Department of Health and Human Services 

OFFICE OF 

INSPECTOR GENERAL 

MAY 2001 

OEI-09-99-00450 

DISPUTE RESOLUTION FOR MEDICAID 

MANAGED CARE ENROLLEES 
OFFICE OF INSPECTOR GENERAL 

The mission of the Office of Inspector General (OIG), as mandated by Public Law 95-452, is to 

protect the integrity of the Department of Health and Human Services programs as well as the health 

and welfare of beneficiaries served by them. This statutory mission is carried out through a nationwide 

program of audits, investigations, inspections, sanctions, and fraud alerts. The Inspector General 

informs the Secretary of program and management problems and recommends legislative, regulatory, 

and operational approaches to correct them. 

Office of Evaluation and Inspections 

The Office of Evaluation and Inspections (OEI) is one of several components of the Office of Inspector 

General. It conducts short-term management and program evaluations (called inspections) that focus 

on issues of concern to the Department, the Congress, and the public. The inspection reports provide 

findings and recommendations on the efficiency, vulnerability, and effectiveness of departmental 

programs. 

OEI's San Francisco regional office prepared this report under the direction of Paul A. Gottlober, 

Regional Inspector General. Principal OEI staff included: 

REGION HEADQUARTERS 

Scott Hutchison, Project Leader Linda Frisch, Program Specialist 

Timothy Brady, Co-Project Leader 

To obtain copies of this report, please call the San Francisco Regional Office at 415-437-7900. 

Reports are also available on the World Wide Web at our home page address: 

http://www.dhhs.gov/progorg/oei 
EXECUTIVE SUMM ARY 

PURPOSE 

To examine the dispute resolution process for Medicaid beneficiaries enrolled in managed care 

plans and assess how States have implemented Federal due process requirements. 

BACKGROUND 

The Supreme Court established Medicaid beneficiaries’ right to due process in 1970 in 

Goldberg v. Kelly (397, U.S. 254, 1970). Due process rights were extended to Medicaid 

managed care beneficiaries in 1993 in J.K. v. Dillenberg (836 F Supp. 694, 699 D AZ 93). 

To fulfill due process requirements, States must guarantee all Medicaid beneficiaries access to 

State fair hearings when their benefits are adversely affected by a government action. In 

addition, any managed care plan that contracts with a State Medicaid agency must operate its 

own internal grievance process. States may require managed care enrollees to exhaust the 

internal plan process before granting a request for State fair hearing. States and plans must 

issue and publicize their dispute resolution procedures. 

We conducted on-site reviews at nine States selected on the basis of Medicaid and managed 

care enrollment, geographic diversity, and program diversity. For each State, we collected 

data from Health Care Financing Administration (HCFA) personnel, State Medicaid agency 

staff, fair hearing officers, the State Attorney General or equivalent, managed care plan staff, 

and legal advocates. We analyzed State policies, regulations, guidelines, and enrollee 

information including beneficiary handbooks and notices. 

FINDINGS 

Overall, the dispute resolution systems in the nine States we studied appear to be working as 

intended. There are, however, opportunities for improvement. 

Dispute resolution systems have been established in the sampled States. Beneficiaries 

have multiple avenues to address any disputes they have with their managed care plans. These 

include internal grievance processes, State fair hearings, ombudsman programs, and processes 

operated by other State agencies. Beneficiaries appear to be well-served by this array of 

options; however, advocates and others are concerned that the diverse choices may cause 

confusion. In-plan processes can be difficult to access, but also effective. State fair hearings 

are generally user-friendly and accessible. A number of managed care plans serve both 

Medicare and Medicaid beneficiaries and must maintain different dispute resolution system for 

each programs. 

Medicaid Managed Care Dispute Resolution 

1 OEI-09-99-00450 
States conduct few managed care hearings, and managed care organizations receive 

relatively few complaints and grievances. Requirements to exhaust plan processes, the 

availability of alternative procedures, and a prevailing attitude of avoidance may contribute to 

the low numbers of hearings, complaints, and grievances. Furthermore, managed care plans 

may be misreporting complaints as simple inquiries, and beneficiaries may not have a clear 

understanding of their appeal rights. 

Member materials and notices are often inadequate. Although member materials from all 

States and plans contain some information about appeal procedures, they vary widely in quality. 

Beneficiary notices also contain many deficiencies, and some seem to require advanced 

comprehension skills. Despite the overall poor quality of materials, we did find some promising 

approaches in a few States. 

Regulations governing fair hearing timeframes are flexible, but can be ambiguous. 

States utilize Federal flexibility to institute different timeframes for filing a fair hearing request. 

Regulations do not address the coordination of State and plan processes, which can be 

problematic. 

States have different interpretations of the plan’s role, as well as their own, in fair 

hearings. In some of the sampled States, managed care plans represent the State’s interest in 

fair hearings and beyond, while in others the plan is seldom, if ever, a party to the hearing. Two 

States have arrangements which seem to violate Federal rules for the impartiality of hearing 

decisions. Finally, while Federal guidelines state that a fair hearing decision must be extended 

to all beneficiaries in an identical situation, hearing decisions are not precedential. 

