[House Hearing, 105 Congress]
[From the U.S. Government Publishing Office]



 
                     PATIENT APPEALS IN HEALTH CARE

=======================================================================

                                HEARING

                               before the

                         SUBCOMMITTEE ON HEALTH

                                 of the

                      COMMITTEE ON WAYS AND MEANS
                        HOUSE OF REPRESENTATIVES

                       ONE HUNDRED FIFTH CONGRESS

                             SECOND SESSION

                               __________

                             APRIL 23, 1998

                               __________

                             Serial 105-100

                               __________

         Printed for the use of the Committee on Ways and Means


                    U.S. GOVERNMENT PRINTING OFFICE
63-213 CC                   WASHINGTON : 2000



                      COMMITTEE ON WAYS AND MEANS

                      BILL ARCHER, Texas, Chairman

PHILIP M. CRANE, Illinois            CHARLES B. RANGEL, New York
BILL THOMAS, California              FORTNEY PETE STARK, California
E. CLAY SHAW, Jr., Florida           ROBERT T. MATSUI, California
NANCY L. JOHNSON, Connecticut        BARBARA B. KENNELLY, Connecticut
JIM BUNNING, Kentucky                WILLIAM J. COYNE, Pennsylvania
AMO HOUGHTON, New York               SANDER M. LEVIN, Michigan
WALLY HERGER, California             BENJAMIN L. CARDIN, Maryland
JIM McCRERY, Louisiana               JIM McDERMOTT, Washington
DAVE CAMP, Michigan                  GERALD D. KLECZKA, Wisconsin
JIM RAMSTAD, Minnesota               JOHN LEWIS, Georgia
JIM NUSSLE, Iowa                     RICHARD E. NEAL, Massachusetts
SAM JOHNSON, Texas                   MICHAEL R. McNULTY, New York
JENNIFER DUNN, Washington            WILLIAM J. JEFFERSON, Louisiana
MAC COLLINS, Georgia                 JOHN S. TANNER, Tennessee
ROB PORTMAN, Ohio                    XAVIER BECERRA, California
PHILIP S. ENGLISH, Pennsylvania      KAREN L. THURMAN, Florida
JOHN ENSIGN, Nevada
JON CHRISTENSEN, Nebraska
WES WATKINS, Oklahoma
J.D. HAYWORTH, Arizona
JERRY WELLER, Illinois
KENNY HULSHOF, Missouri

                     A.L. Singleton, Chief of Staff

                  Janice Mays, Minority Chief Counsel

                                 ______

                         Subcommittee on Health

                   BILL THOMAS, California, Chairman

NANCY L. JOHNSON, Connecticut        FORTNEY PETE STARK, California
JIM McCRERY, Louisiana               BENJAMIN L. CARDIN, Maryland
JOHN ENSIGN, Nevada                  GERALD D. KLECZKA, Wisconsin
JON CHRISTENSEN, Nebraska            JOHN LEWIS, Georgia
PHILIP M. CRANE, Illinois            XAVIER BECERRA, California
AMO HOUGHTON, New York
SAM JOHNSON, Texas


Pursuant to clause 2(e)(4) of Rule XI of the Rules of the House, public 
hearing records of the Committee on Ways and Means are also published 
in electronic form. The printed hearing record remains the official 
version. Because electronic submissions are used to prepare both 
printed and electronic versions of the hearing record, the process of 
converting between various electronic formats may introduce 
unintentional errors or omissions. Such occurrences are inherent in the 
current publication process and should diminish as the process is 
further refined.



                            C O N T E N T S

                               __________

                                                                   Page

Advisory of July 24, 1998, announcing the hearing................     2

                               WITNESSES

Health Care Financing Administration, Michael M. Hash, Deputy 
  Administrator..................................................     9
U.S. Office of Personnel Management, William E. Flynn III, 
  Associate Director for Retirement and Insurance................    16

                                 ______

Association of Private Pension and Welfare Plans, and GTE 
  Corporation, J. Randall MacDonald..............................    36
AvMed Health Plan, Stephen J. deMontmollin.......................    52
Center for Health Dispute Resolution, David A. Richardson, Jr....    70
National Association of Insurance, Colorado Division of 
  Insurance, Jack Ehnes..........................................    44

                       SUBMISSIONS FOR THE RECORD

American Association of Retired Persons, Jim Parkel, statement 
  and attachment.................................................    78
Medical Care Management Corporation, Bethesda, MD, Peter G. 
  Goldschmidt M.D., statement....................................    83
National Senior Citizens Law Center, Vicki Gottlich, statement 
  and attachment.................................................    91



                     PATIENT APPEALS IN HEALTH CARE

                              ----------                              


                        THURSDAY, APRIL 23, 1998

                  House of Representatives,
                       Committee on Ways and Means,
                                    Subcommittee on Health,
                                                    Washington, DC.
    The Subcommittee met, pursuant to notice, at 10:10 a.m., in 
room 1100, Longworth House Office Building, Hon. Nancy Johnson 
presiding.
    [The advisory announcing the hearing follows:]


ADVISORY

FROM THE 
COMMITTEE
 ON WAYS 
AND 
MEANS

                         Subcommittee on Health

                                                CONTACT: (202) 225-3943
FOR IMMEDIATE RELEASE

April 16, 1998

No. HL-21

                      Thomas Announces Hearing on

                     Patient Appeals in Health Care

    Congressman Bill Thomas (R-CA), Chairman, Subcommittee on Health of 
the Committee on Ways and Means, today announced that the Subcommittee 
will hold a hearing on how patient appeals are processed in various 
health care settings. The hearing will take place on Thursday, April 
23, 1998, in the main Committee hearing room, 1100 Longworth House 
Office Building, beginning at 10:00 a.m.
      
    Witnesses will include representatives from the Health Care 
Financing Administration (HCFA), health insurance and managed care 
organizations, and patient advocacy groups. Any individual or 
organization not scheduled for an oral appearance may submit a written 
statement for consideration by the Committee and for inclusion in the 
printed record of the hearing.
      
    BACKGROUND:
      
    Due process is a core value of the American legal system and has 
recently become an important health care issue. Virtually all private 
and public health organizations provide consumers with some form of 
complaint resolution, using varied procedures to respond to consumer 
complaints.
      
    With respect to the Medicare appeals process, a U.S. District Court 
in Arizona in 1997 found that HCFA (and the Medicare HMOs with which 
HCFA contracts) denied beneficiaries their right to fair notice and 
hearings in contesting coverage issues. The court ordered HCFA to 
provide seniors with detailed information concerning grievances, 
hearings and appeals.
      
    Many States require health insurers to provide certain complaint 
procedures. More than thirty States have some specific complaint 
procedures that health plans must follow. A growing number of States 
are also requiring expedited appeals for denials of urgently needed 
care.
      
    In announcing the hearing, Chairman Thomas stated: ``Patients 
should be assured that they have an avenue for appealing health care 
decisions and that these decisions are made in a timely manner. While 
concerns have been raised about current regulations, in fact, many 
insurers and health care organizations are already going beyond the 
requirements of existing State and Federal law. Patient satisfaction in 
resolving disputes is a key element for maintaining confidence in the 
American health care system."
      

FOCUS OF THE HEARING:

      
    The Subcommittee will examine the different types of appeals 
procedures used in Medicare and in private markets, and what progress 
HCFA has made in improving patient appeals. In addition, the 
Subcommittee will consider lessons learned from States which have 
traditionally regulated health insurance benefits. A representative of 
the National Association of Insurance Commissioners (NAIC) will testify 
regarding its model grievance statute which is under consideration in a 
number of States.
      

DETAILS FOR SUBMISSION OF WRITTEN COMMENTS:

      
    Any person or organization wishing to submit a written statement 
for the printed record of the hearing should submit at least six (6) 
single-space legal-size copies of their statement, along with an IBM 
compatible 3.5-inch diskette in ASCII DOS Text or WordPerfect 5.1 
format only, with their name, address, and hearing date noted on a 
label, by the close of business, Thursday, May 7, 1998, to A.L. 
Singleton, Chief of Staff, Committee on Ways and Means, U.S. House of 
Representatives, 1102 Longworth House Office Building, Washington, D.C. 
20515. If those filing written statements wish to have their statements 
distributed to the press and interested public at the hearing, they may 
deliver 200 additional copies for this purpose to the Subcommittee on 
Health office, room 1136 Longworth House Office Building, at least one 
hour before the hearing begins.
      

FORMATTING REQUIREMENTS:

      
    Each statement presented for printing to the Committee by a 
witness, any written statement or exhibit submitted for the printed 
record or any written comments in response to a request for written 
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but will be maintained in the Committee files for review and use by the 
Committee.
      
    1. All statements and any accompanying exhibits for printing must 
be typed in single space on legal-size paper and may not exceed a total 
of 10 pages including attachments. At the same time written statements 
are submitted to the Committee, witnesses are now requested to submit 
their statements on an IBM compatible 3.5-inch diskette in ASCII DOS 
Text or WordPerfect 5.1 format. Witnesses are advised that the 
Committee will rely on electronic submissions for printing the official 
hearing record.
      
    2. Copies of whole documents submitted as exhibit material will not 
be accepted for printing. Instead, exhibit material should be 
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    3. A witness appearing at a public hearing, or submitting a 
statement for the record of a public hearing, or submitting written 
comments in response to a published request for comments by the 
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clients, persons, or organizations on whose behalf the witness appears.
      
    4. A supplemental sheet must accompany each statement listing the 
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    The above restrictions and limitations apply only to material being 
submitted for printing. Statements and exhibits or supplementary 
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and the public during the course of a public hearing may be submitted 
in other forms.
      

    Note: All Committee advisories and news releases are available on 
the World Wide Web at ``HTTP://WWW.HOUSE.GOV/WAYS__MEANS/''.
      

    The Committee seeks to make its facilities accessible to persons 
with disabilities. If you are in need of special accommodations, please 
call 202-225-1721 or 202-226-3411 TTD/TTY in advance of the event (four 
business days notice is requested). Questions with regard to special 
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materials in alternative formats) may be directed to the Committee as 
noted above.

                                

    Mrs. Johnson of Connecticut. Welcome. My Chairman, Mr. 
Thomas, is unexpectedly detained and we're going to move ahead 
in his absence.
    Due process means many things. To legal scholars, it's a 
term of art meaning the technical process by which legal rights 
are enforced. In a larger sense, due process means simply the 
opportunity to be heard, the chance to air grievances. Due 
process has always been important to our legal system.
    Today the concept is gaining significance in health care. 
The reason for this is simple. Americans are becoming more 
informed consumers and they are demanding opportunities to be 
heard. With a wide variety of opportunities to educate 
themselves through newspapers, journals, television 
documentaries, and the Internet, the average patient today is 
much better informed about medical options than the average 
patient just a decade ago.
    In the past, a patient with a rare disease might only have 
sought a second opinion before selecting a treatment regimen. 
Today a patient may sit down at their home computer, or stop in 
at their local library, and enter a world of information--from 
the National Library of Medicine to chat rooms for patients 
with a similar condition.
    This empowerment of consumers means that they no longer 
take a coverage denial decision sitting down. When a fee-for-
service health plan or a managed care plan denies coverage for 
service, because it is either not covered by the policy or the 
service is deemed to be medically unnecessary, patients often 
feel angered and frustrated.
    Insurers and managed care plans could significantly reduce 
these concerns by, first, providing coverage information in a 
form that is easily understood by consumers when they enroll in 
their plan, and two, by making coverage decisions in a timely 
manner, so that patients are not in limbo for an undefined 
period of time. Many plans have already taken these steps, and 
I predict that they will be the winners in the end, as 
individual consumers and employers walk with their feet to the 
plans that meet their needs.
    Finally, it is inevitable that, no matter how detailed the 
information provided to consumers, and no matter how elaborate 
the appeals process concerning coverage decisions, there will 
be always disputes about what is and is not covered. Our goal 
should be to minimize these disputes.
    Today we will hear from several witnesses representing a 
wide variety of opinions on the issue of patient appeals.
    Our first witness today is Mike Hash, the new Deputy 
Administrator of the Health Care Financing Administration. 
Joining him is Mr. William Flynn, who is responsible for 
managing the Federal Employees Health Benefit Plan, the health 
program that covers Members of Congress and all Federal 
employees. I look forward to hearing testimony from these and 
our other witnesses today, and yield now to Mr. Stark.
    Mr. Stark. Thank you, Madam Chairman, and I intend to yield 
to Mr. Cardin, who has a bill that was referred to this 
Subcommittee. And, I thank you, Chairman Thomas, for holding 
this hearing.
    I'm sorry to say that I think this is perhaps the most 
important health issue before the public today. The 
administration has put forward a lot of bills which will help 
in some small way to expand insurance to the uninsured, and we 
have talked a lot about fraud and abuse, and there is a 
commission to extend the life of Medicare. But, I think nothing 
is more in the public's mind now than the almost obscene 
indifference of the for-profit health care plans to their 
patients--the idea that they will deny health care at every 
opportunity in an effort to make increasing profits and pay 
ever higher executive salaries, and do this by refusing to 
deliver decent medical care. And, arbitration plans aren't the 
solution. Health plans will only wake up and do the right thing 
when they stand close to criminal indictment and/or severe 
civil penalty. And, it is for that reason, that it is 
imperative that the Federal Government and the Congress respond 
to the overwhelming public demand.
    I seriously would like to repeat, I know of no other 
legislative proposal than patient protection that is more in 
the public's mind today, and that includes cutting taxes. They 
are more interested in this than they are in having taxes 
reduced. It is incumbent on this Subcommittee to move ahead and 
satisfy that or the States will come up with a hodgepodge of 
different protections which will make life very much more 
complicated for all Americans.
    And, I'd like to yield at this point to Mr. Cardin, who has 
an excellent bill that has been referred to this Subcommittee.
    Mr. Cardin. Let me thank Mr. Stark for yielding the time, 
and Madam Chairman, let me thank you and Mr. Thomas for holding 
this very important hearing on patients' rights.
    We really start the debate, and this hearing, on Congress 
passing a patients' bill of rights bill. It is very important 
that we provide for an independent, unbiased review of 
insurance company decisions affecting one's health care.
    The President's Advisory Commission on Consumer Protection 
and Quality last November came out with a series of 
recommendations to protect the quality of health care in this 
country. And, they did provide for an external appeal--an 
independent appeal process. The President took action in 
February, by Executive order, extending this right to all 
enrollees of Federal health programs, so that 85 million people 
are currently covered by an external appeal, thanks to 
President Clinton's actions.
    Madam Chairman, it is interesting to point out that some of 
these plans already had an external appeal for many years. And, 
as the testimony today will point out, there have been none of 
the problems that some of the opponents of external appeal have 
said would happen in those programs in our Federal Government 
that have had an external appeal process.
    But, it is important now that we deal with Americans who 
are not covered by the President's Executive order. Their 
claims are being denied as not medically necessary, or not a 
medical emergency, and the internal review process within these 
plans has not worked.
    Let me give you just one example that maybe will underscore 
the problem that we have with the internal review process that 
most managed care plans use. A person from my State happened to 
be hiking in the State of Virginia. She fell from a 40-foot 
cliff, and fractured her arm, pelvis, and skull. She was 
airlifted to a hospital and was admitted as an inpatient. The 
HMO denied coverage, and, to this day, has still denied the 
inpatient services. The internal review process has not worked.
    Let me quote from the executive of that managed care 
program as to how that plan is saving money. I'm quoting, 
``Perhaps the brightest spot in our operations is the 
improvement of our claims auditing ability. We have taken 
advantage of significant opportunities to reduce current and 
future medical expenses by more closely challenging the 
contractual and medical appropriateness of claims.''
    Now, in this managed care program, the annual compensation 
package for the company's top executives in 1996 was $1.8 
million. I think we can figure out ways in which this managed 
care program can save money. It shouldn't be by denying claims 
that are appropriate, in order that there be higher bonuses for 
the corporate executives. And that's what is happening, and 
without an external appeal process, we are in danger that that 
will just be exaggerated.
    The States have tried to respond. One-third of our States 
have passed laws that guarantee to their citizens an external 
review process. My own State of Maryland enacted a review 
process in their last legislative session that will become 
effective on January 1, 1999--the NIAC model, where the State 
legislature contains an external appeal process. But, 
currently, there are 125 million Americans who are enrolled in 
programs that are covered under the ERISA statute. Even if 
every State in this Nation passes an external review process, 
125 million Americans won't be covered under those laws, 
because of the Federal preemption under ERISA.
    It is important that we in Congress pass this basic 
protection for those individuals. I have introduced H.R. 3469, 
The Patient's Right to Independent Appeal Act, which provides 
that an external review of cases must be determined within 72 
hours for emergency cases, and 60 days for all other decisions. 
This bill has been endorsed by the American Federation of 
State, County, and Municipal Employees; the National Senior 
Citizens Law Center, and Families USA. A comparable, similar 
provision is provided in the Democratic caucus bill, Patient 
Bill of Rights Act, H.R. 3605, that I am an original cosponsor 
of.
    Let me just point out one additional fact. Proponents of 
external appeal say it would add to the cost of health care in 
this country. I disagree with that. There are two independent 
studies that have been done. One, by the Lewin Group, that said 
the cost will range from three-tenths of $.01, to $0.07 per 
month, per person, and Coopers and Lybrand recently came in 
with a review that shows it will cost $1.20 per year, or $0.10 
per month, for an external review process.
    I think that those estimates are wrong. I think it will 
save money. If we adopt national standards for external review, 
managed care programs will develop a much stronger internal 
review process. And managed plans will be handled more 
efficiently. It will also reduce the amount of litigation that 
has taken place in health care.
    For all these reasons, I urge this Congress to act quickly 
on an external review process, so that we can provide this 
protection to all people in our country, and, Madam Chairman, I 
ask you now to consent that my entire statement be included in 
the record.
    Mrs. Johnson of Connecticut. So ordered.
    [The opening statement follows:]

Opening Statement of the Hon. Benjamin L. Cardin, a Representative in 
Congress from the State of Mayland

    Good morning, Mr. Chairman, Members of the Subcommittee. I 
want to commend Chairman Thomas for holding this hearing on the 
most fundamental of patient rights-
    to obtain an independent, unbiased review of insurance 
company decisions affecting one's health care.
    I also want to applaud you for beginning with a discussion 
of the Medicare program. Since its creation more than 30 years 
ago, Medicare has led the way in setting high standards for 
health care quality.
    In the years since Medicare was enacted, America's over-65 
population has increased rapidly due to technological advances 
and increased awareness of healthful lifestyles. At the same 
time, health care costs have increased, and Congress has been 
challenged to keep its promise to beneficiaries-guaranteeing 
them comprehensive medical care while keeping the program 
solvent.
    One of the ways we have kept that promise is by providing 
access to an external appeals process where denied claims can 
be reviewed by an independent entity and beneficiaries can 
trust that their cases are being considered fairly. I hope that 
by examining Medicare's external appeals system, we can both 
improve it for seniors and appreciate the value of guaranteeing 
this process for all Americans.
    The President's Advisory Commission on Consumer Protection 
and Quality recognized the importance of external review and 
included it in its Patients Bill of Rights last November. In 
February, the President issued an Executive Order extending 
this right to all enrollees of Federal Health Programs-more 
than 85 million Americans.
    When that Executive Order was signed, Americans in private 
health plans looked to Congress for reassurance that they, too, 
would be guaranteed this right. They are looking to us because 
there is a crisis of confidence in managed care. Every week, I 
receive letters and phone calls from people in my district who 
are frustrated with their health care companies. They follow 
the rules, and still they are unable to receive services that 
are covered by their insurance policies. Claims are denied as 
``not medically necessary,'' or ``not a medical emergency.'' 
They find it difficult to register complaints or obtain 
reconsideration of their decisions, and they experience lengthy 
delays in getting their cases reviewed. They are concerned that 
these delays will put their health or life in jeopardy while 
they fight a health plan's red tape.
    Last July, a Maryland woman was hiking in Virginia when she 
fell off a 40-foot cliff, sustaining arm, pelvis and skull 
fractures. After being air-lifted to a hospital, she was 
admitted as an inpatient. Her HMO denied reimbursement for the 
ER, air-lift and inpatient treatment charges because she did 
not obtain pre-authorization. The patient says that she was so 
heavily medicated during and after the hospitalization that she 
was unable to provide notification. Although the HMO has now 
approved reimbursement for the ER and air-lift charges, 
inpatient expenses are still denied. Clearly, the internal 
review process did not provide adequate patient protection in 
this case.
    Because of scenarios like this, which are widespread, 
people do not believe that their health plans are providing 
them a fair and impartial review of their cases. A majority of 
all Americans are worried that their health plan would be more 
concerned about saving money than about providing the best 
medical treatment for them.
    And they have good reason to worry. The Chief Financial 
Officer of the health plan that denied the air-lift and 
hospitalization told Wall Street Journal analysts that 
``perhaps the brightest spot in our operations is the 
improvement in our claims-auditing capability. We have...taken 
advantage of significant opportunities to reduce current and 
future medical expenses by more closely challenging the 
contractual and medical appropriateness of claims.''
    The average annual compensation package for this company's 
top executives in 1996 was $1.8 million.
    In response to these types of cases, one-third of our state 
legislatures have enacted laws to guarantee their citizens the 
right to an external appeal, and bills have been introduced in 
many others. My own state of Maryland recently enacted external 
appeals legislation that will go into effect on January 1, 
1999.
    And yet, because we have an illogical system of health care 
laws, even if every state legislature in the nation were to 
pass an external appeals law, millions would still be denied 
this right. Approximately 125 million Americans are enrolled in 
ERISA plans, which are not subject to state insurance laws on 
grievances and appeals.
    ERISA requires plans to give its beneficiaries notice and 
opportunity for a full and fair review of denied claims within 
60 days, but if the internal review results in an adverse 
determination, the only recourse is to sue the benefit plan to 
recover the cost of treatment. Because most managed care 
denials occur during the pre-authorization process, that is, 
before treatment is rendered, the consequences for a patient's 
life or health are far more serious than with a fee-for-service 
denial. Yet, patients are not able to receive compensation for 
pain and suffering that result from the denial, nor are they 
eligible to receive punitive damages.
    The tremendous disparities between states and between 
state-regulated and ERISA plans have led me to conclude that 
federal legislation is imperative.
    I have introduced HR 3469, the Patient Right to Independent 
Appeal Act. This bill provides external review for cases that 
are not resolved through an internal process or when the plan 
does not complete the internal process in a timely manner. 
External review is mandated when services are denied as not 
medically necessary and the amount exceeds a significant 
threshold, when the treatment is denied as experimental or 
investigational, or when the patient's life or health is 
jeopardized. The procedure may vary depending upon whether it 
is for ERISA self-insured plans or traditional insurance plans. 
In either case, the applicable state or federal authority (U.S. 
Department of Labor) can choose to establish its own external 
review entity, or certify an independent entity. Each plan will 
contract with an entity and will pay for the direct costs of 
the appeal process. This system will allow multi-state plans 
the opportunity to obtain nationally consistent interpretations 
of coverage, and is compatible with ERISA's requirement that 
plans administer their benefits in a consistent manner.
    All participants have the opportunity to submit evidence 
and make an oral presentation. The plan is also required to 
provide timely access to all information. This external review 
must be made within 72 hours for emergency cases and within 60 
days for all other decisions, and the decision of the review 
panel is binding on the health plan.
    HR 3469 has been endorsed by the American Federation of 
State, County and Municipal Employees, the National Senior 
Citizens Law Center, and Families USA.
    This provision is also included in the Democratic Caucus 
Patient Bill of Rights Act,
    HR 3605, which I have co-sponsored.
    Some groups claim that costs associated with a guaranteed 
external appeals process are prohibitive. I want to refute 
that. Last November, the Lewin Group estimated the cost of an 
appeals process for national implementation. Researchers 
considered data from Florida, Rhode Island, Texas, and New 
Jersey. The state of Florida, which implemented its external 
review system in 1985, is the longest standing appeals process 
among all the states. Florida's Statewide Assistance Panel, a 
state agency, performs the appeals at an average cost of $867 
per appeal. In the other states, appeals are contracted out to 
a private company and costs range from $288 to $600 per appeal. 
Using the low figure of 1 appeal per 10,000 enrollees (Florida) 
and the high of 2.5 appeals per 1,000 enrollees (Medicare), 
Lewin determined that the costs would range from three-tenths 
of one cent to seven cents per person per month. Patients will 
tell you that is a small price to pay for the peace of mind 
that comes from knowing that when you require life-saving 
treatment, the final decision will not be made by someone who 
stands to profit if appropriate care is denied.
    A separate report released yesterday by Coopers & Lybrand 
for the Kaiser Family Foundation estimates the cost of external 
appeals at $1.20 per year, or ten cents per per month.
    Employers are beginning to acknowledge that consumer 
protections for ERISA plans are inadequate. The Corporate 
Health Care Coalition is an alliance of 26 large, multi-state 
self-insured companies focused on national health care policy. 
On Monday, one of its largest members, IBM, testified before 
the Senate Labor Committee that ``in one area, the revision of 
ERISA requirements for internal reviews and creation of a new 
external, independent review of benefit denials, we believe it 
is appropriate for Congress to legislate.''
    There are additional benefits to enacting a federal 
external appeals law. If health plans are so opposed to 
external review, perhaps they will strengthen their internal 
review systems to respond promptly and responsibly to patient 
concerns so that further appeals will not be needed.
    Second, an adequate external appeals system will result in 
fewer lawsuits. The existence of an independent review process 
will reduce the need for liability claims against health plans 
and will eventually result in reduced overall health care 
expenditures.
    Mr. Chairman, thank you for providing a forum for this 
issue. I look forward to hearing from our witnesses, and to a 
productive discussion of existing appeals systems and how this 
Congress can act to improve the health care system for all 
Americans.
      

                                


    Mrs. Johnson of Connecticut. We will now proceed with Mr. 
Hash and Mr. Flynn to come forward.

   STATEMENT OF MIKE HASH, DEPUTY ADMINISTRATOR, HEALTH CARE 
                    FINANCING ADMINISTRATION

    Mr. Hash. Good morning, Madam Chair, Subcommittee Members. 
I want to thank you for inviting the Health Care Financing 
Administration to testify today about the appeals process 
available to our beneficiaries. Effective and efficient appeals 
processes are essential to ensure access to the benefits, to 
protect our beneficiaries, and to promote improvements in our 
overall programs. We welcome any insights that you, or the 
other witnesses today, may share with us about how to improve 
our processes.
    Clearly, Medicare beneficiaries must have the right to 
speedy remedies in cases where time may be crucial, as Mr. 
Cardin has just discussed. Beneficiaries must know that they 
have prompt recourse if they feel they are denied needed care. 
It is important to note, I think from the perspective of the 
Medicare Program, that most of our beneficiaries never file an 
appeal. In fiscal year 1997, less than 1 percent of claims in 
Medicare were appealed, and less than 5 percent of all 
beneficiaries have reported through surveys that they have ever 
filed an appeal. But when there is a dispute, we want our 
systems to help assure that the rights of patients come first.
    Beneficiaries can appeal virtually any issue under the 
Medicare system. Beneficiaries are regularly reminded of their 
appeal rights through a variety of sources: Our Medicare 
Handbook, which we distribute to new Medicare beneficiaries; 
explanation of Medicare benefits, and Medicare summary notices, 
which we periodically send to beneficiaries. With respect to 
patients who are admitted to hospitals, we provide notice of 
their appeal rights as hospital patients, and, finally, 
information about our appeal process is included in the 
enrollment materials with respect to our managed care plans. 
And at each time a denial is made by one of our contracting 
private plans, enrollees are advised of their appeal rights.
    We think this hearing today is especially timely because we 
are now considering further improvements in our managed care 
appeals process. Last year, as I know many of you know, the 
Clinton administration published the regulations that guarantee 
appeal rights to Medicare beneficiaries that are among the 
strongest in the country.
    I'd like to call your attention to a chart that we included 
in our testimony today, which I think illustrates our appeals 
process, both on the managed care side for our enrollees, and 
in the traditional fee-for-service program. We are 
strengthening our managed care appeals because the incentives 
in the managed care system are so different from the incentives 
in the traditional fee-for-service system. Beneficiaries must 
be confident that managed care incentives to reduce unnecessary 
care won't limit appropriate care. That's why we now require 
our managed care partners to respond within 72 hours when 
Medicare beneficiaries appeal a denial of care decision by a 
managed care plan that could result in jeopardizing life, 
health, or the ability to regain maximum function.
    As I mentioned, we are considering additional improvements 
to address continuation of care during appeals in managed care, 
notification of beneficiaries when services are reduced or 
terminated, and tighter standards for review in routine appeals 
in managed care. For example, we believe that the turnaround 
time for nonurgent appeals should be reduced from the current 
60-day period, and we would welcome any comments from the 
Subcommittee, or other interested parties, on what those 
timeliness standards should be.
    We do guarantee expedited appeals for both managed care and 
fee-for-service when it comes to a hospital discharge. A 
Medicare beneficiary or a physician may decide that such a 
discharge is inappropriate. In this circumstance, there are 
very short time periods for resolution of that dispute. This is 
essential to make sure that incentives for hospitals to be 
efficient do not result in the denial of appropriate care.
    Generally, in the fee-for-service part of Medicare, the 
process works somewhat differently, because the incentives are 
different there. And, this is an important distinction. Claims 
denials in the fee-for-service system generally come after 
services have been delivered and there is not the potential 
medical urgency issue that arises in the context of managed 
care when there is a denial before services are actually 
rendered. Under part B of the Medicare Program, providers have 
the same right to appeal as beneficiaries if they accept 
assignment. As you know, accepting assignment means the 
provider will accept our payment as payment in full, and agree 
not to bill the beneficiary more than the 20 percent 
coinsurance.
    Most of the delays, that you see from our information 
included in my longer statement, in our appeals process, occur 
at the administrative law judge level, where cases can be 
appealed that are not resolved in favor of the beneficiary at 
our contractor level. It takes, on average, about 45 days for 
our contractors to process part A appeals, but the average time 
for administrative law judge decisions on part A appeals 
averages over 300 days. It takes, on average, less than 34 days 
for our contractor to process and review part B claims, but for 
those that are appealed to ALJs it takes an average of 664 days 
to resolve those cases.
    Now, the administrative law judge system remained within 
the Social Security Administration when HCFA became an 
independent agency a number of years ago. Only 5 percent of the 
ALJs case load is from Medicare appeals. As a result, the 
judges tend to be far more expert in the Social Security rules 
and regulations than in Medicare regulations. ALJs are not 
bound, in addition, by HCFA local review policies that our 
contractors may apply, and Medicare officials are not 
automatically included in the discussion of cases at the ALJ 
level. And, finally, providers can introduce new information, 
new documentation, at the ALJ level, which has not been 
available to our contractors in their review process.
    To address these problems, we are adding new requirements 
for our contractors in the appeals area, to ensure that case 
files that go forward to ALJs are complete and comprehensive. 
Also, thanks to the Social Security Administration, they have 
now dedicated about 30 of the administrative law judges to be 
Medicare-only specialists. We are working to educate those 
designated ALJs about Medicare policies. We look forward to 
continuing to work with the Social Security Administration on 
further improvements that might be made in reducing the time 
lags associated with ALJ reviews.
    So, while there is room for improvement in our appeals 
process, especially at the ALJ level, we believe our appeal 
system is working. We have the strongest appeal rights in the 
country for our managed care beneficiaries, where appeal rights 
are so essential because of the incentives in a capitated 
delivery system. We are working to bolster these managed care 
appeal rights further for nonurgent appeal cases.
    We very much appreciate this opportunity to be with you and 
participate in this discussion. We, of course, look forward to 
working with you, Madam Chair, and the Members of the 
Subcommittee, as you continue to refine the appeals process, 
and, of course, at the appropriate time, I'd be happy to 
respond to any questions that you, or other Members of the 
panel, may have for me. Thank you very much.
    [The prepared statement follows:]

Statement of Michael Hash, Deputy Administrator, Health Care Financing 
Administration

    Chairman Thomas, Subcommittee members, thank you for 
inviting HCFA to testify today about the appeals processes 
available to our beneficiaries. Effective and efficient systems 
for beneficiaries to appeal Medicare's coverage and payment 
decisions are essential. We appreciate any ideas or insights on 
improving these systems that you and your witnesses might 
share.
    Clearly, Medicare beneficiaries must have the right to a 
speedy ruling in cases where time may be crucial. Beneficiaries 
must know that they have a prompt recourse if they feel that 
they are denied needed care. Most beneficiaries never file 
appeals, and in Fiscal 1997 less than 1 percent of claims were 
appealed, and less than 5 percent of beneficiaries report 
having ever filed appeals. But when there is a dispute, our 
objective is to have an appeal system that helps to assure that 
the rights of patients come first.
    Beneficiaries can appeal virtually any issue regarding 
provision or payment of services, and beneficiaries are 
regularly reminded of their appeal rights. These rights are 
discussed in the Medicare handbook. They are listed on every 
Explanation of Medical Benefits and Medicare Summary Notice 
sent to beneficiaries. They are included on notices to patients 
when they are admitted to hospitals. And they are described on 
every denial made by a Medicare managed care plan. (A chart 
outlining the various appeal levels that are available is 
attached to this testimony.)
    This hearing is timely because we are currently considering 
options for further improvements in our appeals process. Just 
last year the Clinton administration published final 
regulations guaranteeing appeal rights to Medicare managed care 
beneficiaries that are among the strongest available to any 
managed care enrollees in the country.

                          MANAGED CARE APPEALS

    Appeal rights are important in both managed care and fee-
for-service. We are strengthening regulations for managed care 
appeals because the incentives are so very different from fee-
for-service Medicare. Beneficiaries must be assured that 
managed care incentives to reduce unnecessary care will not be 
allowed to limit appropriate care.
    That is why we require plans to respond within 72 hours 
when Medicare beneficiaries appeal a denial-of-care decision by 
a managed care plan that could jeopardize life, health or 
ability to regain maximum function. The rule also covers 
termination of care, such as discharge from a skilled nursing 
facility.
    In expedited appeals, health plans must notify Medicare 
enrollees within 72 hours of receiving an enrollee's request 
for services that they are denying the service. The plan at 
that time must state the reasons for the denial, inform the 
beneficiary of their appeal rights, use denial notice forms 
that describe the expedited appeal right, accept oral requests 
for appeals, follow up verbal notifications in writing within 
two working days, automatically grant all physician requests, 
and maintain logs and periodically report on requests for 
expedited appeals. The beneficiary has 60 days to file an 
appeal, and the plan generally has 72 hours to rule on 
expedited cases, and 60 days on standard cases.
    If a plan upholds its original decision to deny the 
service, the case must automatically be forwarded to our 
independent reviewer. This contractor runs what we call the 
Center for Health Dispute Resolution, also known by the acronym 
CHDR. The CHDR contractor generally acts on expedited appeals 
within 10 working days, and managed care plans have up to three 
days from the date an expedited appeal request is made to the 
CHDR to submit additional information. For appeals that are not 
medically urgent, the CHDR generally has 30 working days to 
make a ruling.
    Beneficiaries have up to 60 days to request a review of an 
ALJ's decision by the Department of Health and Human Services 
Appeals Council. After that level of appeal, beneficiaries have 
up to 60 days to request a Federal District Court review of any 
decision involving at least $1,000.
    Beneficiaries have up to 60 days to request a review of ALJ 
rulings in cases involving at least $100 by an Appeals Council. 
After that, beneficiaries have up to 60 days to request a 
review by the Department of Health and Human Services Appeals 
Council. After that level of appeal, beneficiaries have up to 
60 days to request a federal district court review of any 
decision involving at least $1000.
    Since the federal government is the largest purchaser of 
managed care, our expedited appeals regulation for urgent care 
cases helps set a new, higher standard for the entire managed 
care industry.
    As I mentioned, we are now considering additional 
improvements to the regulations to address continuation of care 
during the managed care appeals process, notification of 
beneficiaries when services are reduced or terminated, and 
tighter standards for appeals involving situations that are not 
urgent. We believe the turnaround time for non-urgent appeals 
should be reduced from the current 60 days, and welcome 
comments from your committee and other interested parties on 
what the standards should be.
    As we did with our expedited appeals regulation last year, 
we are consulting with beneficiary advocates, provider groups 
and the managed care industry in developing these further 
improvements.

