HMO Complaints and Appeals: Most Key Procedures in Place, but Others
Valued by Consumers Largely Absent (Letter Report, 05/12/1998,
GAO/HEHS-98-119).

With the growth of managed care, health plans have increased controls on
patients' access to and use of costly services. Although these controls
have helped to curb the growth in health care spending, they have also
added to consumers' confusion and dissatisfaction. A health plan's
complaint and appeals system provides a way for enrollees to signal
their dissatisfaction and challenge denials of coverage. GAO surveyed 38
health maintenance organizations (HMO) in five states and found that
their complaint and appeals systems included 9 of 11 key elements
identified by regulatory, consumer, and industry groups as important for
complaint systems to have. This report discusses these key elements and
identifies ways in which systems can be improved and ways in which data
about complaints and appeals can be used to enhance oversight,
accountability, and market competition. GAO summarized this report in
testimony before Congress; see: HMO Complaints and Appeals: Plans'
Systems Have Most Key Elements, but Consumer Concerns Remain, by Bernice
Steinhardt, Director of Health Services Quality and Public Health
Issues, before the Senate Committee on Labor and Human Resources.
GAO/T-HEHS-98-173, May 19 (nine pages).

--------------------------- Indexing Terms -----------------------------

 REPORTNUM:  HEHS-98-119
     TITLE:  HMO Complaints and Appeals: Most Key Procedures in Place,
	     but Others Valued by Consumers Largely Absent
      DATE:  05/12/1998
   SUBJECT:  Health maintenance organizations
	     Health care planning
	     Consumer protection
	     Written communication
	     Statistical data
	     Health care programs
	     Information disclosure
IDENTIFIER:  Medicaid Program
	     Medicare Program

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GAO/HEHS-98-119

Cover
================================================================ COVER

Report to Congressional Requesters

May 1998

HMO COMPLAINTS AND APPEALS - MOST
KEY PROCEDURES IN PLACE, BUT
OTHERS VALUED BY CONSUMERS LARGELY
ABSENT

GAO/HEHS-98-119

HMO Complaint and Appeal Systems

(108329)

Abbreviations
=============================================================== ABBREV

  AAHP - American Association of Health Plans
  CHDR - Center for Health Dispute Resolution
  ERISA - Employee Retirement Income Security Act of 1974
  FUSA - Families USA
  HCFA - Health Care Financing Administration
  HMO - health maintenance organization
  JCAHO - Joint Commission on Accreditation of Healthcare
     Organizations
  NAIC - National Association of Insurance Commissioners
  NCQA - National Committee for Quality Assurance
  NCSL - National Conference of State Legislatures

Letter
=============================================================== LETTER

B-278562

May 12, 1998

The Honorable James M.  Jeffords
Chairman
Committee on Labor and Human Resources
United States Senate

The Honorable William V.  Roth, Jr.
Chairman
Committee on Finance
United States Senate

The Honorable John R.  Kasich
Chairman
Committee on the Budget
House of Representatives

A recent survey of consumers shows that many people experience
difficulties with their health plans.\1 Enrollees who become
dissatisfied with aspects of their health care can send signals to
their health plan in several ways.  One approach is to disenroll and
obtain services from a competing plan.  But leaving a plan is not
always feasible within a plan year or if an employer offers only one
health plan; nor does leaving provide information to the plan about
why the employee is dissatisfied so that it can take appropriate
action.  Another approach is to voice a complaint directly to the
plan and provide detailed information from which plans can modify
their practices or services.  This approach offers an alternative to
enrollees who may be reluctant to disenroll despite a problem with
the health plan and affords plans an opportunity to be responsive to
member concerns.

Unlike traditional indemnity insurance plans, many managed care plans
limit coverage to services provided by the physicians and hospitals
in the plan and require use of an authorization system.  For example,
health maintenance organizations (HMO) generally restrict coverage to
care from providers within the plan's network and further require
that specialty care be recommended by the member's primary care
gatekeeper.  Additionally, as part of managing patient care, most
managed care plans have adopted utilization review procedures.\2
Utilization review determines whether the physician's proposed course
of medical treatment and proposed location are necessary, based on
clinical criteria.\3 Because of these restrictions, many believe that
HMOs need to have a system for enrollees to express dissatisfaction
with their care.  Similarly, many believe that plans with the ability
to deny or reduce coverage for unauthorized 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.

These issues, as well as the momentum toward managed care as
employers' preferred method of paying for health care, have focused
attention on the adequacy of mechanisms whereby HMO enrollees can
raise and resolve disputes.  Therefore, you asked us to examine (1)
what elements are considered important to a system for processing HMO
member complaints and appeals; (2) the extent to which HMOs'
complaint and appeal systems contain these elements; (3) what
concerns consumers have regarding HMO complaint and appeal systems;
(4) what information is available on the number and types of
complaints and appeals HMOs receive from their members; and (5) how,
if at all, HMOs use their complaint and appeal data.  Although we did
not evaluate how well these systems were performing, our report
assesses whether the policies and procedures in place contain the
features recommended by leading regulatory, industry, and consumer
groups.

To address these issues, we interviewed officials and reviewed
documents from a national managed care industry association, state
insurance regulatory offices, national consumer advocacy groups,
national business associations, and national health plan accrediting
bodies.  To obtain information on specific HMOs' complaint and appeal
systems, we contacted 38 HMOs in five states:  Colorado, Florida,
Massachusetts, Oregon, and Tennessee.  We selected states in various
regions and with different levels of state regulation and HMO market
penetration.  In selecting HMOs, we sought a mix of plans reflecting
different model types, enrollment size, and accreditation status.
(See app.  I for information on the characteristics of HMOs in our
study across these variables.) At each HMO, we interviewed officials
and reviewed the HMO's written policies and procedures for complaint
and appeal systems, member handbooks, certificates of coverage,
letters sent to members during the appeal process, and complaint and
appeal data.  Additionally, in each of the five states, we met with
representatives of consumer advocacy groups identified largely by
state insurance officials as being active in managed care issues.

In this report, we define complaints as expressions of
dissatisfaction with the care or service received from a plan--for
example, difficulty in scheduling a doctor's appointment, or
dissatisfaction with a particular provider.  We define appeals as
requests to have plan decisions, such as denials of authorization for
services requested or denials of payment for services received,
reversed.  (Some HMOs define these terms differently; further, some
HMOs use the term grievance in place of, or in addition to, these
terms.) Our report discusses systems applicable to HMO members not
enrolled in a Medicare or Medicaid plan.  We did not focus on members
of self-funded plans in our study, nor did we assess the extent to
which the systems described in our report apply to members of
self-funded plans.\4 (According to a 1997 study of large firms, only
about 14 percent of American workers enrolled in HMOs in 1997 were in
self-funded plans.)\5 We conducted our review between May 1997 and
March 1998 in accordance with generally accepted government auditing
standards.

--------------------
\1 Based on a 1997 survey, 42 percent of Californians reported having
problems with their health plan in the previous 12 months; of this
number, 22 percent reported that their health condition worsened as a
result.  Further, according to the survey, Californians are confused
about where they should turn for help in resolving their problems,
and most are not satisfied with the resolution of their problems.
Nevertheless, overall satisfaction with health plans remains high; 76
percent of respondents reported being either very satisfied or
satisfied with their health plan.  See Helen Halpin Schauffler and
others, The State of Health Insurance in California, 1997 (n.  p.:
Regents of the University of California, 1998).

\2 It is not uncommon for a health plan to review a patient's
hospital length of stay, site of care, or medical appropriateness of
treatment.  According to a 1995 survey of physicians, first-round
denials of coverage for physician-recommended services were less than
6 percent.  However, many of these initial denials ultimately were
approved, so the final denial rate was no more than 3 percent.  (The
majority of physicians had no coverage denials for the forms of care
studied, although denial rates exceeded 20 percent for some
physicians.) The overall denial rate was highest for mental health,
substance abuse, and referral to a specialist of choice.  See Dahlia
K.  Remler and others, "What Do Managed Care Plans Do to Affect Care?
Results from a Survey of Physicians," Inquiry, Vol.  34 (Fall 1997),
pp.  196-204.

