Patient Protection and Mandatory External Review: Amending ERISA's Claims Procedure

Order Code RS20258

Updated January 19, 2001

CRS Report for Congress

Received through the CRS Web

Patient Protection and Mandatory External

Review: Amending ERISA's Claims Procedure

name redacted

Legislative Attorney

American Law Division

Summary

This report discusses the existing claims procedure required by the Employee

Retirement Income Security Act of 1974 (ERISA), and legislative efforts in the 106th

Congress to amend ERISA to provide for the mandatory external review of denied

benefits. Although most of the patient protection bills introduced in the 106th Congress

included provisions for external review and more rigorous standards for the internal

review of denied benefits, this report focuses on the Patients’ Bill of Rights Plus Act of

1999, S. 1344, passed by the Senate on July 15, 1999, and the Bipartisan Consensus

Managed Care Improvement Act of 1999, H.R. 2990, passed by the House of

Representatives on October 7, 1999.

The need to improve existing grievance and appeals procedures for individuals

receiving health care coverage through employer-sponsored benefit plans was recognized

in most of the patient protection bills introduced during the 106th Congress.1 Although

H.R.2990, as introduced by Representatives Talent and Shadegg, was concerned primarily

with tax deductions and incentives, the remaining bills each provided for modified

grievance and appeals procedures: S. 6 and S. 1256, introduced by Senator Daschle; S.

300, introduced by Senator Lott; S. 326, introduced by Senator Jeffords; S. 374,

introduced by Senator Chafee; H.R. 358, introduced by Representative Dingell; H.R. 216,

introduced by Representative Norwood; H.R. 448, introduced by Representative Bilirakis;

H.R. 719, introduced by Representative Ganske; H.R. 1133, introduced by Representative

Nadler; H.R. 2095, H.R. 2089, and H.R. 2926 introduced by Representative Boehner;

H.R. 2723, introduced by Representatives Norwood and Dingell; and H.R. 2824,

introduced by Representatives Coburn and Shadegg.2

1

See Jean P. Hearne, Patient Protection and Managed Care: Legislation in the 106th Congress,

CRS Issue Brief IB98017.

2

See Hearne, supra note 1 (H.R. 2089 was offered as part of a package of eight other bills). On

(continued...)

Congressional Research Service ˜ The Library of Congress

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Under existing law, employer-sponsored benefit plans are required to provide only

a "reasonable opportunity. . . for a full and fair review by the appropriate named fiduciary"

if a participant is denied a plan benefit.3 To accomplish such "full and fair review," the

Department of Labor (DOL) requires that plans establish review procedures for

participants interested in appealing benefit denials.4 The internal review structure outlined

by the DOL has few guidelines: the appropriate named fiduciary has 60 days to issue a

decision after receiving a claimant's request for review; under special circumstances, the

fiduciary has up to 120 days after the receipt of the request for review to issue a decision.5

These minimal guidelines have promoted little uniformity among the internal review

procedures of employer-sponsored plans. Further, while some plans provide external

review procedures, none are required.

Although the managed care industry contends that the existing claims procedure

works well and fears that an additional level of review will increase costs, many believe

that improved procedures will not only empower patients, but enhance access to treatment

and improve the quality of care provided.6 The creation of a mandatory external review

process for benefit denials is one of the most fundamental changes being considered by

Congress. Proponents argue that external review would act as an oversight mechanism

that could identify procedural errors, provide substantive review, and detect patterns of

inappropriate denials.7 In addition, they believe that external review would assure

participants of an impartiality and independence that may be lacking in the internal review

process.8

Congress is not alone in focusing on the external review process. In its report on

managed care and the rights of patients, the President's Advisory Commission on

Consumer Protection and Quality in the Health Care Industry stated that consumers were

entitled to a "fair and efficient process for resolving differences with their health plans. .

. [including] an independent system of external review."9 Numerous states have enacted

statutes that require independent review for managed care participants who believe that

their claims for benefits have been wrongfully denied.10 However, in Corporate Health

Insurance, Inc. v. Texas Department of Insurance, the U.S. Court of Appeals for the Fifth

2

(...continued)

July 15, 1999, the Senate passed an amended version of S. 300 as S. 1344.

3

29 U.S.C.A. § 1133(2) (West 1985 & Supp. 2000).

4

See 29 C.F.R. § 2560.503-1.

5

29 C.F.R. § 2560.503-1(h).

6

See Tracy E. Miller, Center Stage on the Patient Protection Agenda: Grievance and Appeal

Rights, 26 J. L. Med. & Ethics 89 (1998).

7

Id. at 92.

8

Id.

