to make
their decisions regardless of what the private health plan and its
enrollees agree upon. As a result, it will be virtually impossible
for insurers to develop different products with different coverage
at different prices. This development will deprive Americans of the
ability to make their own choices on the tradeoff between price and
level of coverage.
One-Sided Judicial Review.
Members of a plan who are dissatisfied with the external review
body's decision can appeal to court, but the plan may not be able
to. The bill provides that the determination of the external review
body is "binding on the plan." It then states
that "Nothing in this subtitle shall be construed as altering or
eliminating any cause of action or legal rights or remedies of
participants, beneficiaries, enrollees, and others under State or
Federal law...including the right to file judicial actions to
enforce rights." Thus, a decision
of the external reviewer is "binding" on the plan, but the
protection of rights does not guarantee judicial review for plans
(unless the word "others" is interpreted to include the plan or
other law is deemed to protect the plan's right to appeal).
Federal Penalties and Purges.
Instead of permitting plans to appeal to court, the bill would
penalize them if they do not comply with the decision of the
external reviewers. Any person who
"causes such refusal" is liable to the patient for up to $1,000 a
day. HHS or DOL would be able to assess a civil penalty (a maximum
of $500,000) against any plan official who has demonstrated a
pattern or practice of refusing to carry out the coverage decisions
of the external review entities. And the government could ask the
court to remove that official from office and bar him from any
other "involvement" with that plan (and perhaps any other plan).
Federally Established Grievance
Each plan is required to establish a process for receiving and
resolving the grievances of plan enrollees and providers on matters
other than claims for benefits. This requirement would apply to
fee-for-service plans as well as to managed care plans.
Federally Required Point of Service
The bill attempts to regulate the supply of insurance products.
Any insurer who offers a network plan to an employer group also
would be required to offer (or arrange for) a plan that covers
services that are not furnished through the network, unless some
other plan is offering the group such a product. Consequently, an
HMO that does not arrange for a POS product could, depending on the
actions of others, be barred by law from selling to employer
While the probable congressional intent
behind this provision is to increase choice by mandating the supply
of more alternatives for employer groups, it could have the
opposite effect. For example, an HMO might not be set up to offer
POS plans and thus would not be able to sell in markets in which
others were not offering a POS plan.
Federally Directed Delivery of
The bill subjects the delivery of care to federal regulation in a
number of ways. For instance, if a plan provides for designation of
a primary care provider, the member must be able to designate any
such provider who is "available to accept" him.
plan also must "permit" each member to "receive medically necessary
or appropriate specialty care, pursuant to appropriate referral
procedures, from any qualified participating professional who is
available." Although the bill
states that this requirement is subject to limits on the choice of
specialists that are made clear to the plan members, the ability of
the plan to provide for limits on the choice of specialists is
explicitly overridden by another requirement that the plan
provide a referral to a specialist if the patient "has a condition
or disease of sufficient seriousness and complexity to require
treatment by a specialist."
statutory requirement is entirely circular: Specialists must be
provided when they are needed. The bill defines "specialist" as a
provider or institution that has "adequate expertise through
appropriate training and experience...to provide high quality care
in treating the condition." The plan must
provide a referral to a non-participating provider (at no extra
cost to the patient) if it does not have an "appropriate specialist
that is available and accessible" to treat the patient.
patient has an "ongoing special condition" (which includes a
"degenerative" or "disabling" condition), he may require the plan
to refer him to a specialist to coordinate his care where it "would
most appropriately be coordinated by such a specialist." The bill,
in addition, imposes specific requirements for standing referrals
for patients who require "ongoing care" (it is unclear whether this
is a different standard from having an "ongoing special
condition"). It also contains
special rules for access to obstetrical, gynecological, and
plan member with an "emergency medical condition," moreover, would
be entitled to go to any emergency room (not just one participating
in the plan's network). If he goes to a
non-participating hospital, meaning a hospital that does not have a
reimbursement agreement with the plan, he cannot be charged more
than if he had gone to a participating hospital, even if the
participating hospital is equally convenient. In addition, the
patient has the right to receive "maintenance care" and
"post-stabilization care" at that or apparently any other
non-participating hospital at no extra cost, and the plan must
comply with "guidelines" issued by the Medicare bureaucracy.