\3 Physician contracts typically include a clause giving the HMO the
authority to deny coverage for a medically appropriate procedure
where another procedure is also appropriate.  This clause is intended
to give the HMO the right to cover the most cost-effective, medically
appropriate procedure.

\4 Employment-based health coverage, whether fee-for-service or
managed care, may be financed in one of two ways.  Many employers
choose to purchase health care coverage from an insurance company or
other entity, paying a per-employee or per-beneficiary premium in
exchange for this coverage.  The insurance company or other entity
then bears the cost of any health care services that the beneficiary
incurs.  Many other employers, however, choose to pay their
employees' health care costs themselves, often hiring a third party
to process claims and perform other administrative functions.  Such
coverage is referred to as self-insured or, because no insurance
element is actually present (the term insurance implying a transfer
of risk), self-funded.  Self-funded plans cover about 40 percent of
working Americans.  See National Governors' Association, State
Managed Care Oversight:  Policy Implications of Recent ERISA Court
Decisions (Washington, D.C.:  National Governors' Association, 1998).

\5 KPMG Peat Marwick, Health Benefits in 1997 (June 1997).

   RESULTS IN BRIEF
------------------------------------------------------------ Letter :1

A majority of HMOs in our study incorporated most criteria considered
important for complaint and appeal systems; however, consumer
advocates remain concerned that complaint and appeal systems do not
fully meet member needs.  Additionally, HMOs in our study do not
uniformly collect and report data on the complaints and appeals they
receive to health care regulators, purchasers, or consumers.

Nationally recognized regulatory, consumer, and industry groups have
identified elements that are important to an enrollee complaint and
appeal system.  Eleven elements were identified by at least two of
these groups and fall into three general categories:  timeliness,
integrity of the decisionmaking process, and effective communication
with members.  Several elements were recommended by most of the
groups, while other elements were highlighted by only two groups.

The policies and procedures at the 38 HMOs in our review contained
most of the 11 important elements, although they varied considerably
in the mechanisms adopted to meet them.  For example, of the 34 HMOs
that reported having a policy for expedited review of appeals, the
length of time allowed for a decision ranged from 1 to 7 days.  Two
elements were not commonly included in plan procedures:  HMOs
generally did not (1) bar decisionmakers who had previous involvement
in a case or (2) accept oral appeals.  The uniformity among the HMOs
in our study may be largely attributed to the influential role of
accreditation standards.

The lack of an independent, external review of plan decisions and the
difficulty in understanding how to use plan complaint and appeal
systems were of particular concern to consumer advocacy groups, who
contend that plans' systems, therefore, do not adequately serve the
needs of plan enrollees.  However, consumer concerns about the
impartiality of HMO decisionmakers could be addressed by using
independent, external review systems for HMO members.  Consumer
concerns about the difficulty in understanding how to use complaint
and appeal systems might be addressed by revising written plan
materials, which are often difficult to understand.  Additionally,
although experience to date is limited, such concerns are being
addressed by ombudsman programs in some parts of the country.

Publicly available data on the number and types of complaints and
appeals, if consistently defined and uniformly collected, can enhance
oversight, accountability, and market competition.  Comparative data
would provide regulators, purchasers, and individual consumers with a
view of members' relative satisfaction with health plans, thereby
supplementing other performance indicators.  However, the data
collection systems used by HMOs in our study lack uniformity and are
not generally reported externally.  As a result, the limited data
obtained from the HMOs in our study, while showing wide variation in
the number and types of complaints and appeals, do not allow for
meaningful comparisons.  Nevertheless, all HMOs in our study told us
that they review complaint and appeal data to identify problems that
the plan needs to address.  Several HMOs reported using complaint and
appeal data, together with data from other sources, to make changes
in benefits and plan processes, and to attempt changes in member and
provider behavior as well.

   BACKGROUND
------------------------------------------------------------ Letter :2

Complaint and appeal procedures are regulated by a patchwork of
federal and state law.  No federal standards, however, prescribe how
complaint and appeal systems are to be structured and administered.
For example, the Employee Retirement Income Security Act of 1974
(ERISA), a federal law governing most employer-sponsored health
plans, simply requires that covered health plans provide a mechanism
to permit participants and beneficiaries to appeal a plan's denial of
a claim.  Another federal law, the Health Maintenance Organization
Act of 1973, simply requires that plans provide "meaningful" and
"timely" procedures for hearing and resolving complaints in order to
become federally qualified HMOs.\6

Numerous bills mandating specific features of health plan complaint
and appeal procedures have been introduced before the current
Congress.  One bill, for example, would set standards for the
timeliness of plan response to appeals and the professional
qualifications of appeal reviewers and would require external review
of plan decisions in certain circumstances.  In addition, the
Presidential Advisory Commission on Consumer Protection and Quality
in the Health Care Industry recently issued a "Consumer Bill of
Rights and Responsibilities" that included recommendations for
handling consumer complaints and appeals.\7

Many states have laws regulating or affecting HMOs.  According to the
American Association of Health Plans (AAHP), which represents managed
care organizations, nearly all HMO coverage offered to employees is
governed by state grievance and appeal requirements.  HMOs have
frequently argued, however, that in certain circumstances ERISA
prevents state law from applying to them.\8 These arguments arise
because ERISA prohibits states from regulating employee health plans,
although it expressly permits states to regulate insurance purchased
by employers.\9

Most states require HMOs to describe their grievance procedures when
applying for a license or certificate of authority.  Many states
require that plans inform members about grievance procedures at least
upon enrollment and sometimes annually.  Some states mandate that
HMOs inform patients of grievance rights and procedures upon each
denial of service, when this information is most pertinent.  Some
states require plans to submit an annual report on the number of
complaints filed, their underlying causes, and their disposition.

Some states have prescribed detailed requirements in the area of
complaints and appeals.  For example, some states require that HMOs
resolve member appeals of decisions within certain time periods (for
example, 20 days); some have required that HMOs allow members the
option of having complaints and appeals reviewed by an external,
independent panel.  However, provisions in state laws vary
considerably.  (See app.  II for specific information provided by the
National Conference of State Legislatures (NCSL) on state laws
governing complaint and appeal processes.)

--------------------
\6 This law was enacted to encourage the formation of HMOs by
providing loans and grants to federally qualified HMOs.  It also
required that employers of more than 25 workers offer their employees
the option of a federally qualified HMO, but that requirement was
repealed effective October 14, 1995.  Federal qualification is
voluntary and may be less important today than it was when managed
care was new and HMOs were seeking market share.  As of January 1996,
less than half of HMOs were federally qualified, accounting for 68
percent of all HMO members.

\7 Advisory commissions in some states, including Massachusetts (the
Special Commission on Managed Care) and California (the California
Managed Health Care Improvement Task Force), have also made
recommendations for consumer complaint handling.

\8 These arguments have been raised largely in disputes over legal
remedies and damages.  For example, in medical malpractice
litigation, courts have often accepted arguments advanced by HMOs
that they may not be ordered to pay compensatory or punitive damages.
We are currently preparing a report regarding ERISA's effect on legal
remedies in disputes stemming from benefit denials and medical
malpractice.

\9 Under ERISA, states are prevented from regulating self-funded
plans at all.  Because ERISA expressly permits states to regulate
insurance purchased by employers, however, states are able indirectly
to regulate insured employee health plans through their regulation of
insurance.

   TIMELINESS, DECISIONMAKING
   PROCESS, AND COMMUNICATION ARE
   IMPORTANT TO A COMPLAINT AND
   APPEAL SYSTEM
------------------------------------------------------------ Letter :3

A number of elements have been identified by regulatory, consumer,
and industry groups as being important to a complaint and appeal
system.  These elements fall into three general categories:
timeliness, integrity of the decisionmaking process, and effective
communication with members.

