Marketwatch: Patients in conflict with managed care: A profile of appeals in two HMOs

Despite speculation about the nature of disputes between managed care enrollees and their health plans over benefit denials, little empirical information exists about the details of such disputes and how they are actually handled. In this study we profile more than 11,000 appeals lodged between 1998 and 2000 by enrollees at two of the nation’s largest health maintenance organizations (HMOs), to shed some preliminary light on the vast terrain of enrollee appeals. As many as half of appeals involved requests for reimbursement for costs of services already obtained (“retrospective” appeals), as opposed to services sought (“prospective appeals”). Enrollees won 36 percent of prospective appeals at Plan 1 and 70 percent at Plan 2, compared with 89 percent and 78 percent, respectively, of retrospective appeals. The success rate among retrospective appeals involving emergency room services—95 percent at both plans—was particularly striking. P r o c e d u r a l m e c h an i s m s for reviewing benefit denials have emerged as the darling of federal and state efforts to protect the rights of patients in managed care plans.1 Proposals to increase managed care organizations’ (MCOs’) exposure to civil litigation for wrongful benefit denial or delay have attracted much attention, but less controversial and considerably more common are reforms that improve the accessibility or functioning of administrative review processes, including internal “appeals” processes operated by health plans themselves and reviews conducted externally by independent review organizations.2 For the vast majority of enrollees who dispute a denial of coverage, an appeal to the health plan is the initial (and usually final) remedial step. Although other options for redress exist, their attractiveness to managed care enrollees is typically limited by considerations of accessibility, cost, timeliness, and effectiveness. For example, enrollees might seek assistance from their employer if they are in an employer-based group plan, but employers appear to have limited influence and may be reluctant to intervene because of liability concerns.3 Alternatively, enrollees may seek independent review of a benefit denial, but such review mechanisms are not in place in all M a r k e t W a t c h H E A L T H A F F A I R S ~ V o l u m e 2 1 , N u m b e r 4 1 8 9 Carole Gresenz is an economist at RAND in Arlington, Virginia. David Studdert is assistant professor of law and public health at the Harvard School of Public Health in Boston. Nancy Campbell is a senior programmer analyst at RAND in Santa Monica, California. Deborah Hensler is the Judge John W. Ford Professor of Dispute Resolution at the Stanford University Law School and a senior fellow at RAND in Santa Monica. ©2002 Project HOPE–The People-to-People Health Foundation, Inc. states, and most require that enrollees first seek reconsideration at their health plans. Formal legal review of benefit denials is another widely discussed form of redress. However, opportunities for many enrollees to pursue this option are severely curtailed by the Employee Retirement Income Security Act (ERISA). 4 Even if the federal legal impediment were abolished or loosened, as a number of the congressional patients’ rights bills have proposed, litigation is both timeand resourceintensive and would not be economically rational for enrollees unless the costs of care in dispute were fairly large.5 Many commentators agree that courts will seldom be appropriate forums of “first resort” for resolving routine disagreements over coverage determinations.6 Despite the central importance of appeals processes in the consumer protection debate, very little is known about how they work, the types of disputes they address, and what outcomes they produce. Research into internal appeals processes has been confined mainly to theoretical analysis of how such adjudication should proceed and descriptions of their procedural components.7 Helen Schauffler and colleagues collected data on managed care enrollees who reported “problems” with their health maintenance organizations (HMOs); a portion of these presumably matured into appeals of coverage decisions.8 In addition, David Richardson and colleagues have offered a summary of data from external reconsiderations of benefit denials in the Medicare program.9 Previous research in these areas provides important insight into the internal adjudication of managed care disputes. However, detailed information on the characteristics of patients, services, and issues involved are still lacking, especially for commercial HMO enrollees. To help address this gap, we studied the appeals systems of two large HMOs in California. We conducted discussions with health plan officials about the structure and operation of their review systems and analyzed administrative data on their appeals caseload. Study Data And Limitations Two California HMOs (hereafter called Plan 1 and Plan 2) shared data from administrative databases each kept specifically to track appeals. The plans record key characteristics of appeals, including date lodged, service or issue type, date resolved, and outcome at each stage. The data comprise more than 11,000 appeals, spanning 1 October through 31 December 1998 at Plan 1 and the first eight months of 2000 at Plan 2.10 Plan features. Certain features of the participating plans render them excellent venues for research on appeals. First, both are among the nation’s largest plans, covering a combined population of several million commercial HMO enrollees. Second, they have well-established appeals systems and relatively sophisticated administrative data. Third, because managed care penetration in California is high, and its utilization review (UR) standards are among the most stringent in the country, leading plans from this state would be expected to operate particularly active appeals systems. Fourth, as reliance on appeals systems grows nationwide, California’s approach to this aspect of managed care may be a bellwether for other markets. Data limitations. Several limitations of the data should be recognized. They come from only two plans, both from the same state and both operating under a model that predominates in California but is less common in other areas.11 Specifically, both plans deliver care through a “delegated” model, where risk (of varying degree) and authority for initial UR decisions are transferred to the medical groups with which the plan contracts. Hence, the appeals in our study involve the health plans’ reviews of benefit denials made by medical groups, and the medical groups usually bear the financial burden for services approved by the plan in an enrollee appeal. By contrast, in less delegated or nondelegated models, appeals generally involve plans’ reconsideration of their own benefit denials, and the plan carries the financial risk. Despite these distinctive features, the participating plans more generally share basic utilization management features, including reliance on provider networks, preauthorization 1 9 0 J u l y / A u g u s t 2 0 0 2 H e a l t h T r a c k i n g