FY 1997 Managed Care Appeals Statistics

    In Fiscal Year 1997 there were 5,458,109 Medicare 
beneficiaries enrolled in managed care plans. We do not 
currently receive information on the number of appeals filed 
with managed care plans, which is the first level of appeal for 
managed care disputes.
    Cases not resolved by plans are automatically forwarded to 
our independent CHDR appeals contractor, and 9,024 appeals were 
sent to CHDR in FY 1997. About 24 percent of CHDR rulings are 
in favor of the beneficiary. About 6 percent of CHDR ruling are 
appealed on for Administrative Law Judge review.

                        FEE-FOR-SERVICE APPEALS

    In fee-for-service Medicare, the appeals process works 
somewhat differently because incentives are different. Payment 
denials generally come after care is delivered, and there is 
not the potential medical urgency that could occur because of a 
managed care denial before care is delivered.

Part A Appeals

    Because of incentives in the Medicare payment system for 
hospitals, expedited appeals are guaranteed for cases in which 
a hospital wants to discharge a Medicare beneficiary and the 
beneficiary's physician considers discharge to be 
inappropriate. Providing expedited appeal rights for inpatients 
facing hospital discharge against their physician's advice is 
an essential check to make sure incentives for hospitals to be 
efficient do not result in denial of appropriate care.
    For Part A disputes other than hospital discharges that 
concern hospital, skilled nursing and home health claims, 
appellants must request review within 60 days of receiving 
notice--called the ``initial determination'' that the claim is 
being denied. Our contractors must complete 75 percent of 
appeals within 60 days, and 90 percent within 90 days.
    Part A disputes not resolved at the contractor level can be 
taken to Administrative Law Judges (ALJs), where there are no 
time limits for decisions that can be enforced, and where 
backlogs and delays are occurring. Appeals to ALJs must be 
requested within 60 days of receiving a decision on the appeal 
from the contractor level. Issues for ALJ appeals must be for 
claims of at least $100, and claims can be added together to 
meet the $100 requirement.
    Part A disputes can be appealed beyond the ALJ level to an 
Appeals Council. These appeals must be requested within 60 days 
of the ALJ decision, and unlike other prior appeal levels, the 
Appeals Council can turn down the request. The Appeals Council 
can also choose to review an ALJ decision on its own, without a 
request from a beneficiary or provider.
    Part A disputes can be appealed past the Appeals Council to 
judicial review. These requests must be made within 60 days of 
the Appeals Council decision, and must involve matters of at 
least $1000.

                             Part B Appeals

    For disputes about Part B physician, equipment, and lab 
service claims, beneficiaries must request an appeal within six 
months of receiving notice that the claim is being denied. Our 
contractor must complete 95 percent of reviews within 45 days.
    Part B disputes can be appealed past the contractor review 
level to contractor Hearing Officers, who must complete 90 
percent of hearings within 120 days. Requests for hearing 
officer hearings must be made within six months of the initial 
contractor review decision, and must be for disputes of at 
least $100. Claims can be added together to meet the $100 
requirement.
    Part B disputes can be appealed beyond the Hearing Officers 
to Administrative Law Judges (ALJs). These appeals must be 
requested within 60 days of the Hearing Officer decision, and 
must involve disputes of at least $100 for home health claims 
and $500 for all other Part B claims. Again, claims can be 
added together to meet the dollar amount threshold.
    Part B disputes can be appealed beyond the ALJs to the 
Appeals Council. The request must be made within 60 days of 
receipt of an ALJ decision. And, as with Part A disputes, the 
Appeals Council can decide to turn down a case, and it can 
decide to take up an ALJ case on its own, without a request 
from a beneficiary or provider.
    And again, as with Part A disputes, Part B disputes can be 
appealed beyond the Appeals Council level to the courts. These 
requests must be made within 60 days of the Appeals Council 
decision, and must involve matters of at least $1000.

               FY 1997 Fee-for-Service Appeals Statistics

    In Fiscal Year 1997, we processed 843,859,934 claims. 
Appeals were filed involving 6,091,313, or 0.72 percent.

Part A Appeals:

    Our contractors received 58,030 Part A cases in fiscal 
1997. They completed 59,689 cases involving 81,432 claims, and 
ruled in favor of the appellant in 30 percent of cases.
    The ALJs were sent 15,937 Part A appeal requests involving 
25,422 claims. They completed 12,465 and ruled in favor of the 
appellant in 72 percent of cases.

Part B Appeals Related to Services such as Hospital Outpatient 
and Home Health Care:

    Our contractors received 152,251 cases. They completed 
160,082 cases involving 198,141 claims, and ruled in favor of 
the appellant in 44 percent of cases.
    Hearing Officers received 20,514 cases, completed 14,988 
involving 21,694 claims, and ruled in favor of the appellant in 
40 percent of cases.
    ALJs were sent 3,120 cases involving 4,685 claims. They 
completed 1,321 cases, and ruled in favor of the appellant in 
59 percent of cases.

For Part B Appeals Related to Physician and Other Services:

    Our contractors received 3,868,160 cases. They completed 
3,337,592 cases involving 5,811,740 claims, and ruled in favor 
of the appellant in 70 percent of cases.
    Hearing Officers received 86,746 cases. They completed 
86,898 cases involving 539,040 claims, and ruled in favor of 
the appellant in 45 percent of cases.
    ALJs were sent 8,412 cases involving 123,791 claims. They 
completed 4,701 cases, and ruled in favor of the appellant in 
51 percent of cases.

             PROVIDER, PHYSICIAN AND SUPPLIER APPEAL RIGHTS

    Providers, physicians and suppliers, as well as 
beneficiaries have appeal rights, and all can appeal on behalf 
of beneficiaries if they become the beneficiary's appointed 
representative.
    Under Part A, providers can only appeal denials based on 
medical necessity. Under Part B, physicians and suppliers have 
the same right to appeal as beneficiaries if they accept 
``assignment'' on a claim. Assignment, in Medicare jargon, 
means that they accept what Medicare pays as payment in full 
without billing the beneficiary for more than the standard 20 
percent copayment.
    Physicians and other Part B suppliers who do not accept 
assignment do not have the same appeal rights as the 
beneficiary. They may, however, appeal medical necessity 
denials where they are required by statute to make a refund to 
the beneficiary.

                    ADMINISTRATIVE LAW JUDGE APPEALS

    One area where we would like to make improvements is in the 
Administrative Law Judge appeals system, and in the coming 
year, we will work with our partners in the Social Security 
Administration on this. As I explained earlier, the 
Administrative Law Judge level is where delays can occur in our 
appeals process. On average, ALJs process Part A appeals in 301 
days and Part B appeals in 664 days. Also, since the vast 
majority of the judges' workload is Social Security cases, the 
judges, as a whole, tend to be far more expert in Social 
Security rules than in Medicare regulations. Furthermore, ALJs 
are not bound by HCFA local policy or manuals, though they are 
bound by Medicare law and regulation.
    These issues point to a need for some improvement. HCFA is 
performing an analysis of the ALJ process and will be in 
discussions with officials of the Social Security 
Administration about future steps that may be taken.
    For now, we are adding new requirements for our contractors 
to ensure that case files that go to ALJs are complete and 
comprehensive. Also, about 30 ALJs are being dedicated as 
Medicare-only specialist who will handle the most complicated 
Medicare cases. Finally, we are working to educate ALJs about 
how Medicare local policy is created and the underlying reasons 
for the policy.

                               CONCLUSION

    There is room for improvement in our appeals process, 
especially at the Administrative Law Judge level.
    We have the strongest appeals rights in the country for our 
managed care beneficiaries, where appeals rights are so 
essential because of the incentives that exist in managed care. 
We are currently working to bolster these managed care appeals 
rights further for non-urgent cases, and will keep you abreast 
of our progress.
    We also have sufficient appeal rights for our fee-for-
service beneficiaries and providers, with prompt turnaround on 
cases up until they reach the ALJ level, where Medicare has no 
control.
    We appreciate your interest in this issue, and look forward 
to working with you as we monitor and continue to refine the 
appeals process. I'd be happy to answer any questions you might 
have.
[GRAPHIC] [TIFF OMITTED] T3213.001

      

                                


    Mrs. Johnson of Connecticut. Thank you, Mr. Hash.
    Mr. Flynn.

   STATEMENT OF WILLIAM E. FLYNN III, ASSOCIATE DIRECTOR FOR 
    RETIREMENT AND INSURANCE, OFFICE OF PERSONNEL MANAGEMENT

    Mr. Flynn. Thank you, Mrs. Johnson. I've submitted a 
statement for the record. I might highlight just for the 
Subcommittee perhaps 5 points from that.
    First, I'd like to thank you for your invitation here 
today. The Federal Employee Health Benefits Program is the 
largest employer-sponsored health benefits program in the 
United States. It consists of over 350 plans, providing health 
care benefits to over 9 million Federal employees, Federal 
retirees, and Members of their families.
    I think the first point that I'd like to make with respect 
to the patient appeals process is that we believe we have a 
good program. It's been in place for over 20 years, since 1975. 
It's fully compliant with the broad principles included in the 
Patient Bill of Rights, and, as Mr. Cardin mentioned earlier 
today, it includes an external review process independent from 
the plan and the initial decision that the plan made on a 
disputed claim or a patient appeal.
    The second point that I'd like to make is that our 
participants understand the process. They have information on 
how to use it. That information is included in plan brochures 
that they get from their individual health carriers. It's 
included in program guides and other materials that the Office 
of Personnel Management provides participants. It's on the 
Office of Personnel Management Internet website, and in other 
places. Generally speaking, we think it's a relatively simple 
program. It's easy to understand and relatively efficient to 
administer.
    And, that brings me to my third point. We have in the 
Federal Employees Health Benefits Program three levels of 
review. Those are laid out pretty clearly.
    The first level of review is at the health plan level. We 
require health plans to issue a decision to a patient within 60 
days, and most plans meet that standard. If the individual is 
still dissatisfied with the decision at the plan level, they 
can then come to the Office of Personnel Management, and we 
have a standard to make a decision--to render a decision within 
60 days.
    This year we're running at about 37.5 days on average to 
issue a decision. Last year, it was about 42 days. We process 
about 4,500 cases a year. Last year was 4,500. This year, at 
this point, it's about 2,300, so it looks about the same. That 
is a very small proportion of the total number of claims that 
are processed in the Federal Employees Health Benefits Program. 
It runs sort of plan by plan from roughly one quarter of 1 
percent in some plans to as high seven-tenths of 1 percent in 
other plans.
    And, then, finally, if an individual is still dissatisfied 
with OPM's decision, they have the ability to take the matter 
to Federal court where it is reviewed under the Administrative 
Procedure Act standard. But I will say that very few cases go 
to court in any given year, fewer than a half dozen. In fact, a 
half dozen would be unusual for us.
    The fourth point that I would like to make is that we do 
survey the participants in the Federal Employees Health 
Benefits Program each year. Each year we ask questions of them 
about their opinion of their particular plan's claim processing 
operation, and what we found consistently over the past 4 or 5 
years is that our enrollees believe, between 80 and 90 percent, 
that they're satisfied with the adequacy of claim processing at 
the plan level. Perhaps a little bit more precisely, in 1995, 
we specifically asked enrollees about how satisfied they were 
with OPM's processing of their disputed claims. And I think 
that will give a little bit more information here. Just about 
half of the people who had a dispute, that they asked us to 
review, felt that we handled it fairly. About three-quarters of 
the people felt that, even if they were dissatisfied with the 
decision, the decision that we gave them was simple, clear, and 
easy to understand. Clearly, we've got some room to improve, 
but I think we have a pretty good track record from which to 
operate.
    The last point I'd make, Madam Chair, is that the disputed 
claims process is one component in this program that actually 
helps us improve the program. It's a good early warning system. 
It helps us detect, in some cases, problems with consistent 
administration of contract provisions across the program, and 
my statement contains several recent examples where that has 
been the case.
    I think that concludes my brief opening statement, and I'd 
be happy to answer any questions the panel may have for me as 
well.
    [The prepared statement follows:]

Statement of William E. Flynn III, Associate Director for Retirement 
and Insurance, U.S. Office of Personnel Management

    Mr. Chairman and Members of the Subcommittee:
    Thank You for this Opportunity to Describe Appeal Rights 
the Federal Employees Health Benefits Program Affords to 
Individuals When There Is a Dispute with Their Health Plan over 
the Provision of Service or Payment of a Claim.
    As the Agency Responsible for Administration of the 
Nation's Largest Employer-sponsored Health Insurance Program, 
Opm Contracts with 350 Health Plans to Provide Comprehensive 
Health Care to Approximately 9 Million Civilian Federal 
Employees, Retirees, and Their Eligible Family Members. The 
Program Has Afforded Enrollees Both an Internal Appeals Process 
at the Health Plan Level, and an Independent Review Provided by 
Opm for over 20 Years. Throughout the Program, These Review and 
Appeal Procedures Are Uniformly Applied No Matter Where the 
Participant Lives or Which Plan Provides Their Health Care.
    The Steps We Use for Resolving Claims Disputes Are in Full 
Compliance with the Recommendations Made by the President's 
Advisory Committee on Consumer Protection and Quality in the 
Health Care Industry in the Patient Bill of Rights. Standard 
Language in Benefit Brochures, Which All Health Plans must Give 
Their Enrollees Each Contract Year, Fully Describes the Steps 
for Seeking Initial Reconsideration of Denied Benefits by the 
Plan and a Final Decision by Opm. A Summary of These Steps Also 
Appears on Our Federal Employees Health Benefits Web Page. They 
Are Also Referenced Inside the Cover of the Guide to Federal 
Employee Health Benefits Plans, Which Opm Makes Available to 
Participants Each Year, Where We Pledge to Provide Fair, 
Understandable, and Prompt Action on Disputed Claims.
    If a Health Plan Denies a Benefit Claim, or a Portion of a 
Claim, the Individual Has 6 Months to Make a Written Request to 
the Plan for a Review of That Decision. Within 30 Days, a Plan 
must Do One of Three Things: 1) Affirm the Denial, 2) Provide 
the Service or Payment, or 3) Request Additional Information. 
The Plan must Then Make a Final Decision Within 30 Days after 
Receiving the Added Information. If Additional Information Is 
Not Supplied to the Plan Within 60 Days, the Plan must Make a 
Decision Based on Available Evidence.
    A Plan must Send a Written Notice of its Decision to the 
Covered Individual. If it Affirms the Initial Denial, the Plan 
must Provide Specific and Detailed Reasons for its Decision and 
Advise the Individual of the Right to Request an Opm Review. If 
a Health Plan Fails to Respond to a Plan Member Within 
Applicable Time Limits, the Individual May Bring the Matter 
Directly to Opm.
    These Formal Procedures Do Not Prevent Opm from Initiating 
an Immediate Review When an Individual Contacts Us about a 
Life-threatening or Other Urgent Situation for Which a Health 
Plan Has Refused Benefits and We Conclude the Plan Is Unlikely 
to Change its Initial Decision on Reconsideration.
    If an Individual Asks Opm to Review a Plan's Decision, We 
Acknowledge These Requests Within 5 Days of Receipt and Will 
Provide a Final Decision Within 60 Days of Receiving the 
Request in Non-life-threatening Situations, and as Soon as 
Possible in Life-threatening Situations, Unless We Need More 
Information. In Reviewing a Claim, Opm May Request the 
Individual or the Plan to Submit Additional Information, Obtain 
an Advisory Opinion from an Independent Physician, or Make a 
Decision Solely on Evidence Submitted with the Request for 
Review. Further, We May Reopen a Decision We Made on a Disputed 
Claim If We Receive Evidence That Was Unavailable at the Time 
of That Decision.
    If Opm Upholds a Health Plan's Denial of Benefits, the 
Affected Individual Has a Right to Sue Opm in Federal Court 
under the Administrative Procedure Act. A Lawsuit May Not Be 
Brought until Opm Has Taken Final Action and the Recovery in 
Such a Suit Is Limited to the Amount of Benefits in Dispute. 
Such Lawsuits Have Been Very Rare.
    During Fiscal Year 1997, Opm Reviewed Approximately 4,500 
Disputed Claims. In about One-third of These Cases, We 
Overturned the Plan and Provided Coverage for All or a Part of 
the Matter in Dispute. Thus Far this Fiscal Year, We Have 
Reviewed Almost 2,300 Disputed Claims with Similar Results. The 
Majority of Disputed Claims We Receive Involve Issues of 
Medical Necessity, Preventive Care Services, and Dental 
Services. We Also Receive Disputes Involving Services Obtained 
from Non-covered Providers, as Well as Disputes Related to the 
``Usual, Customary, and Reasonable'' Cost Basis for 
Reimbursement.
    Disputes Arise in less than One Percent of the Claims 
Filed. We Believe the Very Small Number of Disputes That Occurs 
Reflects the Value of Broad Competition Within the Program and 
Opm's Commitment to Making the Best Possible Information 
Available to Enrollees, Combined with the High Customer 
Standards to Which We Hold Ourselves and Our Health Plan 
Carriers.
    Opm Conducts an Annual Customer Satisfaction Survey in 
Which Enrollees in the Federal Employees Health Benefits 
Program Have an Opportunity to Rate Various Aspects of Their 
Health Plan's Performance. We Report Survey Results to 
Enrollees in the Annual Guide to Fehb Plans. In Our 1997 
Survey, We Found the Following Levels of Satisfaction in Areas 
Relating to Claims Processing:
     86 Percent of Respondents Believed Their Claims 
Were Processed Accurately
     79 Percent of Respondents Were Satisfied with the 
Fairness of Claim Payments
     83 Percent of Respondents Indicated That They Were 
Satisfied with Their Plan's Explanation of Benefits (Explaining 
What Amount the Plan Pays and What the Enrollee Owes).
    These Results Show Two Things. First, Most Respondents Are 
Satisfied with the Claims Processing Services They Receive from 
Their Health Plan. Nonetheless, the Results Also Show Us That 
There Is Still Room for Improvement in this Area.
    Aside from Helping to Ensure That Program Enrollees Receive 
All of the Benefits Opm Has Contracted For, We Have Found 
Disputed Claims Reviews to Be an Invaluable Indicator of What 
Is Happening in the Program, Often Alerting Us to Problems or 
Issues We Need to Address. Let Me Briefly Cite Two Recent 
Examples.
    In the First Case, We Found Some Plans Were Applying 
Program Exclusions for Experimental or Investigational 
Treatments Inconsistently. Despite Accelerated Fda Approval for 
Some Drugs and Devices, Some Plans Felt That Fda Requirements 
for Further Tests Rendered These Products Investigational in 
Nature. We Clarified Our Policy to All Health Plans to Assure 
Consistent Application of Coverage for These Treatments.
    In a Second Situation, We Learned That Benefits Were Being 
Denied Inappropriately for Some Screening Services Provided to 
Children Born in Foreign Countries. We Discovered That the 
American Academy of Pediatrics Had Made Specific 
Recommendations for More Exhaustive Tests in Such Cases and We 
Directed That Benefits Be Provided Consistent with Those 
Recommendations.
    In Summary, the Disputed Claim Program in the Federal 
Employees Health Benefits Program Has Existed for over 20 
Years, Fully Meets the Requirements of the Patient Bill of 
Rights, and Is Regarded as Effective by Our Customers. In 
Addition, it Helps Us in the Administration of this Program by 
Highlighting Areas for Improvement or Clarification.
    This Concludes My Statement. I Will Be Glad to Answer 
Questions You May Have at this Time.
      

                                


    Mrs. Johnson of Connecticut. Thank you very much. Thank you 
both for your testimony.
    Mr. Hash, I was interested that in 1997 there were 5.4 
million Medicare beneficiaries that are in managed care 
organizations, and there were about 9,000 appeals sent to the 
Center for Health Dispute Resolutions. This is less than one 
one-thousandth of the complaints that went to appeals--of the 
services that went to appeals. About 24 percent of the rulings 
were in favor of the beneficiary, and about 6 percent were 
appealed to the administrative law judges.
    In the Medicare fee-for-service program, which, of course, 
is a lot larger, there were many more claims, but there were 6 
million appeals for 0.72 percent. So there was a much higher 
percentage of appeals in the fee-for-service than in the 
managed care plans. I wondered if you had any comment on those 
figures?
    Mr. Hash. Madam Chair, I believe that what those figures 
still reflect is that we have a very low incident of appeals on 
either managed care, or in the fee-for-service. I mean, as you 
pointed out, on the fee-for-service, with nearly a billion 
claims processed for Medicare beneficiaries in a year, we have 
less than 1 percent that actually are appealed, even at the 
basic level within our contractors. Now that's not to say that 
that 1 percent is not a large number, it is. But, in fact, we 
think in the context of the size of the claims that are being 
processed, nearly a billion, something on the order of 5 
million claims have been appealed at some level.
    Mrs. Johnson of Connecticut. Well, certainly we need time 
and experience, but at this point we are having a lower 
percentage of appeals in the managed care plans than we are in 
the fee-for-service sector of Medicare. That may indicate that 
networks are communicating more effectively with patients, and 
it may not. But I think it is worth noting that at this point 
we have some, we don't have a big red flag that the appeals 
process isn't working in the Medicare managed care sector, as 
we had hoped it would.
    Now I just want to go back to this court suit that HCFA has 
been involved in. In March 1997, the Federal court in Arizona 
issued a decision requiring HCFA to take steps directed by the 
problems in its appeals process. The Balanced Budget Act of 
1997, which we passed and this Committee wrote, contained a lot 
of new requirements in part to address that court decision. 
However, there is some conflict between HCFA--there's a lot of 
conflict between HCFA's original policies, some of its 
remaining policies and the balanced budget reforms that were 
passed through this Committee. And, in 1997, Secretary Shalala 
filed for a stay of the court order in Arizona, and asked that 
it not be enforced. The stay was granted and all parties are 
now waiting a decision on the appeal. Can you give us some 
better understanding of why HCFA is still insisting on this 
stay, and what the relationship is between the reforms that 
Congress adopted in 1997, and the changes that HCFA needs to 
make, both to comply with the court decision, and to comply 
with the new law, and, therefore, better meet the needs for 
access to care of Medicare beneficiaries?
    Mr. Hash. That's an important question, and a complicated 
one. And, at the outset before I go into the answer, I'd like 
to say we'd like to submit to you much more detail about the 
specifics of both the court decision, the BBA provisions, and 
our position relative to those two issues. Because as you, I'm 
sure, are familiar, the decision of the court in the original 
case provided an order that was very specific with respect to a 
number of specific notification requirements and other appeals 
rights. And, so we are actively working on responding to those 
and preparing our response to be a part of the regulations that 
we are publishing on, or about, June 1, which is the required 
regulation implementing all of the requirements of the Balanced 
Budget Act related to Medicare Part C, the new Medicare+Choice 
opportunities for beneficiaries. So, we are in the process of 
addressing them.
    [The following was subsequently received:]
    [GRAPHIC] [TIFF OMITTED] T3213.002
    
    [GRAPHIC] [TIFF OMITTED] T3213.003
    
      

                                


