Some Americans are injured as a result of inappropriate denial of health benefits. The Commission believes that stricter adherence to timely appeals processes can help to reduce the incidence of such injuries. Public and private purchasers should work quickly to improve internal appeals systems and establish an independent system of external appeals consistent with the Consumer Bill of Rights and Responsibilities.
Internal and external appeals processes should be enhanced to assure compliance with the Consumer Bill of Rights and Responsibilities. The Department of Labor should expedite its review of options to ensure a timely internal process for consumer complaints and appeals to help reduce the incidence of injury. Public and private purchasers should work quickly to implement complaint and appeal processes consistent with the Consumer Bill of Rights and Responsibilities.
Policymakers and other stakeholders should engage in a national dialog regarding the current state of existing remedies for individuals in public and private health plans who are injured as a result of inappropriate health care decisions. They should carefully consider the cost and the intended and unintended consequences of both the status quo and any revisions to existing policy.
Studies estimating the number of Americans injured in the course of treatment have tended to focus on inpatient or hospital settings. For example:
Much less is known about the incidence of injuries that occur as a result of inappropriate decisions by health plans to deny coverage for health care services. One reason we know so little is that there is no systematic mechanism for gathering information about such injuries. Concern about the impact of inappropriate coverage decisions has grown as managed care arrangements have become more widespread.
In traditional fee-for-service insurance, decisions to deny coverage of a benefit usually occurred after the benefit had been provided (Borzi, 1997; Employee Benefit Research Institute, 1998). Over the last 20 years, however, both public and private health insurance plans increasingly have employed utilization review techniques that serve to deny coverage before a service is provided in an attempt to reduce unnecessary care, reduce costs, and inform patients in advance of decisions to deny coverage of unnecessary, inappropriate, or uncovered services.
There is ample empirical evidence to substantiate the existence of significant overutilization of services, which some have estimated to be as high as 30 percent of total health care delivered in the United States (McGlynn, 1998). The Commission has identified ensuring the appropriate use of health care as one of its six national aims for improvement (see Chapter 3).
Efforts by health plans to reduce overutilization, when based upon evidence showing that certain procedures or services are unnecessary, may have a positive impact on cost and quality. Yet, inappropriate decisions do occur. An inappropriate decision not to authorize insurance coverage is one where it is ultimately determined that a needed service was covered by the plan. Such decisions can have enormous health consequences for those individuals in need of services, especially expensive services for which it would be difficult or impossible to pay out of pocket.
The majority of inappropriate decisions to deny coverage probably are resolved by patients, providers, and health plans through discussions and appeals processes. The goal of the health care system should be to do everything possible to see that the right decisions are made in the first place and to promptly correct any inappropriate decisions. A small but growing number of cases are, however, ending up in the courts (Kilcullen, 1996; Mellette and Kurtz, 1993; Shapiro, 1997; Walsh, 1997; Watson, 1997).
The Commission is concerned about the disturbing number of errors in health care and recommends that one of the national aims for improvement be "reducing health care errors" (see Chapter 3). The prevention of errors should be a very high priority.
But perhaps the most significant deterrent to the identification and reduction of errors is the threat of costly, adversarial malpractice litigation. Individuals who believe they are injured during the course of treatment can file suit in State court under tort laws alleging medical malpractice. Such suits can seek reimbursement of "economic damages" (e.g., medical expenses, loss of earnings), "noneconomic damages" (e.g., pain and suffering), and "punitive damages" (e.g., awards designed to deter intentional or reckless behavior or actions motivated by malice).
Many States have placed limits on the size of malpractice awards that are available to individuals who can prove their injuries were caused by the treatment they received or by the failure of practitioners or providers to deliver appropriate care (Health Care Liability Alliance, 1995). For example, approximately two-thirds of the States have imposed some limits on the size of malpractice awards made by the courts. Most have capped awards for noneconomic damages at $250,000, $500,000, or $750,000. Others have capped total awards at as much as $1 million. Many States have limited the use of attorney contingency fees. More than half of the States have adopted some form of collateral source rules, reducing the liability of the plaintiff by the amount obtained elsewhere. Further analysis is needed to assess the positive and negative implications of those various approaches.
One approach to reducing errors that offers promise is the establishment of systems to document errors and their causes. A useful example of such a system from another industry is the ASRS, developed by the Federal Aviation Administration (FAA). ASRS seeks to encourage participants in the airline industry to report incidents that could lead to accidents.
