MANAGED CARE: RECENT PROPOSALS FOR NEW GRIEVANCE AND APPEALS PROCEDURES
CRS Report for Congress
Managed Care: Recent Proposals for New
Grievance and Appeals Procedures
March 1, 1999
Jon O. Shimabukuro
Legislative Attorney
American Law Division
Congressional Research Service ˜ The Library of Congress
ABSTRACT
This report discusses recent proposals for new grievance and appeals procedures in managed
care plans. This report considers specifically the work of the President's Advisory Committee
on Consumer Protection and Quality in the Health Care Industry, legislative proposals, and
proposed regulations of the Department of Labor.
Several bills have already been introduced in the 106 Congress to address this issue. Theth
Patients' Bill of Rights, H.R. 358/S. 6, the Patients' Bill of Rights Plus Act, S. 300, and the
Patients' Bill of Rights Act, S. 326 each provide for new grievance and appeals procedures.
This report will be updated as warranted by legislative activity.
Managed Care: Recent Proposals for New Grievance and
Appeals Procedures
Summary
Because managed care is premised on notions of cost and the ability to control
the utilization of health care services, many fear that decisions involving access to
treatment and reimbursement are made improperly; that the cost of treatment plays
an increasingly important role in the decision-making process. Concern over decision-
making and treatment costs has prompted greater attention to the rights of
participants to appeal denials of treatment and to file grievances about other plan
decisions. Some believe that improved grievance and appeal rights would not only
empower patients, but enhance access to treatment and improve the quality of care
provided. Others, including the managed care industry, contend that new
requirements are likely to disrupt existing appeals systems that already work well.
As the 106 Congress considers enacting legislation for improved grievance andth
appeals procedures, it may review various recent proposals for guidance. This report
will discuss the work of the President's Advisory Commission on Consumer
Protection and Quality in the Health Care Industry, legislative proposals, and
proposed regulations of the Department of Labor.
Contents
Consumer Bill of Rights and Responsibilities.......................2
Legislative Action...........................................3
Patient Access to Responsible Care Act of 1997 (PARCA), H.R. 1415/S.
644 ............................................... 3
Patients' Bill of Rights Act of 1998, H.R. 3605/S. 1890...........3
Patients' Bill of Rights Act, S. 2330..........................4
Patient Protection Act of 1998, H.R. 4250.....................5
Department of Labor's Proposed Regulation.......................6
Managed Care: Recent Proposals for New
Grievance and Appeals Procedures
In November 1997, the President's Advisory Commission on Consumer
Protection and Quality in the Health Care Industry ("the Commission") issued a report
that addressed managed care and the rights of patients. In addition to recommending
improved disclosure of information and better access to emergency care, the
"Consumer Bill of Rights and Responsibilities" ("Consumer Bill of Rights") also
addressed enhanced grievance and appeals procedures for participants in managed
care organizations. Among its provisions, the report identified the right of consumers
to a "fair and efficient process for resolving differences with their health plans. . .
including a rigorous system of internal review and an independent system of external
review." 1
Because managed care is premised on notions of cost and the ability to control
the utilization of health care services, many fear that decisions involving access to
treatment and reimbursement are made improperly; that the cost of treatment plays
an increasingly important role in the decision-making process. For example, many2
managed care plans offer incentives to physicians who do not order designated
services. Concern over decision-making and treatment costs has prompted greater3
attention to the rights of participants to appeal denials of treatment and to file
grievances about other plan decisions. Some believe that improved grievance and
appeal rights would not only empower patients, but enhance access to treatment and
improve the quality of care provided. Others, including the managed care industry,4
contend that new requirements are likely to disrupt existing appeals systems that
already work well.
The Commission's interest in improved grievance and appeals procedures has
been shared by Congress. During the 105 Congress, various proposals wereth
introduced with specific provisions for grievance and appeals procedures. On July5
National Advisory Commission on Consumer Protection and Quality in the Health Care1
Industry, Consumer Bill of Rights and Responsibilities (Washington, D.C.: National
Advisory Commission on Consumer Protection and Quality, Nov. 1997).
Eleanor D. Kinney, Consumer Grievance and Appeal Procedures in Managed Care2
Plans, 10 NO. 3 Health Law. 17 (1998).
Id.3
Tracy E. Miller, Center Stage on the Patient Protection Agenda: Grievance and4
Appeal Rights, 26 J. L. Med. & Ethics 89 (1998).
H.R. 1415, 105 Cong. (1997); H.R. 3605, 105 Cong. (1998); H.R. 4250, 1055ththth
(continued...)
24, 1998, H.R. 4250 was passed by the House of Representatives. Although a motion
was made to consider H.R. 4250 in the Senate, that motion was tabled on October
9, 1998. In addition to this legislative response, the Department of Labor has sought
comments on a proposed regulation that would establish new standards for the
processing of claims under the Employee Retirement Income Security Act of 1974
(ERISA). If adopted in its current form, the proposed regulation would address6
some of the concerns raised by Congress.