    In the meantime, as my testimony indicated, last April, we 
actually published the final rules requiring expedited appeals 
in the case of urgent medical disputes within managed care 
plans, the so-called ``72-hour requirement,'' which is now 
imposed upon all of our risk contractors in the Medicare 
Program. And so we have taken steps to actually begin that 
process. And now that the BBA provisions are in place, we can 
actually speak to some of the court's decisions, we are 
obviously going to be implementing them as a part of our 
rulemaking on, or about, June 1. There is a lot of detail 
underneath that and we'd be happy to furnish you a more 
complete answer for the record.
    Mrs. Johnson of Connecticut. Two things: First of all, why 
do you think 72 hours is a sufficient period of time in which 
to respond to urgent care decisions?
    Mr. Hash. Well, I think the judgment there is that's a 
period of time in which information on the record, and so 
forth, could be provided to reviewers in health plans in order 
to make a judgment about coverage. I think the actual practice, 
hopefully, is much more rapid than 72 hours, but that was--I 
believe, I don't know this for sure, I believe it might have 
been, included in the order of the court in the case to which 
you referred earlier.
    Mrs. Johnson of Connecticut. Well, Mr. Flynn testified to 
the fact that on discharge issues, which I think was Mr. Flynn, 
perhaps it was you, Mr. Hash, testified that in regard to 
discharge issues you have kind of an expedited process?
    Mr. Hash. We do.
    Mrs. Johnson of Connecticut. And you, too, Mr. Flynn?
    Mr. Flynn. I'm sorry, we don't have, I didn't mention 
anything about expedited procedures----
    Mrs. Johnson of Connecticut. All right.
    Mr. Flynn [continuing]. Under discharge. I think that was 
Mr. Hash.
    Mrs. Johnson of Connecticut. Well, discharge decisions 
seems to me something that has to be responded to promptly----
    Mr. Hash. We have----
    Mrs. Johnson of Connecticut [continuing]. In fact, you 
pointed out Mr. Hash in your testimony, that fee-for-service, 
in fee-for-service medicine, claims are--the claims denial 
process takes place after the services are delivered. Now this 
is not an advantage. This is a disadvantage. People have to 
know who's going to pay. Everyone needs to know who's going to 
pay before the service is delivered. So that is one of the 
really big weaknesses of the fee-for-service system, and I've 
seen that head-on, as I'm sure every Member has in their 
office.
    So I think trying to deal with the issue of timeliness is 
one of, certainly, my goals as we write this legislation. And 
I'd like to know from you, either now or later, whether you 
have the data, or whether you could develop for us the data, to 
differentiate between those things that need 6-hour turnaround. 
I mean, discharge issues can't have 3 days. A lot of medical 
procedure issues that are urgent can't wait 3 days, and 
shouldn't wait 3 days. Often a person is, you know, 
disadvantaged from the point of recovery possibly, pain 
endurance, and so on and so forth, having to wait 2 days for a 
decision about urgent care.
    With electronics, if you have really a person of equal 
competence, of specialty training. You know, consultations in 
the old world used to take place at bedside with knowledgeable 
people sharing information and making decisions.
    So, one of the things I think we have to really look hard 
at is why is 72 hours a timeframe for urgent decisionmaking. 
Most of the decisions I would consider urgent, they are 6-hour 
decisions, they are 8-hour decisions, they are 10-hour 
decisions. They are not 3-day decisions.
    And, likewise, while 45 days may be an improvement, it's 
not logical that if someone has been diagnosed with a certain 
illness, and the certain course of treatment has been proposed, 
that it should take a month and a half to figure out whether 
this is reasonable or not. So when it takes a month and a half, 
what that tells you is that you're bureaucratic. That's not 
medical; that's bureaucracy. So the whole issue of timeliness 
of appeals, the 60-, 72-day structure is totally inadequate in 
my estimation. I think that one of the things we have to do is 
to be more honest about what this issue is. So if you have any 
comments on that now, or if you can get us information later, 
please do. Pete Stark would like to make a comment.
    Mr. Hash. I would like to follow on that but----
    Mrs. Johnson of Connecticut OK, let him make a comment now.
    Mr. Hash. I would like to comment, Mrs. Johnson. I've 
failed to make an important distinction here, I think, about 
the urgency and so forth of appeals and the timeliness of them, 
and that distinction is clearly our contractors are, in private 
health plans now, are required to cover and pay for any 
emergency service that is required by a patient, whether that's 
in the network of the plan, or outside the network of the plan, 
and there is no 72-hour wait associated with that.
    Mrs. Johnson of Connecticut. Yes, but Mr. Hash, to a 
certain extent that's simply dishonest. I mean they need to 
know who's going to pay. I appreciate that, that's good for the 
patient. I'm not about to change it. But a system ought to be 
able to say that you are going to get paid.
    Mr. Hash. We do, we do.
    Mrs. Johnson of Connecticut. And we can't--as we try to cut 
costs and, as there's less margin, and less cushion out there, 
we cannot put either patients, or physicians, or hospitals in 
the position of being mandated to provide care that 24 hours 
later we are going to say, ``Oh, we don't agree that was 
necessary.'' So, I appreciate that people are getting the care 
but that is not enough.
    Mr. Hash. I just wanted to underscore that in any emergency 
situation there is no question about payment.
    Mrs. Johnson of Connecticut. Well, it's good----
    Mr. Hash. Payment is required. And second, I think the 
other distinction I was going to try to make about the 
remaining window of 72 hours is the way our language reads for 
our health plan requirement is that health plans are required 
to make urgent coverage decisions as expeditiously as possible 
but in no event no longer than 72 hours.
    Mrs. Johnson of Connecticut. Thank you. I'm going to yield 
to Mr. Stark and move on with the Subcommittee's questions. 
Thank you.
    Mr. Stark. I want to follow up on the Chair's line, and 
maybe I'll bring that up a couple of times today, if you'll 
just bear with me.
    Mr. Hash and Mr. Flynn, the issue appears to be two things. 
In the cases I'd like to talk about, let's assume that a 
primary care physician has recommended a parhcular treatment. 
Leave the emergency room alone for a minute. But the plan may, 
or may not, agree with the primary care physician's 
recommendation and it may provide the specialty care or choose 
not to provide the speciality care.
    You've got two issues. The patient may at some point be 
harmed because of this. If we get rid of the ERISA exemption, 
and a few other things, the patient, if the patient lives, 
could sue the plan for denying care. And, in my opinion, that 
would be fair. The patient may die and then the case isn't very 
strong. But the issue is whether a plan is denying care.
    If they're in the emergency room, we have antidumpting 
laws, you've got to provide the care.
    And then you get the question of, who is going to pay? In 
other insurance, like homeowners' insurance, if your house 
burns, you as an individual have a duty, and I don't know what 
it's called; you've got to protect that house. If the roof 
burns, you've got to put canvas over it, so the rain doesn't 
hurt it further. You have a contractual duty, to protect it.
    Why shouldn't we, in general, say that if a responsible 
primary care physician, or whatever the entry mechanism is, 
recommends a procedure, that the procedure be performed, and we 
subsequently argue about who pays? Then at least we eliminate 
the risk of killing the patient because of care denied. And we 
can argue later about the dollars.
    In the emergency room situation, the public gets stuck with 
the bill if the patient isn't covered and is indigent. That 
payment then comes under charity care or bad debt/uncompensated 
care. Managed care plans don't have that problem and they don't 
do charity care. So maybe they ought to have to absorb it 
internally if they lose the decision regarding payment. But it 
would seem to me we could simplify all this if the rule, in 
general, became if a responsible physician requests a test or 
procedure, it gets done, and the appeal is subsequently over 
the dollars. And you don't keep somebody from getting a 
transfusion, or an operation, or a blood test because some bean 
counters are arguing about who's going to pay. I don't know how 
or what that would do to the entire system.
    Now, it's my understanding, Mr. Hash, that that's what HCFA 
does for hospital care under Medicare. If there's a quarrel 
over discharge, the patient stays in the hospital as long as 
the patient can either convince the hospital to let him, or as 
long as his doctor requires. You subsequently decide whether 
you're going to pay or not pay. But the patient doesn't get 
kicked out pending your decision to pay. Is that not correct?
    Mr. Hash. Well, I think in the case of hospital discharges, 
if there's a dispute about the timing of the discharge, it is 
subject to an appeal through our peer review organization.
    Mr. Stark. But they don't kick the patient out?
    Mr. Hash. No.
    Mr. Stark. In other words----
    Mr. Hash. Pending the----
    Mr. Stark [continuing]. The patient stays. The only 
argument later is who's going to pay the bill. What I'm 
suggesting is, could we not extend that same concept to managed 
care?
    Mr. Hash. Mr. Stark, if I may, I think what you've 
described is essentially what most of the appeals are about in 
the traditional fee-for-service part of Medicare. The service 
has been rendered and the issue whether or not the program is 
going to pay, or cover, even though the service has already 
been provided. And we also have special protection to prevent 
the beneficiary from being liable in the case where they did 
not know about our policy.
    Mr. Stark. And I think there could be reasonable concerns 
about over utilization from unscrupulous providers. There are 
always those outliers who game the system. But it would seem to 
me that Chairman Johnson's and my concerns would be 
significantly different if we were just arguing about who's 
paying the bill. Patients would be treated and the provider 
would know that they would either be paid or, in fact, as some 
emergency rooms now have to swallow uncompensated care, then 
they build that into the rest of their fees. But the system 
would be compensated. The question as to whether the patient 
has to pay extra or the plan has to pay extra could be decided 
after the care was provided.
    Mrs. Johnson of Connecticut. I would just like to make the 
comment that I do disagree with you, Pete. I think the system 
we have in Medicare is dishonest. It protects the patient from 
paying. It lets the service be provided without deciding the 
issue of appropriateness. And I don't think that's fair. And 
more and more we're going to have hospitals being minimally 
reimbursed and under a lot of economic pressure, and we 
shouldn't be doing that. Now, in some of the old issues, often 
it was Medicare who was saying, who decided afterward, ``No, 
you should have discharged sooner,'' over the doctor's decision 
that the patient needed to stay. And in that instance the 
hospital had to eat it.
    So what I'm saying is that, as we go forward and build for 
the future, the current HCFA system of saying, ``provide the 
service, can't let the patient pay but we'll decide later on 
whether we're going to pay you,'' is really totally inadequate. 
There are physicians, there are hospitals who want to keep 
people longer than they should. There are also patients who 
want to stay longer than they should. The main goal should be, 
I think, that we have a system that determines up front, in a 
timely fashion, whether this is a reimbursable service across, 
you know, in the eyes of all the payers and the providers. So 
really I don't think we want to settle for the current HCFA 
fee-for-service system. I think we have to do better than that.
    Mr. Stark. What I was suggesting is if a primary care 
physician requires something, I presume it's the doctor who 
would argue about the appropriateness of that benefit, not some 
accountant.
    Mrs. Johnson of Connecticut. Right.
    Mr. Stark. Let's assume the patient require a blood test, 
and blood tests are covered by the plan. But, the plan may say, 
``We don't want to pay the blood test for this person,'' over 
the doctor's recommendation. Why should we keep the poor 
patient sitting in limbo while they argue about who's going to 
pay? Why shouldn't the doctor be presumed to be correct and 
then the argument about payment can come later?
    Mrs. Johnson of Connecticut. Well, I think if we have a 
very good appeals----
    Mr. Stark. Then----
    Mrs. Johnson of Connecticut [continuing]. Procedure, yes.
    Mr. Stark. That's exactly what I'm saying, but within a 
short period of time.
    Mrs. Johnson of Connecticut. My goal would be, if we have a 
very good appeals procedure that's timely, then, as Ben said, 
and as many, many of you commented, it will create a much 
better internal process. And we shouldn't have providers out 
there arguing about whether to cover blood tests.
    Mr. Stark. But we do. That's what managed care plans are 
doing all the time.
    Mrs. Johnson of Connecticut. But that's why a timely 
appeals procedure----
    Mr. Stark. Could I ask one more question? In the appeals 
question, the Chair raised the issue that there were far fewer 
appeals from managed care plans. The appeals process is 
different for managed care than it is for fee-for-service, is 
it not, Mr. Hash?
    Mr. Hash. Yes, sir.
    Mr. Stark. OK. And in managed care they first have to 
appeal to the managed care plan whereas in fee-for-service they 
come directly to you?
    Mr. Hash. They come to our contractors.
    Mr. Stark. Right. And, it is my understanding that you 
don't know how many people are appealing to their managed care 
plans because you don't have those records?
    Mr. Hash. We do not, Mr. Stark.
    Mr. Stark. So it is not correct necessarily to assume that 
there are fewer appeals in managed care plans? There are fewer 
appeals that are appealed to a second level. But if you start 
at the base level, the managed care plan has a two-tier level, 
and the fee-for-service a direct level. So that there may very 
well be an equal number, or a larger or smaller number, of 
managed care plan appeals. We just don't know.
    Mr. Hash. The one observation I would make is under our 
managed care appeal procedures. Any reconsideration by a plan 
of an appeal that is not in the beneficiary's interest is 
automatically subject to the external appeals process.
    Mr. Stark. I'm just saying, you don't know how many people 
are appealing?
    Mr. Hash. We do not.
    Mr. Stark. And, unfortunately, we don't either, which would 
be a good thing to know.
    Thank you, Madam Chairman.
    Mrs. Johnson of Connecticut. But just before I go on to Mr. 
McCrery, the point that you just made about the automatic 
forwarding, at any case in which a patient is dissatisfied with 
a decision of the managed care plan, it's automatically 
forwarded?
    Mr. Hash. That is my understanding.
    Mrs. Johnson of Connecticut. Thank you.
    Mr. McCrery.
    Mr. McCrery. Thank you. While Mr. Stark may be correct that 
it's hard to compare the appeals because of the difference in 
the nature of the appeals between managed care and fee-for-
service, my quick math here, according to these statistics, 
it's about 700 times as frequent under fee-for-service, the 
incidence rate so, you know, it might take a lot of, well, from 
the statistics that we've been provided here.
    Mr. Stark. We don't have the number of people who've 
appealed.
    Mr. McCrery. No, I'm just saying that if you take the 
statistics which is .0016 percent complaint rate, under managed 
care, and .72 percent complaint under fee-for-service----
    Mr. Stark. Would the gentleman yield?
    Mr. McCrery [continuing]. It's about 700 times----
    Mr. Stark. Would the gentleman yield?
    Mr. McCrery. Sure.
    Mr. Stark. Those, the managed care appeals to HCFA are only 
a second level, we don't know how many people----
    Mr. McCrery. I understand the gentleman's----
    Mr. Stark [continuing]. Initially----
    Mr. McCrery [continuing]. Point. My point is in order to 
just equal the frequency rate you'd have to have about 700 
times as many than are being reported. So----
    Mr. Stark. That makes sense to me.
    Mr. McCrery. Yes, well, it would. But, as evidenced by your 
opening statement that this is the most pressing problem facing 
America, the incidence rate simply does not bear out that 
statement, nor does it even come close. And I've heard, and I'm 
sorry, I don't have before me, but I have been told that the 
incidence rate in private sector plans is also extremely low so 
I think before we jump to conclusions that this is the ``most 
pressing problem facing America,'' that we ought to have 
hearings like this and try to discover the facts. Because it 
seems to me that, perhaps, this is not the most pressing 
problem facing Americans.
    Mr. Flynn, in the FEHBP plans, do you, or do we, require an 
external review process?
    Mr. Flynn. Yes, sir, we do. That is, the patient appeals 
procedure, we call it the ``disputed claims process,'' is 
required of all plans that participate in the Federal Employees 
Health Benefits Program. It's the same for fee-for-service and 
managed care plans. It involves a reconsideration of a plan's 
initial denial first at the plan level, and if the individual 
is still dissatisfied with the plan's decision, then it comes 
to the second level at the Office of Personnel Management for 
an independent external review.
    Mr. McCrery. So the independent external review for plans 
in the FEHBP is OPM?
    Mr. Flynn. As the plan sponsor, OPM, yes, sir.
    Mr. McCrery. So the OPM is the government, right?
    Mr. Flynn. Yes, sir.
    Mr. McCrery. OPM is the government. The government is the 
employer----
    Mr. Flynn. Right.
    Mr. McCrery [continuing]. Of these folks that are in these 
plans. So you are telling us that if they are dissatisfied at 
the plan level with their appeal, then they appeal that to the 
employer, OPM?
    Mr. Flynn. Yes, sir, they do.
    Mr. McCrery. Well now, how is that different from, in the 
private sector a person who is dissatisfied with a decision in 
its plan and the individual then has the right to appeal that 
decision to his employer?
    Mr. Flynn. In that respect, Mr. McCrery, it would be no 
different whatsoever. We do apply probably the same standards 
that a typical private employer would apply. What's the 
contract with the health plan? What's the service that is in 
dispute? Is it covered under the terms of the contract or not? 
If a medical judgment is needed, we go to outside physicians, 
medical consultants, to help us with that. An opinion comes 
back in and, as an employer, the employer sponsor here, we look 
at this. We look at it objectively, but we are looking at it as 
an employer sponsor, and we render a decision.
    Mr. McCrery. Thank you. I think we will hear, Madam 
Chairman, in later panels today, that, in fact, that is the 
norm. That if an individual in a health plan sponsored by his 
employer, under ERISA, has a complaint, and he's not satisfied 
with a decision of his plan, he then can appeal that decision 
to his employer just like in the FEHBP plan. I'm anxious to 
hear from the employers who will testify.
    And, Mr. Flynn, do you have any idea what that procedure 
costs OPM to provide that service to employees?
    Mr. Flynn. Mr. McCrery, we, at the Office of Personnel 
Management, to administer the Federal Employee Health Benefits 
Program, we spend about $25 million a year. The disputed claims 
process takes up about 5 percent of that, about a little over 
$1 million a year.
    Mr. McCrery. And do you pass that cost on to the plans?
    Mr. Flynn. That cost is not passed on to the plans, it's 
built into the premiums that all Federal employees, all 
participants in the program, pay for the Program.
    Mr. McCrery. OK.
    Mr. Flynn. I will say that the $20 million or so that we 
spend amounts to about seven-tenths of 1 percent of the total 
program expense, so it's a very small factor. But it is passed 
on in the form of part of the premium.
    Mr. McCrery. Yes, and again that cost for the dispute 
resolution is about 5 percent of your total administrative 
costs, is that what you said?
    Mr. Flynn. That's correct, Mr. McCrery.
    Mr. McCrery. OK, thank you very much.
    Mr. Stark. Would the gentleman yield to me? I just want to 
make one correction.
    Mr. McCrery. OK, sure.
    Mr. Stark. I believe that ERISA does not require that a 
complainant may complain to the employer. He can only complain 
to the plan. OPM actually is different. After appealing to the 
plan, a complainant can appeal directly to OPM.
    Mr. McCrery. No, I understand that, Mr. Stark, but I think 
we will hear from witnesses today that the norm, that the 
normal practice in the private sector is for that individual, 
that employee to have recourse to his employer.
    Mr. Stark. Could I ask Mr. Flynn----
    Mr. McCrery. Sometimes we have to take note of what is 
actually happening rather than, you know, what's in the black 
letter of the law.
    Mr. Stark. If you'd yield further, just to ask Mr. Flynn 
one question?
    Mr. McCrery. Sure.
    Mr. Stark. You have some statistics about appeals, as a 
percentage of your members in your testimony. But you don't 
separate between fee-for-service and managed care plans. Do you 
know that, or would you have that information in your records?
    Mr. Flynn. I don't have the information with me. I can tell 
you, Mr. Stark, that the number of appeals emanating from 
managed care plans, primarily, health maintenance organizations 
is very small compared to those which emanate from fee-for-
service. And as Mrs. Johnson and yourself both noted earlier, I 
think a lot of that has to do with the fact that the more plans 
are managed care, and if you think of it in terms of the staff 
model health maintenance organization being sort of the end 
point of that, it's natural to expect that the more familiar a 
provider, or physician, or whomever is with the particular plan 
structure, the less likely there is to be some dispute between 
the provider and the plan over what's an appropriate form of 
treatment for an individual.
    Mr. Stark. Do you think the plan structure itself resolves 
many disputes just by informing the provider and the patients?
    Mr. Flynn. I think it's a contributing factor, yes, sir.
    Mr. Stark. Thank you.
    Mr. Flynn. Thank you.
    Mrs. Johnson of Connecticut. Mr. Becerra.
    Mr. Becerra. Thank you, Madam Chairman.
    Mr. Hash, let me go back to some of the questions that were 
raised earlier about the appeals process and the difference, in 
terms of data, that we have for HMO-based care and fee-for-
service-based care. It would seem to be that most of these 
providers, under whatever setting, would collect and store data 
on grievances filed and, in the case of HMOs, appeals that go 
beyond just a complaint stage that are internally handled 
before they get on to some external, or higher level of appeal. 
HCFA right now does not require that data from the HMO-based 
providers, correct?
    Mr. Hash. That's correct.
    Mr. Becerra. Is there any reason why you don't request that 
information?
    Mr. Hash. I think the answer I can give you that I think is 
more the other side of this question is that we have under 
consideration for our rulemaking that I referred to that's 
coming out in June, amending our reporting requirements. And I 
believe in some of the provisions that are in the Balanced 
Budget Act there are requirements for the reporting of this 
kind of information as a part of measures for performance of 
our contractors. So I think we're definitely--our plans are to 
move in that direction.
    Mr. Becerra. Now, when you say you're considering it, does 
that mean you haven't come to a conclusion if you are going to 
include that within the rulemaking?
    Mr. Hash. Well, we're still in the process of reviewing and 
clearing our regulation which will be published on or about 
June 1. So I don't have before me the final resolution, and 
some of the specifics, but I know that this is an issue that's 
very much a part of the consideration.
    Mr. Becerra. Is there any reason not to request that 
information from the HMOs?
    Mr. Hash. No, in fact, none that I'm aware of.
    Mr. Becerra. So, while you may not be able to answer the 
question what will be in the rulemaking, what----
    Mr. Hash. Well, I think I should be more precise, and I 
apologize. It sounds like I'm not trying to answer this 
directly. I believe the BBA language, in terms of information 
to be reported by our contracting plans, will, in fact, require 
this information to be reported and to be disclosed.
    Mr. Becerra. So, today we could say, with some level of 
confidence, that there's, in whatever rulemaking we have, will 
be a requirement that HMOs provide that data?
    Mr. Hash. I believe that will be the case.
    Mr. Becerra. In regard to the whole issue of the 
beneficiaries as consumers, some folks complain that, if it 
were more required, or more known, to the beneficiaries that 
they had an appeals process, or that they knew what the 
process, how it worked, that we could probably get some of 
these things a lot of sooner because some folks evidently go 
through the whole process of getting care without knowing what 
their appeal rights are.
    Evidently there have been some investigative reports that 
have been done to show that in some cases up to one-third, or 
maybe more, of a plan's enrollees are not familiar with their 
appeal rights. My understanding is that HCFA has responsibility 
to ensure that a plan is doing everything it can to inform its 
enrollees of their rights to appeal. What's HCFA doing at this 
stage to ensure that there is widespread dissemination of the 
information of appeal rights to enrollees under HMOs plans?
    Mr. Hash. Again, as I think it was included in my written 
testimony, we, in fact, require that when an individual, one of 
our beneficiaries enrolls in a private Medicare managed care 
plan, that, in the enrollment materials that they are 
furnished, and which we actually preview and certify, that they 
are informed of their appeal rights in the managed care plan. 
And then, subsequently, at any time there is a denial of 
service by a managed care plan, they are required to notice 
with the denial the appeal rights to the enrollee.
    Mr. Becerra. And I understand that, but your own 
investigative general report says that what is it with regard 
to those who are disenrolling, 35 percent of those disenrolling 
in a March 1998 study, knew not of their appeal rights, or were 
uninformed of their appeal rights. And 27 percent of those who 
were enrolling did not know of their appeal rights. So I know 
what you can do and I know that what you're trying to do, but 
obviously a good chunk of those who are becoming HMO 
beneficiaries--or enrollees are not learning what their appeal 
rights are so what I'm asking is, beyond what the statute, or 
regulation, may already tell HCFA to do, what are you doing to 
try to make it more enforceable?
    Mr. Hash. But we are, again, as a part of our 
implementation of the Balanced Budget Act requirements in this 
area, which is also where these are included as well, we are 
going to step up our oversight and enforcement with compliance 
with these. And I----
    Mr. Becerra. What does that mean, step up your enforcement?
    Mr. Hash. We have regional office reviews of our managed 
care contractors which involve site reviews, and we are 
stepping up the intensity of our investigation of these kind of 
effects. You're correct in your figures that those surveys by 
the Inspector General actually, the Department of HHS actually 
came up with those results. And we need to improve our 
surveillance and enforcement of these requirements. There's 
definitely room for improvement.
    Mr. Becerra. So when you say you're stepping up your 
efforts, I assume that means more research devoted to this?
    Mr. Hash. Yes, sir.
    Mr. Becerra. How much more?
    Mr. Hash. I don't have that but I can, I'll try to get back 
to you and give you a more specific answer on that.
    Mr. Becerra. So if you don't know how much more you're 
devoting research, can you tell how much more you're devoting 
in staff time to do the investigative work or the enforcement 
itself?
    Mr. Hash. I can get you that. I don't have that with me 
this morning.
    Mr. Becerra. Has that been determined? Is it that you just 
don't have it with you but it's been determined, or is still in 
the process of being determined?
    Mr. Hash. I don't know the answer to that. But I will get 
back to you.
    Mr. Becerra. If you could get back to us, thank you.
    [The following was subsequently received:]
    
    
    
    
      

                                


    Mr. Becerra. Thank you very much, Madam Chair.
    Mrs. Johnson of Connecticut. Thank you.
    Mr. Flynn, I just wanted to ask you one follow on question. 
In your testimony, you state that you believe your education 
program and your customer surveys and things like that give you 
a pretty good handle and give your participants a pretty good 
handle on their rights of appeal, and your level--your 
knowledge of their satisfaction, or dissatisfaction. Eighty-six 
percent of the respondents were--believe that their claims are 
processed accurately in your most recent survey. Of the 14 
percent who weren't satisfied, what percentage of those cases 
were about billing errors and what percentage were about survey 
denial?
    Mr. Flynn. I don't know the answer to that question, Mrs. 
Johnson. The statistics cited in my statement have to do with 
claims processing generally, and don't get more precise in 
terms of the disputed claims process. The survey that we did in 
1995 did focus on the disputed claims or patient appeals 
process specifically, and on OPM's administration of it. And, 
while I don't have comparable questions, we do know in that 
year that a statistically valid sample of our respondents felt 
that our action about half the time was appropriate, and that 
people felt it was easy to understand why we had come to the 
conclusion we did. Now that's a rough surrogate for 
satisfaction at the appellate level itself but that's about as 
close as I can get right now.
    Mrs. Johnson of Connecticut. What plans do you have to 
improve that 50 percent?
    Mr. Flynn. Well, it would first require us to decide that 
that was needed. I mean the thing that is important, I think, 
to remember here is that the people that we surveyed are at the 
second level already, and in about 70 percent of the cases that 
we review, we uphold the plan's decision. So there is, 
expectedly I think, a natural reaction for individuals not to 
be satisfied with the decisions that they got from us because 
they came to us at the second level in an effort to have a 
plan's decision overturned. I really don't know what the target 
should be. I think, actually, I'm kind of heartened by the fact 
that about half felt that we came to a conclusion that they 
felt satisfied with.
    Mrs. Johnson of Connecticut. Now you also mentioned that 
you had many fewer appeals from the managed care plans than 
from the fee-for-service side. As a Federal employee, whose 
husband recently retired, and so I recently entered your 
system, my recollection is that I had no choice but managed 
care plans in Connecticut. But maybe I didn't notice the fee-
for-service choice but as I recall noticing----
    Mr. Flynn. Well, Mrs. Johnson, I would be more than happy 
to make sure you are fully aware of all your choices in the 
Federal Employees Health Benefits Plan. [Laughter.]
    Mrs. Johnson of Connecticut. Well, I had very good choices. 
I had very good choices. And I'm not surprised that you are 
getting fewer complaints from managed care than you are from 
fee-for-service because in a fee-for-service system, by its 
nature, each sort of medical episode is independent and on its 
own. But I do think it's worth noting on the record because, as 
Mr. McCrery pointed out, this is a very important issue but we 
have to see it in perspective and not react inappropriately. So 
there are some very good things happening out there in managed 
care. I think one of the things we're--one of the reasons we're 
all interested in the appeals process is because we feel that a 
timely prompt appeals process with clear explanations is 
critical to people getting access to quality care. And that if 
we can address this problem, then some of the others will fall 
away, others that might require more radical solutions.
    So I think this is terribly important but I do--I was very 
interested that, in a sense, you are sitting here testifying to 
the fact that one of the largest health care systems in the 
world, the Federal Employees Health Benefits Program, is 
primarily managed care and is getting fewer complaints from the 
managed care sector than the fee-for-service sector, is that 
correct?
    Mr. Flynn. That's correct, yes, ma'am.
    Mrs. Johnson of Connecticut. I thank this first panel very 
much, appreciate hearing from you.
    Mr. Stark. May I----
    Mrs. Johnson of Connecticut. Excuse me, I'm sorry.
    Mr. Stark [continuing]. May I follow-up with Mr. Flynn?
    Mrs. Johnson of Connecticut. Mr. Stark.
    Mr. Stark. Thank you.
    Mr. Flynn, I have a couple of questions. Recently, a member 
of my staff was denied, by Mid-Atlantic Medical Services of 
Rockville, payment for emergency care. He's a diabetic and he 
passed out. And he was taken by ambulance to the hospital. Mid-
Atlantic denied the emergency care on the basis that he didn't 
call first for permission. And it's somewhat beyond me how 
somebody who is unconscious in the back of an ambulance could 
call for permission. But, assuming that they are kind and 
sensitive to their patient's needs, they probably have a way 
that that can be done.
    This was made an issue in the press, and your office called 
my office to follow up on it. Now, that's a pretty tough way to 
get your medical plan to do the right thing, is to try to get a 
story published in the Washington Post or the New York Times, 
or these other great papers that follow those issues. But, my 
question is, what would be your normal procedure?
    I had the same problem in my family with Blue Cross in 
Maryland a couple of years ago. We were being denied a service 
on the basis of pre-existing conditions. My wife wasn't 
pregnant, and they said that's a pre-existing condition, so we 
won't pay for fertility treatment. I said, ``that makes good 
sense to me.'' I wonder how many people have a pre-existing 
condition of not being pregnant? [Laughter.]
    But, I got precious little help on that appeal. If 
somebody, other than a Member of Congress, calls and complains, 
``they're hassling me to pay for my emergency room care,'' or 
``they won't give me services,'' what do you do?
    Mr. Flynn. Well, first of all, the overwhelming majority of 
situations like that are resolved immediately at the plan 
level.
    Mr. Stark. No, I'm saying it gets to you; what do you do?
    Mr. Flynn. If it gets to us, we will, if it gets to us in 
the form of the need for a quick decision to be made because 
there's a real emergency out there, we will do whatever it 
takes to get in touch with the plan and find out what's going 
on.
    Mr. Stark. What if it's not an emergency; it's just a 
denial of payment?
    Mr. Flynn. If it's a denial of payment and it's been 
through the regular appellate process at the plan level, we'll 
accept it as a disputed claim. We'll gather the information 
from the individual and the plan and render a decision. In this 
particular case, it never came to us for a decision. And 
clearly, the plan, once it had all the facts in front of it, 
made the right decision.
    Mr. Stark. Is the decision that you render binding on the 
plan?
    Mr. Flynn. Yes, it is.
    Mr. Stark. So, I'll come back--what's the statute of 
limitations?
    Mr. Flynn. The statute of limitations on, in this 
particular case?
    Mr. Stark. Yes, on any of it.
    Mr. Flynn. Or in the other case about pregnancy?
    Mr. Stark. A statute of limitations on any case. My second 
question is this: Do you have a procedure, a board or a 
Committee in Congress that makes a decision on new benefits? I 
don't know whether OPM requires coverage for bone marrow 
transplant. But, if it was being suggested to OPM that we add 
to our Federal Employees Benefit Plan a certain benefit, what 
is the procedure? Is that done through a Committee in Congress? 
Do you have a Committee that studies this? Could you explain 
that to us?
    Mr. Flynn. I'll try and answer that question very briefly. 
Each year the plans that participate in the Federal Employees 
Health Benefits Program enter into a new contract year, and 
there are changes in benefit levels every year. That process 
begins in the Spring of each year when we issue what's known as 
our annual call letter. It outlines what our negotiating 
objectives with 350 plans that participate in the program are 
for the year that begins the next January. Plans also----
    Mr. Stark. OK, right there. How do you determine what you 
might like to add for me, as a benefit, do you hear from your 
Members, Members of Congress?
    Mr. Flynn. We hear from our Members; we hear from 
Representatives; we have oversight by various Committees here 
in the Congress. We stay in touch with developments in the 
health care industry and that sort of thing.
    Mr. Stark. But there is no specific day when OPM states, 
``This is the day we're going to have suggestions''? Is there a 
formalized process?
    Mr. Flynn. No, there's no formal process, Mr. Stark.
    Mr. Stark. OK.
    Mr. Flynn. But that outlines what we would like to see. And 
then the plans come in at the end of May.
    Mr. Stark. How would this work? If I have a benefit I want 
to add, if I talk to you, would that at least start the 
process?
    Mr. Flynn. Yes, it would.
    Mr. Stark. OK, I'll talk to you. Thank you. [Laughter.]
    Thank you, Madam Chairman.
    Mrs. Johnson of Connecticut. Well, thank you. That's very 
interesting to me because the Congresswomen's Caucus is very 
interested in requiring the Federal Employees Benefits Plan to 
cover contraceptive medication.
    Mr. Stark. We'll both be to see you. [Laughter.]
    Mrs. Johnson of Connecticut. And so that's very 
interesting. And it's also, I think, worth noting that HCFA has 
a technical advisory Committee that makes recommendations in 
regard to coverage decisions but its meetings are closed to the 
public, is that not so, Mr. Hash?
    Mr. Hash. We have, actually, it was correct, Madam Chair, 
but we have disbanded that because we made a determination that 
it was not consistent with the Federal Advisory Committee Act 
and we are in the process of reformulating a coverage advice 
system within----
    Mrs. Johnson of Connecticut. Thank you. I think that's a 
very constructive step. I felt the time was too late to bring 
it up, but I'm glad to hear that, and glad it did come up.
    I did have one other question that is just too important to 
neglect and I had forgotten it earlier. Mr. Flynn, in joining, 
in becoming a Federal employee in your coverage plan, my 
choices were the same HMOs as any other employee of any 
employer in Connecticut had. And to my knowledge, the Federal 
employees benefits that that HMO offered weren't much different 
from the benefits that they were offering to others. Now if we 
require a review process that, for example, has brief short 
turnaround times for medically urgent matters and so on and so 
forth, do you believe that these plans will extend those same 
privileges to everyone in the plan, or in your experience are 
they likely to segregate out benefits for Federal employees? 
When we make changes that affect the Federal Employees Benefit 
Plan, will that permeate the health care system and affect 
benefits in, for example, the self-employed sector, in your 
estimation?
    Mr. Flynn. Let me try and answer that very quickly at two 
levels. I think when you have 9 million covered lives, as we do 
in this program, there can't help but be an influence on health 
plans when we request something of them as an employer sponsor 
and they look at whether or not they would like to offer 
something similar to their other lines of business. But that 
is, that's an independent decision by a health plan and my 
guess is that they would look at the issue itself and make a 
judgment that they felt was in their best business interest. I 
would imagine that on the administrative side of things, for 
example, decision, turnaround time on decisions and things like 
that, there would likely be more susceptibility to adopt a 
single standard than to have different standards for different 
employers. But with that caveat that's how I would answer that 
question.
    Mrs. Johnson of Connecticut. Thank you very much. I thank 
the first panel.
    Now we will call up Jack Ehnes, the commissioner of 
Division of Insurance, Colorado Department of Regulatory 
Agencies, Randall MacDonald, executive vice president of GTE 
Corp., on behalf of the Association of Private Pension and 
Welfare Plans, and Stephen deMontmollin, deMontmollin?--sorry--
vice president and general counsel of AvMed Health Plans from 
Gainesville, Florida.
    And I want to welcome Mr. MacDonald, not only representing 
a great corporation but I want him to know that we are 
cognizant that while today is ``Take Your Daughter to Work 
Day,'' that he intends to take his daughter to the high school 
dance tonight and we have no intention of in any way 
compromising those plans.

 STATEMENT OF J. RANDALL MACDONALD, EXECUTIVE VICE PRESIDENT, 
GTE CORP., ON BEHALF OF THE ASSOCIATION OF PRIVATE PENSION AND 
               WELFARE PLANS, NEW YORK, NEW YORK

    Mr. MacDonald. Nor do I.
    Mrs. Johnson of Connecticut. With that, let me invite you 
to testify first. And if you cannot stay throughout the 
questions, please feel free to excuse yourself, Mr. MacDonald.
    Mr. MacDonald. Thank you, Madam Chair. And my daughter will 
be glad to hear that it's on the record that I intend to leave 
to make sure I get home.
    It is truly a great opportunity to be able to tell the GTE 
story. I am here today talking about a health plan which 
voluntary covers more than 90,000 employees, 60,000 retirees, 
as well as all of their dependents in 50 states. I'm also here 
to say that GTE was the first company to voluntarily accept and 
implement the Consumer Bill of Rights as a result of the 
Presidential Commission on Health Care Quality.
    I am also, as you mentioned, appearing on behalf of the 
Association of Private Pension and Welfare Plans. We spend 
about $500 million per year on direct health care costs to 
attract a work force that is really differentiated based on 
talent. It clearly is in our own self-interest to take this 
issue seriously. We have to offer a range of health plan 
choices. We have to ensure that they are managed well and, most 
importantly, we have to ensure on a fiduciary basis that we are 
consistently and fairly administering them for all 
participants.
    I'm tempted to get into a complex explanation, but in its 
simplest form I would suggest that employers are voluntarily 
driving the solutions that you are seeing in the marketplace 
today. I think it's important to keep in perspective that we 
are looking at millions of Americans and, or in the case of 
GTE, hundreds of thousands of employees who are securing health 
care coverage every day without much fanfare, to be very 
truthful. We literally have millions and, or thousands, of 
employees who are very satisfied patients.
    I think in many ways there are discussions today that are 
focusing on less than 1 percent of the occurrences that we tend 
to use as horror stories and while Congressman Stark is not 
here at the moment, I would suggest that in one case if that 
happened to one of our employees, about the diabetic coma, I 
would suggest to you that that health plan would not be offered 
next year. Perhaps that's the first message: that the Federal 
Government ought to begin to think about its role as a group 
purchaser and be very selective in the quality of the plans 
that they offer and horror stories like this will no longer 
exist. So I do think the whole issue needs to be put in 
perspective.
    I would, second, suggest that our view on grievances and 
appeals is important but I would also take exception with the 
fact that it is the most important thing. I would suggest to 
you that what people are most interested in is the ability to 
have coverage for health care, and second, to ensure that it is 
done in a quality manner. It is not the issue of whether or not 
I can appeal it. I don't ever want to appeal for it as long as 
it works.
    In that regard, I think that GTE has a concept of where we 
start and that is the whole concept of information. We need to 
first identify high quality health plans, share the feedback 
with the plans. It's a continuous improvement, and work to 
correct problems, real or perceived. And if they're not 
corrected, there has to be some form of accountability for 
that. We have to ensure that plans are offering services that 
are medically necessary. You do not want to return to the 
horror stories of the eighties where you see inflation in the 
medical care community skyrocketing, and then see, ultimately, 
the plans being dropped, because I will suggest to you that 
they will be dropped. We fixed the problem the first time. We 
may not have a chance the second time.
    What we ought to be thinking about is the ability to 
identify the best practices for the best providers and figure 
out how that can be allayed across the Nation, so that, in 
essence, what we're really focusing on is making the right 
decision in the first place. Simply put, I think how it should 
work is that the plan should be in writing, and it should be 
easily understood.
    Second, I think that in reality the items covered, and not 
covered, should be specifically mentioned. Directions on how to 
secure those services, and if indeed an appeal is necessary, 
how, when, and where it should be filed.
    We do, indeed, as a company, support the use of external 
appeals. We still believe that this concept is in its infancy. 
In essence, there are not that many national experts that are 
available and we may be, indeed, creating an entire industry if 
we're not careful. I would suggest that experimentation of 
different approaches may be the most appropriate. Medicare, 
GTE, other public and private purchasers, should really be the 
incubator of that process.
    I want to caution this Subcommittee to recognize that 
public policy changes can either stabilize coverage, or create 
additional incentives for its decline. We need to recognize who 
provides the coverage, why do they do it, and, most important, 
the fragile nature of that coverage if it is de-stabilized.
    And with that in mind, I would suggest to you that the 
concept of liability truly scares me. I think that, in essence, 
if we begin to assign liability to employers, I think we'll 
simply get out of the business. And that in and of itself may 
be an alarming view, but I think it is a reality.
    I think, in essence, the conclusions that I would make is 
that the issue is coverage. Policies that encourage employers 
to maintain coverage, and allow incentives and other employers 
to obtain that coverage in a way that's relevant for both the 
individual and the employer. Remember employers who drop 
coverage add to the uninsured and to the government's payroll 
in some way.
    I believe in the market. Health plans and employers are in 
the best position to respond to emerging and changing demands. 
We can be, and should be, discriminating purchasers. We need to 
get real value from the health plans, not because a series of 
laws have been passed. I believe in the market in that I think 
it's preferable, frankly, to have health plans falling all over 
themselves, competing for GTEs share of the business and using 
evidence-based practices to ensure that the quality of that 
health care that's delivered meets the expectations of those 
who are receiving it. We shouldn't be worried about boasting 
their compliance records; we ought to be boasting about the 
quality of the services that are provided. We should be trying 
to stimulate innovation and excellence.
    In conclusion, I would suggest that the government really 
should begin to think about acting as a purchaser, that we 
should be focusing on quality; we should be focusing on the 40 
million Americans who do not have coverage, and we should be 
allowing the employer community to continue its innovation and 
creativity that it has shown in this marketplace.
    Thank you for allowing me to testify.
    [The prepared statement follows:]

Statement by J. Randall MacDonald, Executive Vice President, Human 
Resources and Administration, GTE Corporation on behalf of the Private 
Pension and Welfare Plans

    Chairman Thomas and members of the Subcommittee, my name is 
J. Randall MacDonald. I am Executive Vice President, Human 
Resources and Administration for GTE Corporation. We at GTE 
share your commitment and interest in ensuring access to 
quality healthcare. Thank you for the opportunity to speak 
about the importance GTE places on quality healthcare and the 
benefits to our 91,000 U.S. employees, more than 60,000 
retirees, and their dependents.
    With 1997 revenues of more than $23 billion, GTE is one of 
the world's largest telecommunications companies and a leading 
provider of integrated telecommunications services. In the 
United States, GTE provides local service in 28 states and 
wireless service in 17 states; nationwide long-distance and 
internetworking services ranging from dial-up Internet access 
for residential and small-business consumers to Web-based 
applications for Fortune 500 companies; as well as video 
service in selected markets.
    Outside the United States, the company serves more than 7 
million telecommunications customers. GTE is also a leader in 
government and defense communications systems and equipment, 
directories and telecommunications-based information services, 
and aircraft-passenger telecommunications.
    GTE is one of the largest publicly held telecommunications 
companies in the world with revenues of $23.3 billion in 1997. 
GTE is also the largest U.S.-based local telephone company and 
a leading cellular-service provider--with wireline and wireless 
operations that form a market area covering more than one third 
of the country's population. GTE also is a leader in government 
and defense communications systems and equipment, aircraft-
passenger telecommunications, directories and 
telecommunications-based information services and systems.
    GTE has employees and retirees in every state. We offer 
healthcare benefits to our employees and retirees nationwide.
    I appreciate the opportunity to present how GTE provides 
health benefits to our employees and their families and the 
steps that we and other employers take to ensure that coverage 
decisions are made accurately and fairly.
    I am appearing before you today on behalf of the 
Association of Private Pension and Welfare Plans (APPWP-The 
Benefits Association), a national trade association of 
companies concerned about the employee benefits system. APPWP's 
members include Fortune 500 companies and other organizations 
that provide benefit services to employees. Collectively, 
APPWP's members either sponsor or administer health and 
retirement plans covering more than 100 million Americans.
    I have recently completed my service as a member of the 
President's Advisory Commission on Consumer Protection and 
Quality in the Healthcare Industry and I would like to share my 
perspectives with you on several of the recommendations 
contained in our report to the President and GTE's efforts to 
implement them for our employees.

                GTE's Perspective on Healthcare Benefits

    Our approach to grievances and appeals begins with 
selecting health plan partners committed to operating in the 
best interests of our employees and our expectation of fair and 
consistent coverage determinations.
    GTE spends more than $500 million each year on direct 
health costs. We project that we incur a similar additional 
cost in lost time from work because of health problems of 
employees or their family members. It is in our own self-
interest to have healthy employees at work and we take 
seriously our efforts to provide employees with a range of 
health plan choices to meet their personal needs and we work 
hard at seeing that these plans are managed well.
    In addition, GTE is keenly aware that we must compete for 
one of our most valuable assets: a skilled and committed 
workforce. GTE, and other employers like us, provide health 
benefit plans to employees as part of overall compensation 
designed to attract and retain talented employees. But it also 
goes much further than that. We also share with our employees a 
strong and mutual interest in maintaining a high quality, 
affordable set of benefits that are administered consistently 
and fairly for all plan participants. We are committed to 
selecting the best possible health benefit plans, with proven 
records of performance, and we work closely with our health 
plan partners to resolve problems when they occur and to reduce 
administrative errors for the benefit of our plan participants.
    Every full-time and eligible part-time GTE employee may 
choose a healthcare plan that meets their family's needs 
including either a traditional fee-for-service plan or a point-
of-service plan, except one specific labor agreement that 
provides otherwise. This means that almost every one of our 
employees can select a plan that will allow him or her to see 
the doctor of their choice. Additionally, we offer more than 
120 quality managed healthcare plans throughout the country--
including both staff and Individual Practice Association (IPA) 
model HMOs.
    In this voluntary environment, more than sixty-eight 
percent (68%) of GTE's employees voluntarily chose managed 
healthcare plans in 1998, and an additional sixteen percent 
(16%) selected a network based ``Preferred Provider Plan.'' 
Less than ten percent (10%) selected a traditional indemnity 
plan. We believe that GTE employee elections reflect the 
quality of care, higher level of benefits, satisfaction, 
service, and overall value that managed healthcare plans offer. 
We are also actively involved in setting tough, meaningful 
standards for the health plans that we offer to our employees 
and we continuously monitor and evaluate these plans to ensure 
they maintain high performance levels. Finally, we strongly 
believe in the value of informed choices and we work closely 
with our health plan partners to provide clear, reliable 
information to guide employees in making decisions about how 
the different health plans operate and their responsibilities 
as plan participants.
    In short, GTE's primary healthcare objective is to ensure 
that our beneficiaries have access to the best healthcare 
resources available and we are receiving superior value for the 
money we are spending.
    At GTE, we work to establish long-term partnerships with 
the plans we select and we believe in continuous quality 
improvement. Long-term relationships with health plans promote 
stable enrollee relationships with the plans of their choice, 
with the provider networks, and ultimately pay off by placing a 
greater focus on improved healthcare status of our employees 
and the larger community where our employees and customers 
live. We view these partnerships as a process where all parties 
learn from each other and drive toward higher levels of 
performance with appropriate economic and market share rewards 
for their innovation and success.
    We also work to correct problems if a plan fails to perform 
at or above our performance standards, first by sharing our 
findings directly with the plan and soliciting their review and 
commitment to take corrective action. Additional steps include 
notifying employees of the particular problems and, if not 
corrected, ``freezing'' any additional enrollment. The final 
step of discontinuing the offering of a plan is only considered 
when problems persist.
    The final critical link in successful health plan 
management is giving our employees the information they need to 
make appropriate decisions and then paying careful attention to 
the results from employee satisfaction surveys. We are 
convinced that a large part of the reason that so many of our 
employees voluntarily elect managed healthcare plans is because 
of the information we provide about them during the annual 
enrollment period.
    Each year, we conduct extensive mailings to employees 
summarizing the health plan options available to them and 
giving them information on each option that is based on the 
type of information that they have told us helps them to make 
decisions. In addition to basic information about the size of 
the plan's membership, how long it has been in business, and 
any differentiating attributes, we highlight those plans that 
meet GTE's ``Benchmark'' status as one of the best in terms of 
combining access, quality of care, service, satisfaction, and 
overall cost-effectiveness. We also actively promote plans that 
meet GTE's highest rating, ``Exceptional Quality Designation,'' 
which is reserved for those plans that have been rated by us as 
having the very best overall quality of all of the plans 
offered by GTE throughout the country. These are the select 
group of plans that, in our evaluation, offer the highest 
combination of healthcare quality and member satisfaction. 
These designations do not come easily in a competitive 
marketplace and, I can assure you, our health plan partners 
work very hard to earn them.
    We want our employees to have a choice of high quality 
health plans that are committed to working closely with us over 
the long term to deliver high levels of service at a fair 
price. We try to foster a sense of customer focus in how health 
plans meet our needs, and those of our employees.

