Serial No. 106-33


Printed for the use of the Committee on Education

and the Workforce

Table of Contents















Table of Indexes *












Thursday, May 6, 1999




House of Representatives


Subcommittee on Employer-Employee Relations


Committee on Education and the Workforce


Washington, DC






The Subcommittee met, pursuant to call, at 9:45 a.m., in Room 2175, Rayburn House Office Building, Hon. John A. Boehner, Chairman of the Subcommittee, presiding.


Present: Representatives Boehner, Fletcher, Talent, Roukema, DeMint, Andrews, Kildee, Payne, McCarthy, Tierney, Holt.


Staff Present: Robert Borden, Professional Staff Members; Christopher Bowlin, Professional Staff Members; Amy Cloud, Staff Assistant; David Connolly, Jr., Professional Staff Members; Mark Rodgers, Workforce Policy Coordinator; Deborah Samantar, Office Manager; Cedric Hendricks, Minority Deputy Counsel; and Marjan Ghafourpour, Minority Staff Assistant/Labor.


Chairman Boehner. A quorum being present, the Subcommittee will come to order. I want to welcome everyone to our Hearing and especially our witnesses; at least three of the four present here. We have delayed the start of this Hearing because one of our witnesses is in the air and delayed, and hopefully he will be here soon.

Under rule 12 B of Committee Rules any oral opening statements are limited to the Chairman and Ranking Members. This is to allow time for us to hear from our witnesses and help keep Members on their schedules. If Members have statements that they wish to submit, they will be included in the Hearing record. Without objection, all Members statements will be inserted into the record.





Welcome to our fourth Hearing in a series examining the different aspects of employer-sponsored health plans. Today we will hear from a panel of witnesses who will discuss the impact of an external review mechanism of health plans.


At our last Hearing, the Subcommittee heard from witnesses about the participant protections currently available in ERISA. Today's Hearing is a natural follow-up. This Hearing will focus on whether additional protections are needed and suggestions as to how to implement them. We want to look at whether ERISA should be amended to provide a mechanism to resolve disputed benefit claims through an independent third party.


Let me just say that at the last Hearing we learned that ERISA contains strong, enforceable protections for benefit dispute resolution. The act also contains strong remedies against fiduciaries that breach their duties. But we also heard that there may be a need to ensure a fair process to address disputes that are not resolved under the present ERISA structure.


In most instances, independent third parties are best to resolve the more complicated disputes. The best method for arbitrating benefit disputes is for independent third parties to make an unbiased opinion and recommendation. Creating a procedure where disputes could end up in court for years, possibly depleting plan assets, would do more harm than good and is not the answer. I hope we all agree that whatever we do must not result in a process where cases languish in the process. I would welcome any comments the witnesses have on this subject.


If we are to create an external review mechanism, we must design a process that withstands the test of time. ERISA has worked well for 25 years. Any major modifications must be done for the right policy reason and not for political expediency. External review should guarantee a fair and expeditious process, not a specific outcome. In previous congressional testimony it was stated that "Congress cannot guarantee an optimal patient outcome. Participants should have a right to a fair process for reviewing decisions and to a well-informed decision. It may be reasonable to punish parties that deny a participant a fair process. It is not reasonable to punish parties that provide a fair process because that process does not yield a particular result." I think that captures the essence of the issue. We must ensure that patients have due process in the case of legitimate disputes, but not a particular result.


I am of the impression that most of the reason we are talking about these issues is because some think that external review is going to guarantee that some things not now covered would be reversed if subject to external review. We want to be careful not to favor any party in the process.


Employers should not be guaranteed that improper decisions should stand and patients should not be guaranteed that things not now covered would be covered after external review. Remember the guiding theme: A fair and expeditious process, not a particular result.


Furthermore, at our last Hearing witnesses testified that plans deny approximately 3 percent of all claims submitted to the plan. Of this 3 percent denial, at least one quarter are reversed on internal appeal, leaving a small percentage of the overall claims for care not paid for by the plan.


Additionally, we learned that there are many instances where the individual care that a participant ultimately receives after a review process has been completed is enhanced by the interaction between health professionals. Even though statistics show that the vast majority of participant claims are paid by health plans, we would like to explore the possibility of requiring employer plans to offer an external review mechanism to possibly enhance the existing quality of care.


Last week, the Employee Benefit Research Institute, EBRI, released the results of their survey which showed that participants with employer sponsored health coverage are clearly satisfied with this system and are not at all interested in switching to an individual-based health coverage system. The EBRI President stated that "strong support for the employment-based system is the result of respondents' satisfaction with their health protection, and their high confidence that their employers and unions make the best selection available."


We would like to build upon this employee confidence to make the employer-sponsored health plan an even better system of health care coverage and to expand this viable means of providing health coverage to as many uninsured Americans as possible.


During our Hearing today, we hope the witnesses will address certain specific issues concerning the establishment of an external review process on employer-sponsored plans. Such items should include a threshold for review, the selection of a reviewer, the scope of review, whether the decision should be binding on the plan, and any other facets of the procedure that they feel should be considered. These specific points should be placed in the context of our overall goal of providing patient protections without significantly increasing the cost of health coverage. I would hope that during the Hearing the witnesses would provide their view on whether or not the independent external review is preferable to civil liability in the court system. Along the same lines, would a mandatory external review process enhance consumer confidence in their health plans? I look forward to Hearing from our panel of witnesses.






At this time I would like to yield to my colleague from New Jersey, our Ranking Members, Mr. Andrews.


Mr. Andrews. Thank you. I want to commend you for the series of Hearings that we are having. I think we are covering some necessary ground, and the Minority and Majority staff have done a good job of assembling competent and well-prepared witnesses.






In American life, accountability is the rule and lack of accountability is the exception. We have a system where a combination of regulatory structures, market competition, and tort liability serve to govern the actions and decisions of institutional decision makers.


We are having this Hearing today, and there are bills pending before the Congress, because there is a deeply held feeling that accountability is not sufficiently present in the area of managed care and health insurance. Whether the feeling is accurate or inaccurate is a legitimate topic of inquiry. The feeling does exist, and my own view is that it is a justifiable feeling.


This Committee has spent a lot of its time and energy on the question of how to introduce greater levels of accountability into decision making in the managed care health insurance process.


I look forward to hearing the testimony this morning because I believe it will give us some empirical insight, some evidence into the introduction of external review processes that may in fact serve as a viable and valuable tool of accountability where it has not previously existed.


It is a matter of common sense that self-auditing doesn't work. Very few Americans would say that we should entrust food safety issues to supermarkets and fast food restaurants. Very few Americans would say that automobile manufacturers themselves should be responsible for designing and maintaining the production of safe automobiles. There is a widely held consensus that environmental regulators are needed to reduce the water and air pollution that we endure. In the health insurance field, the issues are whether the levels of accountability instilled by the present laws are sufficient? I believe they are not.


The second issue is what changes should be made to introduce new levels of accountability that will give people what they pay for, that will increase the quality of the services provided, and that will do so at a cost that is minimal or at least minimized.


So those are the questions that we are looking at on the various bills before Congress. I look forward to Hearing from the witnesses this morning as to what they might add to that. And I would just add this comment in closing. This testimony needs to be understood in the following context: Tort liability is the rule in American society. The absence of tort liability is the exception. Those who argue for an exception I believe, bear the burden of proof of arguing why the exception makes good sense from a public policy point of view.


Those who argue that tort liability should not extend to decision making in the managed care area, or at least in the segments of the managed care areas where it doesn't presently extend, I believe have the burden of demonstrating that there are sufficient substitute mechanisms that will achieve the same level of accountability and consumer protection that tort liability has been proven to provide.