This report will discuss the Consumer Bill of Rights, the various legislative
proposals, and the Department of Labor's proposed regulation. The Consumer Bill
of Rights and almost all of the proposed legislation recognize a need for both internal
and external review of treatment and reimbursement decisions. In general, internal
review involves review by responsible plan personnel with the authority to correct
mistakes. External review provides an oversight mechanism that could identify
procedural errors, provide substantive review, and detect patterns of inappropriate
denials. It is also seen as assuring participants of an impartiality and independence78
that might be lacking in the internal review process. Although the Department of
Labor's proposed regulation does not provide for external review, it does seek to
refine the review process for participants in group health plans.
Consumer Bill of Rights and Responsibilities
The Commission believes that enhanced internal and external review procedures
would benefit participants in three ways. First, they would assist in obtaining access9
to appropriate services in a timely manner, thus increasing the likelihood of positive
health outcomes. Second, improved procedures would bridge communication gaps
between participants and their health plans and providers. Third, improved
procedures would empower participants and facilitate greater respect for the
institutions that serve them.
The recommendations contained in the Consumer Bill of Rights seek to make the
resolution of grievances more timely and more reliable. The Consumer Bill of Rights
makes separate recommendations for internal and external appeals systems. Among
its recommendations for an internal appeals system are the review of decisions
involving emergency or urgent care within 72 hours, a claim review process
conducted by health care professionals who are credentialed in the area of the relevant
treatment, and timely written notification of preliminary and final decisions. Such
written notification would include information on appeals to the external appeals
system.
(...continued)5
Cong. (1998); S 644, 105 Cong. (1997); S 2330, 105 Cong. (1998); S 1890, 105 Cong.ththth
(1998).
Miller, supra note 4 at 92.7
Id.8
Consumer Bill of Rights and Responsibilities, supra note 1.9
Under the Consumer Bill of Rights, an external appeals system would be
available after consumers have exhausted all internal processes. In cases of urgently
needed care, external review would be more readily available, with resolution to be
achieved within 72 hours. External review would be conducted by health care
professionals who are credentialed in the area of relevant treatment. These
professionals would not have been a part of the internal appeals system. Finally, an
external appeals system would follow a standard of review that promotes evidence-
based decision-making and relies on objective evidence.
Legislative Action
During the 105 Congress, numerous legislative proposals were introduced toth
address the reform of managed care. While each of the bills addressed appeals
procedures in some form, there was some variance with respect to the timing of
review and the manner in which review would be conducted. Two of these bills, the
Patients' Bill of Rights Act of 1998 and S. 2330, have been reintroduced in the 106th
Congress with minimal changes.
Patient Access to Responsible Care Act of 1997 (PARCA), H.R. 1415/S.
644. PARCA, introduced by Representative Charlie Norwood (R-GA) and Senator
Alfonse D'Amato (R-NY), sought to amend ERISA and the Public Health Service1011
Act (PHSA) to include new patient protection standards, including a new appeals
process. Unlike the Consumer Bill of Rights, PARCA did not provide for internal and
external review. Under PARCA, a plan or health insurance issuer would simply have
to establish and maintain an "accessible appeals process" that reviewed adverse prior12
authorization determinations. Appeals for urgent care services would receive
expedited treatment. These appeals would be reviewed within 1 hour after a request
for review was made. Appeals for other services would be reviewed within 24 hours
after a request was made. Review would be conducted by an appropriate clinical peer
professional in the same or similar specialty as would typically provide the treatment
at issue.
Patients' Bill of Rights Act of 1998, H.R. 3605/S. 1890. The Patients' Bill of
Rights Act of 1998, introduced by Representative John D. Dingell (D-MI) and
Senator Tom Daschle (D-SD), sought to amend ERISA, the PHSA, and the Internal
Revenue Code of 1986 to comply with new grievance and appeals procedure13
requirements. Like the Consumer Bill of Rights, the Act provided for both internal
and external appeals procedures. Internal review would be conducted by a physician
or other health care professional selected by the plan. One or more clinical peers
would be included in the review. Review would conclude within 72 hours for cases14
See H.R. 1415/S. 644, 105 Cong. § 2(a)(2) (1997).12th
See H.R. 3605/S. 1890, 105 Cong. § 191(c)(2) (1998) (A clinical peer is a physician14th
(continued...)
in which delay could jeopardize the life or health of the participant. In all other
appeals, review would conclude within 15 business days.