                 Making the Right Decisions on Coverage

    GTE's employee healthcare elections have changed 
dramatically over the years. Like most companies, for many 
years we provided health benefits primarily through 
traditional, comprehensive, indemnity-type plans where benefits 
for all medically necessary and appropriate care were 
explicitly and discretely defined in the plan documents. One of 
the most common misperceptions is that managed healthcare plans 
are more restrictive than the typical indemnity plans of the 
past. The reality is that managed healthcare improves access to 
more extensive healthcare services including (a) coverage for 
preventive health services which indemnity plans usually 
restrict or exclude altogether, and (b) elimination of the 
economic barriers to healthcare access. Managed healthcare 
plans use modest fixed-dollar co-payments in lieu of large 
annual deductibles and additional co-insurance. This allows 
consumers to know their out-of-pocket costs before seeking 
healthcare services.
    In addition, most managed healthcare plans are rapidly 
engaging in sophisticated, value-added pharmaceutical benefit 
strategies designed to provide highly effective programs to 
combat and proactively manage complex diseases. Finally, 
managed healthcare has significantly improved the integration 
of information available to practicing healthcare providers to 
evaluate the wide range of treatment options for a particular 
condition and allows for much better decisions to be made about 
which of the options are most likely to lead to improved, 
patient-specific healthcare.
    The one thing that distinguishes managed healthcare from 
the indemnity plans that preceded them is that more decisions 
about what is considered ``medically necessary and 
appropriate'' are made up-front, rather than after the service 
has already been provided. In the past, when these types of 
decisions were made, they largely affected the issue of whether 
a payment would be made by the plan for a service that had 
already been provided. Now, under managed healthcare, the 
healthcare provider and the patient often know the plan's 
decision before the service has actually been provided. This 
means that everyone involved--the patient, the provider, the 
plan, and the employer--has a stake in making sure that the 
right decisions are made in the first place, and that decisions 
are made consistently and fairly.
    At GTE, we strongly subscribe to the concepts of evidence-
based medicine and standards for coverage of medical services. 
This means defining benefits in terms of the treatment that is 
most suitable for the patient, based on proven medical 
technologies and practice. GTE holds health plans accountable 
for making sure that medical practitioners have the flexibility 
to do what is required for their patients. But we also believe 
that it is not enough to simply cover whatever a treating 
physician prescribes. Not every treating physician is always 
right. We want plans to bring individual physician decision 
making into a system of accountability, to ensure that the 
treatment proposed is consistent with the latest and accepted 
medical knowledge. Many in the healthcare field seem to 
consistently believe that ``more is better.'' We believe that 
only ``better is better,'' and ``better'' may be more--or fewer 
medical services. We believe our employees deserve protection 
against non-evidenced based medical services and have 
encouraged others to support this basic consumer protection. 
For example, removal of cataracts once required a minimum 
hospital stay of five to seven days. These are now routinely 
done on an out-patient basis for most patients. The point here 
is evidenced-based medical services should be based on the 
patient's needs and not on out dated historical practices or 
the convenience of healthcare providers. Given the high cost 
and quality risks of healthcare, non-evidenced based services 
can no longer be the responsibility of plan sponsors.
    Medicine is not yet--and may never be--entirely science-
based. There continue to be significant areas where there is 
not yet medical consensus. Where disagreements occur--as they 
inevitably will--we want these to be resolved fairly and 
quickly, and when additional medical judgment is needed, we 
want final decisions to be made that keep pace with constantly 
emerging medical technology and advances.
    I can assure you from my own experience that nothing we do 
in our health benefits program is more important, or more 
difficult, than ensuring that the best decision is made for an 
employee or a member of their family in difficult coverage 
cases. And, we have an even higher obligation required by law 
to act dispassionately, consistently, and in the interest of 
all plan participants. In practice, that means it is just as 
important to ensure that we are covering appropriate and needed 
care as it is to ensure that we are not paying for 
inappropriate or unnecessary services. In either case, once the 
decision is made for a single individual, it then must be our 
policy to act consistently in all future cases, knowing that 
coverage interpretations must change based on emerging medical 
science.
    When our employees have questions or concerns about the 
decisions made about their health benefits, the first step is 
to make sure all parties have complete information to make sure 
that the correct decision was made. Most are relatively 
straight forward coverage decisions and are quickly resolved. 
Where questions continue, we ask that both the guidelines 
involved in these cases and the specific clinical cases in 
question be reviewed by independent medical practitioners 
including the best medical providers available anywhere in the 
country to provide the patient with specific clinical findings 
regarding the proposed treatment, including whether the 
proposed treatment is within the medically appropriate coverage 
provided by their plan.
    The point that I want to underscore is that we do not 
attempt to substitute our judgment for the judgment of medical 
professionals. Our job--and legal responsibility--is to make 
sure that our healthcare plans are administered properly and 
consistently. We rely on medical professionals to make medical 
judgments. In fact, we strongly believe that medical decision 
making must remain in the medical arena. Where disagreements 
over medical issues occur, we seek independent medical judgment 
so that the best decision possible can be made about the 
services provided to our employees. And where there is 
reasonable doubt, we want these decisions made in the employees 
favor, consistent with our interest in having a health plan 
that is both perceived, and truly is acting, in their 
interests.
    By moving toward ``evidence-based medicine,'' we can 
subject both coverage decisions and medical treatment decisions 
to an objective test of what has been shown to work best and is 
in the patient's best interest. Evidence-based medicine is the 
best hope we have for seeing that patients with chronic, rare, 
or difficult conditions get the best treatment available, based 
on the best medical knowledge, and actually improve their 
condition.
    Making informed, consistent decisions about what is covered 
under a health benefit plan is a serious responsibility that 
needs to be undertaken by those with a commitment to making the 
best decisions possible. If we are honest with ourselves, we 
must also recognize that in many cases, the job of making 
health benefit coverage decisions involves difficult judgment 
calls based on the best available information at the time. It 
is extremely important that public policy recognize our common 
interests in seeing that these difficult but essential 
decisions are made properly so that we do not end up with a 
system that encourages or requires coverage for services that 
are excessive, unproven, inappropriately delivered, simply 
unnecessary, and perhaps even dangerous to the patient's 
health.

        Recommendations From the President's Advisory Commission

    The recommendations of the President's Advisory Commission 
were achieved by reaching consensus among a widely divergent 
group of independent-minded commissioners. All of us were 
motivated by a common desire to make the world's best 
healthcare system even better than it is today.
    I can honestly tell you that the by-product of this 
consensus document is far better than it would have been if we 
had split apart and only issued a report that highlighted our 
occasional differences. Along the way, we learned that no 
single Commissioner, industry, or constituency held a monopoly 
on the consumer's best interests in the healthcare system.
    Did the Commission reach consensus on every issue? No, we 
did not. We vigorously debated a number of issues where 
ultimately we concluded that we could not reach agreement. For 
example, there were strong proponents on the Commission for 
certain mandated benefits, standardized benefit packages, any 
willing provider concepts, mandatory offerings of open network, 
increased provider and consumer accountability, and the 
consumer protections of evidenced-based medical care I 
previously described. I am sure that you can guess where I was 
on these sorts of topics. We found it difficult to mandate 
coverage requirements in a voluntary system, but pledged to 
work collaboratively for continuous improvement.
    We certainly did not need a Presidential Commission to find 
that divergent interests did not agree on all issues. The 
important work of the Commission was in identifying the many 
areas where we did agree--employers, health plans, healthcare 
providers, union representatives, consumer advocates, and 
public purchasers--and the need to move forward for the benefit 
of both providers and consumers. Let me touch on a few of those 
for you that are particularly relevant to today's hearing.

                              Information

    We agreed that a well-functioning healthcare system depends 
upon good information in the hands of the individuals who are 
making decisions about how their health plans operate, how 
services are provided, and the healthcare providers who 
participate in their networks. As I have already mentioned, we 
at GTE believe that clear, relevant, and well-presented 
information is a vital tool for our employees in making 
informed choices. We can all do better in this area, including 
government programs, I should add. I believe that consumer 
responsive information will continue to be an evolutionary, 
rather than prescriptive, process. We can learn from each other 
and should listen carefully to those who must use this 
information at the end of the day. The goal should be to give 
all of the information that is truly worthwhile in a form that 
is consumer friendly, and avoid the tendency to bury people 
with information that is only understandable or appreciated by 
healthcare technicians.

                        Claims Review Procedures

    Again, this is an area where a number of positive 
recommendations have been made. The Commission recommended much 
shorter time periods for making coverage decisions than is 
currently required by federal regulations and an even shorter 
process for expediting the review of cases that involve urgent 
care needs. In addition, the Commission proposed that plan 
participants be provided with written explanations of all 
decisions and a review by appropriate medical professionals 
when it is required.
    I agree that the current time frames need to be updated. 
The Commission's recommendations now need to be tested against 
market place reality to determine the most appropriate and 
practical time frame for plans and plan participants.

                            External Review

    This was undoubtedly one of the most difficult issues for 
the Commission to resolve, but I believe that in the end, the 
Commission made a valuable contribution on the issue of when 
health plans should seek external review of certain coverage 
decisions. The Commission proposed that plans seek independent, 
external review by appropriate medical professionals in cases 
that involve coverage decisions related to treatments that are 
(1) ``experimental or investigational in nature,'' or (2) where 
services may not be considered medically necessary. The 
Commission concluded that external review should be available 
where ``the amount in question exceeds a significant threshold 
or the patient's life or health is jeopardized.''
    Reasonable people may disagree on many of these issues, 
including many employers and health plans. We at GTE find 
external review to be an extremely valuable way to resolve 
coverage issues that involve medical judgment. We also believe 
that this is an evolving field and that no single ``best 
practice'' model for external review has yet emerged. While we 
support external review and have voluntarily incorporated it 
into our practices, we intend to be fully engaged in the debate 
about how it works best by learning pragmatic approaches from 
our health plan partners.
    We fully understand that many organizations are not at the 
same place that we are in this area, and that external reviews 
require sophisticated contracting with well-recognized national 
medical experts who are often in short supply and whose 
services can be quite costly. We believe that plans that 
implement an effective dispute resolution process will receive 
the reward of increased market share from satisfied consumers 
and discriminating purchasers. GTE is working with enlightened 
public and private healthcare purchasers and responsible health 
plans to identify the best models and mechanisms for extending 
external reviews more quickly and efficiently than can be 
accomplished though a bureaucratic or legislative mandate. In 
addition, we believe that much more needs to be done in the 
area of outcomes research and medical technology assessment. 
These will provide decision makers with the kind of information 
that they can rely upon to make the best decisions possible in 
these areas at the earliest possible stage, so that our 
knowledge about what is proven and effective is able to keep 
pace with the constant advances in medical practice.
    GTE believes that the best way to put the recommendations 
of the President's Commission in place is through the mechanism 
that we already use effectively. We have committed ourselves to 
moving forward on the recommendations contained in the Consumer 
Bill of Rights proposed by the President's Commission and we 
are working with all of our health plan partners to make these 
recommendations a reality for our employees. In addition, we 
have successfully encouraged many other employers and 
organizations concerned with healthcare value and member 
satisfaction to begin to adopt these proposals. All the leading 
national health plans have joined with us in this effort, but I 
regret that the State, County and Municipal representatives are 
the largest segment that have not begun to move forward for 
their own employees and those within their responsibility.
    I believe that legislation on grievance and appeal 
procedures is both unnecessary and unwise. However, federal 
agencies already have sufficient authority to revise their 
current regulations to adopt sensible standards to ensure that 
all plan participants get timely and appropriate review of 
their healthcare claims. In doing so, the agencies should work 
closely with all interested parties on updating the current 
regulations, especially where there is already broad agreement 
that changes need to be made.

                               Conclusion

    Finally, let me conclude by encouraging the members of this 
Committee to keep in mind the importance of maintaining and 
encouraging the positive involvement of employers in the 
process of arranging and financing healthcare benefits. 
Employer sponsorship has made it possible for the private 
healthcare marketplace to evolve at an astonishing pace with a 
minimum of government involvement with demonstrated positive 
results for more than 100 million Americans. Employer 
sponsorship creates purchasing clout in the market to secure 
high quality, cost effective plans and to hold health plans 
accountable for improving their performance and satisfying 
their enrollees.
    The issues presented in today's testimony are important to 
improve the confidence of health care consumers. We believe 
that health plans and employers are in the best position to 
respond to emerging and changing demands. In fact, there is 
ample evidence that healthcare reform is alive and well--and is 
being driven by discriminating purchasers working to meet the 
needs of their employees.
    By contrast, we are concerned that additional legislative 
mandates, especially those that could make plan sponsors liable 
for health treatment decisions and outcomes, would force even 
large employers to back away from voluntary health coverage.
    Over the next several years, we expect that accountability 
will shift from a concern about the processes and performance 
of plan operations--that has been the focus of so much 
attention today--to a concern about the effectiveness of plans 
in improving the health status of their enrollees and of the 
general population.
    This will be the ultimate test for medical practice and of 
our healthcare system. It will also be the ultimate measure of 
value for employers and other healthcare purchasers. Their 
active, engaged efforts to reach for this high standard will be 
essential to future success.
    Thank you for offering me the opportunity to share our 
view, our success, and our vision of the challenges that will 
continue to emerge.
      

                                


    Mrs. Johnson of Connecticut. Thank you very much, Mr. 
MacDonald.
    Mr. Ehnes.

 STATEMENT OF JACK EHNES, COMMISSIONER, DIVISION OF INSURANCE, 
 COLORADO DEPARTMENT OF REGULATORY AGENCIES, DENVER, COLORADO, 
      ON BEHALF OF THE NATIONAL ASSOCIATION OF INSURANCE 
                         COMMISSIONERS

    Mr. Ehnes. Good morning, Madam Chair, Members of the 
Subcommittee. My name is Jack Ehnes. I'm the Commissioner of 
Insurance for the State of Colorado. I'd also like to add that 
in a prior work career, I was an employee benefits manager for 
the largest self-funded plan in Colorado, so I have a 
perspective both as a regulator, and as an employer, and as a 
purchaser when I make my comments.
    Today my remarks will summarize the three areas that's 
covered in detail in my written statement. First, I'm going to 
talk about the NAIC Health Carrier Grievance Procedure Model 
Act. Second, I'd like to tell you what the states have already 
done in making sure that consumer grievances are addressed in a 
fair and independent manner. And then, finally, and maybe most 
importantly, I'd like to discuss with you an approach that we 
feel may be the best way for Congress to legislate on this 
issue without micromanaging health regulation by the States.
    No issue is more important to State insurance regulators 
than the successful resolution of consumer complaints about 
health plans. This is why State governments devote so many 
resources to complaint handling and resolution. This is also 
why the NAIC adopted the Health Carrier Grievance Procedure 
Model Act. This model requires all health carriers to establish 
clear mechanisms for resolving employee complaints. Under the 
model, indemnity carriers only need to provide a one-step 
process. With indemnity insurance, the services have already 
been provided and the dispute generally centers around who will 
pay the providers.
    Managed care plans must create a two-step process. The 
second step is required because sometimes the plan has denied 
treatment before the treatment has been given. The second level 
process must be as independent as possible. The majority of 
people performing the review must be health professionals in 
the appropriate field. Where services have been denied, the 
professional involved may not be in the covered person's health 
plan, and may not have a financial interest in the outcome of 
the review. Seventy-two hour expedited reviews are required if 
the time limits of the standard procedure would seriously 
jeopardize the life or health of a covered person.
    In 1996, Colorado, along with six other States, enacted 
legislation and promulgated regulations concerning the 
provisions of this Model Act. And I just might show you here, 
this is a brochure but we're really attempting to communicate 
this throughout Colorado in a variety of ways. But the title of 
this brochure says, ``What Happens When Your Health Insurance 
Co. Says `No?''' In very simple plan terms, it goes through 
what grievance processes are available to the public. We make 
this available on the Internet. But, particularly, we're going 
to place it in provider offices, doctor offices, hospital 
offices, where these issues arise. And providers need to be 
counseling patients.
    Madam Chair, all 50 States have passed legislation 
requiring health maintenance organizations, or managed care 
plans to establish some type of consumer grievance and appeals 
process. Other State laws regarding how a managed care plan 
conducts its business and deals with its consumers also come 
into play. For example, because Maryland requires a prudent 
layperson standard for payment of emergency room claims, my 
colleague, Commissioner Steve Larson, was able to order the 
payment of the full claim and fine Optimum Choice for failing 
to pay the claim of a women who fell off of a cliff. It was 
reported in the front page of The Washington Post. The case, of 
course, has been discussed several times already this morning. 
This is the order issued by the insurance commissioner for the 
State of Maryland ordering that insurance company to pay the 
claim in full in early March.
    Yet, the member States of the NAIC do not feel that the 
current grievance model goes far enough. In the 18 months since 
we adopted this model, our members have developed a great deal 
of interest in requiring an external review process as well. At 
our spring meeting, the members of the NAIC decided to revise 
the grievance model to provide for independent, external review 
appeals mechanism, and that process of developing that model 
should be completed by next year.
    But even without a change in the model by the NAIC, 17 
States have already passed legislation that provides for an 
external appeals process. California, Texas, and Maryland are 
among the States that have taken some action in this area. In 
fact, the Maryland legislature passed this bill less than 2 
weeks ago. These external reviews take many forms.
    During our 1998 legislative session, the Colorado 
legislature also debated the adoption of an external grievance 
procedure. Unfortunately, the bill was introduced late in the 
session, not allowing adequate time for development. Our 
legislature wanted to review what other States had already 
accomplished to decide what approach works best in Colorado. 
But we expect that the bill will be drafted throughout the 
summer and reintroduced in January.
    As you can see by the chart we have over here of all the 
States and what action they've already taken, all States in the 
country require HMOs to have some type of internal procedure 
for addressing grievances. The 17 States in blue require an 
external grievance procedure of some type.
    It's also important to note that State insurance 
departments routinely assist consumers who have complaints 
about a plan's denial services. The Maryland example happens 
everyday on a small basis in every insurance department around 
the country.
    Given this, the members of the NAIC do not wish to see 
Federal preemption of requirements for grievance procedures. 
However, if Congress feels compelled to mandate an external 
grievance process, that we would request that States be given 
the utmost flexibility to address the needs of our consumers. 
Instead of drafting a specific external review requirement and 
mandating that the States meet, or exceed, this new Federal 
standard, Congress should first develop an independent 
procedure for ERISA plans. Congress could then require that the 
States implement some type of external procedure within a set 
time period. Congress could even work it out so that State 
action and Federal regulatory action were completed at the same 
time. This way States that had already acted, or were planning 
on acting in the near future, would not have to take additional 
action other than gubernatorial certification.
    In summary, this proposed State-Federal partnership would 
have three major features: It would list the general topics 
that Congress wanted the States to address; it would set a date 
by which States had to act; and if a State failed to act, the 
requirement set by the Federal Government for ERISA plans would 
apply to all State-licensed insurers.
    In conclusion, the members of the NAIC feel States have 
already responded. All States require some type of grievance 
procedure for HMOs, and 17 States have gone further requiring 
an external process. We recognize, however, that we need to do 
more. By fall, our model law will be amended to include an 
external grievance procedure. However, we recognize that ERISA 
plans do not offer the same level of protections for their 
enrollees as the States offer. We urge Congress to amend ERISA 
to provide these provisions. We also ask that if Congress wants 
to compel States to take action, that it do so in the least 
prescriptive possible. We believe the State-Federal partnership 
approach, outlined in my written statement, ensures that all 
consumers receive similar levels of protection without 
congressional micromanagement.
    Thank you for the opportunity to testify, and, of course, 
I'd be glad to answer any questions.
    [The prepared statement follows:]

Statement of Jack Ehnes, Commissioner of Insurance, State of Colorado, 
on behalf of the National Association of Insurance Commissioners' 
Special Committee on Health Insurance

                            I. Introduction

    Good morning, Mr. Chairman and Members of the Subcommittee. 
My name is Jack Ehnes. For four years I have been the 
Commissioner of Insurance for the State of Colorado. I am also 
the Vice Chair of the Accident and Health Insurance (B) 
Committee of the National Association of Insurance 
Commissioners (NAIC). I am testifying this morning on behalf of 
the NAIC's (EX) Special Committee on Health Insurance. I would 
like to thank you for providing the NAIC with the opportunity 
to testify today about due process within the health care 
industry including the NAIC's Health Carrier Grievance 
Procedure Model Act.
    The National Association of Insurance Commissioners (NAIC), 
founded in 1871, is the organization of the chief insurance 
regulators from the 50 states, the District of Columbia, and 
four of the U.S. territories. The NAIC's objective is service 
to the public by assisting state insurance regulators in 
fulfilling their regulatory responsibilities. Protection of 
consumers is the fundamental purpose of insurance regulation.
    The NAIC Special Committee on Health Insurance is composed 
of 41 state insurance regulators. The Special Committee was 
established as a forum to discuss federal proposals related to 
health insurance and to provide technical assistance to 
Congress and the Administration on a nonpartisan basis. Over 
the past several years, other members of the NAIC have had the 
privilege of testifying before this Subcommittee on various 
legislative proposals.

                       II. NAIC's Five Model Acts

    Beginning in 1993, the states, with the assistance of the 
members of the NAIC, have done extensive work to help ensure 
that the health care provided by state-regulated health plans 
is of the highest quality. In 1996, the states, through the 
NAIC, adopted five model acts that set standards for managed 
care plans on a range of topics. These managed care model acts 
are the:
     Health Carrier Grievance Procedure Model Act;
     Managed Care Plan Network Adequacy Model Act;
     Utilization Review Model Act;
     Quality Assessment and Improvement Model Act;
     Health Care Professional Credentialing 
Verification Model Act.
    The Health Carrier Grievance Procedure Model Act works with 
the other four model acts to create a comprehensive regulatory 
structure at the state level for managed care health plans. In 
some instances they apply to fee-for-service plans as well. 
Their purpose is to protect the consumer, especially when 
carriers and health plans restrict a consumer's choice of 
providers, or use incentives to direct consumers to particular 
providers.
    A NAIC model law becomes effective in a state only when 
that state's legislature chooses to enact the model or 
legislation based on the model. A state is free to modify an 
NAIC model to meet the needs of consumers and/or the market 
within the state. As with all our models, the NAIC is 
monitoring state legislatures to determine which states have 
adopted provisions of some or all of these managed care models.
    The states through the NAIC developed the Health Carrier 
Grievance Procedure Model Act and the four other managed care 
models because they recognized that the delivery of health care 
services was rapidly evolving away from fee-for-service 
insurance arrangements to managed care arrangements of many 
types. State insurance regulators have observed this market 
evolution firsthand because state insurance departments have a 
principal role in regulating managed care entities. Insurance 
regulators appreciate the need to strengthen protections for 
consumers participating in managed care plans.

           III. Health Carrier Grievance Procedure Model Act 

    No issue is of greater concern to consumers or state 
insurance regulators than the appropriate resolution of 
consumer complaints about health plans. The NAIC's Health 
Carrier Grievance Procedure Model Act requires both health 
carriers and managed care plans to establish clear procedures 
for resolving enrollees' complaints. The term ``grievance'' is 
broadly defined and explicitly includes complaints about 
denials of care or treatment.
    Graduated Levels of Review: The model requires all health 
carriers to provide a ``first level grievance review.'' These 
reviews enable a covered person to submit written material to a 
health carrier, but the carrier is not required to have a 
meeting with the complainant. There are separate requirements 
for grievances involving an adverse determination based on a 
utilization review decision and grievances involving all other 
matters. An adverse determination means a decision by a health 
carrier that an admission, availability of care, continued stay 
or other health care service has been reviewed and does not 
meet the health carrier's requirements for medical necessity, 
appropriateness, health care setting, level of care or 
effectiveness, and the requested service is therefore denied, 
reduced or terminated.
    A health carrier must issue a written decision containing: 
the names, titles, and qualifying credentials of the reviewers 
who participated in the first level grievance review process; a 
statement of the reviewers' understanding of the covered 
person's grievance; the reviewers' decision in clear terms and 
the contract basis or medical rationale in sufficient detail 
for the covered person to respond further to the carrier's 
position; a reference to the evidence or documentation used as 
the basis for the decision. In cases involving an adverse 
determination, the carrier must provide the instructions for 
requesting a written statement of the clinical rationale, 
including the clinical review criteria used to make the 
decision. If applicable, the carrier must also provide a 
description of the process to obtain a second level grievance 
review and the written procedures governing a second level 
review, including the time frames; and the notice of the 
covered person's right to contact the insurance commissioner's 
office, including the phone number and address of the 
commissioner's office.
    A health carrier that offers managed care plans must 
establish an independent second level grievance process. This 
additional step provides a covered person dissatisfied with the 
outcome of the first level review the option of a second 
review. The second level review is offered to managed care 
enrollees since they would not have the option, as a fee-for-
service patient would, of possibly seeking to obtain the 
service from a different source. At the second level review the 
covered person has the right to appear in person before 
authorized representatives of the health carrier. A carrier 
must ensure that a majority of the persons reviewing a second 
level grievance involving an adverse determination are health 
care professionals who have the appropriate expertise. In cases 
where there has been a denial of service, the reviewing health 
care professional may not be a provider in the covered person's 
health benefit plan and may not have a financial interest in 
the outcome of the review. The requirement of an independent 
reviewer does not apply, however, when such a reviewer is not 
reasonably available. This may be the case in small states 
where providers, especially specialists, are likely to have 
contracts with every major health plan.
    If a face-to-face meeting is not practical for geographic 
reasons, the health carrier must provide and pay for the option 
of communication between the covered person and the reviewers 
by other means, such as a conference call or a videoconference. 
The health carrier must also provide a written decision 
containing specified information. The decision must be issued 
within five working days after the review meeting, and that 
meeting must be held within 45 working days from the time that 
the health carrier receives a request from a covered person for 
a second level review.
    The requirement that the health plan offer a managed care 
consumer the opportunity for a face-to-face meeting with the 
plan is a very significant feature of this model. Because the 
model defines ``grievance'' to include an adverse determination 
made pursuant to a utilization review process, consumers have 
the right to meet with the plan to resolve disputes about the 
denial of care.
    Expedited Reviews: The model also requires a carrier to 
perform expedited reviews if the timeframe of the standard 
grievance procedure would ``seriously jeopardize the life or 
health of a covered person or would jeopardize the covered 
person's ability to regain maximum function.'' Once the review 
is started, the health carrier must reach a decision within 
seventy-two (72) hours.
    Grievance Procedures: Health carriers are required to use 
written procedures for receiving and resolving grievances from 
covered persons and are required to file a copy of the 
procedures with the commissioner. The model act requires an 
annual report to be filed with the commissioner. Carriers are 
required to attach a description of the grievance procedures to 
the policy, certificate, membership booklets, outline of 
coverage or other evidence of coverage provided to covered 
persons. The procedures document is required to include a 
statement of a covered person's right to contact the 
commissioner's office for assistance at any time. The statement 
must include the telephone number and address of the 
commissioner.
    Grievance Register: Health carriers are required to 
maintain written records to document all grievances received 
during a calendar year. The model act defines minimum 
information to be contained in the register and requires the 
register to be maintained for the longer of three years or 
until the commissioner had adopted a final report of an 
examination that contains a review of the register for that 
calendar year.
    Plans are required to submit an annual report to the 
insurance commissioner that includes: 1) the total number of 
grievances; 2) the number of grievances referred to the second 
level of review; 3) the number of grievances resolved at each 
level; 4) the number of grievances appealed to the commissioner 
of which the health carrier has been informed; 5) the number of 
grievances referred to alternative dispute resolution 
procedures or resulting in litigation; and 6) a synopsis of 
actions being taken to correct problems identified.
    Another significant feature of the NAIC's Health Carrier 
Grievance Procedure Model Act is that it coordinates with the 
NAIC's Utilization Review Model Act. Both models require health 
plans to disclose the clinical review criteria used for making 
utilization review determinations. This ensures that both 
consumers and providers know the basis of a denial and have the 
necessary information to challenge the plan's decision.
    In 1996 Colorado enacted legislation and promulgated 
regulations containing the provisions of the Health Carrier 
Grievance Procedure Model Act.
    All 50 states require health maintenance organizations or 
managed care plans to establish consumer grievance and appeals 
processes. These processes vary in their complexity. Several 
representative state samples follow. The following section on 
individual state action was put together using data provided by 
The National Conference of State Legislatures.
     Georgia requires every HMO to maintain a complaint 
system that has been approved by the commissioner. A grievance 
hearing must be conducted by a panel of not less than three 
people. Enrollees must be notified in writing of the 
determination. Notice of an adverse determination must include 
specific findings, the policies and procedures for making the 
determination, and a description of the procedures, if any, for 
reconsideration of the adverse decision.
     Illinois requires every HMO to submit for the 
director's approval a system for the resolution of grievances. 
The procedures must be fully and clearly communicated to all 
enrollees. The process must take place within specific time 
frames. Enrollees must be notified in writing of the 
determination.
     Louisiana requires that every HMO establish and 
maintain a grievance procedure approved by the commissioner. 
The HMO must inform enrollees annually of the procedures, 
including the location and phone number of where grievances may 
be submitted.
     Nebraska requires each HMO to establish and 
maintain grievance procedures that provide for the resolution 
of grievances initiated by enrollees. The procedures must be 
approved by the director of insurance after consultation with 
the director of regulation and licensure.
     Nevada requires the commissioner (in consultation 
with the state board of health) to approve the system developed 
by managed care organizations for resolving enrollee 
complaints. Denials of coverage must be in writing, must 
provide the reason for the denial and the criteria used in 
making the determination. The enrollee must also be notified of 
the right to file a written complaint.
     New York requires HMOs to establish and maintain a 
grievance procedure. Grievances can be filed in writing or by 
phone. The grievance process must take place within a specific 
time period. Notice of an adverse determination must be in 
writing and explain the process for filing a grievance. 
Expedited determinations must be made by phone followed by a 
written notice within three business days.
     Wisconsin requires all HMOs to establish and use 
an internal procedure that is approved by the commissioner. 
Enrollees must be provided with complete and understandable 
information describing the internal grievance process.

                   IV. External Review of Grievances:

    There has been much recent discussion about the 
desirability of requiring a health plan to have an independent 
external review process. The NAIC's model does not require a 
health plan to submit a grievance to the review of an external 
entity or state agency. In general, the grievance process 
required by the NAIC's Health Carrier Grievance Procedure Model 
Act is a process internal to a health carrier or plan. It does, 
however, require a managed care entity or carrier that performs 
utilization review to convene an independent, impartial panel 
of experts to review denials of care.
    In the 18 months since the NAIC adopted its grievance and 
utilization review models, the interest in requiring 
independent external appeals has grown greatly, both in 
Congress and among state legislatures. At its Spring National 
Meeting in March 1998, the NAIC's Accident and Health Insurance 
(B) Committee, of which I am the Vice Chair, decided to revise 
the NAIC's grievance model to provide for an independent 
external appeals mechanism. We hope to complete this revision 
expeditiously.
    At least seventeen states have passed legislation that 
provides for some type of specific independent external appeals 
process. These states are Arizona, California, Connecticut, 
Florida, Maryland, Michigan, Minnesota, Missouri, New 
Hampshire, New Jersey, New Mexico, North Carolina, Ohio, Rhode 
Island, Tennessee, Texas, and Vermont. Other states may enact 
bills this year.
    State independent external appeals mechanisms take various 
forms. There are at least six possible approaches already found 
in state law. A state that is developing an independent 
external appeals process would examine these processes and 
determine which one would fit best in that state, or a state 
could combine aspects of these approaches and create something 
more suitable for its own market:
    1. The appropriate state entity develops a list of 
independent reviewers. Once it is determined that an external 
appeal is necessary, the health plan chooses a reviewer from 
this list. The reviewer cannot have a financial interest or any 
other connection to the case. If the list maintained by the 
state does not include a reviewer with appropriate experience 
to conduct the external independent review, then the health 
plan along with the appropriate state entity will choose a 
reviewer who is mutually acceptable to perform the review.'' 
(Arizona.)
    2. Independent review entities are accredited by a private, 
nonprofit accrediting organization. The accrediting 
organization is under contract with the appropriate state 
entity. (California.)
    3. The enrollee appeals to the appropriate state entity. 
The state entity appoints an independent, impartial health 
entity to perform a medical review. (Connecticut, Missouri, 
Rhode Island, Texas.)
    4. The state creates a panel that hears all external 
appeals. The panel is composed of state employees. Panel staff 
performs an initial review to determine if the panel will hear 
the case. If the case is heard, the panel presents its findings 
to the appropriate state entity, which issues a final 
determination. (Florida.)
    5. The enrollee may choose an alternative dispute 
resolution mechanism to resolve the HMO's internal appeal 
decision. (Minnesota.)
    6. The appropriate state entity performs the review. 
(Tennessee,Michigan)
    In its 1998 legislative session, the Colorado legislature 
debated the adoption of an external grievance procedure. 
Because the legislation was introduced late in the session, the 
legislature had insufficient time to examine the bill. The 
Colorado legislature wanted to review what other states had 
already accomplished and decide which approach would work best 
for the citizens of Colorado. The bill will be redrafted 
between now and the beginning of the next session in January 
1999. It is expected to pass since there was limited opposition 
to the bill last session.

 V. The Roles of State and Federal Government in Regulating Health Care

    Federal Role: The enactment of the Employee Retirement 
Income Security Act of 1974 (ERISA) created a dual regulatory 
structure in this country for health insurance and heath 
benefits. Had ERISA not been enacted, we would strongly oppose 
any federal role in setting quality standards including 
mandating an external grievance procedure. However, because 
state insurance departments lack jurisdiction over self-funded 
ERISA plans, and because we believe that consumers within ERISA 
plans would benefit from the same types of protections 
available under state law, the NAIC has advocated, in past 
testimony, that Congress amend ERISA. We therefore think it 
appropriate that Congress set standards--including grievance 
procedures--for ERISA plans.
    With respect to state-regulated insurers and health plans, 
we continue to believe that the states are better able to 
determine what works best in their marketplace. The delivery of 
health care services is a local activity. Health markets are 
determined by geographic factors, demographics, the level of 
market penetration by different types of entities, the 
composition of the health care workforce, and consumer 
preferences, among other factors. A single federal standard 
will be difficult to apply to diverse populations and different 
geographic areas and may stifle innovation in local markets. As 
we have already seen, states have already approached the 
subject of independent external grievance procedures in many 
different ways, each designed to fit the needs of their 
citizens and health care market.
    State Role: State insurance departments conduct many 
critical activities which directly relate to and are intimately 
connected with the required grievance procedure. These 
activities are labor intensive
    Consumer Complaints: A primary role of state insurance 
departments is the handling of consumer complaints. The help 
provided by consumer services divisions is one of the most 
critical services offered by state insurance departments. It is 
arguably the service that consumers appreciate most. In 
resolving consumer complaints, state insurance departments are 
acting, in part, as an external appeal. If the health plan is 
denying care contrary to its contractual obligations, a 
department of insurance can take many different actions, which 
range from fining the plan to revoking its license. Often a 
pattern of consumer complaints regarding denials of care will 
lead the department of insurance to perform a ``market 
conduct'' examination.
    Market Conduct Regulation: ``Market conduct'' refers to how 
the regulated entity conducts its business within the state's 
market, including such activities as marketing, the issuing of 
policies, and the handling of consumer complaints. A large 
number of complaints or a pattern of complaints will trigger a 
market conduct exam. An exam may also be triggered by a large 
number of enrollee grievances and appeals. If a regulated 
entity fails its market conduct examination the department of 
insurance can require the entity to take corrective action.
    In recognition of the important role state insurance 
commissioners play in resolving consumer complaints, the NAIC 
recently formed the Consumer Complaints Working Group. This 
group will review the complaint handling process, including the 
handling of health plan complaints, of insurance departments 
across the country. The working group will then identify the 
``best practices'' used by insurance departments, will 
publicize these practices, and will encourage all state 
regulators to incorporate them into their department's efforts. 
In keeping with providing assistance to state insurance 
departments, the NAIC maintains the largest database in the 
world on final actions taken against all insurance companies, 
including health insurers.

