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Health Tracking

FROM THE FIELD

Prospects For Improved Decision Making About Medical Necessity

Nevertheless, many decision makers agree that medical necessity decisions generally involve authorizing treatment for an individual patient. These differ from coverage decisions, which set organizational policies regarding the coverage of treatments for populations of patients with similar conditions. Both types of decisions require medical judgment, and thus both mix considerations of payment and clinical factors.³ Differences in coverage policies and in the application of those policies to individual decisions contribute to variation in managed care decision making.

Previous research has found considerable variation in the process and criteria used for decision making in both public and private plans.⁴ The aim of our research was to understand more precisely what type of variation exists and whether more clarity and consistency in medical necessity decision making could make a difference to consumers and providers.⁵ We sought to document differences in decision-making criteria and to explain the relationship between contractual definitions and the way decisions are made in practice. Given the lack of existing information on how medical necessity decisions are made in managed care organizations, we believed that describing "best practices" as well as unacceptable variations could play a powerful role, along with consumer choice and regulatory fiat, in improving the process.⁶ Finally, we sought to produce, with stakeholders’ involvement, a model contractual definition and decision-making process based on best-practices models.⁷

Study Methods

 
We conducted interviews in 1998–1999 with the medical directors of thirty-four health plans, medical groups, and integrated delivery systems in California, representing more than 88 percent of the commercial managed care enrollment and 84 percent of managed MediCal enrollment. Structured interviews included four case examples to test decision-making approaches. We also requested data on plan or group characteristics and relevant documents. In addition, we interviewed other stakeholders, including consumer representatives, treating physicians, purchasers, plan legal directors, and regulators, representing a total of ninety-four organizations. To understand the legal context in which medical necessity has been interpreted, we analyzed twenty-seven published California court cases. To determine the degree of variation in the interpretation and application of medical necessity by the Department of Corporations (DOC), California’s managed care regulatory authority, we analyzed a sample of twenty-two consumer Requests for Assistance cases related to reconstructive surgery.⁸ We then presented our preliminary findings at a three-day workshop in March 1999 involving twenty of our respondents, cosponsored by the Integrated Healthcare Association.⁹

Research Results

Top Study Methods Research Results NOTES

 
Our research addressed several central questions: (1) Who makes medical necessity decisions? (2) What are the variations in process and contractual definitions of medical necessity? (3) Can more information and better communication improve the process for consumers and providers? (4) What role should legislation and regulation play in promoting best practices and reducing unacceptable variation?

Medical necessity decisionmakers. Many consumers believe that nonclinical personnel make most of the decisions in managed care, including decisions to deny care. Consumers interviewed were unaware that both the National Committee for Quality Assurance (NCQA) and the Knox-Keene Act, which regulates managed care plans in California, require that only licensed physicians can make medical necessity decisions or denials, and that the NCQA audits the plans for compliance with these requirements.¹⁰

Although only physicians appear to be making denials based on medical necessity, in fact, nonphysician personnel do participate in initial reviews of eligibility and coverage. A clerk may have authorization to rule on a clearly excluded service. A nurse may evaluate a request against a coverage policy and recommend a denial or modification to a medical director. However, criteria and policies guiding these decisions are vague, uncertainty is present, and differences of opinion easily arise. Delays in referring such cases to medical directors leave consumers with the impression that "bean counters" are truly in charge.¹¹

Although medical directors are physicians, the fact that the patient’s treating physician is not the final decisionmaker in all requests continues to trouble physicians and their professional associations. Recent plan decisions to give treating physicians more autonomy may alleviate this concern, although most plans will retain authority over decisions such as coverage of transplants or experimental/investigational treatments.¹²

California’s reliance on the delegated medical group for decision making has further obscured the source and process for making these decisions. California’s health maintenance organizations (HMOs) generally capitate medical groups (for example, independent practice associations, multi/single-specialty medical groups, and management services organizations) for professional and often for hospital services. In doing so, they also delegate initial decision-making authority for coverage to these groups.