Several nationally recognized groups have developed guidelines for
complaint and appeal systems.  We reviewed standards promulgated by
two private accrediting bodies, the Joint Commission on Accreditation
of Healthcare Organizations (JCAHO) and the National Committee for
Quality Assurance (NCQA).  We also reviewed the guidelines
established by groups representing industry, consumer, and regulatory
interests:  AAHP, Families USA (FUSA), and the National Association
of Insurance Commissioners (NAIC), respectively.  (See app.  III for
more information on these five organizations.) In all, we identified
11 features considered important to a complaint and appeal system by
at least two of the groups.  As table 1 shows, several elements were
recommended by most of the groups, while other elements were
highlighted by only two groups.  However, a particular group's
omission of certain elements does not necessarily mean that the group
considered those elements and rejected them as unimportant.

                                Table 1

                   Elements Identified by Two or More
                 Groups as Important to a Complaint and
                             Appeal System

Element                             Group
----------------------------------  ----------------------------------
Timeliness
----------------------------------------------------------------------
Explicit time periods               AAHP, FUSA, JCAHO, NAIC, NCQA

Expedited review                    AAHP, FUSA, JCAHO, NAIC, NCQA

Integrity of the decisionmaking process
----------------------------------------------------------------------
Two-level appeal process            FUSA, NAIC, NCQA

Member attendance permitted at one  NAIC, NCQA
appeal hearing

Appeal decisions made by medical    FUSA, NAIC, NCQA
professionals with appropriate
expertise

Appeal decisions made by            FUSA, NAIC, NCQA
individuals not involved in
previous denials\a

Effective communication
----------------------------------------------------------------------
Written information provided, in    FUSA, NCQA
an understandable manner, about
how to register a complaint or
appeal

Oral complaints accepted            FUSA, NCQA

Oral appeals accepted               FUSA, NCQA

Appeal rights included in notice    AAHP, FUSA, NAIC, NCQA
of denial of care or payment of
service

Written notice provided of appeal   NAIC, NCQA
denials, including further appeal
rights
----------------------------------------------------------------------
\a NAIC requires, for second-level reviews, that a majority of
decisionmakers not have previous involvement in the case.

      TIMELINESS
---------------------------------------------------------- Letter :3.1

To help ensure that member complaints and appeals are resolved in an
appropriately timely fashion, several groups identified two elements
as being important:  explicit time periods and expedited review.
Time periods refer to specified amounts of time, set out in plan
policies, within which HMOs resolve complaints or appeals.  JCAHO,
for example, emphasized the importance of "defined time frames in
which the member can anticipate response to an appeal." The groups
differed in specifying the number of days allowed for resolution;
while NAIC's criterion stated that plans have up to 30 days to
resolve first-level appeals, for example, JCAHO simply called for
plans to have established time periods without specifying what they
should be.

Expedited review refers to a plan policy of processing appeals more
quickly in situations in which, were the plan to follow its usual
time period for processing the appeal, the patient's health might be
jeopardized.  Again, the groups differed in the extent to which they
specified the time within which expedited appeals were to be
processed.  NAIC and FUSA said that expedited review must be
completed within 72 hours of the appeal, while the other groups said
simply that plans must provide a resolution appropriate to the
clinical urgency of the situation.\10

--------------------
\10 The Health Care Financing Administration (HCFA), which oversees
the Medicare program, requires plans to review Medicare member
appeals within 72 hours when the plan's standard time for review
could jeopardize the life or health of the enrollee or the enrollee's
ability to regain maximum function.  HCFA used NAIC's guidelines in
establishing the 72-hour limit.

      INTEGRITY OF THE
      DECISIONMAKING PROCESS
---------------------------------------------------------- Letter :3.2

In the interest of perceived fairness and member empowerment, four
factors were identified as being essential to maintaining the
integrity of the decisionmaking process:  (1) a two-level appeal
process, (2) the member's right to attend one appeal hearing, (3)
appeal decisions made by medical professionals with appropriate
expertise, (4) and appeal decisions made by individuals not involved
in previous denials.

A two-level appeal process is one in which, after a member appeals an
initial denial of payment or service, the member may appeal to the
plan a second time.  Two groups (NAIC and NCQA) identifying a
two-level process as important also stated that plans should allow
members to appear before plan officials during at least one of the
appeal proceedings.  This allows members the opportunity to provide
to plan officials information or evidence that the member believes is
important and ensures that the member's perspective is presented to
the plan.

Three groups--FUSA, NAIC, and NCQA--stated that appeal decisions
should be made by medical professionals with appropriate expertise.
Both NAIC and NCQA stated that such professionals should be involved
in decisions regarding denials of clinical services; FUSA did not
specify instances under which review by medical professionals should
take place.  According to AAHP, medical necessity determinations
should involve a physician's review, while determinations about
whether a benefit is covered under the terms of the contract might
not involve a physician.

FUSA, NAIC, and NCQA stated that plan officials determining the
outcome of an appeal should not be the same officials who were
involved in either the initial denial or the first-level appeal.
NCQA's standards state that no one performing a first- or
second-level review should be previously involved in the case.  NAIC
echoed this statement for first-level reviews; regarding second-level
reviews, the organization stated that the majority of the
second-level panel deciding the appeal should comprise persons who
had not previously participated in the case.

      EFFECTIVE COMMUNICATION
---------------------------------------------------------- Letter :3.3

Elements of effective communication identified as important included
the provision of written information about the appeal process in an
understandable manner; acceptance of oral complaints and appeals; the
inclusion of appeal rights when notifying enrollees of a denial of
care or payment of service; and written notice of appeal denials,
including appeal rights.

NCQA, for example, emphasizes the importance of clear and complete
information about member rights and responsibilities.  NCQA requires
that plans provide information that is easily accessible--for
example, in a member handbook or provider directory or on a
membership card--rather than relying exclusively on technical or
legal documents.  The President's Quality Commission notes that
consumers have the concomitant responsibility to become knowledgeable
about their health plan coverage, including covered benefits, plan
processes, and appeal rights.

FUSA and NCQA also noted the importance of plans' acceptance of oral
complaints and appeals.  In its accreditation standards, NCQA notes
that "following standards for high-quality interactions with members
means that any problems expressed by a member receive prompt and
appropriate attention, whether those problems involve clinical care
or service, and whether they be oral or written, major or minor."

Four groups emphasized the importance of informing members of their
right to appeal at the time a service is denied or terminated.
Regarding the plan's response to an appeal of a denial, two of these
groups also highlighted the importance of written notice of appeal
denials, including appeal rights.  Including appeal rights in the
written denial notice ensures that plan members are aware of the
steps they need to take in the event they are dissatisfied with the
plan decision.  An official from the Center for Healthcare Rights, a
California-based consumer group, also noted that denial notices
should contain information about the nature of what was denied, the
basis for the decision (for example, the medical information or plan
contract terms the HMO relied upon in making the determination), and
information about what factors the HMO would consider in an appeal.

   HMOS HAD MOST OF THE IMPORTANT
   ELEMENTS, BUT TWO WERE COMMONLY
   LACKING
------------------------------------------------------------ Letter :4

The HMOs in our review had most of the 11 elements identified by the
groups in our study as being important to complaint and appeal
systems, although they varied considerably in the mechanisms adopted
to meet them.  However, two recommended elements--appeal decisions
made by individuals not involved in previous decisions and acceptance
of oral appeals--were not commonly present in the complaint and
appeal systems of the HMOs in our study.  The extent to which HMOs in
our study implement the policies they reported to us, however, is
unknown.

      HMOS' SYSTEMS GENERALLY
      INCORPORATE MOST ELEMENTS
      BUT VARY IN SPECIFIC
      FEATURES
---------------------------------------------------------- Letter :4.1

Much similarity existed in the complaint and appeal systems of the
HMOs we reviewed.  As table 2 shows, 9 of the 11 elements identified
as important to a complaint and appeal system were generally
incorporated by HMOs in our study.  Not all 38 HMOs in our study,
however, provided data on each of the elements.  Several HMOs
provided information on some elements but not others.