Launched in 1975 to encourage self-reporting of aviation errors to aid in quality improvement, ASRS met with only limited initial success because it was administered by the FAA, an agency with the authority to penalize those who make errors. Recognizing the conflict, the FAA reconfigured the system by having the National Aeronautics and Space Administration (NASA) function as an intermediary between the industry and the FAA. Reporting of errors has improved dramatically under this revised system. ASRS receives 30,000 incident reports annually, and, to date, the confidentiality of an ASRS reporter has never been violated (FAA, 1998). The FAA also operates a toll-free hotline, through which anyone can anonymously report allegations of unsafe practices.
To facilitate error reporting, ASRS provides immunity from FAA-imposed sanctions for violations of aviation statutes and regulations with the following limitations: (1) immunity does not apply to reports of accidents or criminal activity; (2) the alleged violation must be inadvertent and not deliberate; (3) the reporter must not have been found guilty of a violation of the Federal Aviation Act during the preceding 5 years; and (4) the ASRS report must be submitted within 10 days of the event in question.
Safety improvements made as a result of the ASRS include changes in air traffic control procedures; navigational charts; airline facilities, lighting, and signage; pilot procedures and training; and maintenance procedures. Information from ASRS also has led to the creation of the Crew Resource Management System, designed to improve coordination and communication between the flight and the cabin crews. Error reports also have identified problems with pilot fatigue, cargo weight shifting problems, and, most recently, problems with airplane rudders.
Aviation safety has also benefited from the coming together and coordination of interdisciplinary research in many areas of aviation that affect safety, including human factors analysis, material and process design, social psychology, and other areas of inquiry pertaining to the reduction of error. These activities intersect at the NASA Ames Research Center, which serves as the "hub" for research on safety, reliability, and error reduction, creating a synergy among researchers and quality improvement experts in the field.
While ASRS would require significant modification if applied to error reduction in the health care industry, it provides evidence that an error reduction system can be effective. Currently, the health care industry has no such focal point stimulating and coordinating an aggressive agenda to achieve reductions in health care errors. Several recent actions have, however, provided reason for optimism:
A health care safety reporting system or systems could be beneficial to support and work collaboratively with these efforts. Desirable characteristics of such an error reporting system include:
Interested parties should work together to develop a health care reporting system to identify errors and prevent their recurrence.
In the Consumer Bill of Rights and Responsibilities (see Appendix A), the Commission detailed a system of rigorous internal review of coverage decisions. A key feature of such systems is timeliness. While virtually all health plans have an internal appeals process in place, the speed with which decisions are made often varies. An important step in reducing the number of injuries related to inappropriate coverage decisions would be to accelerate implementation of timely, consistent internal complaint and appeal processes by all health plans.
Medicare, for example, requires plans with which it contracts to complete an internal appeals review in no more than 60 days. In cases involving urgent or emergency care, Medicare requires a decision in no more than 72 hours. Under Medicaid, most States have adopted similar timetables. In a recent Presidential order, President Clinton required all Federal programs (e.g., Federal Employees Health Benefits Program, CHAMPUS, and the Department of Veterans Affairs) to establish such a schedule no later than December 31, 1999.
The Department of Labor currently is considering revising its regulations for internal appeals systems in health plans regulated by the Employee Retirement Income Security Act of 1974 (ERISA). Under current ERISA rules, plans must make an initial decision about an appealed claim within 90 days of a request for review. Plans are able to file for a 90-day extension for cases involving "special circumstances." No provision is made for cases involving emergency or urgent care. This 180-day period is inconsistent with the need for timely review.
On February 20, 1998, the President directed the Department of Labor to propose amendments to the regulations that ensure that decisions regarding urgent care are resolved within 72 hours and that nonurgent care decisions are generally made within 15 days. The Commission recommends that the Department of Labor expedite its actions to provide for timely internal review of appeals for all health plans to meet the standard contained in the Consumer Bill of Rights and Responsibilities, and that appropriate resources be allocated to the U.S. Department of Labor to establish or contract for timely grievance reviews.
The Commission limited the application of external review systems to three kinds of cases: (1) any decision to deny, reduce, or terminate coverage or deny payment for services based on a plan's determination that a service is "experimental" or "investigational" in nature; (2) cases involving plan determinations that a service is not "medically necessary" and the cost of that service exceeds a "significant threshold"; and (3) any case in which the denial of coverage based on medical necessity could jeopardize the life or health of the patient.