                         VI. Federal Preemption

    All states require HMOs to have internal procedures for 
addressing grievances. Seventeen states require an external 
grievance procedure. It is also important to note that state 
insurance departments routinely assist consumers who have 
complaints about a plan's denial of services or other matters. 
Given this, the members of the NAIC do not wish to see federal 
preemption of state requirements for grievance procedures.
    However, if Congress feels compelled to mandate a specific 
grievance procedure (i.e. an external process), then the 
members of the NAIC would request that the states be given the 
utmost flexibility. In order to provide this flexibility we 
would urge you not to use the legislative model embodied in the 
Heath Insurance Portability and Accountability Act of 1996 
(HIPAA).
    At the time of HIPAA's enactment in 1996, prescribing a 
detailed set of minimum federal requirements seemed far 
preferable to total preemption of state law implementing small 
group and individual health insurance market reforms. The HIPAA 
model recognizes the integrity of state insurance law and the 
state regulatory framework. This approach made sense for the 
implementation of federal standards relating to the issuance, 
portability, and renewability of health insurance.
    However, the legislation required states to enact complex 
changes to state law within a very limited timeframe. It was a 
difficult task for most states to modify their laws to conform 
to the complex federal statute. HIPAA's preemption language 
required most states to enact the provisions of the federal law 
into state law in order to retain enforcement authority. It 
also required them to repeal any state law provisions that 
conflicted with the federal statute. Therefore, while the 
federal statute did not preempt existing state law, it did 
require a comprehensive review of state law and significant new 
state legislation in most jurisdictions.
    Federal Principles--State Specifics: There is another 
approach Congress should adopt. Rather than enacting specific 
requirements and allowing states to ``do better,'' the federal 
government could simply direct the states to adopt an 
independent external grievance procedure and provide a deadline 
for action. Instead of drafting a specific independent external 
grievance procedure and mandating that the states meet or 
exceed this new federal standard, Congress should first develop 
an independent external grievance procedure for ERISA plans, 
and then require the states to implement some type of 
independent external grievance procedure within an explicit 
time frame. Congress might also specify the characteristics of 
that procedure (e.g. the reviewer(s) cannot have a financial 
stake in the outcome; the process must be timely). The governor 
of the state would then certify that the state met the 
requirements of the federal principles. States that had already 
adopted an acceptable independent external grievance procedure 
would not have to take any action.
    Such a Congressional statement of principle gives the 
states the most flexibility and minimizes Congressional 
micromanagement. Unlike the HIPAA model, states that have 
already acted in the areas outlined by Congress would not have 
to take any additional action. This is better for consumers 
because a state could tailor its external grievance procedure 
requirements to its specific marketplace and could take its 
consumers into account.
    In summary, legislation modeled on this state-federal 
partnership would have three major features: (1) it would list 
the general topics or problems that Congress wants the state to 
address to protect consumers and ensure health care quality. 
Congress might also specify the general characteristics of 
acceptable state legislation, but it would not establish 
detailed requirements or specific provisions that states must 
adopt to address these topics. (2) Congress would set a date by 
which states must act to address these issues; and (3) if a 
state failed to act, the requirements set by the federal 
government for ERISA plans would apply to state-licensed 
insurers.
    The federal principles--state specifics approach has other 
strengths in addition to maximizing state flexibility. It would 
allow Congress to address immediately the lack of protections 
contained in ERISA for beneficiaries of ERISA plans. Another 
strength is that this more general approach does not penalize 
states that have already implemented an external grievance 
process. Unlike the HIPAA model, federal principles--state 
specifics legislation would be drafted to let these state laws 
stand, even if the provisions were not identical to the federal 
law's requirements for ERISA plans. Allowing states this 
flexibility would not detract from the major goal of federal 
quality legislation: the protection of consumers.
    Resources:  It is important to note, however, that any 
standards the federal government creates for ERISA plans will 
essentially be meaningless if Congress does not provide the 
regulating body with adequate resources. To regulate the 
business of insurance in 1996, state insurance departments 
employed over 1,000 financial examiners and 360 market conduct 
examiners. They initiated over 1100 financial examinations, 
over 790 market conduct examinations, and approximately 660 
combined examinations. In addition, state insurance departments 
responded in 1996 to a combined total of more than 386,000 
consumer complaints and more than 3.5 million consumer 
inquiries. Clearly, regulating insurance carriers is a labor 
intensive proposition.

                            VII. Conclusion:

    States recognize the importance of providing managed care 
enrollees with the ability to appeal an unfavorable 
determination made by a health plan. All states have already 
acted to require HMOs to establish a grievance procedure. 
Seventeen states (compared to nine in 1997) have already 
enacted an independent external grievance procedure 
requirement.
    Congress should not attempt to micromanage the managed care 
marketplace and force diverse regions and localities into a 
``one-size fits all'' approach. Rather, states should be given 
the flexibility to continue the development of innovative 
solutions to complex problems, including the development of 
independent external grievance procedures for health plans.
    In providing federal guidelines, Congress will ensure that 
all consumers receive similar types of protections. In allowing 
the states to determine what those specific solutions are, 
Congress will ensure that innovative solutions to local 
problems are not disregarded.
    I appreciate the opportunity to testify today. The NAIC is 
looking forward to working with Congress.
      

                                


    Mrs. Johnson of Connecticut. Thank you very much.
    Mr. deMontmollin.

   STATEMENT OF STEPHEN J. DEMONTMOLLIN, VICE PRESIDENT AND 
    GENERAL COUNSEL, AVMED HEALTH PLAN, GAINESVILLE, FLORIDA

    Mr. deMontmollin. Madam Chair, and Members of the 
Subcommittee----
    Mrs. Johnson of Connecticut. Would you say your name for me 
so I can understand it?
    Mr. deMontmollin. OK. Madam Chair and Members of the 
Subcommittee, I'm Steve deMontmollin.
    Mrs. Johnson of Connecticut. ``deMontmollin,'' thank you.
    Mr. deMontmollin. I'm vice president and general counsel of 
AvMed Health Plan which is Florida's oldest and largest not-
for-profit health maintenance organization----
    Mrs. Johnson of Connecticut. Excuse me, could you pull the 
microphone closer to you?
    Mr. deMontmollin. Yes, ma'am.
    Mrs. Johnson of Connecticut. And talk right into it.
    Mr. deMontmollin [continuing]. Serving some 375,000 
members, including approximately 70,000 Medicare members 
throughout the State. AvMed is an IPA model HMO and contracts 
with close to 7,000 private physicians, and 126 hospitals, is 
federally qualified and is accredited by the National Committee 
for Quality Assurance and the Joint Commission on Accreditation 
of Health Care Organizations. Both accreditation organizations 
require written grievance and appeals procedures for addressing 
member complaints.
    I appreciate the opportunity to testify today. Managed care 
isn't perfect, just better by far than unmanaged, 
uncoordinated, unaccountable, unaffordable care. Managed care 
is an approach to the delivery and financing of health care 
which changes somewhat the relationship between the physician, 
the patient, and the payer of health care services.
    With the growth of managed care comes new issues with which 
you, the States, the managed care industry, and my company must 
deal. One of the most troublesome issues is the potential for a 
managed care company to deny payment for medically necessary 
services to subscribers despite the recommendation of the 
treating physician.
    My company recognizes that plans like ours that have the 
ability to deny or reduce coverage for nonauthorized services 
need a mechanism for members to seek review of claims that have 
been denied or covered at a lower than expected level of 
benefits. In fact, any plan that provides for the financing of 
health care must have such a system to address the member's 
concerns about payment decisions. My company is a member of the 
American Association of Health Plans, and heartily endorses the 
mandatory AAHP policy which states, ``Health plans should 
explain, in a timely notice to the patient, the basis for a 
coverage or treatment determination in which the patient 
disagrees, accompanied by an easily understood description of 
the patient's appeal rights and the timeframes for an appeal. 
An expedited appeals process should be made available for 
situations in which the normal timeframe could jeopardize a 
patient's life or health. Appeals should be resolved as rapidly 
as warranted by the patient's situation.''
    The Florida legislature, as far back as 1972, enacted the 
first HMO enabling act and declared its intent as follows: 
``Faced with a continuation of mounting costs of health care, 
coupled with the State's interest in high quality care, the 
legislature has determined that there is a need to explore 
alternative methods for the delivery of health care services 
with a view toward achieving greater efficiency and economy in 
providing these services.'' In that first enabling act, the 
legislature mandated that health maintenance organizations 
have, ``a grievance procedure that will facilitate the 
resolution of subscriber grievances and that both includes 
formal and informal steps available within the organization.''
    Grievance and appeals procedures are required of health 
plans by the States and by the Federal Government for federally 
qualified HMOs and other health plans contracting with 
Medicare, as well as contractors for Federal Employees Health 
Benefits, and AvMed is proud to be a contractor for both the 
Medicare Program and the Federal Employees' program.
    Using my State as an example, Florida requires that each 
health plan have a written grievance procedure available to its 
subscribers for the purpose of addressing complaints and 
grievances, an expedited grievance procedure and external 
review by the State. In 1984, the legislature created an 
external appeals process through the Florida statewide 
subscriber assistance program. This external appeals process 
was designed to provide assistance to subscribers, including 
those whose grievances are not resolved to the satisfaction of 
the subscriber in the internal grievance and appeal process at 
the HMO.
    I have described in some detail in my prepared remarks the 
Florida internal grievance procedures, the expedited internal 
grievance procedures, and the external grievance procedures, 
and would be pleased to discuss those procedures further should 
the Subcommittee Members so desire.
    In closing, I would like to offer that any consideration of 
an external review process should be guided by several 
principles: Foremost, an external review process should not be 
initiated unless, and until, a subscriber has exhausted the 
internal appeals process, including the internal expedited 
review process if applicable, established by the health plan. 
Additionally, the scope of review for an external review 
process should be limited and clearly defined.
    More generally, an external review process should be fair 
to all parties, administratively simple, nonadversarial, 
objective and credible, accessible, cost-efficient, time-
limited, and subject to quality standards. Subscriber grievance 
and appeals processes are evolving as health plans, consumer 
groups, and regulators seek to find a suitable balance between 
consumer protection and a high-quality, cost-efficient health 
care delivery and financing system.
    AvMed, and the other AAHP member plans, are committed to 
upholding high standards of patient care, and we are likewise 
prepared to be held accountable for our actions. And we believe 
that all health care organizations and providers should 
likewise be held accountable.
    Thank you for the opportunity to testify today.
    [The prepared statement follows:]

Statement of Stephen deMontmollin, Esq., Vice President and General 
Counsel, AvMed Health Plan

    Mr. Chairman and members of the Subcommittee, I am Steve 
deMontmollin, Vice President and General Counsel of AvMed 
Health Plan which is Florida's oldest and largest not-for-
profit health maintenance organization, serving some 375,000 
members, including approximately 70,000 Medicare members, 
throughout the state. AvMed contracts with close to 7,000 
private physicians and 126 hospitals, is Federally qualified 
and is accredited by the National Committee for Quality 
Assurance and the Joint Commission on Accreditation of 
Healthcare Organizations. AvMed is a member of the American 
Association of Health Plans (AAHP) which represents 1,000 HMOs, 
PPOs, and similar network plans. AAHP member companies are 
dedicated to a philosophy of care that puts the patient first 
by providing coordinated, comprehensive health care. Together, 
AAHP members provide care for over 100 million Americans 
nationwide.
    Health plans provide a vehicle for systematic quality 
improvement that is not available under the old-style fee-for-
service health care system. Health plans combine a number of 
interrelated features that foster a comprehensive approach to 
quality, including:
     selection of a defined, fully-credentialed network 
of providers who can work together on care and quality issues;
     provision of comprehensive services across the 
spectrum of inpatient and outpatient settings, allowing a full 
range of quality improvement interventions; and
     clinical and fiscal accountability for the health 
care of a defined population--allowing population-based data 
collection, analysis, intervention, and monitoring--and 
ensuring accountability for performance.
    These unique characteristics enable network-based plans to 
deliver quality care, and to be accountable for the care 
provided. The organizations and individuals who purchase health 
care, including consumers, employers, and the federal and state 
governments, demand this accountability. It is the 
accountability that provides the mechanism for marketplace 
competition based on quality.
    I appreciate the opportunity to testify today about the 
important role appeals, and grievances play today in ensuring 
that consumers' needs and concerns are addressed in a timely 
fashion by health plans. All health care delivery systems, 
including provider-sponsored networks, offered to all 
subscribers should be required to meet comparable standards 
governing quality of care, access, grievance procedures and 
solvency. Subscribers should have confidence that all options 
meet standards of accountability that ensure that they will 
have access to all benefits and rights regardless of the choice 
of plan they select. My comments today will focus on the 
following appeals and grievances issues:
     Health Plan Initiatives
     State Grievance Procedure Requirements

                        Health Plan Initiatives

AAHP-Putting Patients First

    The American Association of Health Plans has issued a 
policy on grievances and appeals which is now a requirement for 
its member health plans. The Florida Association of Health 
Maintenance Organizations has adopted the AAHP policy and 
mandates it for FAHMO members as well. The Putting Patients 
First initiative advocates a set of specific policies that 
promote high quality care in a manner that meets the needs of 
individual patients. AAHP members strongly believe that all 
plan enrollees should have the information they need to 
understand their rights and that timely procedures should be in 
place to permit them to pursue their rights. Educating 
beneficiaries about their rights is critical. It is not only 
important that enrollees be given information about their 
appeal rights at an appropriate time, but that information 
needs to be clear and the processes for pursuing those rights 
need to be readily accessible. However, notification 
requirements also need to be implemented in a way that respects 
the patient/physician relationship. A careful balance is 
required not only to ensure that beneficiaries understand and 
can exercise their rights at the time most beneficial to them, 
but also to avoid interfering in physician-patient discussions 
about care. While situations may occur in which there is 
disagreement about treatment decisions, it is common for 
physicians and their patients to discuss difficult clinical 
issues and reach agreement about a course of treatment that 
meets clinical objectives and responds to beneficiary concerns. 
A successful appeals notification process should respect 
successful interactions, while providing appropriate 
notification of rights when disagreement occurs. The policy 
issued by AAHP and endorsed by FAHMO states:
     ``Health plans should explain, in a timely notice 
to the patient, the basis for a coverage or treatment 
determination in which the patient disagrees, accompanied by an 
easily understood description of the patient's appeals rights 
and the time frames for an appeal. An expedited appeals process 
should be made available for situations in which the normal 
time frame could jeopardize a patient's life or health. Appeals 
should be resolved as rapidly as warranted by the patient's 
situation.''
    To promote implementation of this policy as expeditiously 
as possible, AAHP member plans are being encouraged to review 
their internal policies and practices to ensure adherence.

                 State Grievance Procedure Requirements

Internal Grievance Procedures


    Grievance and appeals procedures are required of health 
plans by the states, and by the federal government for 
federally qualified HMOs and other health plans contracting 
with Medicare as well as contractors for federal employees' 
health benefits. Using my state as an example, Florida requires 
that each health plan have a written grievance procedure 
available to its subscribers for the purpose of addressing 
complaints and grievances, an expedited grievance procedure, 
and external review by the state through the Statewide 
Subscriber and Provider Assistance Panel which will be 
described more fully below.

Definitions


    Florida law distinguishes between a ``complaint'' which is 
``any expression of dissatisfaction by a subscriber, including 
dissatisfaction with the administration, claims practices, or 
provision of services, which relates to the quality of care 
provided by a provider pursuant to the organization's contract 
and which is submitted to the organization or to a state 
agency,'' and a ``grievance.'' A complaint is part of the 
informal steps of a grievance procedure and is not part of the 
formal steps of a grievance procedure unless it is a 
``grievance.'' A ``grievance'' ``means a written complaint 
submitted by or on behalf of a subscriber to an organization or 
a state agency regarding the:
     (a) Availability, coverage for the delivery, or 
quality of health care services, including a complaint 
regarding an adverse determination made pursuant to utilization 
review;
     (b) Claims payment, handling, or reimbursement for 
health care services; or
     (c) Matters pertaining to the contractual 
relationship submitted by or on behalf of a subscriber eligible 
for a grievance and appeals procedure provided by an 
organization pursuant to contract with the Federal Government 
under Title XVIII of the Social Security Act.
    An ``adverse determination'' means a coverage determination 
by a plan that an admission, availability of care, continued 
stay, or other health care service has been reviewed and, based 
upon the information provided, does not meet the plan's 
requirements for medical necessity, appropriateness, health 
care setting, level of care or effectiveness, and coverage for 
the requested service is therefore denied, reduced, or 
terminated. An ``urgent grievance'' means an adverse 
determination when the standard time frame of the grievance 
procedure would seriously jeopardize the life or health of a 
subscriber or would jeopardize the subscriber's ability to 
regain maximum function.
    Every health plan is required by Florida law to have a 
grievance procedure. Plans, as part of their procedure, must 
inform subscribers that they have one year from the date of the 
occurrence to initiate the grievance and that the member can 
appeal to the Statewide Subscriber and Provider Assistance 
Panel after the final disposition of the grievance through the 
plan's grievance process. Health plans must report annually to 
the Agency for Health Care Administration all grievances and 
their final dispositions. Plans must respond to an initial 
complaint within a reasonable time. The organization must also 
inform the member that the member can submit a written 
grievance at any time. The plan in addition must inform the 
member that the plan will assist the member in preparing the 
written grievance.
    The grievance procedure must at a minimum contain the 
following:
     1. An explanation of how to pursue redress of a 
grievance.
     2. The names of appropriate employees or 
departments that are responsible for implementing the grievance 
procedure.
     3. A list of the addresses and toll free numbers 
of the grievance department, the Agency for Health Care 
Administration and the Statewide Subscriber and Provider 
Assistance Panel.
     4. The description of the process through which a 
subscriber may contact the toll free hot line of the Agency for 
Health Care Administration.
     5. An expedited review process.. Notice that the 
member can use binding arbitration, if provided in the 
contract, instead of the Statewide Subscriber and Provider 
Assistance Panel.
     6. A procedure giving access to the grievance 
procedure to members who cannot submit a written grievance.
    With respect to a grievance regarding an adverse 
determination, a plan must make available to the subscriber a 
review of the grievance by an internal review panel; such 
review must be requested within 30 days after the plan's 
transmittal of the final determination notice of the adverse 
determination. A majority of the panel must be persons who 
previously were not involved in the initial adverse 
determination. A plan must establish written procedures for a 
review of an adverse determination and the procedures must be 
available to the subscriber. In any case when the review 
process does not resolve a difference of opinion between the 
organization and the subscriber, the subscriber may submit a 
written grievance to the Statewide Provider and Subscriber 
Assistance Panel.

                 Expedited Internal Grievance Procedure

    A health plan in Florida must have a written procedure for 
an expedited appeal of an urgent grievance. In an expedited 
review, all necessary information, including the plan's 
decision must be transmitted between the plan and the 
subscriber by telephone, facsimile, or the most expeditious 
method available. In an expedited review, an organization shall 
make a decision and notify the subscriber as expeditiously as 
the subscriber's medical condition requires, but in no event 
more than 72 hours after receipt of the request for review. In 
any case when the expedited review process does not resolve a 
difference of opinion between the organization and the 
subscriber, the subscriber may submit a written grievance to 
the Statewide Provider and Subscriber Assistance program.

                     External Grievance Procedures

Statewide Provider and Subscriber Assistance Program (SPSAP)

    Some states have legislated processes for external or independent 
review of adverse decisions made by health plans. For example, last 
year three states (Arizona, Connecticut, and Texas) have enacted laws 
with external review provisions, and two states (New Jersey and New 
Mexico) have issued regulations with such provisions. These states join 
California, Florida and Rhode Island, all of which had some form of 
independent review of disputes prior to 1997.
    In Florida, the external review is accomplished by the Statewide 
Provider and Subscriber Assistance panel. This six-member panel was 
established by the Florida Legislature to provide assistance to 
subscribers by hearing the grievances they have against health 
maintenance organizations which have not been resolved to the 
subscriber's satisfaction. The panel recommends to the Agency for 
Health Care Administration any actions the Agency or the Department of 
Insurance should take concerning both individual cases as well as the 
types of grievances. This program has three components: 1) 
responsibility to provide assistance with unresolved grievances to both 
subscribers and providers of HMOs; 2) review of quarterly unresolved 
grievance reports submitted by HMOs; and 3) the imposition of fines, 
after investigation, for failure to comply with quality of care 
standards.

                              How It Works

     HMOs and the agency notify subscribers of their right to 
appeal to panel at completion of plans' internal grievance processes
     Subscriber voluntarily completes and returns SPSAP form 
and medical release to the Agency for Health Care Administration
     Agency notifies HMO of subscriber's appeal and requests 
data
     Case review initiated by Agency staff and case is 
discussed with panel members to determine if case meets criteria for 
hearing
     Hearings are generally open to the public but may be 
closed in whole or in part upon request of a party for confidentiality 
of medical record or other legitimate privacy purpose
     Case heard (not subject to the Administrative Procedures 
Act); panel prepares recommendations to Agency or Department of 
Insurance
     Agency or Department issues final determination based on 
panel recommendations.
    The Statewide Subscriber and Provider Assistance Panel is chaired 
by the Florida Consumer Advocate and is composed of employees of the 
Florida Agency for Health Care Administration and the Florida 
Department of Insurance. The panel also contracts with a medical 
director of a health maintenance organization and a primary care 
physician. The panel reviews cases submitted to it by members who are 
not satisfied with the results of their HMO's grievance procedure. The 
panel then makes recommendations to the agency and the department on 
actions that the agency or department should take in a particular case.
    External review is also utilized by HCFA and the Office of 
Personnel Management (OPM). HCFA requires HMOs to submit adverse or 
unresolved grievances to independent reviewers such as the Center for 
Health Dispute Resolution that are contracted with HCFA. The contracted 
reviewer makes the final decision in those grievances.
    Similarly, OPM utilizes external review in its administration of 
the Federal Employee Health Benefit Plan (FEHBP). OPM contracts with 
HMOs to provide federal employees health coverage. As part of the 
contract, HMOs must have a grievance procedure. Federal employees who 
have a complaint about an HMO must use the HMO's full grievance 
procedure. However, if the federal employee is dissatisfied with the 
HMO's determination, the employee can appeal the HMO's decision to OPM.
    In my view, any consideration of an external review process should 
be guided by several principles. Foremost, an external review process 
should not be initiated unless, and until, an enrollee has exhausted 
the internal appeals process, including the internal expedited review 
process, if applicable, established by the health plan. Additionally, 
the scope of review for an external review process should be limited 
and clearly defined. More generally, an external review process should 
be fair to all parties, administratively simple, non-adversarial, 
objective and credible, accessible, cost efficient, time limited, and 
subject to quality standards. Grievance and appeals processes are in a 
state of evolution with changes being initiated by health plans, the 
states and, as more fully appears below, the Health Care Financing 
Administration. The common purpose is to adequately protect the 
consumer while contributing to a quality health care delivery system.
    Subscriber grievance and appeals processes are evolving as health 
plans, consumer groups and regulators seek to find a suitable balance 
between consumer protection and a high quality, cost efficient health 
care delivery system. AvMed and the other AAHP member plans have 
demonstrated that they are listening and responding to consumers' 
needs. We are committed to upholding high standards of patient care. 
AvMed and the other AAHP member plans are prepared to be held 
accountable for our actions, and we believe that all health care 
organizations and providers should likewise be held accountable.
    AvMed Health Plan welcomes the Subcommittee's interest in these 
issues, and I thank you for the opportunity to testify today.
      

                                