bill also requires a plan to provide "continuity of care" for
specified periods of time. If a physician is
treating a plan member who has an "ongoing special condition" and
the provider is no longer participating in the plan (for reasons
other than fraud or failure to meet the plan's quality standards),
the plan must continue to provide coverage as if the physician were
still participating. Beyond this, if the contract between a group
health plan and an insurer is terminated, the patient can continue
to receive coverage for treatment by the provider who had been
treating him under the plan. In this circumstance, the insurer will
not be receiving premiums on behalf of the patient, but will be
obligated to continue to pay for care for the patient.
Federal Prescription for
If a plan uses a formulary for prescription drugs, the bill
specifies how the plan must develop and apply the formulary. The plan must
ensure that the participating physicians are involved in developing
the formulary and that the formulary provides for exceptions when a
non-formulary alternative is "medically indicated."
Federal Requirements for Patient Care
in Clinical Trials.
Plans "may not deny" their enrollees' participation in clinical
trials and must pay routine patient costs for services performed in
connection with the trial. This requirement
applies to fee-for-service as well as managed care plans. HHS or
DOL would determine what costs the sponsor of the trial must pay
and what the plan would be responsible for paying. That itself
would involve a complex process.
be eligible for this protection, the patient must have a serious or
life-threatening illness "for which no standard treatment is
effective." What is "standard" and what is "effective" are not
defined. The trial must offer "meaningful potential for significant
clinical benefit for the individual." Not only are these terms also
undefined, but they also call into question whether the patient
could be a member of a control group.
requirement applies only to clinical trials approved and funded
(although the bill does not say to what extent) by the National
Institutes of Health (or one of its cooperative groups or centers),
the Department of Veterans Affairs, or the Department of Defense.
It does not apply to trials sponsored by pharmaceutical companies
to test the safety and efficacy of new drugs for approval by the
Food and Drug Administration.
The House legislation would require plans to give specified types
of information to enrollees in the stated circumstances. The
requirement applies to fee-for-service plans, but a number of the
items may not mesh with the way such plans operate.
section of the bill detailing these requirements is more than seven
pages long. Among the items a
plan must describe are the "service area" of the plan; the "number,
mix, and distribution of providers under the plan"; whether a
participating provider is available to accept new patients; how the
plan "addresses the needs of [members] who do not speak English or
who have other special communications needs in accessing
providers"; the "appropriate use" of emergency services, including
the 911 system; and the insurer's loss ratio (as defined by HHS).
Additional items of information must be made available upon
request, including a description of the plan's utilization review
program, the method of physician compensation it uses, and a
description of the "credentials" (the ambiguity and inappropriate
use of this term was discussed above) of participating
Federal Control of the Physician-Plan
The House bill would allow the federal government to regulate the
relationship between the plan (including fee-for-service coverage)
and participating physicians in several ways. For instance, it
would void any provision of a contract between a plan and a health
care provider that restricts the provider's ability to advise a
patient about his health status or medical treatment--as long as
the professional is acting within the lawful scope of his
practice. The federal
government would be able to review every contract and consider
whether any provision has the effect of restricting a
doctor's ability to give advice.
bill would prohibit a plan from discriminating, with respect to
participation by providers or payments to them, on the basis of
license or certification under state law. It is unclear
whether this language would prevent the plan, for example, from
making a blanket determination to pay registered nurses more than
practical nurses or from paying board-certified physicians more
than others. It also is unclear whether it would prohibit plans
from requiring that its physicians (or those in certain categories)
be board certified. And it is unclear as to what extent the plans
would be able to take advantage of the flexibility allowed to
establish "any measure designed to maintain quality and control
costs consistent with the responsibilities of the plan." HHS and
DOL will decide.
