I
103D CONGRESS
2D SESSION
H. R. 4527
To assure fairness and choice to patients and providers under managed
care health benefit plans.
IN THE HOUSE OF REPRESENTATIVES
MAY 26, 1994
Mr. PETERSON of Minnesota (for himself, Mr. LAUGHLIN, Mr. HALL of
Texas, Mr. ROWLAND, Mr. BARCIA of Michigan, and Mr. ALLARD) intro-
duced the following bill; which was referred jointly to the Committees on
Energy and Commerce and Education and Labor
A BILL
To assure fairness and choice to patients and providers under
managed care health benefit plans.
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled,
SECTION 1. SHORT TITLE.
This Act may be cited as the ‘‘Patient Protection Act
of 1994’’.
TITLE I—PROTECTION OF CONSUMER CHOICE
(a) Nothing in this Act shall be construed as prohibit-
ing the following:
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(1) An individual from purchasing any health
care services with that individual’s own funds,
whether such services are covered within the individ-
ual’s standard benefit package or from another
health care provider or plan.
(2) Employers from providing coverage for ben-
efits in addition to the comprehensive benefit pack-
age.
TITLE II—CERTIFICATION OF MANAGED CARE
PLANS AND UTILIZATION REVIEW PROGRAMS
(a) CERTIFICATION PROCESS.—
(1) CERTIFICATION.—The Secretary shall es-
tablish a process for certification of managed care
plans meeting the requirements of subsection (b)(1)
and of utilization review programs meeting the re-
quirements of subsection (b)(2).
(2) QUALIFIED
MANAGED
CARE
PLAN.—For
purposes of this title, the term ‘‘qualified managed
care plan’’ means a managed care plan that the Sec-
retary certifies, upon application by the program, as
meeting the requirements of this section.
(3) QUALIFIED
UTILIZATION
REVIEW
PRO-
GRAM.—For purposes of this title, the term ‘‘quali-
fied utilization review program’’ means a utilization
review program that the Secretary certifies, upon
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application by the program, as meeting the require-
ments of this section.
(4) UTILIZATION REVIEW PROGRAM.—For pur-
poses of this title the term ‘‘utilization review pro-
gram’’ means a system of reviewing the medical ne-
cessity, appropriateness, or quality of health care
services and supplies provided under a health insur-
ance plan or a managed care plan using specified
guidelines. Such a system may include preadmission
certification, the application of practice guidelines,
continued 
stay 
review, 
discharge 
planning,
preauthorization of ambulatory procedures, and ret-
rospective review.
(5) MANAGED CARE PLAN.—
(A) IN GENERAL.—For purposes of this
title the term ‘‘managed care plan’’ means a
plan operated by a managed care entity as de-
scribed in subparagraph (B), that provides for
the financing and delivery of health care serv-
ices to persons enrolled in such plan through—
(i) arrangements with selected provid-
ers to furnish health care services;
(ii) explicit standards for the selection
of participating providers;
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(iii) organizational arrangements for
ongoing quality assurance, utilization re-
view programs, and dispute resolution; and
(iv) financial incentives for persons
enrolled in the plan to use the participat-
ing providers and procedures provided for
by the plan.
(B) MANAGED CARE ENTITY DEFINED.—
For purposes of this title, a managed care en-
tity includes a licensed insurance company, hos-
pital or medical service plan, health mainte-
nance organization, an employer or employee
organization, or a managed care contractor as
described in subparagraph (C), that operates a
managed care plan.
(C) MANAGED
CARE
CONTRACTOR
DE-
FINED.—For purposes of this title, a managed
care contractor means a person that—
(i) establishes, operates or maintains
a network of participating providers;
(ii) conducts or arranges for utiliza-
tion review activities; and
(iii) contracts with an insurance com-
pany, a hospital or medical service plan, an
employer, an employee organization, or any
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ing a certain system of health care delivery.
Where the plan is described orally to enrollees,
easily understood, truthful, and objective terms
must be used. All written plan descriptions
must be in a readable and understandable for-
mat, consistent with standards developed for
supplemental insurance coverage under Title
XVIII of the Social Security Act. This format
must be standardized so that customers can
compare the attributes of the plans. Specific
items that must be included are—
(i) coverage provisions, benefits, and
any exclusions by category of service, pro-
vider or physician, and if applicable, by
specific service;
(ii) any and all prior authorization or
other 
review 
requirements 
including
preauthorization review, concurrent review,
post-service review, post payment review
and any procedures that may lead the pa-
tient to be denied coverage for or not be
provided a particular service;
(iii) financial arrangements or con-
tractual provisions with hospitals, review
companies, physicians or any other pro-
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vider of health care services that would
limit the services offered, restrict referral
or treatment options, or negatively affect
the physician’s fiduciary responsibility to
his or her patients, including but not lim-
ited to financial incentives not to provide
medical or other services;
(iv) explanation of how plan limita-
tions impact enrollees, including informa-
tion on enrollee financial responsibility for
payment for coinsurance or other non-cov-
ered or out-of-plan services;
(v) loss ratios; and
(vi) enrollee satisfaction statistics (in-
cluding percent reenrollment, reasons for
leaving plan, etc.).