    Mrs. Johnson of Connecticut. Thank you very much.
    Mr. MacDonald, under what circumstances does GTE decide to 
use an external appeals process? How useful has external 
appeals, has the external appeals process been in resolving 
coverage disputes, and has your company ever done an analysis 
of the costs to provide external appeals?
    Mr. MacDonald. We typically use external appeals processes 
after all internal processes have been used, and they tend to 
focus on that type of coverage that would be viewed as 
experimental, in particular, is one that we tend to focus a 
great deal on or medically complex. I would tell you that they 
have been few and far between, but I think the distinguishing 
characteristic is that we allow ourselves to go out and find 
nationally recognized experts that we are not limited by, for 
instance, the particular State or the locality of where the 
occurrence may have taken place. It gives us the ability to go 
back out and look for competent physicians to do that. To be 
very candid with you, I don't know of any study that would talk 
about costs. I can assure you that anything like that has a 
cost to it, but I don't have the specific numbers.
    Mrs. Johnson of Connecticut. So most of these disputes are 
about the use of experimental treatments and appropriate care 
in complex cases. When, in going through this process, does the 
patient have to agree to the external experts that you're going 
to use, or is there any communication about that?
    Mr. MacDonald. There's a great deal. To answer your 
question, does the patient have to agree to the external 
expert, no, because, in essence, and I think it's an important 
point that we are the ones that are offering these plans 
voluntarily. And so there isn't an issue about whether there's 
an agreement or not. These are not mandated plans. These are 
plans that we use on the basis of a competitive business 
posture. So on that basis, we do have the right for that 
determination.
    Second, I think that what we have found is that we have 
very strong communication. We have our own internal standards 
by which we will respond. We have direct dialog on case 
management with these people, so there's a lot of back and 
forth in that regard. I think communication is absolutely 
critical. When it's all said and done, if people understand why 
they were right or why they were wrong, that's what they're 
really asking for.
    Mrs. Johnson of Connecticut. And as to the issue of 
timeliness, do you have any idea what the timeframes are in 
which appeals within your plan are determined?
    Mr. MacDonald. We have an internal standard that is less 
than what ERISA is calling for. We typically try to resolve our 
appeals in less than 60 days. I'd also like to tell you that on 
a percentage basis, it's less than one-tenth of 1 percent, and 
I think part of the reason is that we do a very good job of 
communicating information up front during the enrollment 
process, and we provide a lot of quality information.
    So what we have within GTE is an educated consumer, and 
they are going to the good plans. They are not going to the 
plans, for instance, that Congressman Stark talked about 
because we eliminate those plans. We make them accountable for 
their actions. We had 137 plans, for instance, about 5 years 
ago, we've dropped about 12 to 14 of those plans because they 
just don't meet government, quality standards. The Federal 
Government might do well to be very selective in how they focus 
on quality.
    Mrs. Johnson of Connecticut. On the other hand, is there 
any way you can get back to us with more detailed information 
in less than 60 days?
    Mr. MacDonald. Sure, I can do that.
    Mrs. Johnson of Connecticut. Because in particularly 
differentiating kinds of care, if you're dealing only with 
very, for the most part on that, well, that 60 days dealt with 
all your appeals, correct?
    Mr. MacDonald. That's correct.
    Mrs. Johnson of Connecticut. If you could get back to us 
with more detail on what kinds of appeals were dealt with and 
what timeframe, that would be very helpful.
    [The information was not available at the time of 
printing.]
    Mrs. Johnson of Connecticut. And that goes to my last 
question, which is really to the whole panel: Clearly, all of 
you think that the external appeals process has a place in our 
system and is useful, but all of you have cautioned against our 
mandating a prescriptive solution.
    First of all, I'd like you to enlarge a little bit about 
what you think we should be saying and then how do we reach the 
self-employed? Is opening ERISA the only option, or is 
requiring a process set up by State regulators a way to get to 
that, or if we require the Federal Employees Benefit Plan, 
Medicare, and Medicaid to have a certain kind of process, would 
that ultimately affect the kinds of processes that govern the 
self-insured sector? Anyone who wants to start may.
    Mr. MacDonald. Go ahead.
    Mr. Ehnes. Sure.
    Mrs. Johnson of Connecticut. Mr. Ehnes.
    Mr. Ehnes. In terms of how to, I guess, develop a broad-
base standard. I think we recognize that it's unlikely the 
States are going to be empowered to regulate in some fashion 
that ERISA market, that's why I was encouraging in my testimony 
that you do take action in some format to develop standards for 
that ERISA market as soon as possible, because I think, as this 
chart would indicate, that if it turns out you're still 
debating this a year from now and we're back with this chart 
again, a lot more of that chart is going to be blue for States, 
and if you haven't taken action in the ERISA market, I think 
the unlevel playing field will just be exacerbated all the 
more.
    Mrs. Johnson of Connecticut. So you don't think action in 
the regulated market will permeate the ERISA market?
    Mr. Ehnes. Well, you know, I think if you have testimony 
from GTE, and Xerox, or Eastman Kodak, and we compare those 
standards, what they're doing to what you're proposing in your 
bills, or what States are doing, probably. It looks like 
there's going to be a lot of comparability. My sense is that in 
those types of employers they infuse those kinds of standards 
into their plans. But the reality is self-insured employers 
goes down to an employer of 50 people, and I've worked with a 
lot of businesses like that that are self-insured. And to think 
that an employee would go to the human resource manager of a 
50-person company and expect to get fair, unbiased, objective 
treatment. I can't even get in that ballpark of that kind of 
conception.
    Mrs. Johnson of Connecticut. But from your experience, both 
in working in that sector and as an insurance commissioner, at 
the State level and then part of the national organization, if 
we, if State commissioners establish this plan for appeal, and 
make it cover all licenses insurers, or if we mandate a certain 
kind of process for Federal health--for Federal employees, 
would plans actually, an HMO that opens itself to all employers 
and covers both self-insured, and nonself-insured, would they 
really have a separate appeals process for me within that plan, 
rather than anybody else in that plan?
    Mr. Ehnes. I think it has a sentinel effect in that manner. 
I would have to agree it has some effect, but I would not agree 
that it provides the tightness in the system that I think you 
are expecting, and I guess that's why we would still encourage, 
if we're going to set standards on one side, you set standards 
on both sides.
    Mrs. Johnson of Connecticut. And you don't fear that, if we 
get into opening up ERISA, we won't go too far?
    Mr. Ehnes. Well, you've got a whole variety of bills in 
Congress opening up ERISA, and I think----
    Mrs. Johnson of Connecticut. Do you think any of them go 
too far?
    Mr. Ehnes. [continuing]. I think the most prominent issues, 
like this issue, need to be opened up and addressed.
    Mrs. Johnson of Connecticut. But that is not the entire 
issue. You know, in legislating, if you open up a certain 
situation, and particularly if you have on the table, a lot of 
bills that go too far--and you may think that none of the bills 
go too far. I happen to think that some of them will be very 
destructive to the evolution of our health care system. So, you 
know, recognizing that danger, are there--first of all, do you 
think it's a danger? Do you think there are bills that go too 
far, and do you think, in your experience of legislating, that 
it is impossible for a legislature to overkill? And if that's a 
real danger, what are our options? How could we reach the self-
employed? Excuse me, the self-insured market without opening up 
ERISA?
    Mr. Ehnes. Well, I don't have the solution without opening 
up ERISA. I would agree with you entirely that there's a 
propensity to overkill in some areas of health legislation, but 
the political reality is, I have to be candid with you, 
regardless of what you do in Congress, those statehouses will 
continue, in the next 2 years, to work on this issue every day. 
It will happen. I think the real question before you is do you 
want the people that are in insured plans to feel they've got 
those protections coming through statehouses, and those 
employees that work in self-insured, maybe not the GTE, or the 
Eastman Kodak, but the vast majority of the population.
    In Colorado, it's a small-business State. It isn't a 
Fortune 100 State. So the extent of my self-insured market is 
50 percent of my population. They're coming under unequal 
protection, and I don't know how you can avoid dealing with the 
inequity of this issue because the State legislatures are 
intent on addressing this.
    And if I could add one other point that Congressman Stark 
made, that I feel is very valid, is: regardless of the number 
of appeals that make it to that external process, it does have 
a strong tightening process on the internal processes of the 
HMO, knowing that the external piece is out there. So it isn't 
necessarily critical that it's 5, or 100, or 1,000 going to 
that external piece, but that independence does create, I 
think, a stronger integrity in the organization itself.
    And I do happen to subscribe to the theory that health 
plans want your business as customers. This article in the 
Washington Post about not paying your care when you go in for 
an emergency, obviously, it's a ridiculous situation and who's 
going to enroll in this health plan thinking they're not going 
to get their services paid? It has an enormous impact. But the 
other piece I'd like to say is you can pass these laws, and the 
fact is Maryland had a prudent person law on the books for 
emergency care that was the law the commissioner used to 
enforce, but unless--your real objective here is to gain 
compliance; it isn't just to pass the law.
    And I guess I'd like to just again come back to my message, 
is there is a lot of value in having local communities, through 
statehouses, debate these bills and work through the issues? I 
have learned that you can gain a lot of compliance through that 
mechanism. They, even though they may not agree with the bill 
initially in the statehouse, they work through the process. 
There is a lot of public attention to it in your local 
community and you can get the companies on board. I do worry 
about uniform Federal standards and whether it results in real 
compliance, not just a law, but real compliance at the local 
level.
    Mr. deMontmollin. Can I follow up on that, Madam Chairman?
    Mrs. Johnson of Connecticut. Yes.
    Mr. deMontmollin. With respect to Florida, Florida has, 
since 1985, had an external review process in place. It 
involves three representatives from the Agency for Health Care 
Administration, three from the Department of Insurance, and is 
chaired by the consumer advocate of the State of Florida. They 
contract with a primary care physician from a health plan and 
they also have a provider there in the peer specialty area of 
the issue that comes before the board.
    There are 4.2 million Floridians in HMOs in Florida. For 
the period, October 1993 to March 1997, the total number of 
cases opened were 403; settled before a hearing, 100; 
ineligible or out of jurisdiction, 118; heard by the panel, 52; 
the average elapsed days was 197 and the average dispute amount 
was $4,337.
    I have accompanied a member of our board of directors, on a 
2-hour trip down to Orlando, Florida from Gainesville, appeared 
before the panel, which told the petitioner, the subscriber, 
that orthopedic shoes simply were not a covered benefit under 
the contract she had negotiated through her employer. We got 
back in the car and drove back home. This year, the Governor of 
Florida has recently signed a bill that passed overwhelmingly 
and was sponsored by the Agency for Health Care Administration 
that would narrow slightly the types of issues that are taken 
to this appeals panel.
    Now, there are obligations to notify members of their 
rights at all stages--when we sign them up, every time there's 
an open enrollment throughout the year, in the member contract, 
and in our contracts with providers. Constant notification to 
our members that they have a right, not only to appeal any 
decision of the plan at the Statewide Subscriber and Provider 
Assistance Panel, but they can also call a 1-800 number, a 
hotline number directly in the State. So while I would 
associate myself with Mr. MacDonald's remarks with respect to 
ERISA, I would simply say that the States do need this 
flexibility on external appeals--because, if politics is local, 
then I can assure you that health care is likewise local.
    Mr. MacDonald. Could I just respond quickly?
    Mrs. Johnson of Connecticut. Yes.
    Mr. MacDonald. I recognize the issue of time. You asked, do 
things go too far, are there other ways to do it? I mean, I 
think there's a real-life example happening right before us, is 
that in November of this year, the presidential commission gave 
a bill of rights, and then a company like GTE voluntarily stood 
up and said, we're going to subscribe to those bill of rights. 
I stand before--or sit before you today being able to represent 
that we know for a fact that health plans, and/or employers, 60 
million Americans are now covered voluntarily by that bill of 
rights, that they've signed up voluntarily with efforts that 
we've done to work with them.
    In addition to that, President Clinton has asked the 
Federal Government to subscribe to those bill of rights as 
well. There's 150 million Americans that are already, on a 
voluntary basis, working with the fruits of that effort. So I 
think that you don't necessarily have to change laws to make 
things happen. The marketplace can demand that.
    Second, I would suggest to you why it sounds good for 
external appeals. I mean if there is, there is an aura about 
that. The reality of it is, are there recognized experts? Is 
there a supply of talent out there that can ultimately provide 
that service? I don't know if that exists today. We're having a 
hard time finding them as one company. So you can legislate the 
right, but if there is no ability to ultimately give that 
right, what good is it? So I don't even know if the experts 
exist. I think this is a cottage industry at best right now.
    And then, last but not least, the issue of cost. This is a 
very competitive workplace that we are in right now on a global 
basis, and I don't care if it's one-tenth of 1 percent, or one 
any, it's a cost. When it's all said and done, it's a cost, and 
that's what drives business right now. How much does it cost?
    Mrs. Johnson of Connecticut. Mr. Stark.
    Mr. Stark. That's pretty sad, Mr. MacDonald. There are 
other things, in business besides costs. I'd like to say that 
people can know the cost of everything and the value of 
nothing. But, that's a major change in the way employers tend 
to think about employees from what we had in past decades. 
We're making a lot of money in this country. Maybe that shows 
that it's working. But, we still have 42 million, or 43 million 
people without any health insurance.
    Mr. MacDonald. So why are we having this hearing?
    Mr. Stark. I don't know. We are the only country in any of 
the countries in which you do business that does not have 
universal health care. Countries that compete with us certainly 
do. And my answer is, if we had it, you could afford it because 
it would probably save you money in the long-run. But that's 
where we ought to start.
    Let me follow up. You're afraid of liability, you said. You 
said it truly scares you. Does GTE operate any health plans as 
such? Or do you have a company that runs the health plan? Could 
you be a health plan legally?
    Mr. MacDonald. No.
    Mr. Stark. OK. Some of the managed care reform bills before 
Congress that eliminate the ERISA protections, specifically 
protect the employer. Would that assuage your fears? In other 
words, if the health plan makes a medical decision my theory is 
they ought to be liable for it. If you don't make any medical 
decisions, and instead allow the health plan to make those 
decision, I mean, you are specifically protected. Would that 
raise your comfort level.
    Mr. MacDonald. No.
    Mr. Stark. OK.
    Mr. MacDonald. Because the reality of it is that, while I 
may not be liable in that instance, if there is liability 
associated to the health plan, that's a cost that the health 
plan is going to pass along somehow, some way to me, hidden or 
direct.
    Mr. Stark. All right. We have a variety of figures which 
people don't quite yet agree on, but so far indications are 
that the cost of the ERISA liability provision pretty minimal. 
I mean, relative to a major liability suit, it's minimal.
    Mr. MacDonald. I'm not sure what you said was minimal.
    Mr. Stark. There are those who would suggest to you that 
the cost of removing the ERISA exemption is not great if the 
plans aren't scallywags. But that's a matter on which we don't 
have much certain data yet.
    Mr. MacDonald. I think this is very relevant to your 
district. I think there is a significant cost associated with 
that and the preemptive provisions of ERISA are very important. 
Right now in order to do the cost of doing business in San 
Francisco, and I want you to understand up front that we offer 
domestic partner benefits in certain of our businesses because 
it's a competitive necessity. But I'm also now being told by 
certain cities of what my benefit coverage must be in order to 
do work there, but not just in that city; I have to offer that 
for all employees GTE-wide.
    Mr. Stark. Time out. I'm just talking about the liability 
issue; I'm not talking about the level of benefits which States 
may, or may not, prescribe. Look, that's off the table for this 
conversation. I'm suggesting to you that the costs of a managed 
care plan that has ERISA exemption from liability and for a 
managed care plan under State law is not high. Often they're 
the same plans; it's just some members are exempted from 
liability and other members aren't.
    Mr. Ehnes, you estimate that 50 percent of Coloradans are 
exempt.
    Mr. Ehnes. Yes.
    Mr. Stark. That is what it is in Maryland, we understand. 
And I don't know what it is in California. You think you're 
doing a good job, don't you?
    Mr. Ehnes. I think we do a very good job.
    Mr. Stark. Don't you think you protect the people of 
Colorado?
    Mr. Ehnes. Yes.
    Mr. Stark. Don't you think you ought to protect all of 
them?
    Mr. Ehnes. Yes.
    Mr. Stark. I do, too. And I think it's that simple. I think 
Mr. Pomeroy was here in your seat not many years ago when he 
was the commissioner of insurance in North Dakota. He said to 
us, over the issue of Medigap, that if in a few years he 
couldn't deliver a majority of the States with Medigap 
controls, he would stipulate that the Federal Government ought 
to do it. Well, you guys couldn't get together to do it. I 
think only 14 States really had Medigap standards, and so we 
passed a Federal Medigap law. I think that serves the people of 
Colorado well, don't you?
    Mr. Ehnes. Yes.
    Mr. Stark. I'm willing to give you a shot, but I have to 
remove the ERISA exemption to give you the chance to do your 
job. Is that fair?
    Mr. Ehnes. Right.
    Mr. Stark. And if you don't do your job, meaning all of 
your members, or let's say a majority of the insurance 
commissioners pass strong consumer protection standards, would 
you say that we ought to have minimum Federal standards? That 
way, in the States that don't comply, people can't go across 
the border and buy insurance in the neighboring State by mail 
and harm the insurers who do the right thing in Colorado.
    Mr. Ehnes. I think it's appropriate to say an issue of this 
critical importance, that a drop-dead date, it can be 
meaningful for States, but the problem, again, is by setting--
if we want to call that word, the HIPAA, Health Insurance 
Portability and Accountability Act, approach of the floor 
approach as setting some minimum standards, you do force 
whatever it is, 17 States, or by the time you add 29 States to 
recycle all the legislation back in their States to re-debate 
it, when, in fact, you might have decided that it's 23 days and 
a State said it was 14. That's Mickey Mouse, I have to say.
    Mr. Stark. I agree if, as I suspect, all the States will 
have good bills long before we do. But if we were to act first, 
it would probably help the States because at least you'd set 
some minimal standards and then they could argue about the 
frosting on the cake. But my guess is that you're going to find 
a majority of the States with good legislation, and all we're 
going to have to do is take away that ERISA exemption of 
responsibility, as I'd like to call it. Can you think of any 
reason the managed care plans will tell us they need this 
protection? I'd suggest that Mrs. Johnson has, but I don't 
think she remembers that she said that. Plans should pay for 
the service and then we'll argue about after providing the 
service. The managed care plans say, ``Goodness, gracious, that 
will hurt us,'' because I imagine that's the only way they save 
any money. I don't know of any way that managed care plans can 
reduce the cost of medical care except by denying it. There's 
been precious little evidence to the contrary.
    Do you require in Colorado that the care be provided and 
they argue about the cost later, or is your law silent on that?
    Mr. Ehnes. Well, on this grievance issue, specifically, if 
you're sitting in the hospital and receiving treatment, and 
your doctor is asking for additional services, or extended 
stay, the plan's, the turnaround time actually is 1 day.
    Mr. Stark. OK.
    Mr. Ehnes. The plan needs to make a decision in 1 day. But 
having said that, the plan----
    Mr. Stark. Suppose they don't come back with the decision; 
may the doctor then go ahead and provide the service and argue 
about the cost later?
    Mr. Ehnes. Yes, the plan must cover the hospital stay or 
treatment until you've been notified of the denial. They're 
accountable.
    Mr. deMontmollin. Mr. Stark, since I'm the only member 
representing a health plan, may I respond to that?
    Mr. Stark. Sure.
    Mr. deMontmollin. I disagree entirely that we believe that 
the doctor should not act as a doctor on behalf of the patient. 
The health plan is making a coverage decision about who's going 
to pay. There are courts that recognize that utilization 
review, or utilization----
    Mr. Stark. Excuse me, go back; I'm not sure I understand. 
You believe that, if the primary care physician requests a 
procedure, the procedure should be done?
    Mr. deMontmollin. Precisely. In one case----
    Mr. Stark. OK, and then argue about the costs----
    Mr. deMontmollin. Well, let me just make the point.
    Mr. Stark. OK.
    Mr. deMontmollin. The court held that, ``whether or not the 
proposed treatment is approved, the physician retains the 
right, and indeed the ethical and legal obligation, to provide 
appropriate treatment to the patient.'' State attorneys general 
have expressed similar opinions. The North Carolina attorney 
general wrote that ``denial of third party payment may have a 
direct impact upon a patient's decision of whether or not to 
undergo the treatment. However, such denial does not prohibit 
the patient from seeking treatment without third party 
benefits. It does not prohibit the attending physician from 
providing the treatment.''
    Mr. Stark. Mr.----
    Mr. deMontmollin. What I say to our medical directors is 
simply this, ``You are the patient's advocate. You are to use, 
for instance, the U.S. Department of Health and Human Service's 
Agency for Health Care Policy and Research Practice Guidelines. 
You are to use the ones that are promulgated by the Agency for 
Health Care Administration in the State of Florida, and you are 
to have a science-based, or evidence-based, collaboration with 
the treating physician, which, hopefully, will lead to the more 
fully informed consent on the part of the consumer. But you, 
the plan medical director, are making coverage decisions. You 
are to say to that doctor, `It is your patient. You have to do 
what you think is right.'''
    Mr. Stark. Let me just put this in laymen's terms that I 
can understand. In your plan if I have a family practitioner, 
or an internist, and they say to me, ``Have a sigmoidoscopy, 
and----
    Mrs. Johnson of Connecticut. Mr. Stark, if I could ask you 
to move forward. We can come back to this----
    Mr. Stark. I'm sorry.
    Mrs. Johnson of Connecticut. Mr. McCrery has to leave.
    Mr. Stark. I'm sorry, but I just want to make one point. 
Your plan would say whatever the doctor says, I get, but if 
there's a dispute later on between you, and the doctor and me 
about whether I should have that, or whether you cover it, it's 
only a fight over who's going to pay?
    Mr. deMontmollin. We say it is a science-based 
collaboration with the treating physician. Make sure that that 
treating physician advises the member of what our practice 
guideline is, what we believe is medically necessary. We advise 
them of their appeal rights if they should disagree with our 
denial of the payment of that, but what that doctor and that 
patient decided to do vis-a-vis the treatment decision is one 
that should rightly remain there.
    Mr. Stark. And the treatment goes right ahead. And then we 
argue--in effect, we argue only about the money. I think we're 
saying the same thing.
    Mr. deMontmollin. Absolutely.
    Mr. Stark. I'm sorry, Madam Chairman, but I think this is 
an area you're interested in, too. I'm not sure that every plan 
operates that way, but I'm certainly pleased that your's does. 
Thank you.
    Mrs. Johnson of Connecticut. Mr. McCrery.
    Mr. McCrery. Mr. Ehnes, do you have any jurisdiction over 
any ERISA plans?
    Mr. Ehnes. We have no jurisdiction over the self-insured 
market, right, to be----
    Mr. McCrery. Oh, self-insured?
    Mr. Ehnes. Right, but, I mean, to the extent----
    Mr. McCrery. But on fully insured ERISA plans, you do have 
jurisdiction, don't you?
    Mr. Ehnes. To the extent----
    Mr. McCrery. So it's not 120 million people that are exempt 
from State regulation, is it? As has been said here by somebody 
at one point, it's more like 32 to 48 million people?
    Mr. Ehnes. Well, it's about half my State that is self-
insured and not subject to State regulation. I guess I want 
to--I mean I was sensitive to that comment. To the extent that 
employers are using more insured managed care plans, the more 
they would come under State regulation--and there is some 
indication that is occurring, that there's a shift back toward 
insured markets for some employers. So that it is a proper 
comment, to the extent those States adopt grievance mechanisms 
and more employers use insured plans, then they will come under 
that regulation.
    Mr. McCrery. I just wanted to make sure everybody 
understood that ERISA doesn't mean, ``exempt.'' Only self-
insured ERISA plans are exempt from State regulation, and that 
number, the number of people in self-insured ERISA plans, is 
somewhere between 32 and 48 million, not 120 million people in 
the country.
    Mr. MacDonald, you were doing just fine until your last 
statement--[Laughter.]--when you said basically, ``Cost is 
everything.'' You didn't mean that. I know you didn't mean that 
because earlier you said that you're in a competitive business 
and you offer health insurance and you want to make sure it's 
good health insurance because you are in a very competitive 
business. So I'm going to give you a chance to rehabilitate 
yourself. [Laughter.]
    We all know that cost is important. And you're in business 
and you're in business to make a profit. And although my good 
friend from California occasionally denigrates profitmaking, it 
is basically what has made this country tick for a long, long 
time, and tick pretty well. So I happen to like people who make 
profits and I think that has given us a society that has 
generated the highest standard of living for the greatest 
number of people in our society. Having said that though, we do 
care about our employees don't we? I mean, a happy employee is 
a good employee, right?
    Mr. MacDonald. I'm getting the message. [Laughter.]
    You know, it's interesting that you said that, Congressman, 
and I thank you for the opportunity to clarify my intention. My 
father always used to tell me that, ``You know, Randy, you'll 
be a very successful man someday when you learn to keep your 
mouth shut.'' [Laughter.]
    So I probably have not heeded that warning over the years. 
I have to tell you that, and I think that the prime example of 
that is, if cost was everything than why would we be even 
offering health care? The bottom line is that we are looking to 
differentiate ourselves in the marketplace through our people. 
And the ability to have those people be a satisfied employee 
represents ultimately a satisfied customer.
    And I would ensure--I can assure you that while we 
constantly manage our costs, we're always focused on the issue 
of quality, whether it be in the workplace or with our 
customer. So you're absolutely right. I will also be very 
truthful in saying to you that cost is a consideration as it 
relates to our shareholders so that's what I was attempting to 
say, and I will try to remember my father's words. [Laughter.]
    Mr. McCrery. Absolutely.
    Mr. deMontmollin. Mr. McCrery, I think that it's likewise 
clear that cost follows quality, that if you improve the 
quality sufficiently, as GTE has done through their RFPs to our 
industry, then clearly the costs are going to come down. The 
question is whether it's best through a voluntary market system 
as NCQA, with the National Committee for Quality Assurance, or 
is it better to come from this body?
    Mr. McCrery. I think I've already answered that question 
from my viewpoint, but I'll give Mr. MacDonald another chance 
to buttress my belief. Mr. deMontmollin mentioned RFP, that's a 
Request for Proposal, I presume?
    Mr. MacDonald. That's what you intend, yes.
    Mr. McCrery. Does GTE actually go through that process of 
developing an RFP for health plans seeking their business, 
seeking your business?
    Mr. MacDonald. Yes, in fact, if you remember in my 
testimony----
    Mr. McCrery. That's a lot of trouble, isn't it, to actually 
put all that down on paper, and prescribe exactly what you want 
for your employees, why do you do that?
    Mr. MacDonald. Our belief is that by establishing quality 
standards to my colleague's point that we can ultimately 
increase our satisfaction with our employees, with their 
dependents, and to Congresswoman Johnson's point is that we're 
also affecting the local market as well, because by 
establishing those standards, for instance, in Tampa, Florida, 
as an example, where we have a large concentration of 
employees, establishing those standards in that marketplace are 
having an effect for all people who are participating in that 
plan. We drive quality through the process. If you don't meet 
our quality standards, you are not a vendor to GTE.
    Mr. McCrery. That's an important point. When you contract 
with a health plan for your employees in a given location, that 
health plan serves people other than just your employees, 
doesn't it generally?
    Mr. MacDonald. Yes, sir, yes, sir, very much so.
    Mr. McCrery. So the quality standards that you put in your 
RFP and that you look for when you're contracting with health 
plans has an effect on that local market, doesn't it, outside 
GTE? It certainly affects other people who contract with that 
health plan?
    Mr. MacDonald. That's unequivocal.
    Mr. McCrery. Thank you.
    Mrs. Johnson of Connecticut. Just to follow up on that 
then, it's not your experience because this is an issue--the 
question I was asking Mr. Ehnes earlier, in your experience, 
then, when you contract with plans that are already in the 
Florida market, and make sure they meet your standards, you see 
them offering that plan to everybody then with your standards 
and not singling out your people for different treatment?
    Mr. MacDonald. Yes, I mean, I think that that is probably 
one of the most significant by-products of working with plans 
like that is because we are establishing quality and the fact 
that you drive quality, you drive the cost considerations, you 
drive greater patient satisfaction. Why would somebody use a 
process just for a GTE employee and not for another patient 
from another company, if, indeed, you're going to be able to 
manage the process in a way. That's the word--that's what 
health care is all about right now is managing health care. And 
you're going to apply the best principles to those situations.
    Mrs. Johnson of Connecticut. So as you contract with plans 
and improve their standards then all participants in their 
plan, whether they're from your company or other companies, 
benefit?
    Mr. MacDonald. Either directly or indirectly, yes.
    Mrs. Johnson of Connecticut. That's very logical.
    Mr. Ehnes, do you wish to comment?
    Mr. Ehnes. I would, actually; thank you. Back to, actually, 
his earlier comments again on cost though, the way insurance 
works is, to the extent that someone can strip costs off a 
health plan and an employer still wants to offer health care, 
can make decisions around parts of that plan, they certainly 
will do that, not necessarily in the Fortune 500 market, but in 
the small and middle market where everything, any additional 
costs could make, could drive whether they're going to continue 
to offer insurance. So although there is some market effect, I 
have to say, where the good employers, or particularly, the 
large employers, tend to set quality standards in a community, 
I think it does have beneficial culture to the community. There 
is always a countervailing force in insurance where businesses 
are working the other direction.
    Mrs. Johnson of Connecticut. I appreciate that, but in this 
particular instance, if a big actor in the market requires you 
to set up an external appeals process, so you develop the 
mechanism and the context--the contacts, then it's far easier 
for the small employer participants to also be covered by that. 
And it gives you, in a sense, a market advantage in marketing 
yourself to those small employers without putting on the small 
employer the whole cost of setting up the external appeal 
process. I do think, as in--that in this issue, as well as in 
every other issue, we have to be very sensitive to the cost of 
insurance in the small employer market because that's where 
we're seeing the reduction in coverage for cost reasons. But I 
think the, I think what Mr. MacDonald is saying is that once he 
gets a plan to do this, then they've done it for him because 
it's an economic benefit for them, but they have it there for 
everyone else and it would be much easier then for small 
employers to participate in it is the way I read it.
    Mr. MacDonald. I think you might be surprised to learn that 
in some instances we actually subsidize higher cost plans 
because they meet our quality standards and therefore we cut 
our subsidy to those plans who may be substandard to that 
quality standard. So the issue of cost and quality are in the 
decisionmaking process all the time and that's what ultimately 
would drive the byproduct to the local community.
    Mrs. Johnson of Connecticut. In other words, in some 
instances the improvement in quality that you get from the 
external review process makes it worth paying more for the 
plan?
    Mr. MacDonald. Yes, because we think ultimately----
    Mrs. Johnson of Connecticut. I'm seeing that too.
    Mr. MacDonald [continuing]. They're managing the health 
care in a way that is most cost-effective and in the highest 
quality manner.
    Mrs. Johnson of Connecticut. Interesting.
    Mr. deMontmollin. Mrs. Johnson, this is happening all over 
the country. Martin Marietta joined with Walt Disney in the 
Orlando area; went not only to the health plans and said, 
``Here are our standards,'' but also to the providers. For 
instance, the Orlando Regional Medical Center. It's important 
to understand that HEDIS, Health Plan Employer Data and 
Information Set, came out of the private sector, that the 
National Committee on Quality Assurance and their standards 
came out of the private sector. And it seems to me that the 
major employers have made a significant contribution, a 
tremendous contribution, in this area, and this is another 
reason why I associated myself with Mr. MacDonald's remarks on 
the ERISA preemption.
    Mrs. Johnson of Connecticut. I think that is a very wise 
note on which to include the testimony of this panel, that 
HEDIS did come out of the private sector and most of our 
quality oversight mechanisms have come out of the private 
sector at the--with the stimulus of participation of the big 
providers.
    Thank you very much for your testimony. Have a great time 
tonight, Mr. MacDonald.
    Mr. MacDonald. Thank you, appreciate it.
    Mrs. Johnson of Connecticut. And now for our final panel: 
David Richardson, president, Center for Health Dispute 
Resolution; Peter Goldschmidt, president of the Medicare Care 
Management Corp.; James Parkel, member of the board of 
directors, the American Association of Retired Persons; and 
Vicki Gottlich, staff attorney, National Senior Citizens Law 
Center. Welcome.
    Mr. Richardson.

 STATEMENT OF DAVID A. RICHARDSON, JR., PRESIDENT, CENTER FOR 
         HEALTH DISPUTE RESOLUTION, PITTSFORD, NEW YORK

    Mr. Richardson. Yes, thank you. The Center for Health 
Dispute Resolution is a corporation based outside Rochester, 
New York, and I'm president of the Center. We work exclusively 
in the area under review by this Subcommittee, namely, managed 
care appeals. We've been the Medicare sole national appeal 
agent for managed care for 9 years. We conduct reviews under 
three different State independently regulated programs, and we 
provide reviews for some ERISA employer plans and HMOs on a 
voluntary basis. We've conducted over 40,000 reviews over the 
last 9 years, and these reviews come from every State, and 
hundreds of health plans and all the variety of configurations, 
IPA, group network, and what have you.
    I'm also glad to see next to me, Dr. Goldschmidt, because 
between the two of us, we represent about 98 percent of the 
external review market. And I'd like to point out that, while 
we are a small industry, I think, based on our experience, we 
are more than what I would typically deem a ``cottage 
industry.''
    I want to make just a few highlights today from the written 
testimony. One, I want to talk about why appeals are necessary. 
Second, I want to talk about why the Medicare model, with some 
improvements, I think is the best available. And, third, I'll 
leave you with some recommendations.
    Let's start with why appeals are necessary. In the language 
of the announcement for this testimony, the first reason I 
think appeals are necessary is because they're due process 
protection that give consumers confidence. And whether, or not, 
the plans are at fault, and whether, or not, the plans have 
made mistakes of various types, it is a reality that consumer 
confidence is eroded and needs to be restored in the health 
system. I can tell you that we get cases from people who 
apparently had a good situation in the HMO but once the denial 
was made, they draw upon all the rhetoric and all the bad 
feelings about the HMO bubbles to the surface. So confidence is 
an issue.
    However, it is true, and I do agree with the speaker from 
GTE and the industry, that there are very many protections and 
quality systems that have been built, such as NCQA, HEDIS, 
FAQS, and so forth. The difficulty with these systems is they 
are designed to raise the performance of the plans, generally, 
and they deal with raising measures for general population. We 
don't yet know how to guarantee the best possible health care 
for a given individual in a given circumstance. Managed care 
plans are incredibly complicated organizations that have to 
make millions of business decisions and clinical decisions on 
an annual basis. It's true that 95 percent of the people are 
well satisfied, but plans are going to make mistakes simply 
because of the complexity. So we should understand that the 
real purpose of appeals is to provide a remedy when people, 
when plans do make mistakes.
    Second, we find through our external review experience, and 
I think this is comparable for all of us that do reviews, in 
whatever setting, that even after an internal plan review, we 
will find that the plan has violated its own rules, or has not 
provided medically necessary service in about 25 to 30 percent 
of the cases that come to us. So I would like to suggest that 
the key to resolving the debate about appeals is for advocates 
and spokespersons to recognize that appeals programs serve both 
interests.
    Now why is the Medicare model the best model? I'll point to 
four issues. I want to emphasize a couple. One reason that the 
Medicare model is superior is because of its definition of 
disputes that are eligible. Medicare says that if you are 
aggrieved by a denial, you have a right to appeal. It's as 
simple as that. Medicare does not say that that denial has to 
be of a certain type or that it has to be given a label.
    Conversely, if we look at the programs that are promulgated 
in the States, if we look at the NAIC model, if we look even at 
the President's Commission's recommendations, we find that 
conditions are put on appeals. The most common one is to limit 
the appeal for those denials that are ``related to medical 
necessity.'' But in California we have otherwise good 
legislation that limits appeals to terminally ill patients. 
What we have found in Medicare, remember we have 10 years 
experience in an open system, and 40,000 cases, is that 60 
percent of denials are not related to medical necessity.
    Plans use a variety of reasons, often valid, for denying 
claims, such as, eligibility, failure of the enrollee or 
provider to abide by the rules. For example, ``you were 
supposed to call the 800 number but you didn't,'' exhaustion of 
benefit limits, contract interpretation. In fact, most plans go 
through a decisionmaking hierarchy in which they apply these 
rules before they get to medical necessity.
    So why is it problematic to limit appeals to medical 
necessity? One, because 60 percent of the cases are never going 
to get to external review. Second, I know that this 
Subcommittee, and people who are astute in health care, tend to 
focus on HMOs in the context of providing quality health care, 
or attempting to provide quality health care. But outside of 
the beltway, enrollees believe they have bought a financial 
product. It is still insurance and when that claim is denied, 
these enrollees are mad as hell and they really don't care why 
it was denied. So if your objective is to build confidence in 
the system, then all sides are better served by an appeal 
program that does not involve rules which enrollees are going 
to regard as gimmicks.
    Mrs. Johnson of Connecticut. Mr. Richardson, if you could 
move a little more rapidly----
    Mr. Richardson. I'm sorry.
    Mrs. Johnson of Connecticut. [continuing]. There are some 
hearings starting and so we get to them.
    Mr. Richardson. I'll move right ahead.
    The second reason that I support the Medicare model is 
because it's linked to coverage policy. And what I mean by that 
is that our decisions are based upon coverage rules, and when 
we learn that the coverage rules aren't working, there's 
feedback. A prominent example is, for example, that we were one 
of the first people to produce evidence on the problem of 
emergency denials not being related to a ``prudent person'' 
definition.
    Finally, the Medicare appeal system is widely publicized, 
as was talked about, and provides automatic external review.
    I'll jump ahead to the recommendations. There are a few 
things that you might consider doing to help on the Medicare 
side. First, Medicare nonplan providers currently have no 
obligation to cooperate in the appeal process. This is causing 
us and plans problems. Specifically, neither us, nor the plans, 
can get medical records to do external review in an expeditious 
basis from nonplan providers.
    Second, nonplan providers are putting Medicare 
beneficiaries in collection while the appeal process unfolds. 
And third, we don't have the ability to find the nonplan 
provider liable. We either have to give the bill, if you will, 
to the beneficiary or the HMO, and in some cases it's the 
provider who should be liable.
    Second, I'd ask you to consider indemnifying those of us 
that do this work. It's very difficult to get insurance and 
there's a very imperfect market.
    As far as my final recommendation, I do believe that 
Federal standards are required and I would offer the Medicare 
model, as I've explained in my testimony as the basis.
    Thank you.
    [The prepared statement follows and an attachment is being 
retained in the Committee files.]

Statement of David A. Richardson, Jr., President, The Center for Health 
Dispute Resolution

    The Center for Health Dispute Resolution (``CHDR'') is a 
corporation based near Rochester, N.Y. and I am President and 
founder of the Center. We work exclusively in the area under 
review by the Sub-Committee today--health insurance appeals. We 
have been Medicare's sole national appeal agent for managed 
care for 9 years, we conduct review pursuant to three State 
independent appeal programs and we provide external review to 
ERISA employer plans and HMOs on a voluntary basis. We have 
conducted over 40,000 external reviews, drawn from every State 
and hundreds of varied health plans.
    When we began this work ten years ago, managed care 
``appeals'' was hardly a noteworthy topic. Since then, there 
has been an explosion of interest. Some 15 States have enacted 
external review legislation. The President's Commission has 
reported on this topic and numerous bills have been introduced 
to this Congress.
    As a leading provider of managed care appeals, I am glad 
this topic is receiving attention. Properly structured and 
implemented, appeals systems are powerful and effective tools. 
As Chairman Thomas said in his announcement, appeals systems 
provide due-process which, in turn, maintains consumer 
confidence in the managed care strategy. I sincerely appreciate 
this recognition of the importance of our work, and look 
forward to any support that the legislative process can 
provide.
    But I am also concerned. From my view in up state New York, 
the debate about appeals seems unnecessarily emotional and 
divisive. Proponents of appeal regulation cite sensational 
cases involving terminally ill patients and portray managed 
care decision-makers as profiteers. Conversely, some segments 
of business and industry respond with public relations 
campaigns that flatly characterize regulation as an invention 
of Frankenstein. I am saddened and distressed by unfair and 
extreme rhetoric on both sides of this issue. We need to find a 
way to displace anger and distrust in our health system with 
communication, compassion and confidence.
    Appeal systems are a key ingredient in the managed care 
model. It is true that the regulators, accreditors, payers, and 
HMOs have developed an array of methods for measuring and 
promoting quality of care. Consequently, well over 90% of 
enrollees in managed care are very satisfied. However, managed 
care involves an incredibly complex set of provider 
relationships, rules, computer systems and, of course, the 
intrinsic complexity of individual health and health care. 
Consequently, all of our management and quality tools are 
imperfect. These protections can and will fail for a given 
enrollee in a given instance. Not because most HMOs and their 
physicians are amoral, greedy or uncaring, but simply because 
no organization as complex as an HMO can execute perfectly.
    The appeal system is, therefore, the option of last resort 
for persons who fall through the cracks of our imperfect 
managed care policies and plans. It is the final, and vital, 
remedy for the person who believes the system has failed him/
her. Equally, it is the ultimate source of feedback to the 
prudent policy maker or HMO administrator who realizes 
complaints are a most fruitful source for program improvement.
    The key to resolving the contentious debate about appeals 
is thus for consumer advocates and industry spokespersons to 
recognize that appeals programs serve both of their interests 
equally. If advocates will permit HMOs to make the honest 
mistake, and HMOs will admit mistakes cannot be fully avoided, 
both parties will support the strongest appeal programs 
imaginable. The question will not be how much appeal programs 
cost, but rather how much can be invested in this important 
tool.
    Looking across the country and HMO industry, there are few 
examples of appeal systems that are based on this philosophy, 
or are robust and implemented with any vigor. One exception is 
the Medicare managed care model. Today, I want to report on its 
performance, and propose it as a model for other populations as 
well.
    In recommending the Medicare appeal program as a national 
model, I realize that Congress and the American public often 
distrust federal government health regulation. But there are 
exceptions to every rule. Some of us remember when Congress 
took the initiative to regulate nursing homes and intermediate 
care facilities for the mentally retarded. These are examples 
of effective regulatory programs.
    Likewise, the Medicare appeal program is cost effective 
regulation that works. This is not only my personal view. For 
instance, a recent American Bar Association roundtable of 
industry experts concluded, ``the structure of a universal 
grievance and appeal system should generally use the Medicare 
model as a foundation.'' \1\ Congress itself recently codified 
current Medicare HMO appeal practice within the bi-partisan 
Balanced Budged Act. This Committee should give great weight to 
Congress's recent endorsement and recognize that the Medicare 
model is also applicable to other managed care populations.
---------------------------------------------------------------------------
    \1\ American Bar Association, Commission on Legal Problems of the 
Elderly Report.
---------------------------------------------------------------------------

                 The Medicare Managed Care Appeal Model

    I want to discuss four positive features of the Medicare 
Managed Care Model:
     All denial disputes, not just ``medical 
necessity'' denials, are eligible for review.
     The Medicare appeals process is linked to coverage 
policy.
     Medicare appeal rights are widely publicized.
     The Medicare model provides for automatic 
independent review offered by a multidisciplinary team 
including physicians.
    I will also discuss areas for improvement, some of which 
may depend upon action by Congress.

  1. All Coverage Disputes Are Eligible for the Medicare Appeal System

    The first distinguishing and positive attribute of the 
Medicare appeal system is its straightforward, all-inclusive 
definition of disputes subject to full appeal. A beneficiary 
may appeal an HMO denial of virtually any type of claim for 
reimbursement or request for service (prior authorization). The 
Medicare approach is far more inclusive than NAIC, most State 
programs and the recommendations of the President's Commission. 
For example, a California program limits external appeals to 
terminally-ill patients. Other State programs limit appeals 
solely to denials on the basis of ``medical necessity.'' The 
President's Commission further limits appeal rights to costly 
cases.
    Because the Medicare program does not limit appeals, by 
type, we now have 9 years of national experience and data about 
the volume and type of (external) appeals that arise in an open 
system. This data dispels many of the myths and fears about 
appeals. For example, the HMO industry is correct that most 
enrollees are satisfied with HMO care and decisions. Only 1 to 
2 persons, per 1,000 enrollees per year, seek to use the 
external appeal process. Consumers are not appeal happy, and an 
open program is not a great administrative or financial 
burden.\2\
---------------------------------------------------------------------------
    \2\ Medicare's administrative cost for external appeals is under 4 
cents per member month. The total value of service in dispute in l966 
was estimated at 32 cents per member month.
---------------------------------------------------------------------------
    Secondly, when appeals do arise, it is because HMOs deny 
claims or service requests for a wide assortment of reasons--
not just because of ``medical necessity.'' Plans also issue 
denials on the basis of questions about enrollee eligibility, 
alleged failure of the enrollee or provider to abide by HMO 
rules, exhaustion of benefit limits, or contract 
interpretation. In fact, many Plans seem to prefer to site 
these reasons, because they are more straightforward and less 
contentious than ``medical necessity.'' Thus the majority of 
Medicare appeal cases do not reflect medical necessity issues. 
Over 60% of Medicare appeals arise from so called ``coverage'' 
issues.
    The Committee may know that insurance industry and business 
interests generally want to exclude these ``coverage'' 
questions from external review. Thus they want to exclude the 
majority of denials from due process. Why is this wrong--not 
only for the consumer, but also for the industry?
    First, it is wrong because if the goal of an appeal system 
is to retain consumer confidence in managed care, it is self-
defeating to construct barriers to appeal. Inside the Beltway 
and the employee benefits office, health experts think managed 
care is about quality and improved health status. But most 
consumers still regard managed care as health insurance--a 
financial product. If these consumers believe a claim is 
incorrectly denied, and upheld in internal grievance systems, 
they are mad as hell and want redress. The explanation that 
external appeal is limited to ``medical necessity'' questions 
is at best irrelevant and, at worst, regarded as a semantic 
trick by the insurer.
    Secondly, in attempting to limit rights to appeal, the 
industry acts like it has something to hide, when it has 
nothing to hide. In our objective/external appeal we uphold the 
majority of HMO coverage denials, and nearly 90% in some 
service categories. Where we do overturn HMO denials we see no 
conspiracy. We see errors of execution by enormous 
organizations that process thousands of decisions and 
transactions daily. Some error rate is to be expected, and the 
forward thinking Plan or employer group will welcome all means, 
such as external review, that might provide feedback to detect 
and fix mistakes.
    Third, the tendency to limit appeal programs to ``medical 
necessity'' denials oversimplifies the appeals process. The 
problem is oversimplified by suggesting that medical science, 
or ``the best'' health care is the sole criteria for resolving 
disputes. This view leads to the conclusion that a viable 
appeals program consists simply of individual case review by an 
independent doctor.
    It is obvious that physicians should make medical necessity 
decisions in appeals. However, in making these decisions 
clinicians need support and orientation regarding the (valid) 
coverage policies that may constrain medical judgment. This is 
a reflection of the truism that Medicare and other insurance 
programs have limits and do not provide for all care possibly 
beneficial to a given patient (i.e., ``the best'' care).
    Here, legislators in particular face a real burden to be 
explicit and courageous about the limits of appeal programs. 
The easy thing to do is to promise the public an appeal system 
that will guarantee ``the best'' health care on the basis of 
unfettered review by independent physicians. The hard and right 
think to do is to remind the public that managed care involves 
limits and appeals programs operate within those (valid) 
limits.

