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Testimony on Health Care Quality:Grievance Procedures by Margaret A. Hamburg, M.D.
Assistant Secretary for Planning and Evaluation
U.S. Department of Health and Human Services

Before the Senate Committee on Labor and Human Resources
May 19, 1998

I. Introduction -- The Need for A Fair Appeals Process

Mr. Chairman, thank you for giving me the opportunity to address this Committee again on a subject of significant importance to the Administration and the American people. As I emphasized when I spoke with you in March, improving the quality of the health care delivered to Americans is one of the President's top priorities. Ensuring that all health plan members have a mechanism to resolve disputes with their health plans is critical to that goal. We appreciate the attention that you, the Ranking member, and other Committee members are giving this issue.

The American health care system is undergoing a dramatic transformation. Health plans of all types have become more involved in clinical care decisions. More and more consumers find themselves in health plans that use utilization review and other care management techniques to ensure that care is well-managed and appropriate. Many of these changes have helped reduce the historic growth in health care costs, improved our ability to measure and assess the quality of care, and provided consumers with greater access to preventive and other services.

At the same time, as health plans become increasingly active in making coverage, utilization review, and other clinical care decisions, and develop bureaucratic procedures for making these decisions, consumers are at increasing risk of benefit delays and/or denials. Mistakes are inevitable. People will accidentally fall between the cracks. A fair and timely process for resolving benefits disputes is an essential tool for consumers in assuring their access to promised benefits.

An effective internal appeal mechanism is an opportunity for health plans and consumers to correct miscommunications, and to identify and resolve conflicts before they become problems -- an early warning system. Health plans can also use their internal appeals mechanisms as a source of feedback, for example to fine tune the implementation of utilization review protocol; a protocol that gives rise to multiple complaints may indicate a need for modification or improved communication with providers. Internal appeal mechanisms can also be an important gauge of consumer satisfaction, and a means of improving that satisfaction. The internal appeal process should be an integral component of the health plan's broader quality assurance program.

But internal appeals processes are not enough. They give the appearance of bias toward health plans, and in some cases that bias is real. Only independent reviewers can provide the guarantee of fairness that is necessary to rebuild consumers' trust in the system. Further, no internal review system will be perfect, there will be errors. All Americans must have access to external review.

A key goal of an independent, external appeals process is to ensure that mistakes are corrected quickly, before harm occurs. When these decisions are made by independent decision makers, we gain both the fact and appearance of fairness. Independent review serves additional important functions. As a matter of basic fairness, an independent review processes will assure that consumers get the benefits they have been promised.

External appeals can help improve health outcomes. The existence of an external appeals mechanism provides an additional incentive for the health plan to ensure that its internal appeal mechanism identifies and corrects problems as early as possible. The availability of an appeal helps assure that the health plan efficiently manages care and provides needed services without underutilization or inadequate access. And external appeals also help improve quality of care by providing another avenue for enrollees to obtain promised care in a timely fashion.

The existence of an external appeals process can also serve as a "check and balance" on the incentives of a prepayment system. We also believe strongly that an external appeals process can help reduce litigation by preventing injuries and increasing consumer trust in their health plans.

We believe the availability of an independent voice on matters of coverage and access will go a long way toward restoring consumers' confidence in the health care system. The vast majority of health care consumers will never use an external appeals process. But they will have greater trust in their providers and plans if they know that, in the event of an error, they have access to an independent determination of their rights. * *

The Administration is strongly committed to improving consumer protections and the quality of health care, including a system of internal review, independent external appeals, and some means of enforcing those protections. In the remainder of my testimony this morning, I would like to describe to you the steps the President has taken to bring appropriate internal and external appeal resolution procedures to consumers in Federal health programs, describe some of the dispute resolution procedures that currently exist in Medicare and in the States (for commercial business), and to echo the President's call for Congressional action to extend these protections to all health care consumers nation-wide.

II. The Growing Consensus That Internal Review and Independent External Review Are Fundamental to Protecting Consumers and Improving the Quality of Care

President's Advisory Commission on Quality and Consumer Protection in the Health Care Industry -- Consumer Bill of Rights and Responsibilities

On March 26, 1997, President Clinton appointed the Advisory Commission on Consumer Protection and Quality in the Health Care Industry (the Commission), to advise him "on changes occurring in the health care system and recommend measures as may be necessary to promote and assure health care quality and value, and protect consumers and workers in the health care system." As part of his charge to the Commission, the President asked the Commission to deliver to him a Consumer Bill of Rights by the fall of 1997.