So with that in mind, I very much look forward to hearing what the witnesses have to say. I again thank the Chairman and the Staff for assembling such a distinguished panel, and I yield back.



Chairman Boehner. Thank you, Mr. Andrews. Our first witness is Ms. Geraldine Dallek, Project Director for Georgetown University Institute for Health Care Research and Policy. Mr. James Ray is from Connerton & Ray representing the National Coordinating Committee for Multiemployer Plans. Our next witness will be Dr. Ashby Jordan, Vice President for Medical Affairs of Blue Cross and Blue Shield of South Carolina. And our final witness will be Mr. David Richardson, President of the Center for Health Dispute Resolution.


Let me remind our witnesses that under the committee rules you will have five minutes. As I said, we are not going to shoot you if you go over five minutes. Your entire written statement will be included in the record and with that, Ms. Dallek you may again.





Ms. Dallek. Thank you. My name is Geraldine Dallek, and I am a Project Director at the Georgetown University Institute for Health Care Research and Policy. I am a coauthor with Karen Pollitz and Nicole Tapay of the Kaiser Family Foundation Report, which you all have copies of, External Review of Health Plan Decisions: An Overview of Key Program Features in the States and Medicare. Basically, we examined the experiences in 13 states and Medicare with external review of health plan decisions, and my testimony is based on this report and our findings in that report.


The report contains a number of findings which will hopefully be considered in the federal debate over external review. One, external review programs in the states are regarded as valuable and fair. This view was held by plan representatives, by regulators, by providers and by consumers. External review upholds health plan decisions about as frequently as it over turns them. The fact that a number of plans are now voluntarily using external review and that the NCQA is proposing to add external review as a requirement for its accreditation process is, I believe, evidence of its effectiveness and popularity.


While other consumer protection provisions in the states remain very controversial, external review has become a motherhood and apple pie issue. We found no one in the states who did not think that external review was a good thing and who was not happy with the external review process in their states, with a few exceptions in terms of costs in one of the states.


External review is not a high ticket item. The administrative costs of external review is less than $500 in all studied states except Texas and in some states substantially less than $500 per review. Even in Texas which has the largest number of reviews this is an up-to-date number. There were 462 reviews in the last 17 months, and charges $460 to $650 for review. Even in Texas plan costs in the 17 months of operation are less than $275,000. That is for all of the plans for all of the reviews. In other states with costly and fewer reviews, costs are significantly less.


Point number three, consumers seek external review of health plan decisions for medical necessity and benefit issues, and it is often difficult to distinguish between the two. There are a lot of areas of gray here. Some states and Medicare send all cases to an external review process.


In other states, regulators not the plans make the determination of whether a particular issue should be referred to external review by medical experts or reviewed in-house by expert insurance regulators. Maybe in the question and answers we can talk about some of these areas of gray.


Point number four, no state has had a problem with frivolous appeals or unmanageable case loads. Thus, consumer barriers to external review such as application fees, limits on the types and/or size of claims eligible for review, imposition of filing deadlines after which external review is no longer available, none of these barriers appear to be necessary at all to stop frivolous appeals. The evidence from the states is that this has not been a problem at all and you do not have to impose additional barriers on consumers which already have to go through an internal appeals process to obtain external review.


Five, prompt action is a key feature of external review. Generally, routine reviews are completed in 30 days or less and expedited reviews in 72 hours or less.


Six, of our 13 studied states, New Jersey was the only one which has now not made external review decisions binding on health plans. No state makes external review decisions binding on plan enrollees making the appeal.


Seven, independent expertise is a key element of external reviews. All but one program studied set standards to prohibit conflicts of interest by external reviewers. Most programs use independent review organizations who contract with appropriate medical experts to review appeals. Several programs also include lawyers while other states rely on in-house legal or regulatory expertise when reviewing disputes that do not involve clinical issues.


Eight, regulators believe that the existence of external review has a sentinel effect on plan decisions. They believe plans are more cautious about denying what may be medically necessary care because of the existence of an external review process.



Nine, consumer education of their right to external review is a critical part of this. Consumers have to know and be notified that they have a right to external review to make this process effective. In the past, consumers often placed blind trust in their doctors and in the health care system. That blind trust I think, has now been replaced by profound mistrust. External review I believe is a way to help rebuild that trust.


My colleagues and I at the Institute for Health Care Research and Policy believe that an independent external review process for plan denials, reductions, and terminations of services should be the centerpiece of any federal managed-care consumer protection legislation. Thank you.






Chairman Boehner. Thank you, Ms. Dallek. Dr. Jordan, you may begin.





Dr. Jordan. Chairman Boehner and Members of the Subcommittee, I am Dr. Ashby Jordan, Vice President for Medical Affairs at Blue Cross and Blue Shield of South Carolina.


I would like to talk about how health plans decide medical necessity and what role external reviewers play in assessing those decisions. Contrary to concerns that insurance bureaucrats make medical treatment decisions, I would like to state that Blue Cross and Blue Shield plan physicians make the ultimate decisions about whether treatments are medically necessarily and thus eligible for payment.


Having followed a rigorous and inclusive process to develop medical policies and guidelines, Blue Cross and Blue Shield of South Carolina experienced only 408 appeals of prior authorization denials in 1998. My plan settled most of these appeals in-house.


However, since 1992 we have also given our members the opportunity to appeal to an expert external reviewer. Last year this voluntary program handled 177 cases, 60 percent of which were decided in the plan's favor, the other 40 percent in the patient or the physician's favor and we paid for the recommended care.


Let me now discuss the processes we use to determine medical necessity. I would underscore that our self-initiated procedures serve consumers far better than with mandatory and rigid federal standards. Like other Blue Cross and Blue Shield plans, Blue Cross and Blue Shield of South Carolina relies on diverse sources of information to craft medical policies and clinical guidelines. These include scientific evidence where available, expert consensus and consultation with specialty groups.


Blue Cross and Blue Shield plans also have a tremendous resource in the Association's technology evaluation center, a national leader in the use of scientific evidence to form conclusions about the effectiveness of new technologies. To oversee the assessments, the tech program relies on an independent external review body, the medical advisory panel, the majority of whose members are independent medical experts having no affiliation with third party payers. Using objective scientific criteria, tech assesses whether the technology in question improves net health outcomes, such as length of life, ability to function or quality of life. Cost is not a consideration.


Once we have developed clinical guidelines, we use them to detect patients whose treatment needs appear to fall outside the norm. In these cases we ask the treating physician to demonstrate that the proposed treatment is appropriate for a specific patient.


Health plans typically use guidelines more to educate physicians than to deny coverage for care. National studies find that fewer than 3 percent of claims are ultimately denied. Despite such rigorous and inclusive processes for determining medical necessity, a small number of patients remain dissatisfied with the final coverage decision. Therefore, we allow our enrollees in both ERISA and non-ERISA health benefit plans to appeal denials for covered services to external reviewers. We send the medical record and other documents to a private medical review agency in Boston called CORE and receive an independent assessment from an experienced physician in the same specialty who has no connection or financial interest in the case.


We estimate that we spend approximately $1,000 on average for each external review. This includes both the consultant and the administrative costs. We authorize the external reviewer to not only consider all previous determined facts, but also to review any new clinical information submitted by our plan or the enrollee, and to make a decision that is in no way bound by the decisions during the internal appeal.


As an example of a CORE review, I would cite the case of a 44-year-old woman for whom a hysterectomy was recommended by her attending physician. The initial review indicated that the procedure might not be medically necessary. That same day the request was referred to the plan Medical Director. The Medical Director reviewed the information and could not approve the requested procedure because there was no indication that the patient had been fully evaluated and there was no documentation of conservative treatment prior to the requested hysterectomy.