      2. The Medicare Appeals Process is linked to Coverage Policy

    The second desirable feature of the Medicare appeal system 
is an intentional link between coverage policy and the appeal 
process. This Committee has held hearings on Medicare (FFS) 
coverage policy and is aware of HCFA's efforts in this area. 
The appeal process uses these policies as decision criteria, 
while also illuminating and informing the policy process. One 
clear example is the role of Medicare managed care appeals in 
review of HMO denials of emergency care. Examination of Plan 
decision making, and even our own early internal decisions, 
revealed a bias towards ``expert'' clinical judgment of the 
severity of emergency encounters. Our data lead directly toward 
development of the ``prudent lay person'' standard, now 
codified in the Balance Budget Act and generally adopted by the 
managed care industry.
    The appeal/coverage link, occurring within the public 
Medicare program, helps to militate against the abuse of 
appeals as a source of hidden or silent rationing or policy 
making. If the nature of our decisions (as opposed to 
confidential identifying data) was hidden, HMOs or even HCFA 
could simply relegate all difficult decisions to our review. 
But our decisions, including rationales, are shared with the 
enrollee, the Plan and HCFA. So our decisions can be, and are, 
challenged and improved.

            3. Medicare Appeal Rights are Widely Publicized

    Although HCFA has been sued twice for failure to implement 
the appeal process, Medicare and its HMOs have actually done a 
fairly effective job of informing consumers about appeal 
rights. HCFA requires Plans to describe appeal rights in 
enrollment materials and the Agency reviews these descriptions. 
Plans must also include a notice of appeal rights in each claim 
or coverage denial. While there is room for improvement, we are 
now receiving over 1,000 cases per month for Medicare external 
review. By contrast, entire State external review programs are 
generating only a handful of cases.

  4. The Medicare Appeals Process Includes Automatic, External Review

    The Medicare model involves 5 levels of escalating appeal, 
following a beneficiary challenge to an HMO retrospective 
claim, or pre-service prior authorization request:
     HMO (internal) Reconsideration
     HCFA (CHDR) External Reconsideration
     SSA Administrative Law Judge (ALJ) Review
     Appeals Board Review
     Judicial Proceeding
    Since August, 1997, beneficiaries enrolled in managed care 
have access to two appeal venues--expedited and normal. Under 
expedited review, the Plan has 72 hours, with minimal 
exceptions, to complete an internal Reconsideration. Under 
normal review, the Plan has 60 days for this process. The 
beneficiary has a right to present evidence, in person or 
otherwise, to the Plan Reconsideration, which should be a ``de-
novo'' review.
    Medicare is unique in requiring external review (by CHDR) 
automatically if the Plan fails to find totally in favor of the 
member in Plan Reconsideration. Thus the member does not have 
to ask for CHDR review, and it is required if the Plan fails to 
make its Reconsideration decision within the applicable time 
frame.
    Our independent review is conducted ``on the record'' or on 
the basis of a hard copy case file submitted by the HMO 
directly to us. Pursuant to our agreement with HCFA, we do not 
take (unwritten) testimony from beneficiaries or Plans. This 
limitation is offset, to some extent, by the possibility of an 
in-person hearing before (at the HMO level) or after (at the 
ALJ level) our review. We do require, pursuant to a published 
manual, that HMOs submit case files with a standard form and 
standard attachments, including medical records. We have the 
right to request additional information from the Plan, 
including statements from members, which we find necessary to 
exercise in about 50% of cases. This process, and the overall 
tracking of cases, is supported by a data system. Statistical 
reports generated by this system have been made available to 
the Subcommittee and are widely used by HCFA, Plans, advocacy 
and research organizations.
    Each appeal is assigned to a professional case manager, who 
oversees the review process, executes appeal correspondence, 
and may make actual decisions unless the deciding factor is 
medical necessity as judged by our physician consultants. When 
we began our work in 1989 we exclusively used nurses as case 
managers. However, as explained above we found that the 
majority of cases involved issues other than medical necessity 
(e.g., compliance, coverage, etc.). We have since added 
attorneys, medical record specialists, nurse/attorneys and a 
physician/attorney. Thus a multidisciplinary professional team 
has proven necessary to address the gamut of issues arising in 
appeal cases.
    In review of the case file, the CHDR professional first 
determines if the enrollee is eligible and properly enrolled. 
If questions exist, the case may be referred to a HCFA Regional 
Office for evaluation for retroactive disenrollment. 
Secondarily, the reviewer determines the item(s) denied by the 
Plan and its denial reason. This is contrasted with any 
beneficiary (or provider) arguments for coverage. The Plan's 
rebuttal to these arguments, if any, is considered. Although 
CHDR is independent and not an advocacy organization, we 
recognize that beneficiaries are not expert in matters of HMO 
coverage or medical science. Accordingly, we do consider 
arguments in favor of the beneficiary that are apparent in the 
facts, but might not be expressly raised by the member.
    The policies and criteria that we apply in review are 
twofold. First, Medicare HMOs are bound to provide Medicare 
Part A and Part B benefits. Accordingly, we must consider 
Medicare FFS regulation and its numerous interpreting manuals 
(e.g., Coverage, SNF, Hospice, etc.). Simultaneously, we 
consider Medicare regulations and manuals that apply directly 
to managed care.
    40% of our cases do involve questions of medical necessity 
and must be referred to a physician, dentist or chiropractor 
for evaluation. We maintain a panel of professionals in all 
specialties for which we have recurring need for review. Most 
of these professionals practice in the Rochester area, but also 
maintain faculty appointments at the teaching hospital, The 
University of Rochester Medical Center. We also employ a chief 
physician consultant from Harvard School of Public Health, and 
he assists in recruitment of physicians from this institution 
for unusual cases or rare disease review.
    If we uphold the HMO denial, and the matter in controversy 
is $100 or more, the beneficiary may obtain a hearing before 
and ALJ. A total of 528 hearings were reported in 1997, when 6% 
of beneficiaries subject to CHDR review sought an ALJ 
proceeding. HMOs currently do no have the right to appeal to 
the ALJ, but do have a right to attend a hearing called by a 
beneficiary. Either party may request a review by the Appeal 
Board if the matter in controversy is over $1,000. We are aware 
of approximately 50 requests in 1997. Our system does not track 
judicial review, and we are aware of only a few cases filed in 
the ten years of our tenure. The Court dismissed these case 
because available remedies (i.e., the appeal process steps) had 
not been exhausted.

                Medicare Appeals: Areas for Improvement

    Although the Medicare appeal system is the best model 
available, it is not perfect. The most frequent criticism is 
delay in appeal processing--particularly for urgent cases. This 
problem was addressed by HCFA regulation, effective August of 
last year, creating a 72 hour ``expedited'' appeal process at 
the HMO level, plus a shortening of our time frame to 10 days 
or less. HCFA's upcoming BBA regulation will reduce the time 
frame for processing routine cases. Both HMOs and CHDR 
experience delays obtaining medical records and when 
unpredictable spikes occur in appeal volume. Finally, the 
Administrative Law Judge (ALJ) process is not timely, although 
it is not under HCFA's direct control.
    Advocates have expressed concerns about limitations in HMO 
denial and appeal rights notices, HMO misdirection of appeals 
to a (different) ``grievance'' system, and absence of support 
of enrollees in the process. Plans sometimes question the 
application of Medicare FFS coverage rules to the HMO setting. 
These problems should be expected in any appeal system and do 
not, in my opinion, substantially limit the effectiveness of 
the Medicare model. Nevertheless, we continue to work 
internally, with HCFA, advocates and Plans to improve the 
appeal program.
    There are a few areas in which Congress might assist us to 
improve the Medicare appeal program. Appeals often involve 
enrollee care with ``non-plan'' providers, or those doctors and 
hospitals outside the HMOs' network. Although these providers 
are usually Medicare FFS participants, they are not expressly 
required to cooperate with managed care appeals. They should be 
required to provide medical records, and should be prohibited 
from instituting bill collection efforts against enrollees, 
pending the outcome of the complete appeal process. CHDR 
sometimes determines that a non-plan provider has rendered 
unnecessary services. Currently, we have no authority to find 
the provider ``liable'' for this care. Our options are limited 
to upholding or overturning the HMO denial, or to assigning 
liability either to the HMO or the member. We should have 
authority to assign liability to providers, or to refer the 
case to entities that could effect this judgement.
    I would ask Congress to explicitly indemnify organizations 
and individuals that agree to provide external appeal services. 
We deal with many medically significant, but contentious cases. 
Standard malpractice policies exclude coverage for ``review,'' 
and there is a poor market for procurement of insurance.
    Congress should be aware of and periodically track emerging 
issues in appeal review. In Medicare, two current noteworthy 
topics are integration of HMO and FFS coverage policies and 
scope/duration of appeal decisions in ongoing care cases.

                 Appeal Policy Recommendations: General

    Appeal requirements are proliferating at both the State and 
federal level. Consumers and HMOs are increasingly subject to 
duplicative or conflicting processes--sometimes with 
conflicting results in the same case. Many of the newer program 
requirements are poorly constructed and will not ultimately 
prove workable for government, business, the consumer, or the 
health plan. Conversely, the Medicare appeal model is widely 
regarded as effective and has low administrative and claim cost 
impact. A number of Plans that are implementing voluntary 
(external) appeal programs are emulating the Medicare model.
    Any broad federal legislation for appeals should use the 
Medicare model as its basis. To repeat, critical elements of 
the Medicare model are: (i) applicability to all denials, 
irrespective of reason, (ii) public disclosure of decision 
logic and link to applicable coverage policies, (iii) effective 
consumer education about the appeal program, and (iv) automatic 
independent review.
    The Medicare appeal contractor (currently CHDR) was 
selected in a competitive procurement and operates under the 
oversight of HCFA. Legislation broadening appeal coverage 
should provide for some comparable mechanism, perhaps 
accreditation, to insure the quality and independence of appeal 
services.
      

                                


    Mrs. Johnson of Connecticut. Thank you very much, Mr. 
Richardson.
    Dr. Goldschmidt.

  STATEMENT OF PETER G. GOLDSCHMIDT, M.D., PRESIDENT, MEDICAL 
           CARE MANAGEMENT CORP., BETHESDA, MARYLAND.

    Dr. Goldschmidt. Thank you. I'm Peter Goldschmidt, 
president of Medical Care Management Corp. We are pleased that 
the Subcommittee invited us here today to learn about our 
experience in conducting external expert reviews of medical 
care.
    Mrs. Johnson of Connecticut. I'm sorry, Dr. Goldschmidt. 
There's a fire alarm, and so we have to evacuate the building. 
You can smell it. I've been wondering about that.
    Would you submit your testimony for the record, and if you 
can hang around if we're able to reconvene in half an hour, 
we'll do so. So if you'll submit your testimony, but those of 
you who can hang around, please do so. Thank you.
    [Whereupon, at 12:25 p.m., the hearing adjourned subject to 
the call of the Chair.]
    [Submissions for the record follow:]

Statement of Jim Parkel, AARP Board Member, American Association of 
Retired Persons

    Good morning. I am Jim Parkel from New Fairfield, 
Connecticut, and a member of the Board of Directors of the 
American Association of Retired Persons. I am pleased to 
present the views of AARP's membership on the Medicare managed 
care appeal process.
    Six million Medicare beneficiaries are currently enrolled 
in Medicare managed care plans. The pattern of rapidly 
increasing enrollment in managed care persists, as about 
100,000 new enrollees sign up every month. A high rate of 
enrollment is projected to continue as the new Medicare+Choice 
program is implemented. Consequently, it is important to 
examine frequently, as we go forward, how well beneficiaries 
are being served and what protections they need. We commend the 
Committee for doing just that, and allowing us to share our 
views on the Medicare managed care appeal system.
    Given the built-in financial incentives in managed care to 
limit use of services, there is a risk that a particular 
treatment decision will be made not because it is best for the 
patient but rather because it will save the plan money. While 
most plans act responsibly, there are some that will improperly 
restrict access to needed care. Effective quality oversight is 
essential, but it is also essential to have a strong appeal 
system that allows enrollees to challenge decisions by their 
plans. Moreover, both have an important the sentinel effect by 
deterring problems before they occur.
    The Medicare program has the foundation for such a system 
for managed care enrollees. The system is not perfect, and it 
is not always implemented properly, but the critical elements 
are in place, to a greater or lesser degree, through statute 
and regulation. The basic elements in place in Medicare merit 
serious consideration for the private sector.
    To understand what is needed in a managed care appeal 
system, it is first necessary to understand the unique problem 
faced by managed care enrollees. In fee-for-service Medicare, 
the beneficiary, in most cases, has already received the care 
in question and the dispute is about payment. In managed care, 
payment disputes can and do arise, but the majority of managed 
care appeals in Medicare are brought by enrollees who have not 
yet received treatment because the plan has denied the care in 
question, or by enrollees for whom services have been suddenly 
terminated or reduced, or are about to be terminated or 
reduced, because the plan has decided that further services are 
not required.

             Key Elements of a Managed Care Appeal Process

    To adequately protect enrollees when a dispute arises over 
medical services which are denied, terminated or reduced, a 
managed care appeal system must include five critical elements. 
Implicit in this discussion is an assumption that enrollees 
know in a general way that they have appeal rights and that 
they do not have to accept what the plan tells them. However, 
this level of understanding does not yet exist in the Medicare 
managed care program. With that caveat, these are the five key 
elements to an effective managed care appeal process.
    1. Speed. Most people would agree that speed is essential 
when a medical treatment decision is involved. Most treatment 
decisions should be made within a few weeks, and some within a 
few days or even hours.
    2. Notice and opportunity to be heard.In order to challenge 
a decision, the enrollee has to have clear, timely notice of 
the plan's decision, the reason for the decision, and 
instructions on how to appeal. In order to ensure a full and 
fair review of the dispute, the enrollee must be able to 
present his or her side of the case.
    3. Appropriate medical expertise. In general only health 
care professionals should make clinical decisions. A member of 
the plan administrative staff, without medical training, is not 
qualified to assess surgical risk, or the side effects of 
different drugs, or the benefit that can reasonably be expected 
from additional physical therapy.
    4. Continuity of care. This is a major concern for 
enrollees whose care is about to be terminated or reduced. It 
makes no sense to cut back on treatment, or to force a patient 
to leave a hospital, and then later decide that this was an 
error. In many cases, the care cannot be re-started, and where 
it can, the interruption in care may have caused serious and 
possibly irreversible harm. Treatment disputes in these cases 
should be resolved before any change in treatment occurs.
    5. Outside independent review. A plan denial of medical 
care should be reviewed by someone having no relation to the 
plan and no stake in the outcome. Unbiased review is essential 
in a managed care environment where the health plan's financial 
incentives may encourage saving money over delivery of 
appropriate, perhaps expensive, care. In a dispute with a 
building contractor over what type of flooring should have been 
installed in your house, you would never agree to let the 
contractor be the sole judge of the matter, especially where 
the contractor stood to benefit financially by not putting in 
what you wanted. Impartial review is even more important where 
health and safety are at stake. Outside independent review 
accomplishes two things: it corrects wrong decisions, and it 
also has a sentinel effect. We believe that plans are more 
careful when they know that an objective, external review is 
part of the process.

                The Medicare Managed Care Appeal Process

    Against this background, now consider how the Medicare 
managed care appeal process works. There are five steps in the 
current appeal process. This testimony focuses primarily on the 
first three steps because that is where most cases are 
resolved.
    Step 1--Formal denial by the plan. If there is a question 
or a disagreement about what care should be provided, the plan 
is required to give the enrollee a written decision, stating in 
understandable language, the basis for the decision and 
explaining the enrollee's appeal rights. The technical term for 
this is an ``organization determination.'' Every enrollee who 
disagrees with a denial of care, or with a termination or 
reduction of care, needs to know the reason for the plan's 
decision and how to have that decision reviewed.
    Step 2--Reconsideration by the plan. If the enrollee 
requests reconsideration, the plan must have the case reviewed 
by individuals who were not involved in the original 
determination. Any questions about medical necessity must be 
resolved by a physician with appropriate expertise in the field 
of medicine relevant to the treatment at issue. The enrollee 
may present evidence in person or in writing. The plan must 
give the enrollee a written decision, stating the specific 
reasons for the decision and explaining further appeal rights.
    Step 3--Outside independent review. If the plan does not 
decide fully in favor of the enrollee, the case is reviewed by 
HCFA's outside contractor-the Center for Health Dispute 
Resolution, also known as ``CHDR.'' CHDR is a private 
organization with no ties to the plans. CHDR is paid for its 
work by HCFA, not by the plans. If CHDR decides in favor of the 
enrollee, this has no effect on the amount Medicare has to pay 
the plan. Medicare will continue to pay the same capitation 
amount, regardless of the outcome. CHDR arranges for review by 
clinicians of clinical issues and for review of contract and 
legal issues by other trained staff. The enrollee may submit 
written evidence but may not appear in person.
    Step 4--Administrative hearing. If the enrollee is still 
dissatisfied, in most cases he or she will qualify for a 
hearing before an administrative law judge. The administrative 
hearing is provided and paid for by the Medicare program. The 
enrollee may make written submissions and may appear in person 
and present evidence. In some cases, there may also be further 
review within the Department of Health and Human Services.
    Step 5---Judicial review. If the amount in controversy 
exceeds $1,000, the enrollee may seek review in federal court.
    There are two special systems within the appeal process 
which supplement the process in critical ways.
    The first is ``expedited review.'' This is a system for 
rapid review of cases where the enrollee's medical condition 
requires that a treatment decision be made right away. In this 
situation, if waiting the amount of time that it would take for 
a regular, non-urgent appeal could jeopardize the enrollee's 
health or ability to regain function, then the plan must issue 
the written organization determination as rapidly as the 
situation requires, with an outside limit of 72 hours. The same 
time limit applies to an expedited reconsideration. External 
review by CHDR must also be expedited.
    The other is a special system for review of hospital 
discharges. This is extremely important for enrollees who 
believe they are being sent home too soon. All Medicare 
beneficiaries, those in fee-for-service as well as those in 
managed care, are entitled to have a proposed discharge from 
the hospital reviewed immediately by a Peer Review Organization 
(``;PRO''). A PRO is a private organization which has a 
contract with the Medicare program to monitor and evaluate 
quality of care given to Medicare beneficiaries, including so-
called ``immediate review'' of hospital discharges. During PRO 
immediate review (which usually takes 24 hours or less), the 
enrollee may remain in the hospital until noon of the day after 
the PRO renders a decision. The plan must continue to cover the 
cost of the stay up to that point, regardless of how the PRO 
decides.

                 Assessing the Medicare Appeal Process

    With this overview of the process in mind, I would like to 
share with you our ideas on how the Medicare managed care 
appeal process measures up in light of each of the five 
critical elements listed earlier: speed, notice and opportunity 
to be heard, appropriate medical expertise, continuity of care, 
and outside independent review. It is important to keep in mind 
that HCFA will be issuing major new regulations in June for the 
entire Medicare+Choice program, including the appeal process, 
and that a full assessment will need to include these new 
developments as they come ``on line.''

Speed


    Through the expedited review process, Medicare assures a 
very rapid appeal in urgent situations. This is an essential 
protection, and it targets effectively the situations where 
speed is needed most. However, the time limits for regular 
appeals are far too long. The regulations allow the plan to 
take 60 days to issue the formal denial and 60 more days to 
complete reconsideration. That means that in the best of 
circumstances, when the plans actually meet these extremely 
generous deadlines (which does not always happen), four months 
can pass before the case even goes to outside appeal. This is 
not reasonable for most treatment decisions. In our view, the 
first two steps, together, should not take longer than 30 days 
in most cases. We understand that HCFA is concerned about the 
lengthy process and is planning to revise the time limits in 
forthcoming regulations. However, the new time limits will be 
meaningless without compliance by the plans.

Notice and opportunity to be heard


    The written Medicare notice requirements are fairly good 
but implementation is a problem. The requirements are supposed 
to ensure that enrollees receive clear, timely written notice 
of the plan's decision, of the basis for the decision, and of 
their appeal rights. However, all too often the plans simply 
ignore the requirements. We hear frequently of cases where the 
formal denial is delayed indefinitely or never communicated to 
the enrollee, or the reason given for a denial is meaningless 
(for example ``service not covered'' or ``not medically 
necessary). Therapy may be suddenly terminated with little or 
no advance warning. While Medicare managed care enrollees have 
a general notion that they can appeal, most are uncertain about 
their appeal rights in a particular situation. They need to be 
told, at the time the disagreement arises, that they can appeal 
and how to go about it. Often the plans do not give them this 
information. Most enrollees do not know, and are not told, that 
they have an absolute right to an expedited appeal if a doctor 
says that delay could be medically harmful.
    In general, the Medicare managed care appeal system does 
provide adequate opportunity to be heard. However, lack of 
information about the basis for the plan's decision has an 
adverse effect the right to be heard. In order to challenge a 
denial of services one has to now the reasons for the denial.

Appropriate medical expertise


    The Medicare statute, as amended last year by the Balanced 
Budget Act, now specifically requires that when a plan does a 
reconsideration, any determination of medical necessity must be 
made by a physician with appropriate expertise in the area of 
medicine involved. This is essential. A credible medical 
evaluation during reconsideration can reduce the number of 
appeals, provide a better record for review in the cases that 
are not resolved at that point, and reduce public distrust of 
managed care. In the past, many plans have not met this 
standard. We hope they will begin to take the matter seriously.
    Medical expertise is also a part of outside independent 
review by CHDR. The details of CHDR's review are established 
through its contract with HCFA. Clinical matters are reviewed 
by clinicians with appropriate expertise.

Continuity of care


    With respect to hospital discharges, Medicare does 
extremely well. As explained before, the PRO immediately 
reviews a contested discharge, and the enrollee is allowed to 
stay in the hospital until the matter is resolved. The most 
important element in this system is the financial protection 
given to the enrollee--protection against liability for the 
cost of the extra day or days needed for PRO review, regardless 
of how the PRO decides. Without such protection, PRO review is 
meaningless. Few people could risk facing a bill for $700 or 
$1,000 a day. If that were the price of losing the appeal, only 
a small number of beneficiaries could afford to appeal. The 
policy of allowing the enrollee to remain in the hospital 
during the appeal without additional financial responsibility 
assures that ongoing acute care, often where the patient is in 
very fragile condition, is not interrupted.
    For other services, however, Medicare has not yet addressed 
the problem of continuity of care. In general, Medicare does 
not require plans to resolve disagreements about terminating or 
reducing care prior to imposing the change. We understand that 
the problems are complicated and that the plans have legitimate 
cost and administrative concerns. However, as more 
beneficiaries are encouraged to enter managed care, it becomes 
essential that we tackle and begin to resolve the problems that 
are precipitated by this evolution in health care delivery. 
AARP is prepared to work with HCFA and with the plans to find 
solutions that are reasonable for everyone.

Outside independent review


    This is the part of the appeal process where Medicare 
probably performs best. Outside review by CHDR is truly 
independent. In addition, it is quick, it is free to the 
enrollee, and it costs the Medicare program only pennies per 
enrollee per month. CHDR is also an extraordinarily valuable 
source of data about the program and about individual plans. 
For example, CHDR data can help answer such questions as--
     What situations or services are triggering 
disagreements?
     Is there a compliance problem or rather an 
education problem?
     How are the plans carrying out their part of the 
appeal process?
    In addition, information about how frequently a particular 
plan is overruled by CHDR, or what services generate the most 
appeals, could be very helpful to an enrollee who is trying to 
choose a plan or decide whether to change plans.
    Review by CHDR is not the only form of outside, independent 
review in Medicare. As explained earlier, hospital discharges 
are subject to review by the local PRO, which is an 
independent, outside organization. Also, although few cases 
proceed as far as an administrative hearing, the administrative 
law judges who conduct the hearings provide outside, 
independent review.

                               Conclusion

    On balance, we give the Medicare managed care appeal 
process high marks. Compared to what is available in private 
sector managed care, the Medicare appeal process remains the 
gold standard, despite its shortcomings. Moreover, as 
increasing attention is given to improving protections for 
people enrolled private sector plans, the Medicare appeal 
process can serve as a model. While not all of it can be 
applied outside of Medicare, much of it can.
      

                                


[GRAPHIC] [TIFF OMITTED] T3213.006

[GRAPHIC] [TIFF OMITTED] T3213.007

      

                                


Statement of Peter G. Goldschmidt, MD, PH, DMS, President, Medical Care 
Management Corporation

    We established Medical Care Ombudsman Program to meet a 
particular need: a credible, objective mechanism to provide 
expert reviews of cases' medical facts to help patients and 
payors to make decisions involving complex and contentious 
medical care. Through expert reviews of cases' medical facts, 
we tell plans, providers, and patients not what they want to 
hear but what each needs to know about the fit between the 
patient and the proposed therapy. The program is now in its 
sixth year. It has been remarkably successful in achieving its 
objective, and in responding to clients' and patient's needs 
for credible, authoritative information. We have more than 150 
corporate clients, more than 550 expert reviewers, and have 
reviewed almost 7,000 paid and volunteer cases. About 10% of 
our case reviews have been free reviews for individual 
patients. Less than one half of a percent of cases proceed to 
litigation.
    Our remarkable success rests on the following four pillars:
     Our vigilance in protecting our independence, 
which permits us to focus on patients' medical needs
     Our credibility, which permits us to attract the 
very best clinicians as reviewers
     Our dedication to detail, which produces high 
quality, timely reviews
     Our quality assurance mechanisms, which allow us 
to ensure clients receive objective reviews of cases' medical 
facts.
    Clients use our services for three principal reasons:
     The high quality of our reviews
     The timeliness of our reviews
     Reviewers' willingness to stand behind their 
reviews in the rare court challenge.
    Our Medical Care Ombudsman Program has resulted in:
     Patients receiving beneficial treatments that they 
might not otherwise have received
     Reduction in the number of patients receiving 
treatments that were unlikely to have benefitted them
     Increase in the number of patients made aware of 
clinical trial options available to them.

                   Origins of corporation and program

    Medical Care Management Corporation was established by 
Peter Goldschmidt and Grace Ann Monaco in 1992 to provide 
health insurers, managed care organizations, employers, and 
others with solutions for managing issues of patient access to 
high technology, high risk, high cost medical care cases. 
Increasingly, clients were facing costly court challenges 
regarding policy exclusions for experimental and 
investigational treatments and other complex and contentious 
cases. The cornerstone of Medical Care Management Corporation 
is our Medical Care Ombudsman Program.
    Medical Care Management Corporation provides a process to 
enhance patients' early access to appropriate treatments and 
clinical trials. This Medical Care Ombudsman Program provides 
payors and patients with an independent, objective review of 
proposed treatments. This remarkably successful program is 
based on the volunteer ombudsman program that Grace Ann Monaco 
developed in 1970 for pediatric cancers and which has been used 
by the Candlelighters Childhood Cancer Foundation and most 
recently by the Childrens Brain Tumor Foundation of Woodbridge 
Virginia.

            Need for an independent external review process

    An independent external case review process is necessary 
for may reasons, including the following:
     Medical technology assessments are inadequate and 
incomplete, and can never address the question of whether a 
treatment is appropriate for the individual patient for whom it 
has been recommended
     Internal health plan coverage decision--especially 
appeal--processes can never be free from the appearance of 
conflict of interest
     A credible, objective review process must exist to 
inform the health plan and the patient whether or not a 
recommended treatment is in the patient's best interest; simply 
paying for everything would waste resources and threaten 
patients' health.
    Medical technology assessments attempt to determine if a 
specific treatment is effective, that is, improves patients' 
health status more than doing nothing or more than an 
alternative standard therapy. Technology assessors face 
formidable problems. The published literature may not include 
all studies (because some studies have been accepted for 
publication but have not been published, which is often the 
case in an active field). Studies may not involve the same 
treatment, especially because new treatments evolve rapidly as 
practitioners gain experience in their use, limiting assessors' 
ability to compare or aggregate findings from different 
studies. Many studies are scientifically inadequate. There may 
be no completed studies, especially for new and emerging 
technologies. The technology assessment process, including its 
findings are subject to challenge. Moreover, no matter how 
adequate a health plan's process for assessing medical 
technology, if qualified providers believe that a treatment is 
effective for some types of patients, someone has to determine 
whether or not the treatment is appropriate for the patient for 
whom it has been proposed, that is, whether or not the patient 
is of the type for whom the treatment is known to be effective, 
and the patient does not exhibit characteristics that would 
make an otherwise effective treatment inadvisable. Thus, for 
all practical purposes, payors must rely on a case-by-case 
assessment to determine, for example, whether or not a 
treatment is experimental or investigational for the particular 
patient for whom it has been proposed.
    If health plans set up an internal process to assess cases, 
it is always subject to charges of potential bias, especially 
when the cost of the treatment is high. The problem is 
compounded when a payor must review a patient's appeal of its 
original determination not to cover a proposed treatment. 
Presently, in these circumstances, if a patient is dissatisfied 
with a payor's decision, he or she has no option but to sue in 
court. At this stage the patient and/or provider (who may steer 
the patient to a lawyer) is heavily invested in the proposed 
treatment--whether or not it is appropriate--making it 
difficult, if not impossible, to reason with the patient and/or 
provider. Further, court challenges of payors' decisions are 
costly to patients, providers, and payors.
    Simply paying for any proposed treatment may not be a wise 
decision. Payors have a fiduciary responsibility to manage 
purchasers' premiums wisely. Otherwise they increase group plan 
health care costs to the point that purchasers insist on 
containing them by cutting back or eliminating services. Some 
emerging technologies may not be effective and some may harm 
patients. Further, a treatment that is effective for some 
patients may harm others because of their specific 
circumstances. An objective, external review process that 
provides expert reviews of proposed treatments offers the best 
way to determine whether or not a treatment is appropriate for 
the patient, including the question of whether or not the 
treatment is experimental or investigational for that 
particular patient.

          Requirements of successful external review programs

    Requirements of a successful external review process 
include the following. The external review organization:
     Must be independent and unbiased, that is, not 
subject to political influence or manipulation, and must be 
able to adapt to clients' and patient's changing needs and 
circumstances for objective, credible information about 
recommended treatments
     Must select reviewers
     Must determine the form of the review
     Must use only qualified reviewers who are matched 
to the treatment proposed in the case under review
     Must credential reviewers
     Must have in place a meaningful quality assurance 
and quality improvement process
     Must determine and make payments to reviewers to 
compensate these experts fairly for the time they spend 
reviewing cases
     Must publish information on credentialing, review, 
and quality assurance and improvement processes and procedures 
so that payors, providers, and patients can understand how the 
program operates.
    The key to a successful external review program lies in the 
quality of its reviews, which in turn, depends on reviewers' 
integrity and the quality of their reviews. To ensure 
objectivity, the external review organization--and not the 
payor or patient--must select both the reviewers and the form 
of the review, to avoid the appearance of trying to select or 
to steer the reviewer toward a certain determination. Further, 
the external review organization must use only qualified 
reviewers, must exclude those who have a real or apparent 
conflict of interest, and must assign available, qualified, 
conflict-free reviewers without prejudice (which can be 
achieved, for example, by random or rotational assignment). A 
qualified reviewer is one who meets certain credentialing 
criteria (for example, relevant specialty board certification) 
and who provides scientifically-supportable reviews in a timely 
manner. To assure the quality of reviews, the external review 
organization must publish a detailed description of its 
structured quality assurance program, including, for example, 
its criteria and process for credentialing reviewers, assessing 
reviews' quality, educating reviewers to improve the quality of 
their reviews, and improving the quality assurance program. To 
ensure that qualified experts will devote the time needed to 
conduct careful and thorough reviews of cases, the external 
review organization must be permitted to pay reviewers a 
reasonable fee for the time that they devote to this important 
effort.

                     Medical Care Ombudsman Program

    Medical Care Ombudsman Program provides independent, 
objective expert reviews of cases' medical facts. The program's 
credibility and acceptance stems from our dedication to 
ensuring that clients--payors and patients--receive 
straightforward answers to questions about a treatment's status 
or appropriateness for the individual patient for whom it has 
been proposed, including, where applicable, the scientific 
adequacy of a clinical trial and/or whether or not the 
particular patient meets study criteria.
    Since its inception, our Medical Care Ombudsman Program has 
reviewed more than 6,000 cases for our more than 150 corporate 
and other clients. We have more than 550 active reviewers most 
of whom are academically-affiliated. They are located 
throughout the country. The program offers the same services 
that we offer to our clients at no charge to patients, for as 
many volunteer assessments as our reviewers have agreed to 
provide. About 85 percent of our reviewers participate in the 
volunteer review program.
    To our knowledge, less than one-half of one percent of 
cases reviewed have proceeded to litigation. None in which the 
client followed our recommended procedures resulted in a jury 
judgment against the client. The program has resulted in 
patients receiving beneficial treatments that they might not 
otherwise have received, a reduction in the number of patients 
receiving treatments that were unlikely to have benefitted 
them, and an increase in the number of patients made aware of 
clinical trial options available to them.

                            Review services

    Medical Care Ombudsman Program provides reviews in 7 to 10 
business days after reviewers receive complete review 
materials. When clients have an urgent need, we provide rush 
reviews within three business days, and express reviews within 
48 hours (with an oral review in 24 hours), subject to 
reviewers' availability. There is no fee for joining the 
program. Clients pay a fixed fee for each review; there is no 
annual or other minimum payment. We offer discounts to users 
who order more than 100 reviews per year.

                            Program clients

    Our clients include large and small insurance companies, 
health maintenance organizations, preferred provider 
organizations, independent practice associations, self-insured 
employers, third-party administrators, utilization review 
companies, lawyers, doctors, and patients.

                    Reasons clients request reviews

    Clients request reviews for many reasons, including the 
following:
     To obtain independent expert reviews of a 
recommended treatment plan
     To facilitate the identification and coverage of 
medically appropriate care
     To diffuse conflicts of interest that patients and 
courts may perceive exist with in-house reviewers
     To use a process that appears to deter litigation, 
and provides expert witnesses if litigation ensues.
     To validate an in-house reviewer's analysis.
     To secure expert analysis when in-house reviewers 
are not sufficiently knowledgeable about the recommended 
treatment plan.
     To provide a 'second opinion option' to employees 
and insureds.
     To meet regulatory requirements for external 
review of appeals.
    Our expert reviews inform payors and patients about 
treatment choices. They permit clients to channel scarce 
resources into treatments that are most likely to benefit 
patients, to minimize litigation resulting from coverage 
disputes, and to provide an appropriate way to resist pressures 
from some providers to pay for inappropriate levels of care 
that are unlikely to benefit patients. Our experience suggests 
that we save payors $20 to $25 for each review dollar. Further, 
our expert reviews can also protect patients' health.

                         Types of review cases

    Medical Care Ombudsman Program usually reviews cases that 
involve use of high technology, high risk, high cost medical 
procedures. Our review cases are usually complicated and 
involve cutting-edge medical care; some are unique. Cases 
involve treatments for every type of cancer, for example, high 
dose chemotherapy with allogenic, autologous, stem cell or 
unrelated donor rescue, and proton beam radiotherapy. The 
program also reviews other types of cases--including, for 
example, cardiac cases, fertility problems, immune system 
diseases, pediatric and adult procedures involving solid organ 
transplants (eg, heart, heart-lung, kidney, liver, and 
pancreas), plasmapheresis, apheresis, gene therapy, novel uses 
of drugs, biologicals, and vaccines, and other high technology 
interventions that pose high risks to patients and incur high 
costs to payors. We also review cases in all domains of 
medicine for which the plan has denied coverage and the patient 
has appealed the denial, as well as controversial approaches, 
sometime referred to as 'alternative medicine.'