                                Table 2

                Number of HMOs With and Without Elements
                 Identified as Important to a Complaint
                           and Appeal System

                                                          HMOs
                                                  HMOs  withou    HMOs
                                                  with       t     not
                                                elemen  elemen  report
Element                                              t       t     ing
----------------------------------------------  ------  ------  ------
Timeliness
----------------------------------------------------------------------
Explicit time periods                               36       1       1
Expedited review                                    34       2       2

Integrity of the decisionmaking process
----------------------------------------------------------------------
Two-level appeal process                            38       0       0
Member attendance permitted at one appeal           36       1       1
 hearing
Appeal decisions made by medical professionals      31       4       3
 with appropriate expertise\a
Appeal decisions made by individuals not            15      22       1
 involved in previous denials\b

Effective communication
----------------------------------------------------------------------
Written information provided, in an                 34       2       2
 understandable manner, about how to register
 a complaint or appeal
Oral complaints accepted                            36       2       0
Oral appeals accepted                               12      25       1
Appeal rights included in notice of denial of       31       3       4
 care or payment of service
Written notice provided of appeal denials,          36       1       1
 including further appeal rights
----------------------------------------------------------------------
\a We considered HMOs as having this element if medical personnel
were included in the decisionmaking process.  However, we were not
able to determine whether individuals with clinical expertise were
appropriately assigned to specific cases.

\b We considered HMOs as having this element if, at all levels in the
appeal process, decisions were made only by those with no previous
involvement in the case.

Much of this uniformity may be attributed to the influential role
played by NCQA, which includes all these elements in its
accreditation standards.  That is, NCQA accreditation is important to
public and private purchasers, who view it as an indicator of HMO
quality.  A growing number of plans have obtained or are seeking
accreditation.  Among the 23 HMOs in our review that have been
surveyed by NCQA, 20 have been accredited:  14 HMOs were accredited
unconditionally, while 6 HMOs were accredited with limitations.  One
HMO's accreditation had expired, and two HMOs were denied
accreditation.  Even some HMOs that are not currently accredited may
follow NCQA standards, intending to eventually apply for
accreditation.

         ELEMENTS OF TIMELINESS
-------------------------------------------------------- Letter :4.1.1

Thirty-six of 37 HMOs providing data had established time periods
within which complaints and appeals were to be resolved.  Although
many HMOs' time periods called for resolution of complaints or
appeals within 30 days at each level, other HMOs' time periods varied
considerably.  One HMO's policy called for complaints to be resolved
immediately, another HMO's within 24 hours; another allowed up to 60
days to resolve complaints.  Time periods for first-level appeals
varied from 10 to 75 days; for second-level appeals, from 10 days to
2 months.  One HMO did not have explicit time periods.  This HMO's
policy called for complaints to be resolved "on a timely basis."
Although first-level appeals were to be resolved within 30 days, for
second-level appeals, members were to be notified within 30 days of
the committee meeting, but no time period was specified for the
meeting.

Thirty-four HMOs in our study (of 36 reporting) had expedited appeal
processes in place for use in circumstances in which delay in care
might jeopardize the patient's health.\11 Again, however, HMOs varied
considerably in the length of time they allowed for resolution of an
expedited appeal.  While the most common time period among the HMOs
in our study was 72 hours, two HMOs' policies called for resolution
within 24 hours, and two others allowed up to 7 days for resolution.

--------------------
\11 We did not obtain information from HMOs about who decides whether
the patient's health is at risk--the HMO, the physician, or the
patient.

         ELEMENTS OF
         DECISIONMAKING
-------------------------------------------------------- Letter :4.1.2

All 38 HMOs in our study had at least a two-level appeal process.
Nineteen HMOs used decisionmaking committees at both levels of
appeal, while 17 used an individual to make the decision at the first
level of appeal and a committee at the second level.  Nine HMOs had a
third level of appeal within the HMO, and all nine used committees to
resolve the appeal at the third level.

Thirty-six HMOs (of 37 reporting) permitted the member to attend at
least one appeal hearing in order to present his or her case,
including necessary documentation or other evidence, to the
committee.  Sixteen of the 36 HMOs permitted members to be
accompanied by a representative, such as a friend or a lawyer.  In
instances in which the member could not attend the meeting in person,
11 of the 36 HMOs made provisions for members to attend the meeting
by telephone or videoconference.

Thirty-one HMOs (of 35 providing data) reported that they included
doctors or nurses on their appeal committees.  We did not, however,
analyze individual appeal cases and so were unable to determine
whether doctors and nurses with appropriate expertise made appeal
decisions in cases of clinical service denial, as called for by
several groups.

Fifteen HMOs (of 37 reporting) required that persons reviewing
appeals not be the same individuals involved in the case earlier.
Persons reviewing appeals varied from HMO to HMO.  Among HMOs using
an individual to resolve first-level appeals, some HMOs assigned an
appeal coordinator or grievance coordinator to resolve these appeals,
while others assigned first-level appeals to the HMO medical director
or other physician, the HMO president, or the HMO executive director.
The composition of review committees varied as well.  Most HMOs
included doctors or nurses on their appeal committees; many HMOs
included representatives of various HMO departments--such as medical
management, marketing, quality management, customer service, or
claims--on such committees.

Many HMOs also included individuals not affiliated with HMO
operations on decisionmaking committees.  A few HMOs used physicians
not employed by the HMO to review appeals; several HMOs also included
HMO enrollees on decisionmaking committees.  One HMO, for example,
had a 10-person panel to decide second-level appeals, with 5 HMO
enrollees on the panel, including the panel chair, and 5 HMO
physicians.  A few HMOs used the board of directors, or a subset
thereof, as the decisionmaking committee for second- or third-level
appeals.  Boards of directors may comprise various individuals from
the community; one HMO in our study included a judge, a professor,
numerous corporate officials, and others on its board of directors.

         ELEMENTS OF COMMUNICATION
-------------------------------------------------------- Letter :4.1.3

All 38 HMOs reported providing written information about their
complaint and appeal system to their members.  Of these 38, we found
34 to have provided this information in an understandable manner.
HMOs provided information about how to file a complaint or appeal in
member handbooks, HMO newsletters, or other HMO documents and in
letters sent to members in the event of a denial.  For example, one
HMO's handbook, after describing the process members should go
through in order to lodge a complaint, provided the following
information to members still dissatisfied:

     "Members who are not satisfied with the initial response to
     their concerns should write to [the HMO] as soon as possible.
     Address the letter to [HMO address].  The letter should include
     your name, address, [HMO] ID card number, a detailed description
     of the grievance (including relevant dates and provider names)
     and all supporting documentation.  We will acknowledge the
     receipt of all written grievances.  Our Grievance Committee will
     review all grievances and we will send you a written
     determination within 30 business days after we have received
     your grievance.  [The HMO] may notify you in writing that we
     need to extend the 30-day grievance determination period if we
     need to obtain more information."

The handbook continued with a description of the HMO's second- and
third-level appeal processes.  Another HMO's handbook, after
describing the HMO's complaint and appeal procedure, stated "In a
situation where a delay could worsen your health, you will get an
answer to your concern within 48 hours." Yet another HMO's handbook,
stressing the difference between its standard appeal process and its
expedited appeal process, stated that if a member had a concern about
an urgent situation, "The above complaint procedures do not apply."
The handbook went on to explain the expedited appeal procedure in
detail.

In contrast, we judged two HMOs to be lacking in the provision of
understandable information to members.\12 These two HMOs, although
providing general information about their complaint and appeal
policies, used unfamiliar terms to describe the appeal process and
did not give specific instructions about how to initiate or continue
the appeal process.  One HMO's description follows:

     "If the Member is unsatisfied with the informal process, or if
     the process exceeds the stated time limits, the concern enters a
     formal Level I Grievance.  The Operations Intake Grievance
     Coordinator will coordinate a group to resolve the concern of
     the Member.  The Intake Grievance Coordinator will respond to
     the Member in writing within 30 days regarding the
     determination."