When the patient appealed this decision, we sent the case to CORE. After a week of reviewing the medical records and talking with the attending physician, the expert external reviewer recommended that a hysterectomy not be approved. He recommended a much less invasive procedure to control the patient's symptoms. Our plan Medical Director then reviewed the recommendation and upheld the denial.

In other cases expert reviewers have recommended approval for procedures that we initially judged not appropriate for a patient. We accepted their recommendations and paid for the treatment.


Mr. Chairman, I hope my comments have helped to clarify the care we take in making medical necessity decisions and assuring excellent health care for our members. Consumers are best served when their health plans are allowed to tailor programs like external review on a voluntary basis. That is why we oppose one-size-fits-all federal standards for health plan coverage determinations such as mandatory external review.


We are also strongly concerned about bills that would create a federal definition of medical necessity and then shift the legal burden of proof by putting the duty on the plan to demonstrate that the proposed treatment is not consistent with that definition. To do this would dismantle the critical checks and balances that help health plans contain costs and protect quality.


At a time when millions of Americans are unable to afford health care coverage, I urge you to oppose legislation that would increase the cost to provide coverage and increase the number of uninsured Americans.


Thank you for giving me the opportunity to speak with you about this important topic.





Chairman Boehner. Thank you, Dr. Jordan. Mr. Richardson.





Mr. Richardson. Thank you. I am David Richardson. I am President of the Center for Health Dispute Resolution located just outside of Rochester. Our sole business is the provision of external review. We are the oldest provider of this service in the country and the largest. Having started in 1988, we have adjudicated so far over 50,000 cases.


We are best known for providing this service for Medicare managed care now pursuant to the Balanced Budget Act, but we also are a provider under 3 of the state programs that Ms. Dallek has referred to, and we provide the services on a voluntary basis to plans in the manner that Dr. Jordan has suggested.


My testimony can be summed up pretty quickly. Of all of the models that we are involved in, we find that the Medicare model by far best serves the consumer, the plan, and the payer which in your context would be the employer. The Medicare model, like the current ERISA model, is predominantly a due-process system and therefore would fit well. I recommend that you use it as a model. Some of the highlights of the Medicare model that I would point out are the following:

First, all denials of all type are eligible for both internal and external review. Conversely, in some state programs and other accreditation standards, the right to appeal is limited, for example, only to medical necessity denials, only to denials over a certain dollar level. In Medicare we find that 60 percent of the cases we receive actually are not medical necessity issues. They are other types of questions. This can include gatekeeper rule violations, questions of contract interpretation, and what have you.

Secondly, the Medicare model is an administrative model that places a lot of emphasis on due process and protecting the consumer's rights in the sense of providing a fair forum for review. We do involve physicians, obviously, if it is medically necessary; but we do not rely solely on physician determinations. The Medicare system is used, but it is not abused. This year on the basis of 7 million managed-care enrollees, we will process about 15,000 cases. That turns out to be about 2-1/2 cases per thousand members. It is very inexpensive to deliver this service. The cost for the entire external review process for these 7 million people and 15,000 reviews will be about $3 million. This works out to less than 50 cents a member per year.


So in summary, my recommendation would be that all of you house an external review mechanism within ERISA. We need your help to stop what I call "appeal turf wars." We are seeing cases in which the same case is being adjudicated under Medicare, then an individual seeks an appeal under a state program and in some cases under a second federal program. So you can help in that regard by using ERISA to cover the 125 million lives and limit this problem.


We also think that it is vital, and equally for the insurers I would point out, that you include coverage determinations as eligible for review. If you eliminate coverage from review, you actually harm the employer plan and the insurer because you limit the ability to constrain the physician judgment within the fair limits of the contract.


Finally, I want to point out that I hope the people's expectations for external review are reasonable expectations. We can provide a reasonable, fair second opinion. However, we cannot expand and should not expand benefit coverage that is not there or provide, quote, "the best medical care for all people."






Chairman Boehner. Thank you, Mr. Richardson. If Mr. Ray arrives, we will hear his testimony, but in the meantime I think we will proceed with the questioning. Ms. Dallek, you mentioned that New Jersey is the only state where external review is not binding


Ms. Dallek. Yes.


Chairman Boehner. Can you tell us more about New Jersey's experience? Are employers or others, managed-care companies, denying coverage even though an external review may have granted the enrollee…


Ms. Dallek. Well, when we looked at it several months ago, our report came out in November, there were four cases where the managed care plan did not follow the recommendation of the external review entity, and there was no pattern there.


Chairman Boehner. Four out of how many external reviews?


Ms. Dallek. I would have to look it up. Four out of, I can look it up. Hold on. From March 1997 to July of 1998 there were 69 cases. But New Jersey was one of the very first states to actually do this and to get external review passed. This was before it became such a popular solution to some of the problems with managed care. So they compromised in terms of the legislation just to get it through the legislature and get it passed.


But again, if you want to rebuild trust in the system, you really I think, need to have the external review binding on the plan. Can you imagine if you were a consumer and you go through the internal review process, and you get to the external appeals process, and the second opinion says yes, we think that the plan needs to provide you this service, and the plan turns around and says no? I think it is incredibly unfair and frustrating.


Chairman Boehner. Dr. Jordan, you mentioned that there were 177 claims in the state of South Carolina at Blue Cross and Blue Shield that went to external review?


Dr. Jordan. Yes.


Chairman Boehner. Out of how many claims filed?


Dr. Jordan. We have approximately in that part of our business that we are addressing here, it is not our federal programs but Medicaid, Medicare and that stuff, somewhere around 9 million claims total. Now, these were precertification issues, not retrospective claims reviewed.


Chairman Boehner. Now regarding the external review decisions that favored the enrollee, in any case did you deny coverage?


Dr. Jordan. No, sir.


Chairman Boehner. Are you required to provide coverage?


Dr. Jordan. We are not required, I don't think, but if the external review sides with the patient and/or the physician, then we provide benefits.


Chairman Boehner. Let me ask all of the witnesses, if you were to impose an external review on ERISA plans, should the decision of the reviewer be binding on the plan? And if it is binding, should acceptance of the decision shield the plan from subsequent liability on a claim?


Ms. Dallek. I think it should be binding on the plan. I do not think that it should shield the plan from a potential liability. You know, people disagree and if there is a decision made that is inappropriate at the external review level, I believe the person should have the right to go to court.


Medicare does not have the external review process binding on the beneficiary. There are not a lot of court cases, and in Texas there have not been many court cases either. It is not binding.


But if you have external review, even if it is not binding on the beneficiary or on the enrollee, I think it protects the health plan because a judge would clearly look at an external review decision and take that into consideration. I do not think that it should be binding on the beneficiary. It should not protect them from liability. I don't think that you need that protection. I think it would be unfair to the consumer.


Chairman Boehner. Dr. Jordan?


Dr. Jordan. We went to a process like that because we view it as a dispute resolution mechanism. It is not in our business interest to be in conflict with our membership.


The issue is that we believe that it does provide us with some protection. We are most interested in making good decisions not in making controversial decisions; and we think that it improves our ability to make good decisions about when we provide benefits and when we don't.


We have not been sued over an issue that has gone to external review at this point. I think it does confer on us some protection. I don't think that it confers absolute protection by any means. And I don't think that it would.


Chairman Boehner. But if we made it binding, if we made external review binding on the plan and the enrollee, the question is should that then shield the plan from any more liability.


Dr. Jordan. Would the courts view that as appropriate? I am not sure that they would. I think our enrollees do have the option of using the legal system if they disagree with us even after external review. I am not sure even if you crafted a law that said it was, whether the courts would uphold it.


Chairman Boehner. Mr. Richardson?