The Commission was composed of 34 members representing widely divergent views, including consumers, business, labor, physicians, nurses, other providers, health plans, state and local governments, and health care quality experts. On November 20, the Commission presented to the President a ground-breaking report, setting out a "Consumer Bill of Rights and Responsibilities."

A key component of that Bill of Rights is the Commission's recommendation that "[a]ll consumers have the right to a fair and efficient process for resolving differences with their health plans, health care providers, and the institutions that serve them, including a rigorous system of internal review and an independent system of external review."

According to the Commission, "[f]air and efficient procedures for resolving consumer complaints about their health care serve many purposes. First and foremost, enhanced internal and external review processes will assist consumers in obtaining access to appropriate services in a timely fashion, thus maximizing the likelihood of positive health outcomes. Second, they can be used to bridge communication gaps between consumers and their health plans and providers, and to provide useful information to all parties regarding effective treatment and consumer needs. Third, the opportunity for consumers to be heard by people whose decisions significantly touch their lives evidences respect for the dignity of consumers as individuals and engenders their respect for the integrity of the institutions that serve them."

Despite their very different views and constituencies, these leaders agreed that all health care consumers should have this kind of basic protection, and that these protections would help promote improvements to the system and quality more generally.

Presidential Leadership

The President strongly endorsed the Commission's report, and has already taken steps to make the Bill of Rights real for the 85 million Americans in federally sponsored health plans. On February 20, 1998, the President issued an Executive Memorandum directing the five executive agencies responsible for overseeing health care programs to use their existing administrative and regulatory authority to come into substantial compliance with the Commission's recommendations by no later than December 31, 1999. This includes compliance with the Commission's recommendations on internal and external appeal procedures. In fact, all executive agencies responsible for health programs have reported to the President that Federal health programs already substantially comply with this recommendation. Through agency action, that compliance will be further improved by the end of next year.

With Federal programs taking this leadership role, the President also called for Federal legislation putting a Consumer Bill of Rights in place for enrollees in private health plans, and he has continued to call upon the Congress to pass legislation to make these rights real for all Americans.

Need for Congressional Action

Although the President has already taken many steps to bring basic protections -- including internal and external mechanisms to resolve disputes with health plans -- to all health care consumers, he cannot do this job alone. Congress must do its part. Some businesses are implementing consumer protections voluntarily. For example, some employers contract with an external dispute resolution entity to resolve questions about the availability of experimental procedures, and to resolve other particularly difficult coverage issues. But we cannot expect that all employers will voluntarily provide such appeals for these and other benefits and coverage disputes.

States have passed many of the protections recommended by the Commission into law. At least fourteen States have enacted a requirement that commercial health plan enrollees have access to an independent dispute resolution mechanism. The scope and nature of this appeal varies across these States, as I will explain in more detail below. In addition, most States' Department of Insurance will take complaints from privately insured consumers.

But States have very limited jurisdiction over the 125 million Americans in plans covered under the Employee Retirement Income Security Act. The only way to ensure that all health plans serving all Americans provide the protections recommended by the Quality Commission is to enact bipartisan federal legislation.

III. External Appeals Mechanisms Are Effective and Efficient: Criteria, and Examples from Medicare and States' Regulation of Insurance

Mr. Chairman, in your letter of invitation you specifically asked me to address those areas that should be addressed in any grievance and appeals process, including an independent, external appeal. You also asked for an overview of the grievance and appeals available in the Medicare Program. In fact, the Medicare Program provides a good illustration of how an external appeals process can be comprehensive, fair, and cost effective.

Criteria

We agree with the Commission, that a "properly structured complaint resolution process should promote the resolution of consumer concerns as well as support and enhance the overall goal of improving the quality of health care." A variety of mechanisms could provide the necessary protections and support quality improvement. States and others can devise the appeals mechanisms that best meet their needs, within broad -- but important -- Federal standards.

We support the criteria for internal and external review stated by the Commission in its discussion of this recommendation. We restate them here in more operational terms:

Any external review process should meet the following criteria:

• The process must be truly independent and impartial, both in fact and in appearance. This means the review must be de novo, based on the evidence, and conducted by appropriately credentialed individuals who have no conflict of interest.
• The process must be easy to understand and easy to use.
• The process must be timely, and must include an expedited process for emergencies and urgent care.
• There must be no undue restrictions on access -- narrow definitions of the types of disputes that are eligible for external review are unfair, and will not help improve the quality of care or consumer confidence. Where dollar thresholds are used, there should be an exception where the consumer's life or health is in jeopardy.
• Enrollees must have good information about the grievance and appeals processes available to them.
• The process must be affordable.