The medical directors of medical groups reported that they approve most treatment requests (94 percent, on average). Because plans retain final legal authority, they may overturn medical groups’ decisions, often without assuming financial responsibility for the decision. Consumers generally must appeal denials first to the delegated medical group and then to the plan itself before they can seek redress from the DOC or an external review organization. This double layer of denials causes confusion and adds cost, time, and complexity to the process.

Variations in process and contractual definitions. While we found many common processes across organizations, there was much variation as well. Although variation is not necessarily negative, when consumers and employers purchase health insurance, they want to believe that Plan A will treat a given condition and patient the same way as Plan B does. We discovered variation in the contractual definitions of medical necessity and in the application of those definitions to practice. We also found variation in the substance and application of coverage policies.

By asking medical directors what criteria they used to make daily medical necessity decisions, and by comparing those criteria with the ones in their own contracts, we confirmed that contractual definitions of medical necessity vary and are not the primary driving force in practice.¹³ Instead, each medical director relies to a different extent on coverage policies, scientific evidence, expert opinion, committee consensus, personal experience, and patient characteristics and preferences when making daily decisions, while the contractual definition remains on the shelf as a reminder of legal obligations and risks.

The irrelevancy of contractual definitions is in part the result of the vague nature of the language, which lacks explicitly defined criteria or definitions of key terms. For example, most "evidence" criteria simply refer to "generally accepted or community standards of practice," and if cost-effectiveness is addressed at all, it may be couched as "a prudent use of plan resources" or "most appropriate level of service."

Existing definitions fail to provide guidance for decisionmakers who wish to make evidence-based decisions or explicit tradeoffs between the benefits and costs of alternative treatments. Many of our respondents reported reluctance to discuss costs or cost-effectiveness with either their contracted providers or plan members. Medical directors reported that clearer evidence and cost-effectiveness criteria could improve the utility of contractual definitions.

An additional source of variation is the proliferation of multiple, overlapping, and often inconsistent coverage policies developed by plans. Coverage policies should lead to more rational and consistent decisions for patients with a particular condition. In practice, policy development and dissemination are costly and problematic, and add to unacceptable variation in decision outcomes. Medical groups in California may contract with eight to ten health plans, each with its own set of coverage policies. Medical directors and practicing physicians are left with a bewildering array of competing policies, which are neither electronically searchable nor in formats that are easily comparable.

In addition, the substance of the policies and the evidence on which they are based differ greatly, producing the dissimilar outcomes that members and purchasers fear. A case study of autologous chondrocyte transplantation (ACT) for knee pain exemplifies this variation. In three plans’ coverage policies for ACT we found only three areas of consistency and many areas of potentially clinically important inconsistency. For example, Plan B recommends coverage of treatment for a member who is age fifty-five, while Plan C only recommends coverage up to age forty-five. Plan B also recommends coverage for lesions up to 20 square centimeters in surface area, while Plan C recommends coverage for lesions up to only 10 square centimeters. Lesion thickness and length requirements also differ. The degree of specificity among the coverage policies varies, with Plans B and C outlining in detail requirements for lesion size, patient age and weight, prior therapy, and surgeon characteristics, while Plan A specifies none of these. The scientific evidence upon which plans based their policies also differed. In addition, two of the medical directors contradicted their own coverage policies when asked what decision they would make in this hypothetical case. This suggests either ignorance of the policies or their irrelevance.

The collective responses from medical directors of plans and groups to this ACT case study and three others—reconstructive surgery for cleft palate, growth hormone for short stature, and high-dose chemotherapy for ovarian cancer—suggest that coverage policies for identical patients did indeed differ and that daily decisions were not necessarily based on policies. While the sample size and brevity of the cases do not permit drawing conclusive opinions, several observations can be made. First, case responses varied across medical groups and health plans, unrelated to size, geography, or populations served. Second, there was more agreement among medical directors in the case for which evidence was somewhat clearer (growth hormone for short stature). This consensus may reflect the considerable evidentiary literature on the effectiveness of growth hormone, medical directors’ familiarity with that evidence, and the relative comfort most medical directors have with approving or denying this treatment based on patient characteristics such as those presented in the case.