Mr. Richardson. Obviously, I believe that the decision should be binding on the plan. I think the issue or the terminology binding on the enrollee is a little bit cumbersome and problematic. If the decision is binding on the plan and the decision is that the plan's denial is reversed, that means that you have told the plan that the plan must provide coverage.


I think the question whether the enrollee or patient goes ahead with the treatment needs to be addressed as an ethical patient care matter between the treating physician and the patient. I don't want to be in the business of providing medical care long distance or forcing patients to accept a treatment program.


On the issue of liability, my feeling is that compliance with a well-designed external appeal program should provide some shield from liability. I am not going to try to design what the limit should be. The problem I have with totally shielding liability is that part of what we see in external review are actually cases of malpractice or arbitrary decision, not frequently, but sometimes arbitrary decisions by the plan that have already harmed the patient.


So the fact that the case has come to external review doesn't always mean that all of the tort issues have been resolved. But I do think that should be a process that would limit awards or have some mitigating effect.


Chairman Boehner. Clearly under ERISA, recipients who believe that they have been the subject of medical malpractice have the right to take that case. What we are talking about here is plan liability.


Mr. Richardson. I am aware of that.


Chairman Boehner. Mr. Andrews.


Mr. Andrews. Thank you very much. I very much enjoyed the testimony. Dr. Jordan, on page 2 of your written statement you talk about your plan's 1998 prior authorization precert decisions, and you made reference to 408 appeals being filed.


If you know, can you tell us how many precertification decisions were denied by the plan in 1998? In other words, how many times did a plan participant apply for a precertification and was told no, you can't have it?


Dr. Jordan. I don't have that number in front of me. I can get it for you.


Mr. Andrews. If you can supplement the record.

You then say of those 408 cases where there was an appeal of the denial, 177 were resolved through the internal appeals process. What does that mean? Does that mean those 177 people got to see the specialist or they didn't get to see the specialist or they were happy or weren't happy? What does that mean?


Dr. Jordan. One hundred seventy seven went to external review.


Mr. Andrews. You're right. I misstated that.


Dr. Jordan. Every time we issue a denial, the plan generates a letter that goes to the person that contacted us. It is an automated letter.


Mr. Andrews. I am sure it is..


Dr. Jordan. It states in it that you have the right to appeal that decision. Most of these cases are resolved because we get more information.


Mr. Andrews. I have corrected my own math here. There were 221 cases that did not go to external review?


Dr. Jordan. Yes.


Mr. Andrews. What happened to those 221 people?


Dr. Jordan. Those 221 people gave us additional information, and they were approved.


Mr. Andrews. And there were 177 that went through some external appeals process?


Dr. Jordan. Right.


Mr. Andrews. What happened to them?


Dr. Jordan. Sixty percent were adjudicated. The external reviewer agreed with the plan that the denial was correct; and 40 percent of them were in favor of the patient, and we paid all of them.


Mr. Andrews. So you won 60 percent and you lost 40 percent. Then you make reference to160 appeals of retrospective denials that were filed. That is a whole different category than the 408 people?


Dr. Jordan. Yes.


Mr. Andrews. Have you ever surveyed the people who were denied a precert but did not file an appeal? Did you ever ask them why they didn't file an appeal?


Dr. Jordan. No.


Mr. Andrews. I don't prejudge what the outcome would be, but projecting a little bit of what passes for common sense, a lot of people are very intimidated by bureaucratic appeals processes. They are also very busy. They clock in at 9 in the morning and clock out at 5, and they get 45 minutes for lunch. They can't use a phone during the day to make personal calls or have no access to a phone.


A lot of people, whether it is a matter of not having access or not having the wherewithal, don't do this. The other reason they may not is they may feel that it is worth it to just pay the bill out of their own pocket.


I would be very interested if any panelist is aware of any data, any research which surveys the experience of plan participants who were denied a precertification and who did not file an external appeal? Do you know, Ms. Dallek?


Ms. Dallek. No. But there are some studies that look at some of the folks who disenroll from Medicare, and it was found that they disenrolled because they were denied certain services. They are able to do that in Medicare and are not able to do that in the commercial market.


There are a lot of studies in Medicare that show that the notice requirements in the Medicare appeals process is sometimes not followed by the plans. People are denied a service and are not getting proper notice that they can appeal or the notice is inadequate and doesn't specify the reasons for the denial in enough detail. So there are serious problems with the issue of notice and how it happens, and there may be people not getting the proper notice, not getting the notice, or they may be sick.


Mr. Andrews. I am not sure that it is so much not getting the notice as it is not having the time, the wherewithal, the energy, or the health to pursue this.


I want to ask Mr. Richardson a question. On page 3 of your statement you say, "For example, the HMO industry is correct that most enrollees are satisfied with HMO care and decisions." And it seems to be based on the fact that only 2 or 3 enrollees per thousand seek to use the external review process.


Are we really in a position to draw that conclusion though, from the relatively light usage of external appeals? Why do people who are denied precertification or retroactively denied payment, not file an appeal? Is it because they are satisfied, or is it because of other reasons?


Mr. Richardson. I don't know the answer to that question, and I think the concept of the survey that you are implying makes an awful lot of sense. I was not referring to our data alone. I was referring to many surveys that almost uniformly show that 90-plus percent of consumers in managed care are satisfied. I think frankly, when the appeal process becomes relevant is when people: A. Get sick, and B. Run into a problem.


Mr. Andrews. My time is up, but I would just make this comment about those surveys. Most of them are done on behalf of managed-care companies, number one.


Number two, I get called on those surveys. The questions, I am in a closed-panel managed-care plan which I will not state for the record but they know, they ask me are about how I feel about my physicians. I love my doctors. I think my kids' pediatrician and my wife's OB-GYN do a great job. I give them top scores.


But they never ask me how I feel about the fact that they are 7 months tardy paying an out-of-town emergency bill. They never ask me how I feel about having to get multiple referrals for my daughter to see an allergist. They don't ask those questions. I am sure that I am part of the 90 percent that says that I love my plan, but they are not asking me relevant questions. I think the survey that I suggested might be useful.


Thank you, John.


Chairman Boehner. Mr. DeMint.


Mr. DeMint. Thank you, Mr. Chairman. I think all of us agree that any denial of a claim is serious, particularly when it is your claim. And I think we would all agree that we would like to minimize the number of legitimate claims that are turned down by insurance companies. I think the question is how to best do that.


From every indication from all of you from a big picture perspective, the size of the problem is relatively small. Out of millions of claims, Dr. Jordan, that you mentioned relatively few are turned down. And I think me being involved with health care and filing a lot of claims myself with four kids, that it is very unlikely that a lot of legitimate claims are being turned down today.


Nevertheless, any turning down of a legitimate claim is a problem. And again, we just have to ask ourselves if a federal mandate, a one-size-fits-all idea, going to help improve this situation.


In a complex industry like health care it is very likely that any attempt to manage it externally, particularly from Washington, is going to have many costly, unintended consequences. All of these costs will be passed along to the employee. There is nowhere else for it to go. Any additional liability or complexity is likely to discourage employers in even offering health care to their employees.


I think you have all agreed that external review is a good idea. That is great. I think there is every indication from the testimony that I have heard that the state requirements for external review, the voluntary moves towards external review, the potential NCQA requirement for external review are all moving the industry in a voluntary way towards external review.


And to me the ideal situation for external review would be insurance companies and managed-care plans competing to have the best external review process, using it in their marketing materials to show employers as well as their employees, how well you have designed this external review process.


My question is, and I will start with you Dr. Jordan, is it possible for the Federal Government instead of prescribing how to do an external process to somehow facilitate the voluntary development and the competitiveness of the external review between companies with more information about the number of denials, and with more information about the number of appeals that are actually turned down and more information? For instance, requirements for employees to receive certain types of notification when they enroll in the plan when they are turned down. Can we make what appears to be a good system moving in the right direction better without coming in and trying to actually manage it from Washington?