Most HMOs--36 of 38 reporting--accepted oral complaints.  Two HMOs
required members to put complaints in writing.  Only 12 HMOs (of 37
reporting) accepted appeals orally; the remaining 25 HMOs required
members to put appeals in writing, although 3 of these plans told us
they provide writing assistance to members who request it.  Some HMO
officials told us that they prefer the member to submit the appeal in
writing in order to ensure that the member's concerns are accurately
characterized.

Thirty-one HMOs, out of 34 reporting, included member appeal rights
in notices of denial of care or payment of service.  One HMO that did
not include this element informed its members of their appeal rights
in denials stemming from benefit coverage or medical necessity
decisions but not in denials related to claims for payment.  Another
HMO provided a telephone number for the member to call if the member
had any questions but did not enumerate the member's appeal rights.
Of 37 HMOs reporting, 36 provided a written notice of appeal denials,
including appeal rights; the one remaining HMO provided written
notice of denials but did not include appeal rights.

--------------------
\12 The two remaining HMOs told us that they provide written
information to their members, but they did not give us sufficient
documentation to judge whether the information was understandable.

   CONSUMER GROUPS EXPRESSED
   CONCERNS REGARDING CONFLICT OF
   INTEREST AND COMMUNICATION
   DIFFICULTIES
------------------------------------------------------------ Letter :5

Although the majority of HMOs' complaint and appeal systems included
most of the important elements, consumer advocates expressed concern
that such systems are not fully meeting the needs of enrollees.\13
Advocates specifically noted the lack of an independent, external
review of plan decisions on appeals and noted members' difficulty in
understanding how to use complaint and appeal systems.  This latter
issue, however, may reflect a lack of understanding about health
insurance in general and managed care in particular.

--------------------
\13 According to the California task force, there is a wide
perception and concern among consumers, advocates, providers,
purchasers, and health plans that some disputes take too long to
resolve, current processes are not well understood, and disputes are
not resolved efficiently.  One study cited by the task force found
that, of members with a complaint or problem in 1995, 52 percent were
dissatisfied with the way it was handled by their health plan.  See
California Managed Health Care Improvement Task Force, "Improving the
Dispute Resolution Process in California's Managed Care System:
Findings and Recommendations," adopted December 12, 1997.

      ENROLLEES LACK ACCESS TO AN
      EXTERNAL REVIEW
---------------------------------------------------------- Letter :5.1

Independent external review of plan decisions was of particular
importance to consumer advocates, although none of the regulatory or
industry groups we studied included external review as an element
critical to complaint and appeal systems.\14 Consumer advocates told
us that, regardless of the particular mechanisms plans use to resolve
appeals, having plan employees review the decisions made by other
plan employees suggests that plan self-interest may supersede
objectivity.  Accordingly, consumer advocates believe that review by
an independent third party is essential to ensuring integrity in
decisionmaking.\15

FUSA states that external review should (1) be conducted by reviewers
with appropriate medical expertise; (2) be paid for by the plan, not
the member; and (3) allow members to retain their rights to seek
legal remedies.

The President's Quality Commission also states that members should
have access to an independent system of external review.  Among its
criteria for external review, the Commission states that such review
should (1) be available only after consumers have exhausted all
internal processes (except in cases of urgently needed care); (2) be
conducted by health care professionals with appropriate expertise,
who were not involved in the initial decision; and (3) resolve
appeals in a timely manner, including provisions for expedited
review.  Additional analysis must be done, according to the
Commission, to identify the most effective and efficient methods of
establishing the independent external appeal function.  Issues to be
considered include mechanisms for financing the external review
system, sponsorship of the external review function, consumer
cost-sharing responsibilities (for example, filing fees), and methods
of overseeing external appeal entities and holding them
accountable.\16

Managed care organizations have raised concerns about requirements
for external review, noting that under various proposals the external
reviewers may not be qualified, may not use proper standards, may add
expense, and may delay the process.  Addressing the expense issue,
however, a recent report by The Lewin Group estimated that external
review would cost no more than 7 cents per enrollee per month.\17
According to the report, the estimated cost is small because, in
practice, only a small number of appeals reach the external review
process.  Once the cost is divided among the total number of
enrollees, the cost per enrollee is very low.

There is limited experience with external review systems for HMO
members.  HCFA requires that appeals by Medicare HMO enrollees be
reviewed by an independent party if the initial appeal is denied by
the HMO.  In such cases, the HMO is required to send the denial,
along with medical information concerning the disputed services, to a
HCFA contractor that adjudicates such denials.  Since 1989, the HCFA
contractor has been the Center for Health Dispute Resolution (CHDR)
(formerly known as the Network Design Group) of Pittsford, New York.
CHDR hires physicians, nurses, and other clinical staff to evaluate
beneficiaries' medical need for contested services and make
reconsideration decisions.  According to the CHDR president, as of
July 1997, nearly one-third of the denials that Medicare HMOs upheld
in their grievance proceedings were overturned by CHDR; for some
categories of care, that rate was 50 percent.

According to NCSL, legislation or regulation mandating external
review has been enacted by 16 states.\18 In Florida, for example, the
program consists of a statewide panel made up of three Florida
Department of Insurance representatives and three representatives
from Florida's Agency for Healthcare Administration.  The process is
available to any enrollee who has exhausted the HMO's internal appeal
procedure and is dissatisfied with the result.  HMOs are required to
inform members about the program, including the telephone number and
address of the panel.  According to a Florida official, from 1991 to
1995 an average of 350 appeals per year were heard under the program:
issues included quality of, and access to, care; emergency services;
unauthorized services; and services deemed not medically necessary.
About 60 percent of the appeals were resolved in favor of the member,
about 40 percent in favor of the HMO.

Eight of the 38 HMOs in our study, including all Florida HMOs,
provided external review to their members.  Thirteen HMOs, including
two of the eight HMOs offering external review, granted their members
the option of arbitration, a process in which the parties choose a
disinterested third party to whom to present their case for a legally
binding ruling, after the HMO's internal appeal process has been
exhausted.\19 Although arbitration has been promoted as a quick,
informal, and flexible alternative to litigation, some HMOs have been
criticized for requiring members to enter into binding arbitration
agreements as a condition of enrollment.  Such agreements, according
to consumer advocates, require enrollees to relinquish their rights
to legal remedies in the event they are not satisfied with their
plan's response.  Further, according to these advocates, not all
enrollees understand that they have agreed to binding arbitration or,
if they do understand, do not know how it works or the costs
associated with it.

--------------------
\14 FUSA was the only group in our study that identified external
review as an important element in complaint and appeal systems.
However, NCQA plans to address the issue.  While external review is
not part of NCQA's current accreditation standards, the group plans
to conduct research to determine whether and under what circumstances
to implement a standard providing for external review.

\15 According to a recent nationwide survey, 88 percent of
respondents would favor a law requiring health plans to allow denied
claims to be appealed to an independent reviewer.  However, the
approval rate fell to 63 percent if the law might result in an
increase in insurance premiums, 51 percent if the law might result in
the government becoming "too involved," and 49 percent if the law
might result in employers dropping coverage.  See Kaiser Family
Foundation, "Kaiser/Harvard National Survey of American's Views on
Consumer Protection in Managed Care," press release, Washington,
D.C., Jan.  21, 1998.

\16 Advisory Commission on Consumer Protection and Quality in the
Health Care Industry, "Consumer Bill of Rights and Responsibilities:
Report to the President of the United States," Nov.  1997.