Oversight of dispute resolution is inconsistent. The HCFA regional offices conduct very 

little oversight of dispute resolution in States’ Medicaid managed care programs. While many 

States conduct rigorous oversight of plans, others adopt a more relaxed attitude. In addition, 

there is little coordination among agencies in States with multiple dispute resolution processes. 

Furthermore, lack of consistent definitions of dispute terminology complicates oversight for both 

HCFA and the States. Data quality in the States varies; however, States that view complaint 

data as an opportunity for improvement believe plan data is reasonably accurate. 

RECOMMENDATIONS 

A final rule published by HCFA in the January 19, 2001 Federal Register addresses problems 

we found regarding inconsistent dispute terminology, unclear dispute timeframes, and 

beneficiary education and notification. The rule becomes effective on 

Medicaid Managed Care Dispute Resolution 

2 OEI-09-99-00450 
<

<

<

June 18, 2001. To further strengthen the dispute resolution process, we recommend that 

HCFA: 

< develop model beneficiary notices and handbooks; 

< improve regional oversight; and 

< use, and encourage States to use, dispute resolution data as a way to 

improve quality of care. 

AGENCY COMMENTS 

We received written comments from HCFA on the draft report (see Appendix). The HCFA 

concurred with our recommendations. In response to our recommendations, HCFA will 

improve Medicaid consumer communications, regional oversight of the appeals process, and 

dispute resolution data. 

Medicaid Managed Care Dispute Resolution 

3 OEI-09-99-00450 
TABLE OF CONTENTS 

PAGE

EXECUTIVE SUMMARY ...................................................... 1

INTRODUCTION ............................................................. 5

Purpose ................................................................ 5

Background ............................................................ 5

Methodology ........................................................... 9

FINDINGS ................................................................. 10

Systems in place ........................................................ 10

Few hearings and grievances .............................................. 12

Inadequate member materials ............................................. 13

Timeframes ambiguous .................................................. 14

States’ and plans’ roles .................................................. 15

Inconsistent oversight ................................................... 16

RECOMMENDATIONS ...................................................... 18

APPENDIX ................................................................. 20

Medicaid Managed Care Dispute Resolution 

4 OEI-09-99-00450 
INTRODUCTION 

PURPOSE 

To examine the dispute resolution process for Medicaid beneficiaries enrolled in managed care 

plans and assess how States have implemented Federal due process requirements. 

BACKGROUND 

Medicaid and Managed Care History 

Congress created Medicaid in 1965, under Title XIX of the Social Security Act, as a joint

Federal/State program to serve disadvantaged people. Although the Health Care Finance

Administration (HCFA) retains regulatory authority over the program, States have been given

significant latitude in developing their own Medicaid policies. Within broad Federal guidelines,

States establish their own eligibility standards, determine what services they will cover, set

payment rates for services, and administer their own programs. Low-income families and

Supplemental Security Income recipients are among the primary beneficiaries of Medicaid. In

December 1999, more than 32 million people, about 11 percent of the total U.S. population,

were enrolled in the program.

Under Title XIX, States may operate voluntary managed care programs without special

permission, but must apply for waivers to mandate enrollment or to be exempt from certain

requirements. Research and Demonstration Waivers (or 1115 Waivers) permit HCFA to

authorize experimental, pilot, or demonstration projects which are likely to promote Medicaid

program objectives. Among other things, States granted a

1915(b) “Freedom of Choice” waiver may mandate enrollment into managed care and create

“carve-outs” for the delivery of specific sets of services, such as mental health services, in a

managed care environment.1

The Balanced Budget Act of 1997 eliminates waiver requirements for most Medicaid

populations.2 States may now elect the 1932(a) State Plan option to mandate enrollment 

1

States could also apply for a 1915(c) Home and Community-Based waiver, which allows States to develop 

systems of non-institutional care for Medicaid beneficiaries. Programs created under such waivers are not a focus of 

this study. 

2

Waivers are still required for dual-eligibles (beneficiaries qualified for both Medicare and Medicaid), 

children with special needs, and American Indians. 

Medicaid Managed Care Dispute Resolution 

5 OEI-09-99-00450 
in managed care, provided the beneficiary has a choice between at least two plans.3 It also 

adds increased protections for managed care enrollees as specific requirements for contracts 

between States and plans, including very specific provisions for plans’ internal grievance 

procedures. 

Currently, 49 States have used the freedom granted by waivers and the State Plan option to 

move all or part of their Medicaid population into managed care. As of December 1999, 

almost 18 million, over half of all Medicaid recipients, received services through one or more 

managed care plans. Medicaid managed care organizations are the most common type of plan 

and enroll over 12 million beneficiaries. These plans strive to provide comprehensive and 

preventive services to members. Prepaid health plans serve more than 8 million, and provide a 

limited set of services or a set benefit package. States use primary care case management 

providers, usually physicians, to locate, coordinate, and monitor the delivery of services for 

over 4 million beneficiaries. We use the term “managed care plan” or “plan” to refer 

collectively to these three types of managed care, except in discussion of plans’ internal 

grievance processes. 