9

National Advisory Commission on Consumer Protection and Quality in the Health Care Industry,

Consumer Bill of Rights and Responsibilities (Washington, D.C.: National Advisory Commission

on Consumer Protection and Quality, Nov. 1997).

10

See also Candace L. Romig, Patient Rights Still Hot Topic in Congress and the States, AORN

J., May 1, 1999, at 1031.

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Circuit determined that the independent review provisions of the Texas Health Care

Liability Act are preempted by ERISA. 11 The Fifth Circuit contended that the provisions

impermissibly attempt to impose a state administrative regime on coverage

determinations.12 Because the states may be unable to mandate external review for

individuals enrolled in employer-sponsored plans, the proposed bills would modify

ERISA's requirements.

Patients’ Bill of Rights Plus Act of 1999, S. 1344

The Patients’ Bill of Rights Plus Act of 1999, S. 1344, was introduced by Senator

Trent Lott (R-MS) on July 8, 1999, and passed by the Senate on July 15, 1999. S. 1344

sought to amend ERISA to provide additional requirements for group health plans and

health insurance issuers offering coverage in connection with group health plans.

If enacted, S. 1344 would have required group health plans and health insurance

issuers to develop written procedures for addressing grievances. A grievance was defined

by the bill as any complaint made by a participant or beneficiary that does not involve a

coverage determination. Once a grievance was addressed, a resulting determination would

not have been appealable.

S. 1344 would have allowed participants and beneficiaries to appeal any adverse

coverage determination to an internal review process. An adverse coverage determination

was defined as any determination under the plan which results in a denial of coverage or

reimbursement. A participant or beneficiary seeking internal review would have been

allowed at least 180 days after the date of the adverse coverage determination to make an

appeal. Review would have been conducted by an individual with appropriate expertise

who was not involved in the initial determination. Appeals involving issues of medical

necessity or experimental treatment would have been conducted by physicians with

appropriate expertise.

Internal review would have been completed within 30 working days of receiving the

request for review. Where delay could jeopardize the life or health of the claimant, S.

1344 would have required that review was completed no later than 72 hours after

receiving the request for review. A request for expedited review would have to include

documentation of a medical exigency by the treating health care professional. For routine

determinations, notice of the decision would have to be issued no later than 2 working

days after the completion of review. For expedited determinations, notice would have to

be issued within the 72-hour review period. Failure to issue a timely decision would been

treated as an adverse coverage determination for purposes of obtaining external review.

If enacted, S. 1344 would have required all plans and issuers to have written

procedures to permit access to an independent external review process. External review

would have been available to selected adverse coverage determinations. Those

determinations included coverage decisions that (1) are based on medical necessity and

11

12

215 F.3d 526 (5th Cir. 2000).

For further discussion of Corporate Health Insurance, Inc. v. Texas Department of Insurance,

see (name redacted),

ERISA’s Impact on Medical Malpractice and Negligence Claims

Against Managed Care Plans, CRS Report 98-286A (2000).

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exceed a significant financial threshold; (2) are based on medical necessity and involve a

significant risk of placing the life or health of the participant in jeopardy; or (3) involve an

experimental or investigational treatment. To obtain external review, a claimant would

have to complete the internal review process and file a written request for review within

30 working days of receiving the internal review decision.

Within 5 working days after receiving the request for external review, the plan or

issuer would have selected an external appeals entity.13 This external appeals entity would

have designated an external reviewer who would conduct the review. The external

reviewer would have to (1) be appropriately credentialed or licensed to deliver health care;

(2) not have any material, professional, familial, or financial affiliation with the case under

review; (3) have expertise in the diagnosis or treatment under review and be a physician

of the same specialty, when reasonably available; (4) receive only reasonable and

customary compensation from the plan or issuer; and (5) not be held liable for decisions

regarding medical determinations. The external reviewer would have been required to

consider all valid, relevant, scientific, and clinical evidence to determine the medical

necessity, appropriateness, or experimental nature of the proposed treatment.

Review would have been conducted in accordance with the medical exigencies of the

case, but would have to be completed within 30 days of the date on which the reviewer

was designated or all necessary information was received, whichever was later. For cases

where delay could jeopardize the life or health of the participant, review would have to be

conducted within 72 hours of the date on which the reviewer was designated or all

necessary information was received, whichever was later. The determination of the

external reviewer would have been binding upon the plan or issuer.