Best practices in decision making. Consumers and policymakers look to regulation or legislation to reduce inconsistency. However, not all inconsistencies among organizations are negative, nor are regulation and legislation always appropriate ways of reducing them. Some variations represent more innovative ways of accomplishing an organizational goal, and many best practices are those that rely on obvious solutions: the personal touch (for example, calling physicians directly to notify them of a denied request); involving providers in suggesting ideas for improvement (for example, interdisciplinary committees); decentralizing decisions (that is, moving a decision closer to the patient and the physician); and rewarding positive behavior over punishing the "bad apples" (for example, "gold carding" providers whose utilization is circumspect and freeing them from cumbersome authorization processes).

Researchers extracted around sixty "best-practice" recommendations from the interview process and asked workshop participants to rate their potential impact on improving the decision-making process and their feasibility of implementation (Exhibit 1).

Recommendations about streamlining authorization, enhancing communication, and providing more education were all thought to have some potential for positive impact among all stakeholder groups. Most of the recommendations that were rated highest for both impact and feasibility involved better communication. Participants, however, discriminated among communication activities, suggesting, for example, that welcome calls by health plans to new members would be neither feasible nor particularly beneficial. Recommendations expected to have the least impact entailed legislative mandates or greater purchaser involvement in the process.

Better communication. Our findings reinforced the perception that communication with consumers and their treating providers is poor. Not enough information is disclosed or requested, and the information that is disclosed is not particularly clear, helpful, or accessible. The denial letter is a case in point. Denial letters rarely explain who made the decision, the reason for the decision, what sources of evidence were considered, what coverage policies were applied, or anything else about the process of making that decision. Although a more informative denial letter will not eliminate dissatisfaction with a decision, consumers interviewed indicated that it could increase public trust in managed care.

Lack of consistent and effective communication among multiple decisionmakers is another important source of conflict. For example, medical groups that contacted physicians and plans about questionable requests claimed less conflict and fewer appeals and overturned decisions.

Role of legislation and regulation. There are many options for reducing variation, promoting consistency, and speeding dissemination of best practices in medical necessity decision making, only two of which are legislation and regulation. Judicial action, accreditation, market and performance incentives, and collective action also must play a role. Each of these approaches has strengths and weaknesses, whether pursued alone or in combination.¹⁴

Legislation Despite all of the attention to legislation, there has been little discussion about whether legislation is addressing the most important problems with managed care or whether it is even the appropriate vehicle for doing so.¹⁵ State and federal legislation have mainly addressed problems of access to providers of choice, timeliness of decision making, internal and external independent review procedures, plan accountability, and the right to sue.

Legislation can, however, promote more consistent organizational behavior. For example, California law spells out a specific process for external review of denials of experimental or investigational treatments.¹⁶ Our research confirmed that plans were following this mandate in similar ways. Legislation also can resolve structural debates among stakeholders, such as where the authority for various decisions should reside, and it can set standard floors below which plan performance would be considered to be unacceptable. Legislation can also require information disclosure.

The danger of detailing standards and definitions in statute, however, is that clinical practice is difficult to pin down precisely, floors quickly become ceilings, and politics almost always intrudes.¹⁷ Legislation is a weak strategy to effect deep systemic and organizational change of the type our research found necessary. Government regulation does not necessarily motivate providers to improve, and legislation does not necessarily make consumers more prudent purchasers.¹⁸

Regulation Regulation is a more flexible tool than legislation to promote consistency, but it can be a barrier to innovation. Ideology and bureaucracy often prevent regulators from moving quickly or responding to emerging problems effectively.

In our review of Requests for Assistance from the DOC, we found that the department does not have a consistent process for or a standard definition of medical necessity. The consultant the DOC used for our sample cases relied largely on his own clinical judgment with little citation of scientific literature to support his recommendations. The DOC representative who attended the project workshop acknowledged the need to improve the department’s process.