(B) Plans must demonstrate that they
have adequate access to physicians and other
providers, so that all covered health care serv-
ices will be provided in a timely fashion. This
requirement can not be waived and must be met
in all areas where the plan has enrollees, includ-
ing rural areas.
(C) Plans must meet financial reserve re-
quirements that are established to assure prop-
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er payment for covered services provided. An in-
demnity fund should be established to provide
for plan failures even when a plan has met the
reserve requirements.
(D) All plans shall be required to establish
a mechanism, with defined rights, under which
physicians participating in the plan provide
input into the plan’s medical policy (including
coverage of new technology and procedures),
utilization review criteria and procedures, qual-
ity and credentialing criteria, and medical man-
agement procedures.
(E) All plans shall be required to creden-
tial physicians within the plan, and will allow
all physicians within the plan’s geographic serv-
ice area to apply for such credentials. At least
once per year, plans shall notify physicians of
the opportunity to apply for credentials.
(i) Such a credentialing process shall
begin upon application of a physician to
the plan for inclusion.
(ii) Each application shall be reviewed
by a credentialing committee with appro-
priate representation of the applicant’s
medical specialty.
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(iii) Credentialing shall be based on
objective standards of quality with input
from physicians credentialed in the plan
and such standards shall be available to
applicants and enrollees. When economic
considerations are part of the decision, ob-
jective criteria must be used and must be
available to applicants, participating physi-
cians and enrollees. Any economic profiling
of physicians must be adjusted to recognize
case mix, severity of illness, age of patients
and other features of a physician’s practice
that may account for higher than or lower
than expected costs. Profiles must be made
available to those so profiled. When grad-
uate medical education is a consideration
in credentialing, equal recognition will be
given to training programs accredited by
the Accrediting Council on Graduate Medi-
cal Education and by the American Osteo-
pathic Association.
(iv) Plans shall be prohibited from
discriminating against enrollees with ex-
pensive medical conditions by excluding
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practitioners with practices containing a
substantial number of such patients.
(v) All decisions shall be made on the
record and the applicant shall be provided
with all reasons used if the application is
denied or the contract not renewed.
(vi) Plans shall not be allowed to in-
clude clauses in physician or other provider
contracts that allow for the plan to termi-
nate the contract ‘‘without cause’’.
(vii) There shall be a due process ap-
peal from all adverse decisions. The due
process appeal mechanisms shall be as set
forth in the Health Care Quality Improve-
ment Act of 1986, 42 U.S.C. § 11101–
11152.
(viii) The same standards and proce-
dures used for an application for creden-
tials shall also be used in those cases
where the plan seeks to reduce or withdraw
such credentials. Prior to initiation of a
proceeding leading to termination of a con-
tract ‘‘for cause’’, the physician shall be
provided notice, an opportunity for discus-
sion, and an opportunity to enter into and
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complete a corrective action plan, except in
cases where there is imminent harm to pa-
tient health or an action by a state medical
board or other government agency that ef-
fectively impairs the physician’s ability to
practice medicine within the jurisdiction.
(F) Procedures shall be established to en-
sure that all applicable Federal and State laws
designed to protect the confidentiality of pro-
vider and individual medical records are fol-
lowed.
(2) QUALIFIED
UTILIZATION
REVIEW
PRO-
GRAMS.—The Secretary, shall establish Federal
standards for the certification of qualified utilization
review programs, including:
(A) Plans must have a medical director re-
sponsible for all clinical decisions by the plan
and provide assurances that the medical review
or utilization practices they use, and the medi-
cal review or utilization practices of payers or
reviewers with whom they contract, comply with
the following requirements.
(B) Screening criteria, weighting elements,
and computer algorithms utilized in the review
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process and their method of development, must
be released to physicians and the public.
(C) Such criteria must be based on sound
scientific principles and developed in coopera-
tion with practicing physicians and other af-
fected health care providers.
(D) Any person who recommends denial of
coverage or payment, or determines that a serv-
ice should not be provided, based on medical ne-
cessity standards, must be of the same medical
branch (allopathic or osteopathic medicine) and
specialty (specialties as recognized by the Amer-
ican Board of Medical Specialties or the Amer-
ican Osteopathic Association) as the practi-
tioner who provided the service.
(E) Each claimant or provider (upon as-
signment of a claimant) who has had a claim
denied as not medically necessary must be pro-
vided an opportunity for a due process appeal
to a medical consultant or peer review group
not involved in the organization that performed
the initial review.
(F) Any individual making a negative
judgment or recommendation about the neces-
sity or appropriateness of services or the site of
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service must be a physician licensed to practice
medicine in the jurisdiction from which the
claim arose.
(G) Upon request, physicians will be pro-
vided the names and credentials of all individ-
uals conducting medical necessity or appro-
priateness review, subject to reasonable safe-
guards and standards.
(H) Patient or physician requests for prior
authorization of a non-emergency service must
be answered within two business days, and
qualified personnel must be available for same-
day telephone responses to inquiries about med-
ical necessity, including certification of contin-
ued length of stay.