bill would prohibit retaliation by a plan against anyone for
participating in a plan's utilization review, grievance, or appeal
proceeding. It would further
prohibit retaliation against a "protected health care professional"
for disclosing information about care to an "appropriate" public or
private regulatory or private accreditation agency if he acted in
"good faith" and followed "reasonable" internal procedures of the
plan or provider before making the external disclosure. The
requirement of prior internal disclosure would not apply if the
disclosure relates to an "imminent hazard of loss of life or serous
injury to a patient," is made to an accreditation body, or is in
response to a governmental investigative inquiry. On the other
hand, the protection for external disclosure would not apply if it
would violate law or impair "confidentiality of communications"
provided by law.
bill adopts the Medicare rules on incentive plans for physician
compensation. Those rules
prohibit payments, directly or indirectly, that would be an
inducement to reduce or limit medically necessary services. They
limit the extent to which the plan can put the physician at
financial risk for the cost of care through capitation
arrangements, withholds, or bonuses. HHS and DOL would thus have
final authority over the validity of many managed care plans'
compensation arrangements with their physicians.
An Attack on Fee-For-Service Coverage
of the House bill's requirements, as noted above, apply to
fee-for-service coverage as well as to managed care plans. But some
do not, which makes it necessary to define fee-for-service
House bill would create a federal definition of fee-for-service
coverage. Under this bill, fee-for-service coverage would (1)
reimburse providers "on the basis of a rate that is determined by
the plan...on a fee-for-service basis without placing the provider
at financial risk"; (2) not vary a provider's reimbursement "based
on an agreement to contract terms and conditions or the utilization
of health care item or services relating to such
provider"; (3) pay all providers who are lawfully authorized to
provide the service and agree to the terms set by the plan; and (4)
not require prior authorization before providing coverage. The
failure to meet any one of these specified conditions would
disqualify a plan as a fee-for-service plan.
fall within this statutory definition, a plan could not exclude
providers on the basis that they had been prone to over-prescribe
treatments. Nor, it seems, could it exclude them on the basis of
character or competence, so long as they had a license to practice.
And doctors or other providers could not negotiate rates with the
plan; hospitals and physicians could only choose between accepting
and rejecting rates offered by the plan on a take-it-or-leave it
defining it, the federal government would be regulating how the
fee-for-service sector operates. Plans, doctors, and hospitals may
find that the definition unduly restricts their activities, and
fee-for-service plans may not continue to qualify as such.
the other hand, there may not be much advantage in qualifying, and
plans may not attempt to meet the definition of fee-for-service.
The only benefit of being termed a fee-for-service plan is that the
plan would not have to offer a point-of-service option and would
not have to meet the access requirements in the bill. A plan might find
that this exception is not worth very much. Fee-for-service plans
by definition would be POS plans. And since they typically do not
limit referrals to specialists, they would appear to meet the
access provisions without having to change the way they operated.
Since a fee-for-service plan already meets the legislative
requirements that it would be exempt from, it may not want to give
up the flexibility in other areas that would be necessary to
the same time, even if it did qualify as a fee-for-service plan, it
would be subject to the other requirements of the bill that could
make it impossible to operate. The provisions detailing how
utilization reviews, as broadly defined by the bill, are to be
conducted, the prescriptive requirements for the internal and
external review process, the grievance process requirements, and
the requirements on information that must be given to enrollees
would not fit fee-for-service operations easily.
short, a complicated congressional scheme intended to restrict the
operations of managed care plans and to preserve more of the
attitudes and operations of fee-for-service coverage in health care
may instead result in the destruction of fee-for-service health
Fuzzy Boundaries Between State and
The House language exacerbates the confusion over what types of
state regulation affecting the different types of employer plans
would be preempted. One paragraph says that the regulatory sections
of the House bill do not "affect or modify" the current Employment
Retirement Income Security Act (ERISA) preemption. Yet another
paragraph applies a different standard for health insurance
companies: States may impose any requirement if it applies "solely"
to insurers, "except to the extent that such standard or
requirement prevents the application of a requirement of this title
[the regulatory portion of the bill]." If a state
requires plans to conduct utilization reviews in a different
manner, the question would be whether this review "prevented" an
insurer from complying with the provisions of the House bill.
Moreover, the provision introducing the federal standard for
insurers would be "subject to" the paragraph providing that the
bill does not change the existing ERISA preemption. With respect to
insurers, therefore, it is not clear whether the standard for
insurers would remain as it is today or change.