\17 In developing cost estimates, the report's authors considered
different scenarios.  They provided two alternative costs for the
external appeal process:  one if the state performs the review and
one if state-approved independent external appeal contractors decide
cases.  The state cost was estimated at $867, the average cost for an
external review in Florida; the contractor cost was estimated at
$450, the approximate average cost per appeal in New Jersey, Rhode
Island, and Texas.  The authors also provided two alternative rates
of external appeals:  the rate of external appeals in Florida (less
than 0.1 per 1,000 members), and the rate of external Medicare
appeals (1 per 1,000 members).  Using the higher cost per appeal and
the higher rate of appeals, Lewin calculated the $0.07 figure.
However, the report notes that additional administrative costs are
not accounted for in this estimate.  See Allen Dobson and others,
Consumer Bill of Rights and Responsibilities Costs and Benefits:
Information Disclosure and External Appeals (Fairfax, Va.:  The Lewin
Group, Inc., Nov.  18, 1997).

\18 Arizona, California, Connecticut, Florida, Michigan, Missouri,
New Hampshire, New Jersey, New Mexico, North Carolina, Ohio,
Pennsylvania, Rhode Island, Tennessee, Texas, and Vermont all require
that plan decisions be externally reviewed in certain instances.  The
California law is limited to experimental treatment; Ohio's law
applies only to patients with a terminal condition and a life
expectancy of less than 2 years; and Vermont's law applies to denials
for mental health services only.

\19 We did not assess, however, to what extent any of the external
review procedures offered by HMOs in our study met the guidelines
established by FUSA or the President's Quality Commission.

      UNDERSTANDING COMPLAINT AND
      APPEAL SYSTEMS CAN BE
      DIFFICULT FOR MANY
---------------------------------------------------------- Letter :5.2

Despite the fact that most HMOs provided information to members,
communication difficulties were noted by both HMO officials and HMO
members.  For example, although many of the HMOs we reviewed had
included descriptions of their complaint and appeal systems in member
handbooks, several HMO officials told us that most members do not
read their handbooks carefully.  Some HMO officials told us that
their members were not familiar with the requirements of managed care
(such as obtaining authorization before seeing a specialist or using
physicians in the HMO's network) and that many complaints and appeals
stemmed from this lack of understanding.

Underscoring the need for effective communication, consumer advocates
we spoke with consistently noted that HMOs' complaint and appeal
systems were not well understood by members.  For a variety of
reasons, according to the advocates, many HMO members are reluctant
to use the complaint and appeal system.\20 In some cases, advocates
said, members who are incapacitated may have neither the time nor the
energy to navigate the HMO's complaint and appeal system.  Advocates
in Florida and Oregon told us that some members are intimidated by
the formality and size of the HMO.  Insufficient use of complaint and
appeal systems was also identified as a problem by the president of
NAIC.\21

HMO officials' statements about enrollees--that many do not read
their handbooks and that many do not understand the requirements of
managed care--are supported by the results of a 1995 national
survey.\22 According to this survey, half of insured respondents
merely skim--or do not read at all--the materials about their health
plan.  Further, many consumers do not understand even the basic
elements of health plans, including the ways in which managed care
plans differ from traditional indemnity insurance.  For example,
barely half (52 percent) of managed care enrollees knew that managed
care plans place emphasis on preventive care and other health
improvement programs, generally including Pap smears and children's
immunizations.  Only about three-quarters knew that their choice of
physicians was limited to those in the plan, that patients must see a
primary care physician first for any health problem, or that, with
the exception of emergencies, patients must be referred by their
primary care physician before they can see a specialist.

Member confusion is not limited to managed care enrollees, however.
According to a nationwide survey conducted in 1994 and 1995, a
similar percentage (24 to 33 percent) of managed care enrollees and
fee-for-service enrollees reported difficulty understanding which
services were covered by their insurance.  Further, about 30 percent
of enrollees in each group reported that they had problems dealing
with insurance plan rules that were confusing and complex.\23

Communication difficulties were also noted by the California task
force as well as NCQA.  The task force cited a recent study of the
"readability" of health insurance literature and contracts that found
that the average document was written at a reading level of third- or
fourth-year college to first- or second-year graduate school.  In
contrast, according to the report, the results of the 1992 Adult
Literacy Survey conducted by the U.S.  Department of Education
indicated that writing directed at the general public should be at
the seventh- or eighth-grade level.\24 From focus groups with
commercial members in 1994 and 1995, NCQA concluded that, though it
is important that HMO members know how to use managed care systems,
many do not fully understand how they function.

To resolve the communications problem, whatever its genesis, several
HMOs we contacted have come up with alternative communication methods
to supplement member handbooks.  For example, one HMO reported
distributing to its members a videotape that explained the complaint
and appeal system.  Other HMOs periodically published reminders and
articles about the system in their newsletters, some of which
encouraged members to contact a customer service representative with
any questions about the complaint and appeal system.

Another method aimed at improving communication between plans and
members is the ombudsman program, in which an independent party
educates members about, and assists them with, the intricacies of the
health plan, including the complaint and appeal system.\25 Ombudsman
programs--sometimes referred to as independent assistance
programs--may fall along a spectrum of types, from neutral,
mediation-type programs to active consumer advocacy.  Ombudsman
programs have been established in several locations, including
California, Florida, Michigan, and Wisconsin.  In Florida, for
example, ombudsman committees have been established by the state to
act as volunteer consumer protection and advocacy organizations on
behalf of managed care members in the state, and these committees may
assist in the investigation and resolution of complaints.  Members of
the committees include physicians, other health care professionals,
attorneys, and consumers, none of whom may be employed by or
affiliated with a managed care program.\26

An ombudsman program is also available to consumers in northern
California.  The program is funded by three California-based
foundations--the California Wellness Foundation, the Henry J.  Kaiser
Family Foundation, and the Sierra Health Foundation--and is
administered by the Center for Health Care Rights, a Los
Angeles-based consumer advocacy organization.  The program, confined
to the Sacramento area, was designed to assist individuals with
general questions about managed care, as well as help resolve
specific problems with managed care plans--for example, providing
assistance in filing and pursuing formal grievances.  The program
also emphasizes educating managed care enrollees about their rights
and responsibilities in different circumstances and using the data
collected from individual patients for system improvement purposes.

--------------------
\20 According to a 1997 survey of Sacramento consumers, fewer than
half contacted their health plan in response to their most recent
difficulty with the plan.  Of the consumers who did nothing in
response to their problem, 26 percent said they did not think taking
action would do any good, 24 percent said it was not worth the time,
and 14 percent said they did not know what to do.  See The Lewin
Group, Inc., and Survey Methods Group, Inc., "Survey of Consumer
Experiences in Managed Care," prepared for the Henry J.  Kaiser
Family Foundation, the Sierra Health Foundation, and The California
Wellness Foundation, November 1997.

\21 See John K.  Iglehart, "State Regulation of Managed Care:  NAIC
President Josephine Musser," Health Affairs, Vol.  16, No.  6
(Nov.-Dec.  1997).

\22 The results of the Louis Harris and Associates' "Navigating the
Changing Healthcare System" probability survey, covering 1,081 adults
nationwide, are reported in Stephen L.  Isaacs, "Consumers'
Information Needs:  Results of a National Survey," Health Affairs,
Vol.  15, No.  4 (Winter 1996).

\23 Karen Donelan and others, "All Payer, Single Payer, Managed Care,
No Payer:  Patients' Perspectives in Three Nations, " Health Affairs,
Vol.  15, No.  2 (Summer 1996).

\24 California Managed Health Care Improvement Task Force, "Consumer
Information, Communication, and Involvement:  Findings and
Recommendations," adopted Dec.  13, 1997.

\25 The importance of an ombudsman program was recently recognized by
a coalition of five organizations--three major HMOs (Group Health
Cooperative of Puget Sound, HIP Health Insurance Plans, and Kaiser
Permanente) and two consumer groups (the American Association of
Retired Persons, and FUSA).  In September 1997, this coalition issued
a "New Agreement on Managed Care Consumer Protections," identifying
standards, or principles, covering 18 areas of consumer protection,
including ombudsman programs.