Dr. Jordan. I think our view of that would be that the market is driving us towards that now. I think to impose additional reporting requirements, although they may not be particularly onerous, that would increase what we have to do to report would have at least some cost implications for us.


The thing that we are really concerned about is a federal mandate regarding external review or that dictates how we are to carry out the process, will tend to be process oriented and not patient oriented. The program that we have set up is patient oriented. It looks at the individual situation and provides a way to get the information to someone who is independent of us to help us make a good decision. Those are the kinds of programs that need to be encouraged.


I have real concerns about processes that require a lot of reporting or a lot of processing that can't do anything but drive costs.


Mr. DeMint. Does it make sense to mandate certain types of information to be made available, standardized reporting of denials of claims?


Dr. Jordan. I think we would not object to that.


Mr. DeMint. Do any other witnesses have a comment?


Ms. Dallek. It is true that the industry is moving toward external review. They find it in their best interest. But there are some managed-care companies that are not using external review and there are times when a plan decision is arbitrary.


You do not have binding on the plan any decision when you have a voluntary system. You have no enforcement mechanisms. We are talking about people who were denied care that might be critical to their health and well-being. And honestly given what we see at the state level, this is not an expensive process. Everybody is happy with it. It seems to work real well.


At the federal level I think it is critical to build this into any patient protection act that you might have. This is the one slam dunk in this whole area that works. It builds trust in the system and protects the consumer.


Mr. DeMint. Is it possible by setting up a federally mandated process, that we would actually allow Blue Cross and Blue Shield, Dr. Jordan, to deny more claims than you do now? I suspect that for marketing reasons and public relations reasons and client reasons, you allow more claims than you might under a federally mandated system. Is that possible?


Dr. Jordan. It is possible, I would think. I think that is possible.


Mr. DeMint. Is there anyone on the panel who thinks that we are going to create a perfect system and actually reduce the number of people who have legitimate claims denied that we are going to reduce that?


Ms. Dallek. I do. There is no such animal as a perfect system, but I actually think if you had a mandatory external review process required of all plans, there would be better decision making done by the plans.


I can give you cases from Missouri. There is one that I have here. I can tell you that the decision made by the plan was arbitrary. It was overturned at the external review process, and the person got care. I think that it would improve care and protect plans from making very poor decisions. I think it is a win/win situation for everybody and I don't see a downside on it, honestly.


Mr. DeMint. Mr. Richardson, I will let you reply, but the health care industry is very complex and changing almost week to week. How often can we in Washington update our process, our mandate, our requirements, in a way that would allow the industry to move in a way that is best for the patient, rather than being stuck in a rut like we have done so many times with our regulations? Can we actually mandate a changing industry in a way that is going to decrease the number of legitimate denials?


Mr. Richardson. I would not encourage you to get into highly prescriptive federal standards. For instance, I would encourage you not to try to come up with a national definition of medical necessity. I am sympathetic with your concern about cost and flexibility, but I am honestly confused because the major national chains are coming to us and complaining strongly about having to do business in multiple states with multiple and different appeal requirements.


I have an RFP that I responded to last week from a major national chain where they asked us to try to create for them a solution to these complex and overlapping issues of jurisdiction. So the industry itself, at least some of the industry, is asking for some federal standard. I think as general and generic a floor as possible, but some standard that allows multi-state plans and employers to operate consistently.


Chairman Boehner. The gentleman's time has expired.


We are happy to have with us Mr. James Ray from Connerton & Ray representing the National Coordinating Committee for Multiemployer Plans. Mr. Ray, we are glad that you could make it. We would like to suspend the questioning and allow you to give your statement, and then we will resume.





Mr. Ray. Thank you, Mr. Chairman. On behalf of American Airlines and the Chicago air traffic control system, I apologize for my delay in being late.


Mr. Chairman and Members of the Subcommittee, my name is James Ray. I am appearing on behalf of the National Coordinating Committee for Multiemployer Plans and its Chairman, Bob Georgine. I thank you for this opportunity to participate in your examination of the need for patients' rights legislation and particularly in this Hearing on the external review of benefit denials.


It is most appropriate that this Subcommittee should undertake this important work, for this is the Subcommittee that can fairly claim paternity of ERISA, and it has been ably parenting that precious offspring for 25 years. The NCCMP has been proud to work with this Subcommittee throughout that quarter century on behalf of multiemployer health welfare and pension plans and joint labor management trust funds, commonly known as Taft-Hartley funds.


Tens of millions of American workers, retirees, and family members depend on multiemployer health and welfare plans for health care coverage. These are workers in industries such as building and construction, trucking, longshoring, clothing and textile, and entertainment. But for multiemployer plans, most of these workers would lack private health care coverage because of the transient employment patterns and the small size of employers in these industries.


In short, multiemployer plans play a vital role in the Nation's health care system. The workers covered by multiemployer health and welfare plans are pleased with their plans. The plans are necessarily structured to be responsive to the needs and wants of the workers as well as accountable to them.


Under the Taft-Hartley Act, the plans must be structured as trust funds for the exclusive benefit of the workers whose labor generates collectively bargained contributions to them. The trust fund must be governed by a joint labor management board of trustees on which half of trustees are representatives of the covered workers, usually elected union officials. Typically the board of trustees is responsible for deciding what benefits the plan will provide, how those benefits will be provided, that is, self-funded or insured or through a managed-care organization, and what the eligible rules will be, based on the needs and wants of the covered workers and the funding available from collectively bargained contributions.


The labor management board of trustees also plays a vital, highly constructive role in the resolution of benefit claim disputes. Denials of benefit claims by a plan administrator are appealed by the claimant to the plan's board of trustees. The trustees have full discretion to review the claims de novo and to reverse or uphold the administrator's denial.


The trustees uniquely also have the power to interpret the plan rules and to amend those rules. If an appeal reveals an inadequacy or inequity in the plan's design or rules, the board of trustees can reinterpret or amend the plan's rules to correct the problem, subject to their fiduciary responsibility to maintain the plan's financial soundness. The trustees, particularly the labor trustees, act as patient advocates in effect.


Legislation that interferes with this time-tested function of multiemployer plan trustees would be disruptive to the patient's rights of the millions of Americans covered by these plans. We support the concept of external review of trustees' decisions denying plan benefits based on medical issues. A timely, just resolution of such a benefit disputes by an independent, qualified medical professional would be a far better public policy outcome than time-consuming, costly litigation.


From a multiemployer plan perspective, such external review is obviously preferable to a money damage award that might help an individual or his heirs, but would bankrupt a plan and wipe out the health care coverage of thousands of workers and their families; people who depend on these plans for health care coverage.


Any external review mandate for multiemployer plans must be ERISA based and preserve the constructive role of labor management trustees. ERISA section 503, which already regulates the internal appeals procedures, would be the appropriate statute for such an external review requirement.


Development of an external review procedure must address important questions, several of which are listed in my prepared statement. The NCCMP would be pleased to work with the Subcommittee in developing an effective and efficient external review procedure that meets all of these issues.


I respectfully request my prepared statement be included in the record, Mr. Chairman. I would be pleased to answer any questions. Thank you.







Chairman Boehner. Mr. Ray, thank you. We are glad that you did make it, and you made an important contribution in your testimony before this Subcommittee. The Chair would yield to Mr. Payne from New Jersey.


Mr. Payne. Thank you very much. I was comforted by the fact that you are a Washingtonian, and I figured that you would be right here.


Mr. Ray. I apologize.


Mr. Payne. We are just kidding. They probably run that traffic control by the state and it didn't have any national standards.


Mr. Ray. No federal standards, that is the problem.