Dispute Resolution under Medicaid Managed Care 

In 1970, the Supreme Court guaranteed recipients of government assistance broad due process 

rights. Under Goldberg v. Kelly (397, U.S. 254, 1970), the Court held that beneficiaries of 

Federal entitlement programs are accorded constitutional protections when their benefits are 

adversely affected by government action. These rights were extended to Medicaid managed 

care beneficiaries in 1993 in J.K. v. Dillenberg (836 F Supp. 694, 699 D AZ 93). The Court 

stated that “ . . . it is unreasonable to presume that Congress would permit a State to disclaim 

Federal responsibilities by contracting away its obligations to a private entity.” The right to a 

fair hearing under Medicaid managed care was further strengthened in a 1995 decision by the 

2nd Circuit Court of Appeals (Catanzano v. Dowling). The Appeals Court found that an 

independent contractor did not have unilateral authority to reduce services without notifying the 

beneficiary, allowing a hearing on the matter, and providing aid-continuing rights. 

To fulfill due process requirements, all States must guarantee Medicaid beneficiaries access to 

State fair hearings. The specifics of the process vary greatly by State, but the basic structure 

described in Figure 1 is fairly constant. In general, beneficiaries must file within a specified time 

to have their case heard by a State fair hearing officer. This hearing officer may be an 

Administrative Law Judge (ALJ), and can be part of the State Medicaid or other State agency. 

The hearing is often conducted in person, and any party to the hearing may have legal 

representation. The hearing officer or ALJ issues a recommended decision which is reviewed 

and finalized by another party, such as the head of the agency conducting the hearing. The 

beneficiary may petition the State judicial system if dissatisfied with the outcome of the hearing, 

in which case the Attorney General or agency’s general counsel would represent the State’s 

interest. 

3

States may waive the 2-plan requirement in rural areas, if a single eligible plan meets certain conditions. 

Medicaid Managed Care Dispute Resolution 

6 OEI-09-99-00450 
Figure 1: Basic Dispute Resolution 

Beneficiary wishes 

to dispute an MCO 

decision. 

Hearing takes place in 

front of ALJ or hearing 

officer. 

Is the 

beneficiary 

satisfied? 

Beneficiary uses 

internal MCO process. 

Beneficiary files for 

State Fair hearing. 

Dispute resolved 

Opportunity for 

judicial review 

Y 

Y Y

N 

N 

N 

Does the State 

require 

exhaustion? 

Is the 

beneficiary 

satisfied? 

All contracted plans must operate their own internal grievance process. In States with an 

“exhaustion requirement,” beneficiaries must follow this process to completion before filing a 

hearing request. Like the States, plans are usually afforded much latitude in developing their 

own dispute resolution procedures. As a result, it is difficult to describe a ‘typical’ plan 

process, though most include several levels of internal review. Since primary care case 

management plans do not operate an internal grievance process, their enrollees either file 

directly for a fair hearing or go to a State grievance process, depending on their State. 

New Regulations 

To implement provisions of the Balanced Budget Act, HCFA published a final rule on January 

19, 2001 (after we had completed our fieldwork) which amends the Medicaid regulations. The 

regulations are scheduled to become effective on April 19, 2001. Among other provisions, the 

rule significantly increases regulatory requirements for plans’ grievance processes. For 

instance, although the following provisions generally appear in contracts, the rule mandates that 

all Medicaid plans: 

Medicaid Managed Care Dispute Resolution 

7 OEI-09-99-00450 
< provide a dispute resolution system including grievance and appeal processes as well as 

access to the State fair hearing system; 

< provide an expedited grievance process when warranted by a beneficiary's medical 

condition; and 

< track and maintain a log of all grievances and appeals. 

The final rule includes provisions for creating a national standard for dispute terminology. 

Currently, States and plans do not use consistent terminology to describe aspects of their

grievance systems. When implemented, the rule will define an appeal as “a request for review

of an action,” a grievance as “an expression of dissatisfaction about any matter other than an

action,” and a quality of care grievance as “a grievance filed because the enrollee believes that

any aspect of [their] care [was substandard].”

The final rule also delineates plans’ responsibilities for educating and notifying beneficiaries

about plan decisions and grievance and appeal rights. Under current regulations, States must

issue and publicize their fair hearing procedures in language that can be understood by

beneficiaries and must notify beneficiaries of their right to a fair hearing whenever there is:

< a denial of eligibility,

< an unreasonable delay in acting upon a claim,

< a termination of eligibility or covered services,

< a suspension of eligibility or covered services, or

< a reduction of eligibility or covered services. 