External review would be available for appealable decisions where the amount
involved exceeded a significant threshold or the patient's life or health could be
jeopardized as a consequence of the decision. Under the Act, a plan could require the
completion of an internal review process before a case became eligible for external
review. External review would be conducted under a contract between the plan issuer15
and one or more qualified external appeal entities. Review would permit a de novo
determination, an opportunity to submit and review evidence, the assistance of
counsel, and the option of making oral presentation. In addition, review would be
subject to any standards established by the Secretary of Labor or Secretary of Health
and Human Services.
Under the Act, plans and issuers would also be required to establish and maintain
a grievance system. This system would allow participants and enrollees to resolve
oral and written grievances pertaining to access and the availability of services, quality
of care, accessibility of providers, and network adequacy.
Patients' Bill of Rights Act, S. 2330. S. 2330, introduced by Senator Don
Nickles (R-OK), sought to amend ERISA to include new provisions for internal and
external review processes. Under S. 2330, internal appeals of routine adverse
decisions would be resolved within 30 days after the date the request for appeal was
received. Appeals involving urgently needed care would be resolved within 72 hours
after the request for appeal was received.
External review would require the filing of a written request with the plan or
issuer within 30 working days after the receipt of a final denial of a claim. Upon
receipt of the request for external review, the plan would have discretion over
determining whether external review was appropriate. Appeals involving procedures
or treatments costing less than $1,000 would not be eligible for external review.16
The plan could also avoid external review if it determined that the denied treatment
was not medically necessary.
If a plan or issuer determined that external review was appropriate, it would
designate an external appeals entity. Subsequently, the external appeals entity would17
(...continued)14
or other health care professional who holds a non-restricted license in a state and who is
appropriately credentialed in the same or similar specialty that handled the treatment under
review.).
See H.R. 3605/S. 1890, 105 Cong. § 133(c) (1998) (A qualified external appeal15th
entity is a certified entity that (1) has no real or apparent conflict of interest with the plan or
issuer, (2) conducts external appeal activities through clinical peers, and (3) has sufficient
medical, legal, and other expertise and staffing to conduct timely external appeals.).
See S. 2330, 105 Cong., § 121(a) (1998).16th
See S. 2330, 105 Cong. § 121(a) (1998) (Any of the following may be selected as17th
(continued...)
designate one or more individuals to serve as external reviewers of the request. An18
external reviewer would be required to complete review no later than 30 working
days after either the date of the reviewer's designation or the date on which all
necessary information was received, whichever was later. Although the decision of
the external reviewer would be binding, enrollees could still seek judicial relief.
S. 2330 would also require that a plan or issuer maintain written procedures for
addressing grievances between the plan and enrollees. Determinations under such a
grievance procedure would be non-appealable.
Patient Protection Act of 1998, H.R. 4250. The Patient Protection Act of
1998, introduced by Representative Newt Gingrich (R-GA), was passed by the House
of Representatives on July 24, 1998. The Act sought to amend ERISA to include
new procedures for the internal and external review of coverage decisions. Internal
review would be available upon written request. Review would be conducted by a
named fiduciary of the plan and completed within 30 days unless a longer period was
prescribed by the Secretary of Labor. For cases involving urgent medical care, the
period for review would be reduced to 10 days unless a longer period was
prescribed. For cases of emergency medical care, the period for review would be19
reduced to 72 hours unless a longer period was prescribed.20
External review would be available for participants who did not commence
review under ERISA, § 502. Those seeking review would need to file a written
request within 30 days of receiving the initial adverse decision. Each plan would be
required to provide a procedure for review, including the selection of one or more
independent medical experts who would examine the validity of the decision. Review
would consist of the experts receiving a record of the case and issuing a written
report. Review would be completed within 25 days unless a longer period was
prescribed by the Secretary of Labor. For decisions involving urgent medical care,
(...continued)17
an external appeals entity: (1) an external review entity licensed or credentialed by a state; (2)
a state agency established for the purpose of conducting independent external reviews; (3) any
entity under contract with the federal government to provide external review services; (4) any
entity accredited as an external review entity by an accrediting body recognized by the for
such purpose; (5) any fully accredited teaching hospital; and (6) any other entity meeting
criteria established by the Secretary [of Labor] for purposes of this subparagraph.).
See S. 2330, 105 Cong., § 121(a) (1998) (An external reviewer is an independent18th
medical expert (1) appropriately credentialed or licenced in any state to deliver health care
services; (2) without any affiliation with the case under review, the enrollee, the treating health
care professional, the treating institution, or manufacturer of any drug or treatment under
review; (3) who is an expert in the treatment under review; (4) who will receive only
reasonable compensation for the review; and (5) who will not be held liable for his decisions.).
See H.R. 4250, 105 Cong. § 1201(b)(9)(H) (Urgent medical care is medical care in19th
a case in which the failure to provide care within 45 days will reasonably be expected to result
in either imminent death or immediate and irreversible deterioration.).