                                Reviews

    Reviewers focus exclusively on cases' medical aspects, 
address clients' questions, and describe the basis for their 
views, including, where appropriate, citations to the relevant 
medical literature. We recommend that clients always use a 
panel of three experts to obtain an idea of the extent of 
consensus among experts regarding the answers to their 
questions regarding the appropriateness of a recommended 
treatment plan. We provide reviewers with structured guidance 
to assist them to produce a usable review, that is, one that 
address clients' questions, is clear and unambiguous, and 
provides rationale for decisions and cites evidence in their 
support. Our experts draw on their extensive clinical 
experience, the medical literature, and their intimate 
knowledge of their fields of expertise. After reading 
reviewers' analysis, clients can talk directly to reviewers to 
obtain additional information. We monitor reviews for focus on 
the questions asked, coherence, substantiation, and timeliness. 
We invite clients' feedback on the quality of reviews.

                               Reviewers

    We have more than 550 credentialed reviewers. They 
encompass all domains of medicine; many are pediatric and 
medical oncologists. Our reviewers are located throughout the 
country. Most reviewers are in charge of academic departments 
or affiliated with academic institutions and practice in the 
nation's leading medical centers.
    About three-fourths of our reviewers have agreed to 
participate in litigation on their pretreatment reviews. All 
three-member review panels include at least one member who has 
agreed to participate in litigation. About one-quarter will 
consider participating in litigation on cases that did not go 
through the Medical Care Ombudsman Program process prior to 
entering litigation if they agree that a client's decision was 
medically appropriate.

                 Reviewer recruitment and credentialing

    Current reviewers recommended most of the reviewers that we 
add to our panels. Most are in academic medicine. Occasionally, 
experts request that we consider using them as reviewers. 
Reviewers complete a credentialing document in which they 
describe their qualifications, licenses and privileges, the 
diseases and procedures that they consider themselves to be 
qualified to review and the reasons that they consider 
themselves qualified to review cases in these areas, and their 
availability to review cases.
    Generally, Medical Care Ombudsman Program reviewers are 
physicians. All of our physician-reviewers are board-certified 
and they are in active medical practice with admitting 
privileges at JCAHO accredited hospitals. Occasionally, it is 
appropriate to use non-physician scientists or other experts as 
reviewers, when, for example, a client's questions involve such 
matters as a therapeutic agent's chemical properties or the 
views of an expert in pathology, language, education, or 
psychology.

                      Matching cases to reviewers

    Reviewers are experts in the types of cases that we ask 
them to review. Clients have no control over the assignment of 
reviewers to their cases. To preserve the program's 
objectivity, we match a case's circumstances to reviewers' 
qualifications, and rotate review assignments among available 
qualified experts. We never send a case to a reviewer 
affiliated with the recommending physician's institution or the 
institution where the recommended procedure will be conducted. 
Further, we ask our reviewers to identify any real or apparent 
conflicts of interest. Where the reviewer identifies such 
conflict, we reassign the case to another qualified reviewer.

             Assuring and improving the quality of reviews

    Our primary goal is to provide clients with objective, high 
quality expert reviews of cases' medical facts. We follow the 
principle of continuous quality improvement [1] to provide 
clients with expert reviews of the highest possible quality. In 
providing reviews, reviewers use their extensive knowledge and 
best professional judgement and, as needed, support their 
opinions with citations to the relevant medical literature. 
Clients can ask reviewers to amplify points expressed in their 
reviews. In addition, we act promptly to ask a reviewer to 
clarify his or her review on those few occasions when a client 
complains about an ambiguity in the review that they have 
received. We continue to use only reviewers who provide 
coherent, well-substantiated, timely reviews. Based on reviewer 
and client feedback and our analyses of completed reviews, we 
refine the guidance we offer to clients (about the questions 
that they ask reviewers to address) and to reviewers (about how 
to respond to clients' questions). We also survey our clients 
each year to ascertain how we can better meet their needs for 
credible, objective information about cases' medical facts. The 
results of our 1996 survey showed conclusively that clients use 
our services for three principal reasons: the quality of our 
reviews, their timeliness, and reviewers' willingness to stand 
behind their reviews in the rare court challenge. Subsequent 
surveys have confirmed these findings.

                             Review results

    The percentage of recommended treatment plans that 
reviewers find to be medically appropriate depends on the type 
of case:
     For intensive chemotherapy our expert reviewers 
agree with providers' recommended treatment plans in about 40 
to 60 percent of cases.
     When clients use our expert reviewers to validate 
their in-house reviewers' analysis, our reviewers confirm the 
in-house reviewers' assessment in 60 percent of these cases. 
This result illustrates the potential risk of deciding claims 
based solely on in-house reviews.
     In about 50% of the treatment plans that the 
provider has labeled a clinical trial, the patient proposed for 
the trial either does not meet its eligibility criteria or the 
so-called clinical trial is not scientifically adequate. In an 
increasing number of cases, the patient offered an 
inappropriate care option or enrollment in a scientifically 
inadequate clinical trial--which would not be covered by the 
health plan--would be eligible for a clinical trial that the 
health plan would cover--for example, NCI-sponsored or Clinical 
Cooperative Group trials--but the patient does not appear to 
have been referred to such a trial.

                       Results of special studies

    At clients' request, we undertake special studies that may 
shed light on the agreement between reviewers on panels or 
other relevant matters. Because of the cost of such studies, we 
cannot afford to undertake them routinely, because to do so 
would incur additional costs that we would have to pass on to 
clients generally. Recently, we were able to analyze 
information pertaining to certain reviews. We provided this 
information in our biennial newsletter to reviewers. This 
analysis showed that with respect to a series of multiple 
myeloma cases (recommended for high dose chemotherapy with stem 
cell rescue) for which we had assembled 2-expert panels, that 
the experts were of the same mind in 80% of the cases.
    Recently, the Journal of the American Medical Association 
published a letter that we wrote that contained the results of 
our analysis of certain review results [2]. Between October 
1996 and April 1997, our review panels analyzed the medical 
records that client's provided to them for 55 breast cancer 
cases in which the recommended treatment was high dose 
chemotherapy with some type of stem cell rescue or transplant. 
The client had requested a 3-reviewer panel for 16 cases, a 2-
reviewer panel for 17 cases, and a single reviewer for 22 
cases. Aggregate results of these independent reviews showed 
that for half of the cases (47%), the panel found that there 
was insufficient information in the medical record (unanimously 
in 63% of cases involving a 3-reviewer panel) to answer the 
question: Is the treatment experimental or investigational for 
this patient as defined in the contract language?. When they 
could tell, the panel judged just under half (45%) of the 
recommended treatments to be experimental or investigational 
for the particular patient. For this same set of patients, the 
panel found that the recommended treatment was medically 
appropriate for the particular patient in under half (43%) of 
the cases.

         Obstacles to unbiased, cost-effective external review

    Ideally, health plans would be encouraged to have in place 
a coverage decision mechanism that:
     Permits patients to seek external review (and thus 
obtain a second opinion), without feeling that they are 
challenging either the provider or the plan
     Results in patients receiving the care that they 
need--including, when appropriate, participation in 
scientifically adequate clinical trials or other worthwhile 
scientific research--while protecting patients from inadvisable 
care and protecting the health plan from wasting resources
     Is credible and acceptable to purchasers, 
patients, and providers.
    Such mechanisms will almost certainly have to include 
external expert review of complex and contentious cases. 
Inevitably, no matter how well-designed coverage decision 
mechanisms may be, in some number of cases coverage disputes 
will arise. In these cases, the purpose of mandated external 
review is to ensure that the patient receives the best possible 
advice regarding the advisability of the recommended treatment 
and the health plan is not forced to pay for care that is 
unlikely to benefit the patient nor for care that is inferior 
because an alternative exists that would likely provide the 
patient with more health benefit or is otherwise more in the 
patient's interest. It is not sufficient to mandate an external 
review process. It is also necessary to ensure that the process 
produces the right outcome for the patient: the highest 
possible quality review, one that is a careful, considered, 
well-supported expert opinion about the advisability of the 
treatment for which the patient has been recommended.
    Some of the requirements imposed on the conduct of external 
expert review by legislation and/or regulations may have the 
effect of biasing the process against patients' interests, 
because, for example, they will prevent reviewers from 
commenting unfavorably on treatments that may be inappropriate, 
less favorable than alternatives, or, if not dangerous, harbor 
risks out of all proportion to expected benefits. Among the 
most troubling state mandates or legislative or regulatory 
requirements (referred to here as mandates) are the following:
     Mandates that all external reviewers must be 
medical practitioners licensed in the state (in which the 
patient is to be treated). This requirement has no scientific 
basis. It treats medicine as a provincial concern without 
regard to scientific standards of medical practice. States with 
only one academic medical center, which would normally provide 
high technology treatments, would be precluding their citizens 
from obtaining the highest quality external review because 
potential reviewers drawn from this academic medical center 
would have a conflict of interest. Even in our most populous 
states, such requirements may impose implied, if not explicit, 
pressures to be less than candid when reviewing proposed 
treatments. Moreover, as we have learned, practitioners at 
academic medical centers do not always propose treatments that 
are in patients' best interests. To protect patients' 
interests, external review organizations should be free to 
select the most qualified experts to conduct a case review, 
without regard to their licensure in a specific state.
     Mandates that require the external review 
organization to provide lists of reviewers to the state or to 
reveal the identity of case reviewers to the patient or to the 
provider. Reviewers may be subject to intimidation or 
harassment. The net result is likely to be a diminished pool of 
qualified experts who are willing to conduct reviews, and, less 
rigorous reviews because willing experts are likely to be less 
critical and might pull their punches when commenting on 
inappropriate therapy for fear of retaliation. We provide our 
clients with a short blinded biographical sketch of each 
reviewer as a matter of course and encourage them to share not 
only this sketch but also the reviews with the patient and his 
or her provider (with the reviewer's identity redacted). When 
requested by the client, we also provide the patient with a 
specially written summary of the review. To protect patients' 
interests, there should be no requirement to provide lists of 
reviewers. With respect to case reviewers' identity, external 
review organizations should be required only to provide 
patients and providers with reviewers' qualifications, for 
example, board-certifications, specializations, and a 
description of the reviewer's experience in medicine and 
research; it is not essential to reveal the reviewer's name nor 
that of his or her current institution, except in the rare 
instance that a case proceeds to litigation.
     Mandates that impose additional credentialing and 
administrative costs. For example, there may be needlessly 
duplicative credentialing requirements that certainly add to 
costs but that are unlikely to produce commensurate benefits. 
When external review organizations must bear these costs, it is 
almost inevitable that they have to include them in the fees 
that they charge to their clients. What may have started out as 
a reasonably-priced review, may become an expensive service, 
or, to keep prices down, external review organizations may be 
forced to cut corners and thereby reduce the quality of the 
resultant reviews. To protect patient's interests, 
credentialing and administrative mandates for external review 
should only address recognized deficiencies in the way that 
external review organizations provide reviews or in the quality 
of their reviews, lest they raise needlessly the cost of these 
reviews, which will once again rachet up the cost of health 
care out of all proportion to resultant benefits.
     Mandates that require the state to contract 
directly with external review organizations. The state's 
requirements may make it difficult, if not impossible, for us 
to provide the high quality reviews that have become the 
hallmark of our service. The state has to decide to which 
external review organization to assign a particular case, and 
this assignment may not be based on the quality of the 
organization's reviews. The permitted payment may be so low 
that high caliber reviewers will choose not to participate, or, 
if they do participate, to spend less time and effort on their 
reviews. The net result will be to penalize conscientious 
reviewers, and to encourage an inferior product that will not 
meet the needs of the patients that the mandate was meant to 
serve. To protect patients' interests, states should encourage 
plans to adopt appropriate coverage decision mechanisms that 
include external review. There should be no need for the state 
to arrange these reviews. Instead, the state should focus on 
oversight functions, including, for example, the development of 
mechanisms to accept and investigate consumers' complaints 
about their health plans' handling of appeals and other 
coverage decisions, including provisions for appropriate 
sanctions against health plans that deny patients meaningful 
access to high quality, independent, objective, external expert 
reviews.

                               References

    1. Wilson LL, Goldschmidt PG. Quality Management in Health 
Care. New York: McGraw-Hill, 1995.
    2. Goldschmidt PG, Monaco GP. Investigational treatments: 
process, payment, priorities (letter). JAMA 1997; 278(17): 
1402-1403.

                               Footnotes

    1. There are no universally accepted definitions of the 
terms experimental and investigational. We use the following 
definitions. Experimental treatment--one that is neither known 
scientifically nor accepted generally by qualified medical 
practitioners to be effective for the type of patient for whom 
it is being proposed. The treatment may be known or accepted to 
be effective for other types of patients (but not the type for 
whom it is being proposed). Experimental is a property of a 
treatment or procedure. Investigational treatment--one that is 
the subject of an investigation. An investigational treatment 
may an effective treatment or it may be an experimental 
treatment. For example, in a clinical trial, investigators may 
be comparing two treatments generally accepted by qualified 
medical practitioners to be effective for the type of patient 
enrolled in the study, to determine scientifically which one is 
the most effective. While the investigators are engaged in 
research and the treatments are investigational, neither 
treatment should be regarded as experimental because if a 
physician were to propose the treatment for the type of patient 
enrolled in the trial, qualified medical practitioners would 
generally consider it to be appropriate.
    2. An effective treatment is one known scientifically or 
assumed generally by qualified medical practitioners to improve 
patients' health status (outcome). Effectiveness--the quality 
of being effective--is a statistical concept. An effective 
treatment improves the health status of a specified patient 
population beyond that of doing nothing or that is obtainable 
with supportive care (the placebo effect), even if some 
patients' health status is unchanged or worsened by the 
treatment. The manifest variation in the extent of individuals' 
health status improvement describes the intervention's risk. 
Measuring a treatment's effectiveness in terms of health status 
improvement subsumes the notion of safety (absence of unwanted 
effects that adversely affect health status). It automatically 
captures gains (in health status) and losses (injury or harm to 
patients' health) to yield net improvement (or deterioration). 
Safety is a judgement about the acceptability of risk, 
especially early in an intervention's course if it spans an 
extended period. The term effectiveness is preferable to the 
term efficacy.
    3. Williamson JW, Goldschmidt PG, Colton. T. The quality of 
medical literature: An analysis of validation assessments. In: 
Bailor JC, Mosteller F (eds). Medical uses of statistics. 
Boston: NEJM Books, 1986. This study assessed the quality of 
articles that assessed the quality of research reports 
published in the medical literature. According to valid 
assessments of the quality of the medical literature (involving 
more than 4,200 articles published in such journals at New 
England Journal of Medicine and JAMA), only a small fraction of 
published research reports are scientifically adequate. Most 
concerningly, 80 percent of inadequately-designed studies but 
25 percent of adequately-designed studies reported a positive 
finding, for example, that the intervention studied was 
effective.
    4. The term 'status' refers to where along a spectrum from 
interesting idea to proven effective therapy a treatment 
proposed for an individual patient sits according to qualified 
providers. Most often clients are interested in knowing whether 
or not the treatment is experimental.
    5. An appropriate treatment is one that is suitable for the 
particular patient because he or she fits the profile of 
patients for whom the intervention is known scientifically or 
assumed among qualified medical practitioners to be effective, 
and for whom there are no contra-indications to the 
intervention or other factors that make it inadvisable, for 
example, the existence of an alternative treatment that has 
lower risk and equal benefit. If a patient's physiology is such 
that he or she is unlikely to survive a recommended treatment, 
for example, it would not be appropriate for this particular 
patient, even if the treatment is effective generally for the 
type of patient involved.
    6. Scientific adequacy is a broad terms that covers for 
example, the scientific importance of the question the study is 
designed to answer, the adequacy of the study design, and data 
collection and analysis methods, in terms of likelihood of 
producing an unequivocal answer to the study question, and 
protection of human subjects and informed consent issues. In 
some instances a clinical trial may be scientifically adequate, 
but the patient whom the provider proposes to enter into the 
trial does not meet study criteria. In this case, the patient 
will not contribute to answering the study question.
    7. Joint Commission on the Accreditation of Healthcare 
Organizations. An independent, not-for-profit organization 
(founded in 1951) that develops organization standards and 
other performance measures, awards accreditation decisions, and 
provides education and consultation to hospitals and other 
health care facilities. [The official Committee record contains 
additional material here.]
      

                                


Statement of Vicki Gottlich, Staff Attorney, National Senior Citizens 
Law Center

                              Introduction

    I am Vicki Gottlich, an attorney with the National Senior 
Citizens Law Center (NSCLC). NSCLC thanks you for the 
invitation to testify today before the Subcommittee on Health 
of the Ways and Means Committee. We appreciate the 
Subcommittee's interest in patient appeals in health care, an 
issue of concern to all consumers.
    The National Senior Citizens Law Center is a non-profit 
organization that provides litigation, education and technical 
support on issues affecting low-income older people and people 
with disabilities. For over twenty-five years we have assisted 
clients and their advocates with problems arising under 
Medicare, Medicaid and ERISA, and so are very familiar with the 
grievance and appeals systems for both public health care 
programs and employer-sponsored plans. Our recent work includes 
the filing of extensive comments with the Department of Labor 
in response to their requests for information about the ERISA 
appeals process and about notices under the COBRA health care 
continuation provisions. We currently are co-counsel in a case 
in Arizona concerning the Medicaid managed care appeals 
process, and in a nation-wide class action challenging the 
appeals process for disputes involving Medicare home health 
benefits. NSCLC is not counsel of record in Grijalva v. 
Shalala, the case challenging the Medicare managed care appeals 
process, however, we joined in amicus briefs in support of 
plaintiffs that were filed in the District Court for the 
District of Arizona and in the Ninth Circuit. We also met with 
HCFA staff during the development of its Medicare managed care 
appeals regulations and submitted comments on those 
regulations, and we have met with HCFA staff concerning the 
regulations to implement the Medicare+Choice appeals process.
    Based on our experience with appeals of health care 
decisions under various systems, we believe the Medicare system 
provides, overall, the best protection for beneficiaries. The 
Medicare system establishes national, uniform standards that 
apply to all Medicare managed care plans throughout the 
country. The federal Medicaid statute provides many similar 
protections, though variations in state Medicaid laws result in 
a lack of uniformity that hurts some beneficiaries. Unlike 
Medicare, Medicaid makes no provision for expedited 
consideration, though the federal scheme provides for 
continuation of care pending external review.
    We have great concern for individuals covered under ERISA 
plans. The long time frames given to plans to make decisions, 
the lack of impartial decision-makers, and the lack of an 
independent external review render many ERISA plan claims 
procedures useless for plan participants seeking medically 
necessary care. We have yet to encounter an ERISA plan that 
contains the protections available under Medicare and Medicaid. 
Those that come closest are generally collectively bargained 
plans, where the bargaining unit fought for and won additional 
consumer protections for its members. Although many states have 
enacted managed care legislation, state laws regulating 
insurance do not apply to self-insured plans, under which a 
growing number of plan participants are covered. Further, the 
complexities of ERISA preemption call into question whether 
state law provisions establishing grievance and appeals 
procedures apply even to fully-insured employer-sponsored 
plans. And many state laws do not contain all of the key 
elements of an adequate appeals process meeting the standards 
set by the Medicare and Medicaid programs.
    We support federal legislation that establishes an 
appropriate appeals procedure, including the opportunity for 
external review, for all consumers. Such legislation would 
establish a floor of protection that does not currently exist. 
As Families USA pointed out in its July 1996 report, HMO 
Consumers At Risk: States to the Rescue, ``...large numbers of 
managed care enrollees are not protected by state legislation. 
Moreover, the patchwork quilt of managed care legislation 
across states makes it difficult for multi-state managed care 
companies to standardize their data systems and operations.'' 
(At p. 41).
    In developing a patient appeal system that would benefit 
all consumers, we recommend the following key components:

Key Components of a Managed Care Appeals Process Based on Medicare and 
                       Medicaid Appeals Processes

    Broad definition of appealable issues: Under the Medicare 
statute and regulations, an appeal may be taken from any 
dispute involving a denial of services or payment for services 
made by the HMO, even if the request is denied only in part. 
This broad definition allows beneficiaries to appeal as wide 
range of issues, and not just those involving medical necessity 
determinations. Thus, an appeal may be taken from a denial of 
payment for emergency or urgently needed care, from a dispute 
whether the service is a Medicare covered service, or from a 
dispute whether the beneficiary meets the eligibility criteria 
to receive the service (ex., meets the definition of 
``homebound'' to receive home health services.)
    The Medicare managed care regulations issued last April 
clarified that an appeal can be taken when a service is 
discontinued, such as a skilled nursing facility discharge. 
Although appeals from reductions of service are being 
adjudicated through the Medicare managed care appeals process, 
the Medicaid regulations are much clearer that an appeal may 
ensue when a service is denied, delayed, reduced or terminated, 
and should be the model for Medicare and for private plans.\1\ 
Internal plan review conducted by a medical expert. The 
Balanced Budget Act (BBA) adds an important protection to the 
Medicare internal plan review process. When reviewing 
determinations that base the denial of coverage on a lack of 
medical necessity, Medicare+Choice plans must use only a 
physician with appropriate expertise to make a determination of 
the necessity of the treatment. In addition, the physician must 
not have been involved in the initial determination.
---------------------------------------------------------------------------
    \1\ See 42 C.F.R. 431.200, 431.201, 431.206(c)(2).
---------------------------------------------------------------------------
    Independent external review: Independent external review of 
the plan determination is a fundamental component of the 
Medicare system, and should be incorporated into all appeals 
processes. In the managed care context, with its financial 
incentives to limit care, external review provides an 
impartiality that may not always be present in the internal 
review process. The external review considers whether the 
service is medically necessary, falls within coverage 
guidelines, and/or is one for which the beneficiary is 
eligible, without consideration of the financial impact on the 
plan of providing the service. Thus, external review keeps 
plans ``honest,'' and prevents them from using service denials 
to persuade those with the greatest health care costs to 
disenroll.
    At the HCFA reconsideration level, the Center for Health 
Dispute Resolution (CHDR) uses registered nurses and accredited 
medical technicians to perform reviews of the record submitted 
to CHDR by the HMO. At the hearing stage, the ALJ reviews the 
evidence and decides whether the determination is in accordance 
with the Medicare statute, regulations, and case law. 
Beneficiaries have the opportunity to review the record, submit 
evidence and have a face-to-face meeting with the decision-
maker. Taken together, these external review procedures ensure 
that plans cover Medicare-covered services and comply with 
Medicare law, and create an incentive for plans to learn and 
apply Medicare coverage rules.
    Medicaid also provides for independent, external review of 
managed care plan decisions. Reviews are conducted before an 
impartial hearing officer. As with the Medicare ALJ hearing, 
the Medicaid fair hearing allows the individual to review the 
case file and records, present and cross-examine witnesses, be 
represented by a legal representative, and obtain a written 
decision. An unfavorable decision may be appealed to state 
court.
    Expedited review: An expedited determination and/or 
expedited plan review is available under Medicare when the 
standard, 60-day time frame ``could seriously jeopardize the 
life or health of the enrollee or the enrollee's ability to 
regain maximum function.'' The beneficiary or the beneficiary's 
doctor may request expedited consideration, which must be 
granted if the request comes from the doctor. The request may 
be made orally. The health plan must receive the request for an 
expedited determination or reconsideration, decide whether the 
determination will be made through the expedited or regular 
appeals process, conduct the review, and issue its 
determination within 72 hours. Health plans can be permitted up 
to 10 additional days in certain circumstances. If a health 
plan upholds its original decision in whole or in part, it must 
forward the case to CHDR within twenty-four hours. CHDR will 
then conduct an expedited reconsideraton, though current 
Medicare regulations do not impose any obligations upon CHDR to 
do so, or establish any time frames within which the expedited 
HCFA reconsideration must be completed.

    Key Components of Patients' Appeals Based on the Grijalva Order

    As detailed in the chart we have attached to this 
testimony, the BBA appeals provisions and the Medicare 
expedited appeals regulations differ in several respects from 
Judge Marquez's order in Grijalva v. Shalala, CV 93-711 (TUC 
ACM (D.Az, March 3, 1997). For one, the Grijalva court 
shortened the time frame for making the initial organizational 
determination from 60 to five days. While our conversations 
with HCFA lead us to believe that HCFA may shorten this time 
period in the BBA implementing regulations, we do not expect 
that HCFA will adopt the Grijalva standard.
    Another difference involves the criteria for expedited 
review. Judge Marquez ordered that expedited review occur when 
services are urgently needed, and he gave examples of 
situations in which the availability of expedited review is 
presumed, i.e., ``certain types of nursing facility care, 
certain types of home health and therapy services, and denials 
of certain types of non-cosmetic surgery.'' This standard, 
setting forth concrete examples of when expedited review is 
needed, is more easily understandable and enforceable by 
beneficiaries. Judge Marquez also held that a doctor's 
statement is not required to trigger expedited review, and lay 
evidence may be used to show urgency. However, the regulations 
allow only the doctor and/or the plan to decide whether 
expedited review is required, thus establishing a barrier that, 
for many beneficiaries, is making the availability of expedited 
review meaningless.
    In terms of defining the key components of a managed care 
appeals system, the most important differences between Grijalva 
and the HCFA approach involve notice and the continuation of 
care pending reconsideration. Adequate notice and continuation 
of care are the fifth and sixth elements that should be 
available in all health care appeals systems.
    Adequate notice: Adequate notice that complies with all 
constitutional and statutory requirements makes any appeal 
system work better. Yet the Medicare regulatory notice 
provisions do not address some of the problems most commonly 
experienced by beneficiaries both before the filing of the 
Grijalva suit and after the implementation of the Medicare 
regulations last August. Although the preamble to the Medicare 
regulations explains that beneficiaries initially requesting an 
organization determination can request an expedited decision, 
there is no provision for giving such persons advance notice of 
this right. Without such knowledge, beneficiaries fall within 
the regular process, which currently allows plans up to 60 days 
to make a decision. When beneficiaries finally receive notice 
of the organizational determination, the lack of specificity 
and detail in the notices causes confusion and 
misunderstanding. The notices use general and generic terms 
that do not inform the beneficiary of the factual basis for the 
denial, explain what specific service is not covered and why, 
or in any way indicate to the beneficiary the additional 
information needed to approve the request for services.
    Continuation of care: Judge Marquez ordered that the 
Medicare appeals process require services to be continued until 
a final expedited reconsideration decision has been rendered. 
The continuation of care, or, as it is known in many states, 
``aid paid pending,'' has been a crucial component of the 
Medicaid program for years.\2\ In many situations, it is the 
only way to ensure that the beneficiary receive needed care. 
Unlike in fee-for-service cases, where the issue is payment for 
services already received, the issue being appealed in the 
managed care context is the ability to receive needed medical 
care. The hiatus in care caused by the inappropriate 
termination of certain services--such as rehabilitative 
therapies, home health care, a skilled nursing facility stay--
often cannot be remedied by a subsequent successful appeal. For 
example, a patient whose home health services were terminated 
prematurely may already have been transferred to a nursing 
home, and so may no longer benefit from the services that were 
denied.
---------------------------------------------------------------------------
    \2\ 42 C.F.R. 431.230.
---------------------------------------------------------------------------

                  Ombudsman Program as a Key Component

    An issue not addressed in either the Grijalva decision, the 
Medicare managed care regulations, or in Medicaid is the need 
for an independent health care ombudsman to work with 
beneficiaries through the appeals process and with all of their 
dealings with their health plan. Ombudsman programs have proven 
effective in assisting beneficiaries with their disputes with 
plans, clarifying questions about plans, and clarifying general 
questions about health care coverage. One of the most 
successful models is the Sacramento, California, Ombudsprogram 
operated by Peter Lee of the Center for Health Care Rights.\3\
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    \3\ Peter Lee and Carol Scott, Managed Care Ombudsprograms: New 
Approaches to Assist Consumers Improve the Health Care System (Center 
for Health Care Rights, Los Angeles, CA 1996).
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    Medicare beneficiaries have more of an opportunity to get 
help than other health care consumers. The Omnibus Budget 
Reconciliation Act of 1990 established limited funding for an 
Information, Counseling and Assistance (ICA) program in every 
state. ICA programs aid Medicare beneficiaries in understanding 
Medicare and their Medigap and other private insurance options, 
and help beneficiaries who experience problems with their 
plans. While not called an ombudsprogram, the ICAs perform many 
of the same functions. The biggest challenge faced by these 
programs is the lack of resources to perform the beneficiary 
education and assistance required. Implementation of the 
Medicare+Choice program, and the anticipated questions that 
will arise from beneficiaries about the choices available to 
them, will tax the limited resources of these programs 
considerably, so that they may not be available to help 
negotiate a plan's grievance and appeals system.

       Experience With the Medicare Managed Care Appeals Process

    In presenting our testimony to support a strong patient 
appeals process, we wanted to share with the Subcommittee some 
of the experiences beneficiaries have had with the Medicare 
system. NSCLC asked several of the Medicare advocates around 
the country with whom we work on a regular basis to provide 
examples of both the effectiveness of the system and its 
glitches. Several of the examples in this testimony come from 
an early draft of a report by the Medicare Rights Center (MRC), 
that documents the first six months of calls to its expedited 
appeals hotline.\4\
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    \4\ HCFA's Medicare expedited appeal regulations went into effect 
on August 28, 1997.
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            The Medicare appeals scheme works. For example:

     MRC was asked by HCFA to include its telephone 
number on model denial letters HCFA developed and distributed 
to managed care plans. Many of the people who called the MRC 
hot line learned about the organization from the notice. This 
experience substantiates the importance of providing complete 
information on notices to beneficiaries, and the usefulness of 
have an ICA or ombudsprogram available to respond to inquiries.
     A woman in California recovering from a car 
accident was receiving physical therapy and occupational 
therapy in the rehabilitation unit of a hospital. Although 
these services clearly constitute skilled care under Medicare 
law, and although the services were still medically necessary, 
the medical group sent notice of discontinuation of coverage. 
The woman's family contacted a Medicare advocate who asked for 
an expedited appeal. Within 72 hours, the HMO reversed the 
medical group's decision, and care was continued.
    The system worked successfully in the California case for a 
number of reasons. The medical group sent official notice. The 
family was knowledgeable enough to seek help from an advocate 
familiar with Medicare coverage rules, and the advocate 
requested an expedited appeal. The particular HMO in question 
is equipped to investigate complaints regarding inadequate 
care, and has designated specific people to handle expedited 
appeals. But, as the advocate involved pointed out, the case 
could have come out differently. The beneficiary is unable to 
seek help on her own; without family to intervene, she never 
would have pursued an appeal. The plan involved granted the 
request for expedited appeal, even though the request was not 
made by a doctor. Advocates from around the country report that 
many plans automatically deny requests for expedited review 
when they come from beneficiaries. In this case, as in many, 
medical support was difficult to obtain. Neither the doctor nor 
the therapists wanted to go on record supporting the appeal, 
even though they believed additional therapy was medically 
necessary. Finally, this HMO is complying with the law, though 
the advocate who represents the woman reports other HMOs in the 
area use untrained customer service representatives who give 
unrepresented beneficiaries inaccurate information about 
appeals.

 Problems arise when plans do not comply with the regulations and have 
            not implemented an appeals process. For example:

     The failure to provide proper notice still remains 
a problem, despite the Grijalva case. MRC found that, even 
though HCFA distributed model denial notices to HMOs, several 
of the letters received by callers to its hotline were so 
unclear in their description of the appeals rights that the 
enrollees did not know what those rights were and could not 
have pursued an appeal based on the information in the notices. 
MRC also found that one plan in New York sent the same notice 
of noncoverage, regardless of the nature of the problem, in 
violation of the requirements that notices contain a specific 
reason for denial, and that an HMO cannot use the same reason 
for all denials.
     An enrollee in Michigan who asked to file an 
appeal was told by two different people in the plan that he had 
waived his Medicare appeal rights when he enrolled in an HMO, 
and that no appeal was available to him. The underlying issue 
involved the inadequacy of the plan network, and the plan's 
refusal to refer the enrollee to an outside specialist.
     When an Oregon HMO upheld on reconsideration its 
original decision to deny coverage of durable medical 
equipment, the enrollee requested an external review of his 
case. Despite the fact that unfavorable plan reconsiderations 
must be sent automatically to CHDR, plan representatives told 
the enrollee he did not have any further appeal rights.
     MRC received numerous calls from beneficiaries 
whose request for an appeal was lost or not documented in the 
record. Other callers related situations in which the HMO 
failed to act on initial organization determinations or 
reconsideration within the statutory time periods.
    One further difficulty involves the completeness of the 
record being reviewed at both the plan reconsideration level 
and the HCFA reconsideration level and the ability of the 
enrollee to get access to the medical records. Medicare managed 
care regulations require that a HCFA reconsideration include 
review of, among other things, ``.... other evidence submitted 
by the parties....'' \5\ Yet, while CHDR gives directions to 
plans on how to submit additional evidence to support their 
decision, no process exists by which beneficiaries may review 
the records before CHDR and submit additional evidence to 
support their claim or to correct inaccurate or incomplete 
records.
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    \5\ 42 C.F.R. 417.622(a).
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     When a Florida enrollee got no response to her 
numerous attempts to obtain doctor-authorized durable medical 
equipment from her plan, she finally went out-of-plan to get 
the equipment. The plan denied reimbursement, and CHDR upheld 
the plan. At the ALJ level, the enrollee discovered that the 
plan had not included in the record it sent to CHDR the 
doctor's referral for the equipment or evidence of her numerous 
contacts with the plan. The plan had refused to release the 
records to the enrollee and her attorney, even when requested 
to do so by the ALJ, so the enrollee could not correct the 
records earlier.
     A Connecticut HMO denied, without written notice, 
medically necessary care to an enrollee who had just be 
discharged from the hospital. The doctor wrote to the plan, and 
the case was sent to CHDR. CHDR initially declined to give the 
enrollee's attorney access to the medical records submitted by 
the HMO. When CHDR finally provided the records, the records 
contained erroneous information about the enrollee's medical 
condition, and did not include the materials submitted by the 
treating physician in support of the appeal. The records were 
corrected, the treating physician's supporting information was 
submitted, and CHDR ordered that care be provided.
    In the last example, effective advocacy by the treating 
physician and the beneficiary's attorney resulted in an 
inappropriate decision being overturned upon external 
reconsideration. One month later, however, the enrollee was 
again told orally and not in writing that his care was being 
discontinued. The doctor again wrote a letter to the plan, and 
the case was referred to CHDR. Although CHDR, after much 
discussion, corrected the plan's previous violations, in this 
instance CHDR declined to order that care be reinstated until 
the HMO followed the federal regulatory requirement to provide 
written notice. Further, CHDR upheld the denial based on the 
recommendations of a consulting physician who applied a 
standard that did not comply with Medicare regulations. CHDR 
denied enrollee's attorney access to the consulting physician's 
evaluation of the case.
    As plaintiffs in Grijalva have argued since the complaint 
was first filed in 1993, HCFA must enforce all Medicare laws 
and regulations, including those pertaining to the appeals 
process, and hold accountable any HMO that does not follow 
them. The failure of HCFA to enforce the Medicare managed care 
appeals regulations does not in any way diminish the fact that 
those regulations represent good, sound health care policy. The 
availability of external review to Medicare beneficiaries 
assures them that an independent entity with the appropriate 
expertise in Medicare law will review all claims and protect 
them against decisions made for reasons that do not comply with 
Medicare rules. All consumers, regardless of the type of health 
plan, are entitled to the same protection.
[GRAPHIC] [TIFF OMITTED] T3213.008

[GRAPHIC] [TIFF OMITTED] T3213.009

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