\26 As of January 1998, ombudsman committees were in place only in
Broward County.

   COMPLAINT AND APPEAL DATA ARE
   NEITHER COMPARABLE NOR
   ACCESSIBLE
------------------------------------------------------------ Letter :6

Publicly available data on the number and types of complaints and
appeals, if defined and collected in a consistent fashion, could
enhance oversight, accountability, and market competition.  Such
information would offer regulators, purchasers, and individual
consumers a better opportunity to evaluate the relative performance
of health plans.  However, the data collection and documentation
systems used by HMOs in our study lack uniformity, making comparisons
across HMOs difficult.  Therefore, although limited data from HMOs in
our study show wide variation from one HMO to another in the number
and types of complaints and appeals, comparisons are not particularly
meaningful.

      PUBLIC ACCESS TO DATA MAY
      BENEFIT REGULATORS AND
      CONSUMERS
---------------------------------------------------------- Letter :6.1

Public records of member grievances can provide useful information on
problems in HMOs.  If systematically developed, complaint and appeal
data could be used to improve monitoring of HMOs by states or
purchasers.  In 1996, NAIC adopted its Health Carrier Grievance
Procedure Model Act, intended to provide standards for procedures by
health plans to ensure that plan members receive appropriate
resolution of their grievances.  The model act calls for a grievance
register to be accessible to the state insurance commissioner.  Each
health plan would maintain written records to document all grievances
received during a year.  The register would contain a general
description of the reason for the grievance, date received, date of
each review, resolution at each level, date of resolution at each
level, and the name of the covered person.\27 The plan would submit
to the commissioner an annual report that includes the number of
grievances, the number of grievances referred to second-level review,
the number resolved at each level and their resolution, and actions
taken to correct problems identified.

Some government agencies and consumer groups contend that public
accountability for complaint and appeal practices could also provide
prospective enrollees with important information needed to compare
plans.  If these data were standardized and publicized, HMOs could
compete on the basis of complaint and appeal rates.  Publishing the
complaint rates would likely boost enrollment of plans with low
complaint rates and encourage plans with high rates to improve their
performance.

For example, in the interests of providing Medicare beneficiaries
with information that will help them make choices among health plan
options, HCFA intends to require contracting health plans to submit
standardized, plan-level appeal data.\28 After assessing the
database, the agency, in consultation with consumer groups and
managed care plans, will determine what types of measures are valid,
reasonable, and helpful to the public.

However, HCFA and consumer groups, as well as accrediting bodies such
as NCQA, recognize that reporting simple complaint and appeal rates
on individual plans may be a misleading indicator of members'
relative satisfaction with HMOs.  There may be a relationship between
these rates and enrollee knowledge and education about their rights
to complain and appeal plan decisions.  Also, some plans place
greater emphasis on soliciting and documenting member complaints.
Public access to such information could then lead to
misunderstandings that could harm plan reputations.  However, such
information might prove beneficial when used in conjunction with
other performance indicators.

--------------------
\27 Although NAIC does not enumerate specific categories into which
grievances should be placed, it does suggest that states may want to
do so.  Similarly, the California task force recommends that health
plans should be required to use standard definitions for the meaning
of terms commonly used in grievance processes, categories for
reporting complaint types, and minimum standards for data collection
by type of complaint.  See California Managed Health Care Improvement
Task Force, "Improving the Dispute Resolution Process in California's
Managed Care System:  Findings and Recommendations," adopted Dec.
12, 1997.

\28 For a review of information that could assist Medicare
beneficiaries in choosing an HMO, see Medicare:  HCFA Should Release
Data to Aid Consumers, Prompt Better HMO Performance (GAO/HEHS-97-23,
Oct.  22, 1996).

      DATA COLLECTION AND
      DOCUMENTATION SYSTEMS LACK
      UNIFORMITY, MAKING
      COMPARISONS DIFFICULT
---------------------------------------------------------- Letter :6.2

We asked HMOs to provide us with the number of complaints and appeals
received from commercial members in 1996 and the nature of the
complaints and appeals.  HMOs differed in the ways they defined
complaints and appeals and in the ways they counted the complaints
and appeals they received.\29

While many HMOs defined complaints as expressions of dissatisfaction,
and appeals as requests for the HMO to reconsider a decision, several
HMOs differed.  Some HMOs, for example, differentiated between
informal and formal complaints.  Other HMOs used the term appeal to
refer to an expression of dissatisfaction with the outcome of a
complaint, whether or not it involved a request for reconsideration.

Among the HMOs in our review, "grievance" was often used in addition
to, or in place of, complaints and appeals.  HMOs generally used the
term when referring to (1) any expression of dissatisfaction; (2)
complaints about a particular issue, such as quality of care; or (3)
requests for reconsideration of HMO decisions.

HMOs also differed in the way they counted complaints and appeals.
One HMO, for example, told us that it does not count oral complaints
that are immediately resolved by plan representatives.  Another HMO
reported that it may count one member contact, such as a letter or
telephone call, as several complaints if the contact involves several
different issues.

These differences, together with limitations in the data some HMOs
provided us, hindered our attempt to report in a consistent manner
the numbers of complaints and appeals received by the HMOs in 1996.
Although 33 of the 38 HMOs provided us with data on complaints or
appeals, in only 27 cases did the data allow us to calculate the
number of complaints or appeals per 1,000 enrollees.\30 For the
remainder of the HMOs that submitted data, limitations in the data
prevented such a calculation.  One HMO provided data for only
three-quarters of the year, another HMO provided data for only 1997,
another plan did not break out HMO enrollees separately from
enrollees in other managed care arrangements such as preferred
provider organizations or Medicare, another HMO provided data on the
number of complaints in the "top five" complaint categories but did
not provide the total number of complaints, and another HMO provided
data for only one category of complaint.

Not unexpectedly, given the wide variation in HMO definitions and
data collection and documentation methods, the number of complaints
and appeals reported to us by the HMOs we studied varied widely.  In
1996, complaints ranged from 0.5 per 1,000 enrollees to 98.2 per
1,000 enrollees.  A similarly wide range was apparent in the number
of appeals received; appeals ranged from 0.07 per 1,000 enrollees to
69.4 per 1,000 enrollees.\31

Complaints and appeals reported by HMOs covered a variety of issues.
The most common complaints reported to us were characterized by HMOs
as complaints about (1) medical or administrative services, (2)
quality of care, and (3) claims issues (such as complaints about the
processing of claims for services received).  The most common appeals
reported to us were characterized by HMOs as appeals of (1) benefit
issues (such as services or benefits that are not covered under the
member's policy), (2) denial of payment for emergency room visits,
and (3) referral issues (such as instances in which a member visited
a physician without first obtaining a referral, as required in the
member's contract).

Concerned about the limitations of our data, we contacted insurance
regulators in the five states in our study, to determine whether they
required HMOs to report to them the number of complaints and appeals
the HMOs received.  However, according to the regulators, none of
these states collected such information from HMOs (though the states
do record and maintain information about complaints they receive
directly from the public).  A Florida insurance division official
told us that the state stopped collecting this data several years ago
because they did not have the resources to continue.  The Oregon
insurance division will begin collecting such information in 1998.
Neither JCAHO nor NCQA collects complaint or appeal numbers from
plans during accreditation reviews.

--------------------
\29 According to a background paper prepared for the California task
force, health plans use different terms to describe the same or very
similar processes; for example, inquiry, concern, complaint,
grievance, and appeal were used inconsistently.  Health plans also
use different descriptions for the reasons members complain.
Further, some plans use the category of inquiry or similar term for
an initial complaint, which if resolved satisfactorily is not
recorded or tracked for summary level reporting.  See California
Managed Health Care Improvement Task Force, "Improving the Dispute
Resolution Process in California's Managed Care System:  Background
Paper."

\30 Also, for HMOs using the term grievances, we assigned these
grievances to either complaints or appeals depending on the type of
grievance received.