The new regulations require that managed care plans distribute their grievance and appeal

procedures to beneficiaries as well, including their right to State fair hearing. Plans must

provide notice when they; terminate, suspend, or reduce previously authorized services; deny

payment on a claim; or deny or limit a service request.

Previous Work 

A recent National Health Law Program study found that beneficiaries often face significant 

challenges when resolving service disputes with a managed care organization. Obtaining 

medical records, understanding notices, and even calling the health plan for assistance can be 

troublesome for Medicaid beneficiaries, who by definition, have limited resources. These 

difficulties are compounded for individuals who are illiterate or lack access to a telephone.4 

Work by other advocacy organizations supports the finding that Medicaid managed care 

enrollees have difficulty exercising their rights. 

4

Kristi Olson, J.D. and Jane Perkins, J.D., M.P.H. Medicaid Managed Care and Due Process: The Law, Its 

Implementation, and Recommendations, National Health Law Program, May, 2000. 

Medicaid Managed Care Dispute Resolution 

8 OEI-09-99-00450 
METHODOLOGY 

We selected a purposive sample of nine States for this study. In Iowa, we focused on the 

State’s behavioral health carve-out. Figure 2 shows the States we visited and the enrollment 

information used to 

Figure 2: Medicaid Managed Enrollment by State select them. In 

As of December 31, 1999 according to HCFA’s website 

addition to these 

criteria, we based 

our selection on 

geographic and 

program diversity. 

During the selection 

process and 

throughout the study, 

we worked closely 

with HCFA and the 

Assistant Secretary 

for Planning and 

Evaluation. 

In each State, we 

interviewed State 

Medicaid agency staff, fair hearing officers or Administrative Law Judges, and the Attorney 

General or Office of General Counsel. We also spoke with at least one legal advocacy 

organization and reviewed at least one plan in each State. Finally, we met with HCFA 

personnel from each region visited. In total, we interviewed more than 160 individuals involved 

with Medicaid managed care dispute resolution. 

We analyzed State policies, regulations, guidelines, and enrollee information, including 

educational materials (i.e., member handbooks) and beneficiary notices from the nine States. 

We also conducted a thorough literature review to identify legal and policy work on Medicaid 

dispute resolution. 

This study was conducted in accordance with the Quality Standards for Inspections issued by 

the President’s Council on Integrity and Efficiency. 

State Medicaid 

Enrollment 

Medicai d Managed 

Ca re Enrollme nt 

Percent in 

Managed Care 

Ca li fornia 5,023,266 2,606,524 51.9 

Florida 1,594,757 959,875 60.2 

Io wa 207,830 179,462 86.4 

Maryland 475,014 386,012 81.3 

Massachusetts 910,493 647,018 71.1 

Minnesota 446,635 268,288 60.1 

M issouri 719,684 297,705 41.4 

Tennessee 1,348,677 1,305,619 96.8 

Washington 728,794 712,698 97.8 

Medicaid Managed Care Dispute Resolution 

9 OEI-09-99-00450 
FINDINGS 

Dispute resolution systems have been established in the 

sampled States 

Beneficiaries have many options 

In every State that we visited, Medicaid managed care enrollees have multiple avenues to 

address any disputes they have with their managed care plan. In addition to the internal plan 

process and the State hearing (except in Massachusetts5), five of the nine States have 

Statewide ombudsman programs, while two others operate programs in a limited area. These 

programs assist beneficiaries through either plan or State processes, and may also act on the 

State’s behalf in tracking dispute activity. The State Medicaid agencies in two other States 

investigate complaints outside of the fair hearing process. In four States, beneficiaries may 

bring a dispute to an outside agency, such as the Department of Insurance, rather than request a 

fair hearing. 

While Medicaid beneficiaries appear to be well-served by this array of options, advocates and 

others express concern that the number of processes may confuse clients. Indeed, it is not 

always clear from notices and educational materials why one would choose one process rather 

than another. For example, beneficiaries in one State have five separate choices for pursuing a 

dispute, each with its own rules. In several States, outside agencies typically just refer clients 

back to the State or plan to seek resolution. This could be extremely frustrating for people who 

are already unhappy with their situation. Furthermore, informal processes in some States may 

actually act against beneficiaries’ right to a fair hearing, as in the case of the “ombudsman” 

programs in two States that actually define their role as trying to mediate a solution and “avoid 

going to the ALJ.” 

A number of managed care plans serve both Medicaid and Medicare beneficiaries. Such plans 

must maintain different dispute resolution systems for each program. Several plan 

representatives we interviewed commented that dealing with multiple processes was 

cumbersome and inefficient. 

In-plan dispute resolution can be difficult to access, but also effective 

In-plan dispute resolution processes usually involve multiple layers of review which, in some 

cases, may be difficult to access. While the lowest level of review is usually triggered by phone 

contact, higher levels require written notification to the plan. To file a grievance at one plan, the 

5

Massachusetts has ruled that provider or plan actions are not State actions. Therefore, beneficiaries 

cannot bring a dispute with their plan to a fair hearing. 