See H.R. 4250, 105 Cong. § 1201(b)(9)(I) (1998) (Emergency medical care is20th
medical care in a case in which the failure to provide immediate care will result in placing the
health of the participant in serious jeopardy.).
review would be completed within 10 days unless a longer period was prescribed. For
decisions involving emergency medical care, review would be completed within 72
hours unless a longer period was prescribed.
Unlike other proposed legislation, the Act also permitted alternative dispute
resolution to internal review for decisions involving group health plans.
Department of Labor's Proposed Regulation
On September 9, 1998, the Department of Labor published a proposed
regulation that would establish new standards for the processing of group health
disability, pension, and other employee benefit claims. These new standards are21
intended to provide "greater assurance that participants and beneficiaries will be
afforded a full and fair review of denied claims." Since its publication, the proposed22
regulation has generated more than 600 comment letters. The majority of these23
letters are from businesses and insurers who believe that the new standards are
unrealistic. 24
Under current federal regulations, a plan may establish a period within which a
claimant is permitted to seek review of a denied claim. This period must be
reasonable and related to both the nature of the benefit that is the subject of the claim
and to other attendant circumstances. While providing no definition for25
"reasonable," the regulations state that a claimant must be given at least 60 days to
request review following the receipt of a denial notice. Review is conducted by an
"appropriate named fiduciary." This fiduciary may be either the company, service, or
organization that administers the plan, or a plan administrator or someone designated
by the plan. The appropriate named fiduciary has 60 days after the receipt of a26
request for review to render a decision. If special circumstances exist, the
appropriate named fiduciary is permitted to render a decision as soon as possible.
The proposed regulation seeks to provide an expedited review process for
appeals under group health plans. For these appeals, reviews are to be conducted
within a reasonable period of time, but not later than 30 days after receipt of the
claimant's request for review. For claims involving urgent care, review must be
conducted as soon as possible, but not later than 72 hours after receipt of the
claimant's request. Under the proposed regulation, the appropriate named fiduciary
must consult with a health care professional who has training and experience in the
field of medicine involved in the medical judgment.
Id .22
Volume of Complaints Increases Scrutiny of Labor Department's ERISA Claims23
Rule, Health Law Reporter (BNA) Vol. 8, No. 3, at 104 (Jan. 21, 1999).
Id .24
The proposed regulation also provides for more extensive review. All
comments, documents, records and other information submitted by the claimant will
be reviewed even if such information was not previously submitted and relied upon.
The resulting decision is to include not only the specific reasons for the decision and
make references to the pertinent plan provisions on which the decision is based, but
also advise the claimant of the ability to receive all documents and records relevant
to the claim.
The Department of Labor has indicated that the proposed regulation responds
to its concerns of unnecessary delay in the resolution of claim disputes. In addition27
to reducing the number of days in which a review decision must be made, the
proposed regulation provides that benefit claim proceedings may not include more
than one level of mandatory appeal. Under the proposed regulation, the plans are also
precluded from requiring claimants to submit to binding arbitration either as part of
the single level of appeal or following the initial review.
The absence of any provisions for external review suggests that legislation may
still be necessary to impose additional review. The Department of Labor has stated
that it is unable to create an external review process because there is no statutory
authority for this kind of review. Under § 503(2) of ERISA, a plan is only required
to offer a participant a reasonable opportunity for "full and fair review by the
appropriate named fiduciary of the decision denying the claim." While the proposed28
regulation attempts to achieve some form of impartiality by requiring consultation
with a health care professional, it does not require the kind of external review sought
by the Commission and Congress.
On January 19, 1999, Senate and House Democrats reintroduced the Patients'
Bill of Rights, H.R. 358/S. 6. On January 22, 1999, Senate Republicans reintroduced
their managed care legislation as the Patients' Bill of Rights Plus Act, S. 300. While
the Patients' Bill of Rights closely resembles its predecessor in the 105 Congress, S.th
300 includes one significant change with respect to the external review of claim
denials. Under S. 300, external review would be available as long as the cost of the
procedure or treatment at issue exceeds a significant financial threshold. A plan is not
permitted to deny review to a claimant on the basis of the treatment cost falling below
$1,000. This change is also recognized in the Patients' Bill of Rights Act, S. 326. S.
326 was introduced by Senator James M. Jeffords on January 28, 1999. The
remaining appeals provisions in S. 326 resemble those in S. 300.
Interest in improved grievance and appeals procedures is likely to increase.
Managed care organizations and their appeals processes have become subject to
greater scrutiny as a result of lawsuits and multi-million dollar judgments. The29
Commission's Consumer Bill of Rights, the Department of Labor's proposed
See Robert F. Howe, The People vs. HMOs, TIME, Feb. 1, 1999, at 46.29
regulation, and the proposed legislation in this Congress should provide a basis for
considering the best methods for improving existing procedures.