Mr. Payne. Let me just ask a quick question. I am concerned, too. I am somewhat surprised, pleasantly surprised, that there are conclusions from people in the managed-care industry that their clients are very pleased.


Maybe the corridors I walk down are different than yours, because I see just the opposite. Maybe it is because people see public officials, and they tend to talk about things that are not working or that bother them. But I hear a tremendous amount of complaints even when its Medicare or Medicaid.


There is a person that has asthma and needs some kind of contraption to breathe in, and Medicaid I think told her that she could only have two a month or whatever the number was. And the bottom line was that she needed twice the amount, and they said you are probably not using it properly, but that is the limit. We hear those stories continuously.


Let me just ask Ms. Dallek, can you elaborate on some of the roadblocks? I think that Ranking Members Andrews brought up some issues regarding people who get intimidated by big institutions, and by the bureaucracy. I think that may be more the conclusion about the lack of appeals than the fact that they are satisfied with the internal process that currently goes on.


Would you elaborate? In your testimony you mentioned it briefly, but please say more about some of the potential roadblocks that you see, application deadlines and time limits, those sorts of things.


Ms. Dallek. There are four or five of them. Three states in our study have application fees; New Jersey and Connecticut. There have been some states since then that have put on application fees, but New Jersey and Connecticut had a fairly minimum application fee of $25 waived for hardship cases. However, Rhode Island has an application fee where the person would have to pay half of the cost of the external review, and that clearly will keep some people from appealing a decision. I think Tennessee has a hundred dollar fee now. I don't think that you need it. I think that since the number of cases going into external review is small, an application fee does keep some people from actually seeking external review.


Regarding imposition of filing deadlines, some states will say you have got to file your appeal in 30 or 60 days, and that is a problem. If someone is sick, really sick, it is hard to think about appealing a decision. I know that we have all had cases where it just would be impossible because of a medical crisis in the family, to appeal in a timely fashion.


I think that limits on the type or the size of the claim is a barrier. No state that we looked at actually limited an appeal based on how much the appeal would cost. Not how much the appeal, how much the service would cost. So you could have a system that said the service has to be worth $300 or you can't appeal to external review. I think that would be very problematic. If someone is seeking a referral to a specialist, it might not cost $300, but they need that referral to a specialist.


I think now that some states require two levels of external review, that is a barrier. In the past that was a good idea when you didn't have external review. Now that you have external review in a lot of places you don't need two levels, which can really wear someone out in terms of the appeal process. We do know that people just throw up their hands and say I can't deal with this any more.


So there are a number of things that are imposed that actually don't need to be. Our study shows that very few things are going to external review. It is not a high-priced item, and we should, therefore, encourage people to seek external review.


The other issue is medical necessity versus benefits. I do agree with David Richardson on this. You do need to have some system where if in doubt, it goes to review. It is really important that someone other than the plan make a decision. There are lots of shades of gray where something could be interpreted as a benefit issue which is really a medical necessity issue.


Mr. Payne. I did want to ask you about the lack of consumer awareness and how that could be improved. Some people may not even be aware that they have this, but since my time has expired, I will just put that on the record. I do have a concern about the education of people as it relates to their rights.


Ms. Dallek. I am sorry my answer took so long.


Mr. Fletcher. [Presiding] Thank you, Mr. Payne. I am serving as the Chair, and it is my turn to ask questions. So I guess I will recognize myself. This is an area that I am very interested in, external review, and I have a lot of questions. I am like a kid in a candy store here.


One of the things that we just touched on is patient information. If we had a standardized patient information packet that explained clearly the terms. I have seen the Blue Cross and Blue Shield letter which explains denial. I have seen a few of those. Dr. Jordan, what would that do to you? Would that help with the question that Mr. Payne had, and please keep your answer brief because I have a lot of questions.


Dr. Jordan. I don't think that a standardized patient information proposal would have much impact on us at all. We struggle with the issue.


Mr. Fletcher. You are in one state. Would it help with multi-state companies where they could have one standardized patient information packet, or at least form, that they were to present? Would that be helpful in reducing administration?


Dr. Jordan. I would expect that a multi-state carrier would have a single method of providing patient information. So I don't view that that would be a problem.


Mr. Fletcher. Ms. Dallek?


Ms. Dallek. There are two issues. One is what you provide to the enrollee, information generally as to how a plan works and then the notice requirements when something is denied. And those are two separate issues. Certainly we think that there should be good notice and good information going out to consumers.


Mr. Fletcher. Both of those are very important.


Ms. Dallek. They are critical.


Mr. Fletcher. With external review there are the medical necessity decisions and then the coverage decisions, and some folks have expressed two review boards. Mr. Richardson, from what I have understood, the outline of the structure that you talked about covers both of those.


Mr. Richardson. Simultaneously, yes.


Mr. Fletcher. Dr. Jordan and Mr. Ray, what are your feelings regarding coverage and medical necessity?


Mr. Ray. We are not opposed to that, although we think that there are two different kinds of boards. The multiemployer plan universe is where most of the appeals that go to the board of trustees don't relate to medical issues but rather relate to eligibility. Did you have enough coverage? For example, the eligibility rules in a construction industry plan might be that you have to work a certain number of hours per quarter to get coverage in the following quarter.


Mr. Fletcher. So you would not be opposed to have two separate reviews, depending on the structure that covered that?


Mr. Ray. That is correct.


Dr. Jordan. We administer multiple plans. There is no single Blue Cross and Blue Shield of South Carolina benefit structure. In the State health plan that we administer for the State employees, they write their own contract. We just administer it.


Whatever is required, when it relates to availability of benefits or benefit design, would have to be flexible enough to incorporate that level of complexity because there is no single plan. And it is a little hairy for us sometimes because I have to have somebody bring me a contract so I can see what is in it.


Mr. Fletcher. Mr. Ray, if the client board of trustees were subject to compensatory, consequential and punitive damages, what would your advice be in carrying out their activities?


Mr. Ray. I am not certain that I would have a client under those circumstances because you would probably face a mass resignation of trustees. As I indicated, Mr. Chairman, while we strongly support external review and can certainly live with and function with external review, what scares my client trustees and the participants to death is the idea of being hit with a damages award that wipes out the health fund for everybody else. These health funds are just pools of workers' money. There is nothing in above that.


Mr. Fletcher. Do we need national standards, at least a baseline standard for external review?


Ms. Dallek. Yes. For people that are not covered by state laws.


Mr. Fletcher. What about NCQA standards. Are those some things that you would look at?


Ms. Dallek. They are not there yet. It has been proposed but they are going to take time, and they are going to be accrediting external review agencies. I think that will be a really positive step that plans will be able to pick agencies based upon accreditation by NCQA.


Mr. Ray. We would be happy to look at those.


Mr. Fletcher. Do you think national standards are needed?


Mr. Ray. Essential.


Dr. Jordan. I would say no. I don't think that a national standard is needed.


Mr. Richardson. Essential.


Ms. Dallek. May I add that some states already have standards for state folks who are not covered by ERISA. I do not think that a federal standard should preempt what has been working so well in the states.


Mr. Fletcher. Dr. Jordan, what is the most efficient manner of insuring the independence of a reviewer?


Dr. Jordan. Well, that they have no interest in the outcome of the case or the decision. One of the reasons that we use the agency that we use is because they are geographically remote from us and their physicians don't participate with us.


However, I also use in-state consultants all the time. Many of them participate in our plans, but we are careful not to send a retrospective case to an in-state reviewer where we can identify any relationship that they might have to any of the parties. Basically I think that is what you have to do.


Mr. Fletcher. My time has expired. Mr. Kildee.


Mr. Kildee. I thank you, Mr. Chairman. My state of Michigan was the first state to establish an independent external review system. Is Michigan's review system still a good model for other states to replicate?