(I) Plans must ensure that enrollees, in
plans where prior authorization is a condition
to coverage of a service, are required to sign
medical information release consent forms upon
enrollment for use where services requiring
prior authorization are recommended or pro-
posed by their physician.
(J) When prior approval for a service or
other covered item is obtained, it shall be con-
sidered approval for all purposes and the service
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shall be considered to be covered unless there
was fraud or incorrect information provided at
the time such prior approval was obtained.
(K) Procedures for ensuring that all appli-
cable Federal and State laws designed to pro-
tect the confidentiality of provider and individ-
ual medical records are followed.
(3) APPLICATION OF STANDARDS.—
(A) IN GENERAL.—Standards shall first be
established under this subsection by not later
than 12 months after the date of the enactment
of this section. In developing standards under
this subsection, the Secretary shall—
(i) review standards in use by national
private accreditation organizations and
State licensure programs;
(ii) recognize, to the extent appro-
priate, differences in the organizational
structure and operation of managed care
plans; and
(iii) establish procedures for the time-
ly consideration of applications for certifi-
cation by managed care plans and utiliza-
tion review programs.
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(B) REVISION OF STANDARDS.—The Sec-
retary shall periodically review the standards
established under this subsection, and may re-
vise the standards from time to time to assure
that such standards continue to reflect appro-
priate policies and practices for the cost-effec-
tive and medically appropriate use of services
within managed care plans and utilization re-
view programs.
TITLE III—CHOICE REQUIREMENTS FOR POINT
OF SERVICE PLANS
SEC. 3. (a) CHOICE REQUIREMENTS FOR POINT OF
SERVICE PLANS.—
(1) Each sponsor of a health benefit plan that
restricts access to providers (including such plans
provided, offered, or made available by voluntary
health purchasing co-operatives, employers, and self-
insurers), shall offer to all eligible enrollees the op-
portunity to obtain coverage for out-of-network serv-
ices through a ‘‘point of service’’ plan, as defined by
subparagraph (2), at the time of enrollment and at
least for a continuous one-month period annually
thereafter.
(2) For purposes of this Act, an ‘‘out-of-net-
work’’ or ‘‘point of service’’ plan provides additional
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coverage and/or access to care to nonnetwork provid-
ers to an eligible enrollee of a health plan that re-
stricts access to items and services provided by a
health care provider who is not a member of the
plan’s provider network (as defined in subparagraph
(2)), or, that may cover any other services the en-
rollee seeks, whether such services are provided in or
outside of the enrollee’s plan.
(3) A ‘‘provider network’’ means, with respect
to a health plan that restricts access, those providers
who have entered into a contract of agreement with
the plan under which such providers are obligated to
provide items and services in the standard benefits
package to eligible individuals enrolled in the plan,
or have an agreement to provide services on a fee-
for-service basis.
(4) PREMIUMS.—A plan may charge an enrollee
who opts to obtain point of service coverage an alter-
native premium that takes into account the actuarial
value of such coverage.
(5) COPAYMENTS.—A point of service plan shall
require payment of coinsurance for an out-of-net-
work item or service, as follows:
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(A) The applicable coinsurance percentage
shall not be greater than 20 percent of payment
for items and services.
(B) The applicable coinsurance percentage
may be applied differentially with respect to
out-of-network items and services, subject to
the requirements of subparagraph (i).
(6) PAYMENT DISCLOSURE REQUIREMENT.—All
sponsors of point of service plans and physicians
participating in such plans shall be required to dis-
close their fees, applicable payment schedules, coin-
surance requirements or any other financial require-
ments that affect patient payment levels.
(7) POVERTY
EXCLUSION.—Any enrollee, in-
cluding enrolled dependents, whose income does not
exceed 200 percent of the established federal poverty
guideline for the applicable year, shall be charged no
more than amount allowed under applicable plan
limits. Such amount, except for reasonable coinsur-
ance, shall be considered payment in full.
TITLE IV—CHOICE OF HEALTH PLANS FOR
ENROLLMENT
SEC. 4. (a) IN GENERAL.—Each sponsor of a health
benefit plan, who offers, provides or makes available such
benefit plan (including voluntary health insurance pur-
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chasing co-operatives, employers, and selfinsurers), must
provide to each eligible enrollee a choice of health plans
among available plans.
(b) OFFERING OF PLANS BY VOLUNTARY HEALTH
INSURANCE PURCHASING COOPERATIVES, EMPLOYERS,
AND OTHER SPONSORS.—
(1) IN GENERAL.—Each voluntary health insur-
ance purchasing cooperative, employer, or other
sponsor shall include among its health plan offerings
at least one of each of the following types of health
benefit plans:
(A) A health maintenance organization or
preferred provider organization, where available.
(B) A traditional insurance plan (as de-
fined in paragraph (2)).
(C) A benefit payment schedule plan (as
defined in paragraph (3)).
(2) 
TRADITIONAL
INSURANCE
PLAN
DE-
FINED.—For purposes of this act, the term ‘‘tradi-
tional insurance plan’’ is defined to include those
plans that offer the standard benefits package that
pay for medical services on a fee-for-service basis
using a usual, customary or reasonable payment
methodology or a resource-based relative value