Medicaid Managed Care Dispute Resolution 

10 OEI-09-99-00450 
member must provide very specific documentation, including a record of each contact the 

member has made with the plan about the problem with dates and names as well as a request 

for a specific resolution of the issue. We found nothing in the health plan's policy or member 

materials which indicates that this requirement has been communicated to plan members. 

Rather, plan documents indicate that if these materials are not included, a grievance request 

should simply be denied. Procedures at this and other plans also stipulate that the member is 

responsible for obtaining and submitting any pertinent medical records from their provider. 

If successfully accessed, using a grievance process can be an effective and efficient way to 

resolve disputes. Most of the plans to which we spoke indicated that they resolve more than 

90 percent of disputes to the member’s satisfaction at the lowest, or "complaint," level. Plan 

processes can be very effective at clearing up "minor" issues such as missing member materials 

and personal conflicts between providers and patients. Plans are able to resolve issues quickly; 

usually, they can satisfy members at the time of contact. Each plan overturns a significant 

number of their own decisions at some level of review, from about 20 percent of decisions at 

one plan to well over 50 percent at several others. 

Hearing officers try to provide user-friendly hearings 

Every State we visited complies with HCFA requirements for the impartiality of hearing 

officers, but they employ very different people in that role. Six of the nine States use ALJs to 

hear cases, while the other three use hearing officers with varying degrees of training. No 

sampled State has hearing officers or ALJs dedicated solely to managed care cases, though 

many specialize in “general” Medicaid. While some State Medicaid agencies use independent 

agencies to conduct hearings, a division of the Medicaid agency hears cases in other instances. 

Hearing officers who operate independently from the State agency believe this separation is 

critical in getting beneficiaries to trust the system. 

The State fair hearing is generally a user-friendly process. Hearing officers, State Medicaid 

agencies, and advocates typically describe the tone of the hearing as “informal” or “nonadversarial.” Since most beneficiaries are not represented by a lawyer, hearing officers are 

usually very lenient with them in terms of rules of evidence. Indeed, advocates in several States 

laud hearing officers for their fairness and equity. In some instances, the State agency may even 

help the beneficiary by suggesting they present certain evidence which supports their case. 

Despite the general good feeling about the hearings, some advocates and ALJs believe that the 

process is inherently unfair. They maintain that the leeway accorded pro se clients does not 

always compensate for clients’ lack of medical or legal expertise where the State or plan 

frequently has one or both readily available. 

We found that, as mandated by Federal regulations, States provide the opportunity for 

beneficiaries to attend a hearing in a forum that is reasonably convenient to them. The primary 

location for hearings is the local assistance office in many States, but the beneficiary can request 

a telephone, video-conference, or even in-home hearing if needed. In one State, most hearings 

were actually conducted by phone. Interestingly, advocates in that State complained that a 

phone conference was very intimidating and limited 

Medicaid Managed Care Dispute Resolution 

11 OEI-09-99-00450 
beneficiaries' ability to present their case, while advocates in other States generally called for 

greater access to phone hearings because of their convenience and non-threatening 

atmosphere. 

States conduct few managed care hearings, and managed 

care plans receive relatively few complaints and grievances 

The sampled States conduct very few fair hearings for Medicaid enrollees in managed care 

organizations. Excluding Tennessee,6 the greatest number of 1999 hearing requests in any 

sample State was approximately 360, in California. Florida reported the fewest number of 

requests, with only 3 during the past 14 years. Similarly, most plans handle relatively few 

complaints and grievances, compared to the number of beneficiaries they serve. The actual 

number varies greatly by plan, from a low of about 50 complaints for one plan in 1999 to about 

150 per month at another. The majority of complaints at some plans come from providers 

rather than members. 

Many structural factors contribute to the low number of complaints, grievances, and fair hearing 

requests. The size of the population enrolled in Medicaid managed care plans obviously 

influences the number of disputes. The presence of an exhaustion requirement may decrease 

the number of fair hearings in a State as issues are sorted out in the plans. In open enrollment 

States, dissatisfied members may simply switch plans or opt out of managed care entirely rather 

than pursue a dispute. Beneficiaries may choose to use outside agencies in States where they 

are available. Florida, for example, owes its low number of hearings primarily to its Statewide 

Provider and Subscriber Assistance Panel which hears Medicaid and commercial appeals. 

On the other hand, some advocates and others believe that beneficiaries are not aware of their 

rights or are reluctant to exercise them. Notices and educational materials often do not provide 

beneficiaries clear instruction on filing a fair hearing request. Hence, the low number of appeals 

may be partially due to beneficiaries’ lack of knowledge and understanding of their rights. 

Lengthy grievance processes may discourage beneficiaries from further pursuing a dispute, 

especially in States which require exhaustion. In addition, beneficiaries may be intimated by 

what they view as a very “official” process. Finally, some HCFA regions and State personnel 

believe that certain plans routinely record issues that are truly complaints as simple inquiries. 