Bipartisan Consensus Managed Care Improvement Act of 1999,

H.R. 2990

The Bipartisan Consensus Managed Care Improvement Act of 1999, H.R. 2990,

combined two bills: the Quality Care for the Uninsured Act of 1999, originally H.R. 2990,

was introduced by Representatives James M. Talent (R-MO) and John B. Shadegg (R-AZ)

on September 30, 1999, and the Bipartisan Consensus Managed Care Improvement Act

of 1999, originally H.R. 2723, was introduced by Representatives Charlie Norwood (RGA) and John D. Dingell (D-MI) on August 5, 1999.14 The combined bill was passed by

the House of Representatives on October 7, 1999. H.R. 2990 would not only have

required group health plans and health insurance issuers to provide an external review

process for denied claims, but would have also established new deadlines for the internal

review process and mandated the creation of a formal grievance system.

13

S. 1344 identified the following entities as appropriate to serve as external appeals entities:

An independent external review entity licensed or credentialed by a state;

A state agency established to conduct independent external reviews;

Any entity under contract with the federal government to provide independent external review

services;

-Any entity accredited as an independent external review entity; or

-Any entity meeting criteria established by the Secretary of Labor.

----

14

The provisions of the original H.R. 2990 were included in Division A of the new bill and the

provisions of H.R. 2723 comprised Division B of the bill.

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Under H.R. 2990, group health plans and health insurance issuers would have been

required to maintain a system that addressed oral and written grievances. These

grievances would have included any aspect of the plan's or issuer's services, but would not

include a claim for benefits. Once resolved, grievances would not have been subject to

appeal.

If enacted, H.R. 2990 would have permitted a participant, beneficiary, or enrollee to

request and obtain an internal review of his claim within 180 days following a denial of a

claim for benefits. Review would have been conducted by a named fiduciary if the dispute

involved a claim for benefits under the plan. For disputes involving denied coverage,

review would have been conducted by a named appropriate individual. If the case

involved medical judgment, review would have been conducted by a physician.

Internal review would have been completed in accordance with the medical exigencies

of the case, but not later than 14 days after receiving the request for review. If additional

information was needed, this deadline could be extended to 28 days. Where delay could

seriously jeopardize the life or health of the claimant, review would have to be completed

within 72 hours after receiving a request for expedited review. This request could be

submitted orally or in writing by the claimant or provider.

H.R. 2990 would have required all plans and issuers to create an external review

process. External review would have been available for benefit denials that were either

based on medical necessity or involved investigational or experimental treatment. External

review would have also been available when a decision as to whether a benefit is covered

involved a medical judgment. H.R. 2990 would have allowed the Secretary of Labor to

establish additional standards for external review, including a filing deadline. The plan or

issuer would have been permitted to condition external review on the exhaustion of the

internal review process. In addition, the plan or issuer would have been able to charge a

filing fee for external review. However, this fee could not exceed $25.

External review would have been conducted by a certified external appeal entity. For

group health plans, the entity would have to be certified either by the Secretary of Labor,

under a process recognized or approved by the Secretary of Labor, or by a qualified

private standard-setting organization. For state health insurance issuers, the entity would

have to be certified by the applicable state authority or under a process recognized or

approved by such authority. If the state had not established a certification process, the

entity would have to be certified either by the Secretary of Health and Human Services,

under a process recognized or approved by such Secretary, or by a qualified private

standard-setting organization. The external appeal entity would have to conduct its

activities through a panel of not fewer than three clinical peers, and have sufficient

medical, legal, and other expertise and sufficient staffing to conduct its activities in a timely

manner.

The determination of the external appeal entity would have been made in accordance

with the medical exigencies of the case, but not later than 21 days after receiving the

request for external review. Where delay could seriously jeopardize the life or health of

the claimant, a determination would have to be made within 72 hours after receiving the

request for external review. The decision of the external appeal entity would have been

binding on the plan and issuer involved in the determination.

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Please see the following CRS Issue Briefs and Reports for additional information.

Issue Briefs

CRS Issue Brief IB98002, Medical Records Confidentiality.

CRS Issue Brief IB98017, Patient Protection and Managed Care: Legislation in the 106th

Congress.

CRS Issue Brief IB98037, Tax Benefits for Health Insurance.

Reports

CRS Report 97-643, Medical Savings Accounts.

CRS Report 98-286, ERISA's Impact on Medical Malpractice and Negligence Claims.

CRS Report RL30077, Managed Care: Recent Proposals for New Grievance and

Appeals Procedures.

CRS Report RL30144, Side by Side Comparison of Selected Patient Protection Bills in

the 106th Congress.

CRS Series on Managed Health Care

CRS Report 97-482, The Use of Financial Incentives.

CRS Report 97-913, A Primer.

CRS Report 97-938, Federal and State Regulation.

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