Judicial action Judicial interpretation and application of the law can cause organizations to change. However, the judicial system can also obfuscate rather than clarify the most troubling questions. Our review of court cases related to medical necessity decisions confirmed that judicial outcomes in such cases seem idiosyncratic and fact specific and do not provide useful guidance for medical necessity decision making.¹⁹

Accreditation Private accrediting agencies such as the NCQA, the American Accreditation Healthcare Commission (URAC), and the Joint Commission on Accreditation of Healthcare Organizations (JCAHO) serve an important standard setting and auditing role in the managed care decision-making process. Since accreditation standards are not compulsory, they can promote incremental performance improvement. We found both consistent and inconsistent implementation of NCQA standards in our interviews. All plans and groups used physicians to make medical necessity denials, but not all plans and groups demonstrated that medical evidence was documented as part of the coverage policies they use or diat plans were successfully involving practitioners in the development of policies.²⁰

Market and performance incentives Accreditation promotes consistency, but market and performance incentives drive organizations to achieve optimum performance. We found considerable evidence of innovation as health plans attempted to improve their own decision-making processes in response to consumers’ demands and the potential for legislation. Organizations were exceeding legislated timeline requirements and were revising the cumbersome authorization system and even eliminating it for some procedures and practitioners.

Among the most intractable problems are those that do not lend themselves to correction by any of these strategies but rather require stakeholders to work collectively. Thus, to address the problem of overlapping and conflicting coverage policies, workshop participants recommended a public/private initiative to compare, evaluate, and encourage standardization.

The problems associated with medical necessity go beyond the terminology and authority for decision making. The decision-making process itself is in need of improvement. To make die process more consistent yet provide opportunity for innovation will require multiple strategies, as outlined above. Consumers, advocacy organizations, and employers can use their buying power to effect appropriate systemic and organizational change. Only then can managed care fulfill the promise of evidence-based medical necessity decision making to improve quality of care.

Editor's Notes

 
Sara Singer is a senior research scholar at Stanford University and executive director of Stanford’s Center for Health Policy. She was lead investigator for "Decreasing Variation in Medical Necessity Decision Making" Linda Bergthold was the grant project director and is a research associate at the center.

The authors acknowledge researchers Carol Vorhaus, Serl Zimmerman, Suzanne Olson-Koebler, Ian Mutchnick, Ying-Ying Goh, and Alain Enthoven; consultants Wade Aubry, David Eddy, Hank Greely, Peter Lee, Mary Morgan, and Bill Sage; and funders the California HealthCare Foundation and the Sierra Health Foundation.

NOTES

Top Study Methods Research Results NOTES

 