Ms. Dallek. I think more states have gone to a different model using an independent review or agency. If I am remembering correctly, Michigan has a committee that is appointed and makes decisions and may have to go outside for the expertise. I think it has worked well in Michigan, but I think other states are going to a different model, which is contracting with an independent review agency.


Mr. Kildee. So we have learned some things since 1978 when Michigan established theirs?


Ms. Dallek. The Michigan folks are happy with the system, and it seems to work there.


Mr. Kildee. In general, to what extent do the external review panels reverse the decision of the health care plan? Dr. Jordan, you mentioned 60 percent of the time they rule for you and 40 percent of the time for the patient.


Ms. Dallek. It is about even. It is not 50/50. One state might have 60 percent for the plan and 40 percent for the beneficiary or the enrollee. Another state may have 40/60 split the other way. Texas is just about 50/50. Texas has had more appeals than anybody else, and it is about 50/50; 47 percent I think for the plan and 46 for partially or fully overturned for the consumer. So it is pretty well evenly balanced.


Mr. Kildee. Doctor, you mentioned that internally very often you will reverse when new evidence or information is supplied.


Dr. Jordan. I like to tell people that we never make decisions forever, and we will always look at new information. And when we get new information, we will evaluate it.


Mr. Kildee. You mentioned that Michigan had a good plan in 1978, but perhaps there is a better one. To what extent are external review plans truly independent of the health care plan throughout the country in general?


Ms. Dallek. Except for Arizona, it is a pretty independent process. Where the external review agencies or the committee or the commission or whoever is doing the external review is independent and separate from the plan and there is no financial interest in the outcome is a critical component.


Mr. Kildee. Any other comments?


Mr. Richardson. There is a problem in the industry and I believe there needs to be a tighter definition for the entity of conflict of interest. There are some entities providing external review that also sell other lines of business directly to health plans or employer groups. I personally believe that is a conflict of interest.


Mr. Kildee. Any other comments?


Mr. Ray. I would just add one of the areas of confusion is whether it is a loss of independence, if the same reviewer or the same independent reviewing organization is involved with the same plan. In other words, if a reviewer has looked at a claim a month ago and gets a second claim, does that somehow compromise his independence? I think not, but it is apparently an issue that is being raised.


Dr. Jordan. It would be very difficult for us in South Carolina to put together a panel of physicians that do not have some relationship with Blue Cross and Blue Shield through one of our networks because our networks are quite broad. So they will have at least some relationship with us, whatever we do. But I think by using faculty in the Med Schools and things like that, we do a pretty good job when we use the local consultants.


Mr. Kildee. We have a similar situation in Michigan to the auto industry. While they are self-insured, they use Blue Cross and Blue Shield as their fiscal agent on that. I know that many of us in Congress, I myself, are contacted by constituents, and we let them know that there is an external review.


So even though you do in the letter indicate that there is external review, very often each person doesn't read that letter that well. And so they will call my office, and we will ask are you aware that there is an external review plan. I think any effort to make people aware of that is very helpful. Thank you very much.


Chairman Boehner. [Presiding] Thank you, Mr. Kildee. Mr. Talent.


Mr. Talent. Thank you, Mr. Chairman. I want to thank you for holding this Hearing and the witnesses for being here. There seems to be a pretty fair degree of consensus on some basic propositions, and I find that enlightening and helpful.


As I understand the issue of liability which I have gone a little bit back and forth on in the last couple of years, if I can summarize and you can tell me if I am summarizing incorrectly. It is your view that it would be at best very much of a shotgun approach where a pellet or two might hit where we want it to hit; but the vast majority of pellets would hit and very much hurt plans? Is it your view, with the multiemployer plans or self-funded plans or whatever which were already functioning very well, a group of people who were basically advocates for the patients would be subject to considerable risk under such a liability proposition. Is that a fair statement to make? I don't want to put words in your mouth.


Mr. Ray. That is certainly a concern with my constituency. They support the idea of external review and think that is the best policy result that gives a just, prompt resolution. That is much better than litigation and damages because if you have damages, the entire plan, and thousands of people's health care coverage is at risk.


Mr. Talent. And the trustees, or whoever it was representing a multiemployer plan who might heretofore have considered themselves advocates for the patients whenever possible, would be concerned that by undertaking that very responsibility for decision making would subject them to liability? Therefore, they might overthrow a feature which has really worked to the benefit of their constituencies, the patients, in some of those circumstances?


Mr. Ray. Yes, sir. Some of the proposals that have been pending raised just that prospect. By performing that historically very constructive role, they would be exposing themselves to personal liability.


Mr. Talent. Would you be concerned about a liability feature which was capped and tied to an external review process? Would you have the same kinds of concerns?


Mr. Ray. I think what may be worth exploring is the idea that if you go through external review, there is no damage remedy. But if you go through external review and you fail to comply with the outcome of that external review process, then you are subject to an ERISA damage remedy.


Mr. Talent. You know that is what we did in the bill last year after talking with people like you. What we put in the bill was a provision that if the plan and if whoever was running the plan, the trustees, did not go along with an external review decision that was in favor of coverage, we considered liability. We ended up with a right to sue at that point, and immediately to require coverage and a per diem penalty for every day of delay if the plan lost the lawsuit.


So if the patient won an external review and the coverage was not forthcoming and they had to go to court to enforce it right away and they won, then there would be a per diem penalty, which I think in the bill could amount to $250,000 against the plan. And in that way what we liked about that they got the coverage. They got the care instead of the right to a lawsuit after they didn't get the care and lost a leg or lost a baby or lost their lives. Any comment?


Mr. Ray. That is the carrot stick approach that I am suggesting. If I can emphasize one little semantic issue that tends to cloud the debate, and that is there currently exists the right to sue under ERISA. There is no doubt about that. The question is what is the remedy if you do so.


Mr. Talent. It did seem to me after talking to a lot of people it would be a mistake to try to provide an additional tool against the relatively few real cost-cutting kinds of plans that ended up hurting precisely those plans that were functioning well on behalf of patients, and we didn't want to do that.


With external review, there seems to be unanimity about how we go about that. What do you think the law should require with regards to the qualifications of the internal reviewers? You have talked about independence, but would you require that the internal reviewers be of the same specialty as is appropriate for that particular case? Any particular opinions regarding qualifications?


Mr. Richardson. As a provider, I just want to make a clear point that you need to think of this as an organization that has capabilities and not just a panel of doctors. So in addition to all of the things that come to mind about specialty matching, the organization has to have administrative skills. It should have legal skill, contract interpretation skill and what have you, and that is missing in most of the bills that I have seen.


Mr. Talent. I meant external review, by the way. Staff told me I said internal review, and I meant external review. Thank you, Mr. Chairman. Again I thank you for the Hearing. It has been very enlightening.


Chairman Boehner. Thank you, Mr. Talent. Mr. Holt.


Mr. Holt. Thank you, Mr. Chairman.

It is encouraging to see some consensus. Maybe that is too strong a word, but some agreement emerging here. I think that is encouraging to patients and health care providers around the country and leads to what we are trying to get here; patient's peace of mind and good care.


It seems to me that something that is key to this is what we mean by prompt. As Mr. Ray has said, the devil is in the details, and he lists in his testimony a number of detailed questions that have to be answered, and let me focus on what we mean by prompt.


As in judicial matters, what we want is something that is swift and sure as well as, in this case, consistent and without arbitrariness. What do we mean by prompt? In what time do we want review, should we have review, and how is that different whether it is prospective or retrospective? I would like to hear from all four of the witnesses.


Dr. Jordan. In our plan, I have the ability to do a same-day external review by using the sources I have. I can do it same day or within 3 days. One of the reasons that we go to the source that we do is if we use our local consultants it slows us down. We have to prepare the stuff and get it out there.