There are many mechanisms that meet these criteria today. We know from experience that an appeals process can meet these criteria and still be effective and inexpensive. The Medicare appeals process is one example, but there are others.

Examples from Medicare

As we reported to the Vice President on February 19, 1998, the Medicare program is in substantial compliance with the Commission's Bill of Rights, including the recommendation for internal and external appeal procedures.

Medicare beneficiaries who are dissatisfied with any decision about services or payment have the right to appeal, and beneficiaries are regularly reminded of their appeal rights. These rights are discussed in the Medicare Handbook. They are listed on every Explanation of Medicare Benefits and Medicare Summary Notice sent to beneficiaries. They are included on notices to patients when they are admitted to hospitals. And they are described on every denial made by a Medicare managed care plan. There is more we can do to inform Medicare beneficiaries of their appeal rights. For example, Medicare is in the process of making its information on appeals and grievance procedures more easy for enrollees to understand.

The Medicare program includes internal appeal procedures and an independent, external appeals process, for both fee-for-service and managed care enrollees. In fee-for-service, the beneficiary first can obtain a reconsideration of the initial denial by the carrier or fiscal intermediary that processed the claim. For physician and Part B services worth over $100, the beneficiary may also request a second level of internal review, a Carrier Fair Hearing. If the beneficiary is not fully satisfied, he or she has the right to a hearing before an Administrative Law Judge (if the claim is over $100 for Part A and over $500 for Part B). That decision may be appealed to the Department Appeals Council, and ultimately, Federal District Court (if the amount in dispute is at least $1000). In addition, Peer Review Organizations, responsible for overseeing quality of care, can also intervene quickly in the event of imminent discharge from a hospital.

In managed care, the beneficiary's first level of appeal is to the health plan. Health plans are required to establish and operate their own systems for handling appeals and grievances internally. If the plan's reconsideration of its initial decision is not wholly favorable to the beneficiary, the beneficiary's appeal is automatically forwarded for external review to HCFA's contractor, the Center for Health Dispute Resolution (CHDR). There is no minimum dollar threshold. All disputes about benefits or coverage are heard (not just those involving "medical necessity"). For Medicare beneficiaries who remain dissatisfied, further external review is available before an Administrative Law Judge (the minimum amount in dispute required is $100), the Department Appeals Council, and ultimately, Federal District Court (if the amount in dispute is at least $1000).

Last year, HCFA published final regulations guaranteeing appeal rights to Medicare managed care beneficiaries that are among the strongest available in the nation. HCFA established an expedited process for resolving both internal and external reviews of claims arising out of managed care. Under expedited review, such questions as the imminent cancellation of a treatment or the need to quickly see a specialist must be resolved by the plan as quickly as possible but in no event later than 72 hours for internal reviews (a schedule generally recommended by the Commission), or within 10 days for external review. This process permits individuals to receive a quick answer to questions about getting urgently needed care.

This hearing is timely because Medicare is currently considering options for further improvements in its appeals process. Among the options under consideration are improvements to the rules that address continuation of care during the managed care appeal process, notification of beneficiaries when services are reduced or terminated, and tighter response time standards for appeals involving situations that are not urgent. HCFA believes that the turnaround time for non-urgent appeals should be reduced from the current 60 days, and welcomes comments from your committee and other interested parties on what the standards should be.

As I noted above, any Medicare managed care beneficiary appeal that is not resolved to the enrollee's complete satisfaction is automatically forwarded for external review to the CHDR. In 1996, the direct costs of this external review were roughly 4 cents per member per month. Despite the fact that any coverage or benefits dispute can be appealed, and despite the absence of a monetary threshold, the appeals rate is very low, between one and two appeals per thousand enrollees per year. During 1995 and 1996, CHDR upheld the plans' determination in 64% of appeals, overturned the plans' decisions in 28% of appeals, and partially upheld and partially overturned the plan's decision in 4% of appeals. Medicare is proof that an effective external appeals program is neither burdensome nor costly.