External appeals systems have proven to be an effective tool to prevent injuries related to inappropriate coverage decisions. Medicare, Medicaid, and approximately a dozen States have instituted external appeals processes and they have proven to be a cost-effective mechanism for preventing injuries (Dobson, 1997). Some employers and health plans have included external review mechanisms in their contracts and policies.
Implementation of independent external review systems by public and private purchasers of health care services is an essential element in reducing the number of Americans injured by inappropriate coverage denials.
Individuals who are covered by health insurance arrangements regulated by the States can sue in State courts to obtain compensation for injuries resulting from inappropriate coverage decisions. Such cases can be brought either under contract law or through tort law. Remedies generally include compensatory damages intended to make the injured party "whole" (e.g., economic losses as well as noneconomic losses) and, in certain cases, punitive damages.
Individuals who are covered by health plans regulated by ERISA (e.g., those in self-funded and fully insured plans), cannot sue in State courts for remedies. The ERISA statute explicitly limits remedies to:
Federal Government employees can sue health plans that contract with the Federal Employees Health Benefits Program (FEHB) in State courts. But FEHB members can only sue the Office of Personnel Management in Federal court, and the FEHB statute limits remedies in such cases to the provision of the medical service at issue or the covered cost of that service; an injunction to order the plan to act; and clarification of future benefits.
Under the doctrine of sovereign immunity, Medicare beneficiaries cannot sue the Federal Government for actions taken under the Medicare statute. They can, however, sue a health plan that contracts with Medicare in State courts under tort or contract laws for remedies for injuries resulting from inappropriate coverage decisions.2 Similarly, Medicaid beneficiaries can sue either a State Medicaid program3 or a health plan that contracts with Medicaid in State courts under tort or contract law for remedies for injuries resulting from inappropriate coverage decisions.
Remedies Available to Consumers Injured
by Inappropriate Coverage Decisions
| Source of Coverage | Estimated Number of Americans Covered* | Available Remedies |
| State-Regulated Plans (Individual Market) | 10-16 million | In most States, individuals can sue health plans in State courts under either tort or contract law to claim compensation for losses and punitive damages. |
| State and Local Government Employee Plans | 23 million | In most States, individuals can sue health plans in State courts under tort or contract law for compensation for losses and punitive damages. |
| Medicaid | 37 million | Individuals cannot sue the Federal Government for remedies but can sue State Medicaid programs and/or health plans in State courts under either tort or contract law to claim compensation for losses and punitive damages. |
| Medicare | 37 million | Individuals cannot sue the Federal Government for remedies but can sue health plans in State courts under either tort or contract law to claim compensation for losses and punitive damages. |
| Federal Employees Health Benefits Program | 9 million | Individuals can sue either the Office of Personnel Management in Federal court or a health plan in State or Federal court. Remedies are limited to provision of the service denied; an injunction to order the plan to act; and clarification of future benefits. |
| ERISA-Regulated Plans (Self-insured and fully insured) | 123 million (includes 76-92 million fully insured; 32-48 million self-insured) | Individuals in both fully insured and self-insured plans are prohibited from suing health plans in State courts under either tort or contract law. Suits can, however, be brought in Federal court, and compensation is limited to provision of the covered service at issue or the cost of that service; an injunction to order the plan to act; and clarification of future benefits. |
State and local government employees in most States can sue health plans that contract with State and local government health benefit programs.4 Such suits can be brought in State courts under tort or contract law.
The Commission heard testimony from witnesses who believe that additional remedies should be provided to plan participants in both publicly and privately sponsored health plans beyond those already available. Those who have recommended expansion of existing remedies have stated that participants should be able to more fully recover losses resulting from inappropriate coverage decisions. The Commission recognizes that there are multiple options available and that each option has benefits, costs, and disadvantages that must be carefully examined.
The Commission heard testimony that the current system of remedies fails to achieve the basic principle of consumer protection that any person injured by an incorrect treatment or coverage decision should be compensated for losses that result from that injury. Witnesses testified that in order for there to be adequate remedies for all patients, Congress needs to amend current laws (including ERISA) to the extent necessary to allow recovery of damages that make patients whole (i.e., that provide restitution for the harms they have suffered). Witnesses also recommended that when health plans engage in conduct proved to be intentional or taken in bad faith, some additional penalty would be appropriate. Witnesses noted that those entities that are responsible for the decisionmaking found to be wrongful should be subject to liability. Testimony indicated that these goals could be achieved either by adopting uniform national remedies under existing frameworks, such as ERISA, or by permitting the application of State laws (such as those enacted by Texas and Missouri). Federal options include the provision of damages (with or without statutory caps); the imposition of fines; and the possible exemption of employers and labor unions not involved in decisions to delay or deny care.