They are all, of course, very busy people and it is difficult to get them to respond to us as quickly as we need to when we are in a precertification mode. We can do it very rapidly. I think that is important. Very important.


Mr. Holt. Mr. Richardson.


Mr. Richardson. Medicare currently has a 72 hour standard, 30 day standard for preservice not expedited, and 60 day. Operating in a variety of different program contexts, my feeling is that the nonexpedited standard should be set as low as possible. I favor 2 weeks because that helps having people deflect cases to a one-day or two-day review process that doesn’t really need to be there. That would be my recommendation.


Mr. Holt. Let me modify the question slightly because in many cases this comes down to whether this is an emergent or urgent situation. Therefore, a 2 week time is inadequate. Mr. Richardson?


Mr. Richardson. I think generally 72 hours is adequate if you put a caveat "or as soon as medically necessary" for the urgent cases.


Mr. Holt. Mr. Ray?


Mr. Ray. Mr. Holt, I think it depends, first of all on the type of claim. Is it retrospective, prospective, concurrent? Different circumstances dictate different timetables. It depends on whether it is urgent. If it is urgent medical care, it should be what the medical circumstances dictate.


Mr. Holt. Part of the problem is who decides if you have to go externally to make that decision?


Mr. Ray. Yes, and I think there have been proposals when the question is the life or health of the patient at risk, the deference goes to the treating physician to make that call. I think that is appropriate.


We also have to take into account the practicality of whether it is doable. I understand that Blue Cross and Blue Shield can accomplish that external review in a day and perhaps David's organization can do it as quickly. I am not certain that everyone is going to be able to have access to external review that quickly.


Ms. Dallek. Yes, in the states I think all of them have an expedited review process of no more than 72 hours and some are less than 72 hours. When we did ask the reviewing agencies, they said that they could do it in that if there was an emergency.


If the doctor says this is a life and death situation, Texas allows the review to go directly to the external review agency. But 72 hours seems to be the general standard, as David said, with less time for the exigencies of the situation.


Mr. Holt. And in the various states, there is general agreement that is satisfactory?


Ms. Dallek. That they can do it in that time and that it is satisfactory, yes.


Mr. Holt. My time has expired. Thank you.


Chairman Boehner. Thank you, Mr. Holt. We are going to have a vote in a few minutes, and I know that I have several other questions, and Mr. Andrews maybe does as well.

Mr. Ray, how would an external review mandate on multiemployer plans affect you? Let me first ask how would it work, because under your setup if there is a denial by the administrator, it goes to your Board?


Mr. Ray. That is correct.


Chairman Boehner. How often does the Board meet?


Mr. Ray. Under current Labor Department regulations, boards are permitted to meet on a quarterly basis. That is an issue. If mandates require more prompt meetings or meetings between quarters, I think we are going to have no choice but to accommodate. The bottom line is we want our members to get state-of-the-art treatment, and yet we want to make sure that the Board of Trustees continues to be part of this process because they play such a valuable role. You don't hear horror stories about our plans, primarily because the Board of Trustees is so active as patient advocates.


Chairman Boehner. How do you handle emergency situations today if the plan administrator denies the coverage?


Mr. Ray. Accommodations are made, Mr. Chairman. A subcommittee of the Board of Trustees may be appointed to deal with that circumstance.


Chairman Boehner. So if we had a mandated external review, as I hear your testimony, your system would be the plan administrator. It would still make the determination after the administrator turns down a particular request to go to the Board and that is basically your internal review. Then if the Board did not agree and the enrollee wanted an external review, it would then go to an external review?


Mr. Ray. Yes. We think that keeping the Board of Trustees involved is absolutely essential.


Chairman Boehner. Mr. Andrews?


Mr. Andrews. Thank you. I will be very brief. I did want to clarify what I think is an ambiguity in the record arising from Mr. Talent's question in which he made the assertion that there was unanimity on the panel about there being no need for liability.


I believe I heard Ms. Dallek and Mr. Richardson say that under some circumstances, which would not necessarily be the same circumstances, but under some circumstances you in fact favor civil liability. Is that correct, Ms. Dallek?


Ms. Dallek. That is correct.


Mr. Andrews. Is that correct, Mr. Richardson?


Mr. Richardson. That is correct.


Mr. Andrews. I wanted to explore, Ms. Dallek, the Pennsylvania emergency room care issue that you make reference to on page 6 under the heading"External review appears to have a sentinel effect on a health plan's behavior." I assume that means a positive effect?


Ms. Dallek. Yes.


Mr. Andrews. That is an interesting use of the word. You say that over time the number of reviews of ER denials have dwindled, and regulators attribute this to HMOs learning and understanding the state's expectations.


What are the data on that? How many appeals were there earlier in the process and how many are there now? I know that the percentage of denials has dropped, I think, from 22 percent to 18 percent?


Ms. Dallek. Yes.


Mr. Andrews. How about the volume?


Ms. Dallek. We heard this from several states. Regulators say that there is this sentinel effect. They also say that they look at any patterns of denial and use that in terms of monitoring. I think that David found some similar cases.


Mr. Richardson. In Medicare we actually have that data. I will provide it. I think it is roughly a drop from 50 percent of the disputes 10 years ago involved emergency room care. It is now down to 10 to 15 percent of the disputes.


Mr. Andrews. Has the number of disputes risen or fallen?


Mr. Richardson. It has risen in conjunction with the rising Medicare enrollment. The rate is approximately the same, but there is clearly a decline in emergency room problems.


Mr. Andrews. The reason that I think this is important, and I think this Hearing has been focused on empirical, knowable questions and answers that will benefit us, is that one of the attributes of tort liability is the behavior that it encourages or discourages where claims are not filed. Tort liability injects a different behavioral mode throughout an institution.


One of the questions that we have to ask ourselves about external review is whether it has the same deterrent or encouraging effect? Is there a deterrent effect on undesirable behavior and encouraging effect on desirable behavior. So any research that anyone on the panel has that would tend to show that doctors are adopting best practices or refuting undesirable practices because of external review would be important.


The argument, I think everyone here understands about liability, is not simply reparations or remedies for the individuals who are wronged in a particular case. It is the systemic effect of liability decisions to encourage desirable behavior and discourage undesirable behavior. So one of the questions that we have to ask about the external appeals process is if it has a similar beneficial effect.


Generically, does the panel think that effect is happening because of state external appeals or Medicare external appeals programs. Yes or no?


Ms. Dallek. I think so.


Mr. Richardson. Yes.


Dr. Jordan. Yes.


Mr. Ray. Yes.


Mr. Andrews. And Mr. Ray, I understand that there are different points of view in different aspects of organized labor, but it is true that the AFL-CIO supports the Dingell legislation. Is that correct?


Mr. Ray. I can't speak on behalf of the AFL-CIO. I appreciate the opportunity to do so, but I can't.


Mr. Andrews. I understand that it does. Although I understand that there are concerns among members of organized labor, the voice of organized labor is in support of the Dingell bill. Thank you very much.


Chairman Boehner. I would just add for the record Mr. Andrews, that their support for the Dingell legislation may lie in the fact that there is a specific carve out for certain organizations in the Dingell bill.


Mr. Andrews. That is why it is such wise legislation.


Chairman Boehner. I ask unanimous consent to submit for the record at Mrs. Roukema's request this editorial from this morning's Washington Post entitled Search For the Cure. Without objection it will be entered into the record.

I thank the witnesses for sharing their expertise. It has been beneficial to the committee, and I thank our Committee Members for their interest and our guests who came to show their interest. The Subcommittee is adjourned.




Whereupon, at 11:25 am the Subcommittee was adjourned.