The attitude of Medicaid personnel in many of the sampled States may contribute to the low 

numbers of hearings. In nearly all of the States we visited, State staff tend to view hearings as 

an undesirable last resort in disputes. Even where exhaustion is not required, 

6

Tennessee operates its dispute resolution process under a consent decree established in Daniels v. 

Wadley and revised in Grier v. Wadley (M.D. TN, No. 79-3107) in which every dispute goes directly to the State 

Agency. Hence, Tennessee's number of fair hearings in 1999 was abnormally large compared to the other eight 

States. 

Medicaid Managed Care Dispute Resolution 

12 OEI-09-99-00450 
beneficiaries are usually encouraged to attempt resolution with the plan before proceeding to 

fair hearing. For example, a plan in a State that does not require exhaustion told us that, except 

in egregious cases, the State agency will not grant a hearing request if the member has not 

worked through the plan process. Regulations in another State allow the Medicaid agency 5 

days after a fair hearing request to attempt mediation between the member and the plan. The 

hearing request telephone line is understaffed and impossible to get through according to nearly 

all respondents in a third State, which may discourage beneficiaries from filing. 

Member materials and notices are often inadequate 

Although member materials from all States and plans contain some information about appeal 

procedures, they vary widely in quality. Plan membership materials generally have a fairly 

detailed explanation of the in-plan process, but do not articulate the fair hearing process nearly 

as well. It is often unclear from reading the materials when a member may request a fair 

hearing, why one would do so, and by when the hearing must take place. In a few States that 

do not have exhaustion requirements, member handbooks inaccurately imply that a member 

must first work through the plan process. Many also fail to inform beneficiaries that they can be 

represented at a hearing, and none refer beneficiaries to specific legal assistance organizations. 

State handbooks and pamphlets are little better in most cases; though they contain more 

detailed information on the hearing, including timeframes, they still fail to direct beneficiaries to 

legal assistance. In addition, neither State nor plan materials include information about hearingrelated expenses such as transportation that might be reimbursed. 

Though some are better than others, we found many deficiencies in the notices we reviewed. 

Overall, adverse action notices do not clearly explain the action being taken and why. Most 

denial and complaint acknowledgment letters describe the options available for disputing the 

decision, but they tend to downplay the State hearing process in much the same way as 

handbooks. When a written request for appeal is required, notices do not specify the form that 

the request must take and what supporting documents must also be submitted. One plan 

provides fair hearing information only on the letter which follows the highest level of in-plan 

appeal. We were told that until recently there had been an exhaustion requirement in the State 

and the letters still reflected its use. The HCFA had requested that the State drop its exhaustion 

requirement well over a year before our visit. 

Despite minimum requirements in every State for the readability of notices and educational 

materials, we found much of the language on materials to be unclear and imprecise. Every 

State imposes minimum requirements on the readability of notices, ranging from 4th to 7th 

grade reading levels, but some materials seem to require more advanced comprehension skills. 

For example, a section of one beneficiary notice reads; “This notification restricts neither you 

nor your physician’s individual choice of continued medical care and service. However, this 

determination could result in non-payment of the claims for services provided on your behalf.” 

Medicaid Managed Care Dispute Resolution 

13 OEI-09-99-00450 
Figure 3: Useful Form from State Handbook We also found that few States require 

that materials have instructions for 

obtaining documents in another 

language, or a format for the visually 

impaired. In addition, some State 

educational materials have not been 

updated to reflect the presence of 

managed care and refer only to a 

beneficiary’s right to dispute a State 

or county decision. 

Despite the overall poor quality of 

notices and handbooks, we found 

some promising approaches in a few 

States. To address language needs, 

one State mandates that all materials 

contain a “language block,” where 

the importance of the material and the 

availability of translation is explained 

in seven languages. This same State 

and one other provide very good 

handbooks which include forms for 

recording important information from 

the plan representative when making 

a complaint (Figure 3) as well as a form letter for filing a fair hearing request. The hearing agency in 

another State produces an excellent pamphlet which explains what a beneficiary should bring to and 

expect from a State hearing. Materials from a few plans clearly and completely explain how and why a 

beneficiary would use each of the dispute resolution processes available. 

Regulations governing fair hearing timeframes are flexible, 

but can be ambiguous 

Federal regulations intentionally allow States some flexibility in setting fair hearing timeframes. 

For example, according to the regulations and the HCFA State Medicaid manual, States must 

provide beneficiaries at least 20, but not more than 90, days to file a fair hearing request after 

receiving a notice of adverse action. We found that some States permit the full 90 days, while 

others require filing in 30 or 45 days. Advocates in these States agree that the shorter time 

periods are still sufficient to allow a beneficiary to request a hearing. 

Medicaid Managed Care Dispute Resolution 

14 OEI-09-99-00450 
The fair hearing regulations do not address the interaction between hearings and plan

grievances. This has caused States to implement dispute resolution timeframes which may not

be consistent with the intent of Federal guidelines. For instance, regulations require that final

administrative action be taken within 90 days of a hearing request, but do not discuss how using

the plan process affects this standard. In all but three States, in-plan dispute resolution alone

can take significantly longer than 90 days if all steps are exhausted. Furthermore, beneficiaries

who adhere to the plan process could lose their right to file a fair hearing because of its

lengthiness, though State officials say they would allow a fair hearing request made after the

deadline in such cases.