The Commission also heard testimony that the current system, including ERISA, has provided a framework for affordable, quality health care coverage to a majority of Americans. It has promoted flexibility and innovation in the provision of affordable and quality health care. The Commission heard testimony that the prospect of additional remedies could lead to higher costs for coverage and the potental for reduced coverage for Americans. The Commission also heard testimony that additional remedies should only be considered after the full consideration of improvements that lead to more consistent, timely, and appropriate coverage decisions. Witnesses also testified that when a health plan makes a benefit determination, it is only interpreting a contract between a health plan and a plan participant on what benefits are covered under a contract. The strengths of the current system should be maintained when considering any options.
Reducing health care errors will require the active participation of all stakeholders. Health plans should reexamine their coverage decisionmaking processes as well as their complaint and grievance process to continuously improve the appropriateness of coverage decisions and to ensure that such processes are operating efficiently. A well-functioning system should resolve consumer complaints before any harm occurs to the patient. The Commission is urging the Department of Labor and other entities to take appropriate actions to ensure timely processes for resolving consumer appeals. Public and private purchasers, quality oversight organizations, and health plans also should act to establish timely, independent, external review processes.
The Commission has reviewed information on the variability of remedies available to individuals in different types of health insurance arrangements. Key questions that should be discussed in any policy debate regarding remedies have been raised for consideration.
Bates, David W., Nathan Spell, David J. Cullen, et al., "The Costs of Adverse Drug Events in Hospitalized Patients," JAMA 277(4):307-311, January 22-29, 1997.
Borzi, Phyllis, Center for Health Policy Research, testimony before the Advisory Commission on Consumer Protection and Quality in the Health Care Industry, September 10, 1997.
Brennan, Troyen A., Lucian L. Leape, Nan M. Laird, et al., "Incidence of Adverse Events and Negligence in Hospitalized Patients," New England Journal of Medicine 265:3265-3269, February 7, 1991.
Classen, David C., Stanley L. Pestonik, R. Scott Evans, et al., "Adverse Drug Events in Hospitalized Patients," JAMA 277(4):301-306, January 22-29, 1997.
Dobson, Allen, The Lewin Group, testimony before the Advisory Commission on Consumer Protection and Quality in the Health Care Industry, November 19, 1997.
Employee Benefit Research Institute, Implications for ERISA for Health Benefits and the Number of Self-Funded ERISA Plans (Washington, DC: January 1998).
Federal Aviation Administration, testimony of Barry Bermingham, before the Advisory Commission on Consumer Protection and Quality in the Health Care Industry, January 28, 1998.
Gopher, Daniel, Miriam Olin, Yehuda Donchen, et al. "The Nature and Causes of Human Errors in a Medical Intensive Care Unit," presented at the 33rd Annual Meeting of the Human Factors Society, October 18, 1989.
Health Care Liability Alliance, State Enactments of Selected Health Care Liability Reforms (Washington, DC: 1995).
Kilcullen, Jack, "Groping for the Reins: ERISA, HMO Malpractice and Enterprise Liability," &American Journal of Law and Medicine 22:7-50, 1996.
Leape, Lucian L., "Error in Medicine," Journal of the American Medical Association 272(23):1851-1857, December 21, 1994.
McGlynn, Elizabeth, oral testimony before the Advisory Commission on Consumer Protection and Quality in the Health Care Industry, January 28, 1998.
Mellette, Peter M., and Jane E. Kurtz, "Corcoran v. United Healthcare, Inc.: Liability of Utilization Review Companies in Light of ERISA," American Hospital Association Journal of Health and Hospitals 26(129), 1993.
Phillips, David P., Nicholas Christenfeld, and Laura M. Glynn, "Increase in U.S. Medication-Error Deaths Between 1983 and 1993," Lancet 35(9103):643-644, February 28, 1998.
Shapiro, Howard, ERISA Preemption: What You Need to Know About the Recent Supreme Court Decisions (Chicago: American Bar Association, 1997).
Walsh, Allison Faber, "The Legal Attack on Cost Containment Mechanisms: The Expansion of Liability for Physicians and Managed Care Organizations," John Marshall Law Review 31:207-244, 1997.
Watson, Roberta Casper, Advanced Law of Pensions, Welfare Plans and Deferred Compensation (Philadelphia: American Law Institute, 1997).
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