1. A. Enthoven and S. Singer, "The Managed Care Backlash and the Task Force in California," Health Affairs (July/Aug 1998): 95–110; L.A. Bergthold, "Medical Necessity: Do We Need It?" Health Affairs (Winter 1995): 180–190; Linda Bergthold, "Medical Necessity: From Theory to Practice," Testimony before U.S. Senate Committee on Health, Education, Labor, and Pensions, 2 March 1999; and M. Stauffer, Medical Necessity, Health Policy Tracking Service Issue Brief (Washington: Health Policy Tracking Service, 1 October 1999).
2. Managed Health Care Improvement Task Force, "Public Perceptions and Experiences with Managed Care," in Improving Managed Health Care in California, findings and Recommendations, vol. 2 (January 1998), 13–42; and L. Bergthold et al., "Suggestions for Addressing Medical Necessity," testimony before the Legislative Working Group on Medical Necessity (14 July 1998).
3. W. Sage, "UR Here: The Supreme Court’s Guide for Managed Care," Health Affairs (Sep/Oct 2000): 219–223.
4. C. Steiner et al., "Technology Coverage Decisions by Health Care Plans and Considerations by Medical Directors," Medical Care 35, no. 5 (1997): 472–489; C. Steiner et al., "The Review Process Used by U.S. Health Care Plans to Evaluate New Medical Technology for Coverage," Journal of General Internal Medicine 11, no. 5 (1996): 294–302; Managed Health Care Improvement Task Force, "Improving the Dispute Resolution Process in California’s Managed Care System," in Improving Managed Health Care in California, Supporting Documentation, vol. 3 (January 1998), 63–72; M. Morgan, "Dispute Resolution in the California Healthcare Industry" (Unpublished report, 1999), research sponsored by the California Healthcare Foundation; and M. Hall and G.F Anderson, "Health Insurers’ Assessment of Medical Necessity," University of Pennsylvania Law Review 140 (1992): 1637–1712.
5. S. Singer et al., "Decreasing Variation in Medical Necessity Decision Making," Final Report to the California Healthcare Foundation, August 1999, <chppcor.Stanford.edu>, under "Research" (September 2000).
6. S. Rosenbaum et al., "Who Should Determine When Health Care Is Medically Necessary?" New England Journal of Medicine (21 January 1999): 229–232; and W. Sage, "Regulating through Information: Disclosure Laws and American Health Care," Columbia Law Review (November 1999): 1701–1899.
7. Singer et al., "Decreasing Variation," Appendix A (model process) and Appendix B (model definition).
8. The DOC was responsible for regulating "Health Care Service Plans" (that is, HMOs) in California in accordance with the Knox-Keene Health Care Service Plan Act of 1975. In 1999 a new Department of Managed Health Care replaced the DOC in this role.
9. The Integrated Healthcare Association is a group of California health plans, physician groups, and health systems, plus academic, purchaser, and consumer representatives involved in policy development and special projects around integrated health care and managed care.
10. See National Committee for Quality Assurance, Surveyor Guidelines for the Accreditation of Managed Care Organizations (1 July 1998–30 June 1999), Sec. 3.2.
11. See also T. Bodenheimer and L. Casalino, "Executives in White Coats—The Work and World View of Managed-Care Medical Directors," first of two parts, New England journal of Medicine (16 December 1999): 1945–1948.
12. The Permanente Medical Group allows its treating physicians to make determinations of medical necessity; more recently United Healthcare announced that it too would let contracted physicians make those decisions in some states. In California, where these decisions have been largely delegated to medical groups, the effect may not be significant. See C. Ornstein, "United Health to Let Doctors Set Treatments," Dallas Morning News, 8 November 1999.
13. See also P. Jacobson et al., "Defining and Implementing Medical Necessity in Washington State and Oregon," Inquiry (Summer 1997): 143–154; and P. Glassman et al., "Medical Necessity and Defined Coverage Benefits in the Oregon Health Plan," American Journal of Public Health (June 1997): 1053–1058.
14. National polls and surveys show that there is a problem with managed care that the marketplace alone does not solve. "Survey of Americans’ Views on the Consumer Protection Debate," Kaiser Family Foundation and Harvard University (17 September 1998); "Survey of Physicians and Nurses," Kaiser Family Foundation/Harvard University School of Public Health (July 1999); and "Consumers in Managed Care: Problems, Solutions, and Lessons Learned from the Health Rights Hotline" (Sacramento: Health Rights Hotline, 30 June 1998).
15. See R. Korobkin, "The Efficiency of Managed Care ‘Patient Protection’ Laws: Incomplete Contracts, Bounded Rationality, and Market Failure," Cornell Law Review (November 1999): 1–88.
16. See California A.B. 1663 (Friedman) 1996, which adds Chapter 979 to Section 1370.4 of the Health and Safety Code and Section 10145.3 to the Insurance Code.
17. D. Moran, "Regulating Managed Care: An Impulse in Search of a Theory," Health Affairs (Nov/Dec 1997): 17; and A. Enthoven and S. Singer, "Markets and Collective Action in Regulating Managed Care," Health Affairs (Nov/Dec 1997): 30.
18. Enthoven and Singer, "Markets and Collective Action," 27
19. K. Llewellyn and P. Gewirtz, eds., The Case Law System in America (Chicago: University of Chicago Press, 1989).
20. NCQA, Surveyor Guidelines for the Accreditation of Managed Care Organizations, Sec. 3.2, QI 2.3, QI 8.1, and QI 8.2, respectively.

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