While plans in all nine States provide expedited timeframes for dispute resolution in urgent

cases, only one State includes a description of a formal process for expediting State hearings in

enrollee handbooks. Most States require plans to respond to medically urgent issues within 72

hours, though several allowed only 1 day while another permits

5 days. If the plan upholds its determination upon expedited review, further levels of appeal,

including fair hearings, are not necessarily expedited. One hearing officer mentioned that

hearings can be fast-tracked by an informal request from the State Medicaid agency.

States have different interpretations of the plan’s role, as well 

as their own, in fair hearings 

Federal regulations do not specifically address the role of managed care plans in fair hearings 

and, as such, they assume very different roles among the nine States. In some, the plan 

represents the State’s interest in fair hearings and beyond, while in others the plan is seldom, if 

ever, a party to the hearing. In one State, the member and the plan each present their side to 

an impartial referee from the State. The plan then represents the State in any resulting judicial 

action. The State Attorney General is concerned about this arrangement, saying that plans 

might routinely appeal decisions adverse to them since the State pays court costs. In other 

States, plans are frustrated because their participation is limited to merely providing records 

before the hearing. Plans in these States do not typically have the opportunity to defend their 

decision before the hearing officer. 

Two States have arrangements that seem to violate Federal rules for the impartiality of hearing 

decisions. The HCFA State Medicaid manual states that “no person who has previously 

participated at any level in the determination upon which the final decision is based may 

participate in the [final] decision.” In one State, however, the ombudsman fields all fair hearing 

requests and attempts mediation and also reviews all hearing decisions before they are made 

final. In another State, beneficiaries can register complaints with the commissioner of the 

Department of Health (which is not the State Medicaid agency in that State), only to have that 

same commissioner act as the final authority on hearing decisions. 

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Federal guidelines state that a fair hearing decision may be extended to all beneficiaries 

in an identical situation, but we found that hearing decisions are not precedential. While 

groups of hearings centered around the same subject area often trigger a change in State 

policy, single decisions do not. Similarly, hearing officers say that while they may 

consult earlier decisions to help form an opinion on a case, they do not have to take that 

case as legal precedent in a parallel situation. 

Oversight of dispute resolution is inconsistent 

HCFA regions are seldom involved in oversight 

We found that most HCFA regional offices conduct little ongoing oversight of Medicaid 

managed care dispute resolution. Typically, regional personnel describe their 

involvement in dispute resolution as “reactive.” That is, they respond to issues brought 

to their attention but do not regularly review State activity. States are required to report 

quarterly under 1115 waivers and every 2 years for 1915(b) waivers, but only two States 

say they regularly submit detailed dispute information. Several other States reported that 

their regional office performs periodic on-site reviews. Many regions conducted intense 

reviews when their States first implemented managed care waivers, but rarely conduct 

reviews now. We found that regional offices varied greatly in the amount of information 

they could provide us about their States. 

If a region uncovers a problem, there is little they can do to compel the State to come into 

compliance. Although they have sanction authority or may withhold waiver approval, as 

a matter of practice, regional offices do not often employ these penalties. More 

frequently, HCFA may impose additional terms and conditions on existing waivers, or 

delay waiver approval. Though several regions say they have no effective means to 

compel compliance once the waiver is approved, all report that they can usually work 

with the State in a cooperative manner to address any concerns. 

While many States conduct rigorous oversight of plans, others adopt a more 

relaxed attitude 

Most of the States we visited work closely with their contracted plans in an oversight 

capacity. All States impose data collection requirements on plans and most use this data 

to spot trends and address weaknesses in the system. Two States require that plans report 

all written complaints immediately; one of these also collects monthly data on denials, 

terminations, and reductions of service. The other States receive periodic reports on plan 

grievance activity. In most States, agency staff perform annual on-site reviews of the 

plans, and two States use an external quality review organization to monitor dispute 

resolution. Lastly, States typically review and approve beneficiary notices and marketing 

materials before distribution, and some provide mandatory language to be included in 

notices and handbooks. 

Medicaid Managed Care Dispute Resolution 16 OEI-09-99-00450 
A few States are noticeably more lax than others in fulfilling their oversight role. When asked 

how they ensured compliance with Federal requirements, these States often responded that 

they relied primarily on the plans’ adherence to contracts. Although these States collect data, 

respondents were unsure how and if the data are being used. 

There is little coordination among agencies in States with multiple dispute resolution processes. 

In some, the State Medicaid agency and the hearing agency may each track appeal cases 

separately and not share data. In others, Departments of Insurance or Corporations and the 

State Medicaid agencies impose different, but overlapping, data collection requirements. One 

State official noted that no communication exists between the Department of Corporations and 

the State Medicaid agency, even when both are working on an appeal for the same beneficiary 

and issue. 