We do not have comparable cost figure for appeals from the fee-for-service program. There are a number of reasons for this, including the fact that these cases are heard by the Administrative Law Judges who also hear all Social Security cases. There is a need for improvement in the ALJ process. HCFA is performing an analysis of the ALJ process and will be in discussions with officials of the Social Security Administration about future steps that may be taken. SSA has dedicated 30 ALJs to Medicare cases, and is trying to reduce the time for decisions in these cases. Ex

Examples from States' Regulation of Insurance

Today, at least 14 States have enacted a requirement that external appeals be available to consumers. In most of these States, the process applies to all types of health plans or to any plan that engages in "utilization review." In two States the process applies only to questions regarding experimental and investigational therapies (California and Ohio), and in one State it applies only to disputes regarding substance abuse and mental health services (Vermont). Under a grant from the Kaiser Family Foundation, the Georgetown University Institute for Health Care Research and Policy is studying the external appeals processes in these States. Although they are still in the process of learning the details of these external appeals processes, they have shared some of their preliminary information with us. Because the work is ongoing, I do not have complete information about each State's appeals process. But I can give you a few examples of how the States' external appeals already implement some of the criteria I listed, above.

The process must be truly independent and impartial, both in fact and in appearance.

In most of the States that have enacted an external appeals mechanism, the review entity is chosen by the State -- that is, neither the plan nor the enrollee appoint the panel. When neither interested party appoints the review panel, both parties can be sure that the decision will be fair.

There are many ways to accomplish this goal. Review entities can be assigned to disputes by the State on a rotating basis (this is done in Connecticut, Rhode Island, New Jersey, and Texas). The State itself can run the review panel using State employees (Florida), or the State can appoint independent reviewers who are not State employees (Michigan). The State can use an RFP process to develop a pool of review entities (Rhode Island, Connecticut, New Jersey, and Texas). Where States use an RFP process to develop a pool of independent review entities, they often contract with peer review organizations.

The process must be timely, and must include an expedited process for emergencies

The internal and external process must ensure that the review occurs in time frames that match the medical exigencies of the case. In some cases, for example, post-service review of a claim denial, a decision within a few weeks could be timely. In other cases, such as a pre-service denial in emergency circumstances, a decision must be made in within a few hours. Physician certification that the case should be expedited should automatically trigger expedited review at least through the internal appeals, so that the enrollee can get to the external appeal quickly. Once the complaint has reached a neutral external decision-maker, it may be fair to allow that decision-maker to determine whether expedited review is required.

States use a range of approaches to appeals deadlines. States' time lines for an initial internal appeal (the health plan's reconsideration of a denial) where there is no emergency appear to range from 5 business days to 60 days, with many states at 30 days. Deadlines in those states that provide for expedited internal review in emergencies range from 24 hours to 4 days, with many states at 72 hours.

The ranges are similar for external review. Standard review deadlines range from 10 days to 120 days, with many States requiring review within 30 days. Several States require expedited external reviews, which are generally triggered by either a treating physician's statement that an emergency exists, or a finding by the external review entity that a delay would jeopardize an individual's health. Expedited review deadlines range from 24 hours to 7 days.

There must be no undue restrictions on access -- narrow definitions of the types of disputes that are eligible for external review are unfair, and will not help improve the quality of care or consumer confidence

The scope of disputes eligible for external review ranges significantly across the States. Several allow any type of grievance not satisfied by the plan to proceed to an independent review panel. In other States, only disputes involving medical necessity are eligible for external review (although many of these States also include coverage decisions that involve medical judgements in their review process). And, as noted above, two States limit these appeals to questions involving experimental therapies, and another to disputes involving mental health or substance abuse benefits.

While this research is not yet complete, to date the Institute has uncovered no States that require a monetary threshold for external review. Two States require a nominal filing fee, (which can be reduced or waived where hardship would result). One State requires the enrollee to pay half of the cost of the appeal; the other half is paid by the plan. The other States have found that filing fees are not necessary to weed out frivolous cases.

The Institute's review of the costs of these appeals is ongoing. We understand that, to date, the costs in most States have been less than $500 per case, and that, as in Medicare, very few enrollees appeal to an external entity. In a few States, the process has not been in place long enough to produce reliable cost data.

The State regulators interviewed as part of this research believe that the existence of an external appeal process has improved the plans' internal grievance mechanisms, and is rebuilding consumer confidence in the health care system. Also, again according to the State regulators, health plans view these appeals procedures fair.

There is no perfect model for an external appeals process. While the processes described here work effectively for the Medicare Program and for these States, other approaches may be just as fair and effective. I outlined the criteria that an external appeal mechanisms should meet. Such a process should be part of a package of consumer protections that the Congress and Administration make available to all health care consumers.

IV. Conclusions: Make the Bill of Rights Real for All Health Care Consumers

According to the Commission, "[h]ow consumer complaints are addressed has a significant impact on the quality of health services provided and on the satisfaction of consumers with the individuals and institutions that provide them."