\31 HMOs provided us with numbers of complaints, grievances, and
appeals received in 1996 but did not provide us enrollment data for
that time period.  To calculate the rate per 1,000 members, we used
1996 enrollment data from Interstudy.

   HMOS REPORT THAT COMPLAINT AND
   APPEAL DATA HELP TARGET
   PROBLEM-SOLVING EFFORTS
------------------------------------------------------------ Letter :7

All HMOs in our study told us that they analyze complaint and appeal
data to identify systemic problems that the plan needs to address.
HMOs generally reported using complaint and appeal data, together
with data from other sources, in several ways:  to make changes to
the plan itself (such as changes to benefits or plan processes) or to
promote change in members' behavior and providers' behavior.  In
addition to using complaint and appeal data, HMOs reported using
other indicators of member satisfaction, such as the results of
member satisfaction surveys and member focus groups, and feedback
from purchasers, to identify common problems.

Documenting and analyzing complaints and appeals can help plans deal
with chronic problems by informing management about various elements
of plan performance, both clinical and administrative.  Resolution of
problems brought to the plan's attention, if widespread or recurring,
can lead to improvements in access to care, physician issues, and
quality of care, as well as changes in plan policies and
procedures.\32

Several HMOs reported expanding member benefits, at least in part as
a result of complaints and appeals they received.  Three HMOs added a
drug to the HMO's formulary; another added Weight Watchers coverage.
Other HMOs changed their processes or structure.  Several HMOs
reported changes to their system for processing and paying emergency
room claims.  Two HMOs, for example, increased the number of
emergency room diagnoses that they would automatically pay without
reviewing the claim.  Claims that would previously have been denied
were thus paid.

Another HMO, in response to members' complaints about not being
allowed to see well-regarded specialists in a nearby city, changed
its policy so that, after a patient had been referred to a specialist
within the HMO and had seen that specialist, the patient was then
free to see any of several nonplan specialists in the city, and the
HMO would pay for the specialists' services.

HMOs changed other processes as well.  Two HMOs increased staffing in
their member service departments in order to reduce the time members
telephoning the HMO spent on hold; another HMO added additional
telephone lines for the same purpose.  Several HMOs adopted
centralized appointment systems or took other measures to increase
the efficiency and timeliness of the appointment-setting process.
Two HMOs reported changing their pharmacy benefits vendor as a result
of member complaints.

Some HMOs reported paying for an unauthorized service (for example,
an unwarranted visit to the emergency room or an unauthorized visit
to a provider specialist outside the network) but then sending the
member a letter explaining why the member was not entitled to the
service received and warning that a repeat occurrence would not be
paid for.  Through such policies (called by one HMO a "pay and
educate" policy, by another a "first-time offender" policy), HMOs
avoid an immediate appeal of a denied claim and hope to reduce
unnecessary or unauthorized visits in the future.

HMOs have also initiated efforts to educate their members.  One HMO
with a high number of appeals regarding denied payment for emergency
room services increased publicity of its nurse hotline.  This hotline
was a service provided to members who wanted medical advice,
particularly members having doubts about whether a visit to the
emergency room was necessary.

Many HMOs reported using complaint and appeal data about specific
providers as part of their processes for recredentialing providers;
one HMO reported terminating a provider as a direct result of a
member complaint.  Some HMOs reported using complaint and appeal data
to evaluate provider performance.  For example, a few HMOs reported
establishing peer review panels, in which providers within the HMO
would review information, including complaints and appeals, to
evaluate the performance of other providers.\33

Three HMOs told us that many of the quality-of-care complaints they
received from members actually resulted not from poor quality but
from poor communication between providers and members.  Two HMOs
began training or educating providers in order to improve their
communication.  Another HMO implemented a physician feedback survey
to provide information to physicians about their communication and
interpersonal skills.

--------------------
\32 To obtain accreditation by NCQA and JCAHO as a managed care
organization, plans must obtain and use member feedback.  Plans are
required to track, report, and use customer complaints to identify
and address one-time and systemic problems.

\33 According to a 1994 survey of 108 managed care plans, about 60
percent of HMOs considered patient complaints and grievances in
setting compensation for primary care physicians.  See Physician
Payment Review Commission, Arrangements Between Managed Care Plans
and Physicians:  Results from a 1994 Survey of Managed Care Plans,
Selected External Research Series, No.  3 (Washington, D.C.:
Mathematica Policy Research, Inc., Feb.  1995).

   CONCLUSIONS
------------------------------------------------------------ Letter :8

The policies HMOs have in place generally include most elements
considered important to complaint and appeal systems.  Yet the
systems may not be working as well as they could to serve enrollees'
interests.  Better communication and information disclosure could
improve the complaint and appeal process for the benefit of HMO
members and plans.  Many consumers may not fully understand the rules
for gaining access to health care or the complex benefits structures
in HMOs.  As a result, members may seek care that the plan will not
authorize or pay for, and member dissatisfaction increases.

At the same time, even though HMO enrollment materials generally
describe complaint and appeal systems in accurate detail, many
members may not know of their right to complain or appeal or may not
understand how to exercise that right.  Innovative approaches might
improve consumer understanding.  For example, ombudsman programs
might be an alternative way to facilitate consumer knowledge about,
and use of, these systems.  Ironically, members' inability to
navigate the complaint process results in little formal tracking of
patterns of problems encountered.  Improved consumer knowledge might
lead to more appropriate use of complaint and appeal systems and thus
might provide more information to HMOs wishing to identify and
address plan problems.

Finally, consumers lack the information they need to compare plans in
a meaningful way.  If defined and collected uniformly, complaint and
appeal data, as a performance indicator, could be important tools for
consumers when selecting a health plan.  Publicly available,
comparative information about the number and types of complaints and
appeals, the outcomes of the dispute resolution process, and actions
taken to correct problems would provide information about not only
member satisfaction but also plan responsiveness to problems raised
by members.  Demand for, and use of, such information by consumers
could have a positive influence on plan operations and quality
through market competition.

   COMMENTS AND OUR EVALUATION
------------------------------------------------------------ Letter :9

We obtained comments from AAHP, FUSA, NAIC, NCQA, and the Center for
Healthcare Rights.  The reviewers provided specific technical
corrections that they thought would provide clarification or reflect
additional perspectives on the issues addressed.  We incorporated
comments and technical changes as appropriate.  JCAHO did not respond
to our request to provide comments.

---------------------------------------------------------- Letter :9.1

As arranged with your office, unless you publicly announce its
contents earlier, we plan no further distribution of this report
until 30 days after its issue date.  We will then send copies to
those who are interested and make copies available to others on
request.  Please call me on (202) 512-7119 if you or your staff have
any questions.  Major contributors to this report include Rosamond
Katz, Sigrid McGinty, Steve Gaty, and Craig Winslow.

Bernice Steinhardt
Director, Health Services Quality
 and Public Health Issues

CHARACTERISTICS OF THE 38 HMOS IN
OUR STUDY
=========================================================== Appendix I

                                                                Number
                                                                    of
                                                                  HMOs
                                                                in our
Characteristic                                                   study
--------------------------------------------------------------  ------
Dominant model type
----------------------------------------------------------------------
Group or staff                                                       3
Individual practice association (IPA) or network                    23
Mixed                                                               12

HMO size (number of commercial covered lives as of 1/1/96)
----------------------------------------------------------------------
0-49,999                                                            19
50,000-99,999                                                        6
100,000-149,999                                                      4
150,000 or more                                                      9

NCQA accreditation status
----------------------------------------------------------------------
3-year accreditation                                                14
1-year accreditation                                                 5
Provisional accreditation                                            1
Accreditation denied                                                 2
Accreditation review scheduled                                       1
Not accredited                                                    15\a

State health care consumer protection regulation\b
----------------------------------------------------------------------
Little or none                                                      23
Moderate to strong                                                  15

HMO market penetration for metropolitan statistical area