States and plans define and use dispute data differently 

Lack of consistent definitions of dispute terminology complicates oversight for both HCFA and 

the States. Some States define complaint, grievance, and appeal by how a member contacts 

the plan; an oral communication is a complaint, a written communication is a grievance, and an 

appeal is a formal request for reconsideration of the resolution of either of these. Another 

common distinction is to consider a complaint that remains unresolved after a certain time 

period a grievance. Still other States use one set of terms to describe disputes about 

administrative issues and another set for clinical issues. In at least two States, plans use 

different terminology within the State. 

In part due to conflicting definitions of dispute terms, State and plan performance is difficult to 

assess based on available data. Currently, the inconsistent quality of State data would make it 

difficult for HCFA to assess a State’s performance by just reviewing reports. Similarly, it is 

nearly impossible to compare plans within a State if they use different definitions for dispute 

terms. Although reviewing the disposition of cases at the plan level can give some insight into 

the fairness of the process, it is impossible to judge the quality of decisions by looking at 

numbers. In addition, plan data show that a significant number of cases are abandoned at each 

level. A look behind these numbers is necessary to determine if beneficiaries are dropping 

cases intentionally or if they are not aware of their options for pursuing a dispute. 

Perhaps more important is the concern that some plans routinely record complaints as simple 

inquiries. One plan told us that they do not consider any issue resolved at the time of contact to 

be a complaint, and therefore do not log all the complaints they receive. This is probably true 

of other plans as well; another reported receiving over 200,000 calls to customer service in 

1999, but only logged 924 complaints and 145 grievances, while a third received 22,464 calls, 

citing just 198 complaints and no grievances the same year. States may be unintentionally 

influencing plans by viewing complaints as a negative indicator of plan performance. States that 

view complaints as an opportunity to better serve beneficiaries and cultivate this understanding 

at the plans seem to have more faith in plan data. 

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RECOMMEND ATIONS 

Overall, the dispute resolution systems in the nine States we studied appear to be working as 

intended. There are, however, opportunities for improvement. The final rule published by 

HCFA in the January 19, 2001 Federal Register addresses problems we found regarding 

inconsistent dispute terminology, unclear dispute timeframes, and beneficiary education and 

notification. The rule becomes effective on June 18, 2001. To further strengthen the dispute 

resolution process, we recommend that HCFA: 

Develop model beneficiary notices and handbooks 

Frequently, beneficiary notices and member materials do not adequately explain the dispute 

resolution process. To encourage innovation, HCFA should continue to allow States and plans 

to develop their own materials, but should assist them by developing a model explanation of 

grievance and fair hearing rights. The explanation should be written at the fifth grade level or 

lower, and it should contain clear instruction on how to access the dispute resolution process. 

While the final rule outlines notification and information requirements, HCFA may wish to 

provide template materials as a visual reference for States. 

Improve regional oversight 

As noted in the findings, we found several situations where States do not meet Federal 

requirements. For example, two States apparently violate impartiality provisions and hearing in 

all sampled States are not precedential. The HCFA should review all States’ policies and 

procedures to ensure that each State is meeting all procedural requirements for the fair hearing 

process. 

We found that the inconsistency of State data makes it difficult for HCFA to assess State 

performance and compliance. The final rule requires plans to log and track grievances and 

appeals and submit data at least yearly to the State. We believe that HCFA should require 

plans to log all calls to the grievance unit, not just those that result in the beneficiary filing a 

grievance or appeal. Such data may provide clues to possible downcoding at a plan. We also 

believe that data should be reviewed by the States at least quarterly to help identify emerging 

issues. 

In order to identify national trends and issues, HCFA should develop a standardized quarterly 

report of grievances, appeals, and fair hearings which States would submit to the HCFA 

regional offices. This report could be tied to current waiver requirements, but should be 

detailed enough to provide some insight into States’ dispute resolution 

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activities. Data could then be used to target areas for regional offices’ on-site reviews or could 

trigger an immediate review if necessary. To ensure compliance with reporting requirements, 

HCFA should aggressively monitor contracts and State data collection systems during 

implementation of the final rule. 

Use, and encourage States to use, dispute resolution data as 

a tool for improving quality of care 

Treating disputes as an opportunity to strengthen customer service would help to identify 

weaknesses in the system, improve the consistency of reporting, reduce downcoding, and 

improve oversight. The HCFA should also encourage States to use dispute data to target areas 

for quality improvement. One State that we visited successfully uses complaints to continuously 

improve quality of care and has fostered this practice at its Medicaid managed care plans. 

AGENCY COMMENTS 

We received written comments from HCFA on the draft report (see Appendix). The HCFA 

concurred with our recommendations. In response to our recommendations, HCFA will 

improve Medicaid consumer communications, regional oversight of the appeals process, and 

dispute resolution data. 

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APPENDIX 

Agency Comments

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APPENDIX 

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