External Review of Health Plan Decisions: An Overview of Key Program Features in the States and Medicare
Part 2

Prepared for the Kaiser Family Foundation by:
Karen Pollitz, M.P.P., Geraldine Dallek, M.P.H., and Nicole Tapay, J.D. Institute for Health Care Research and Policy, Georgetown University

Executive Summary

The administrative cost of external review is less than $500 in all study states except Texas. In all but one state program, the external reviewer or review entity is paid less than $500 per case. In Medicare, the cost per case is less than $300. In states that rely on volunteer reviewers, the cost is generally much lower. Taking into account the low volume of cases that reach external review, total costs for the program are likely to be small. (See Table 1, Review Cost.)

Independent expertise is a key element of external review. All but one program studied set standards to prohibit conflicts of interest by external reviewers. Objectivity of external reviewers was widely cited as critical to the effectiveness of such programs. Programs vary widely in their approach to accessing appropriate medical experts to participate in external review, though most attempt to include in their process a physician specialist trained in a field relevant to the case under review. Recognizing that disputes often involve both clinical and contractual issues, several programs also include attorneys and other experts in the review process.

Prompt action is another key feature of external review. While timeframes for routine external review vary, in all but one program routine reviews are to be completed in 30 days or less; a two-week time frame is not uncommon. Most programs provide for expedited review of urgent cases in 72 hours or less, as medical exigencies require. Regulators stressed that prompt review is critical to safeguarding meaningful access to care for consumers. Over time, health plan regulators have taken additional actions to enforce external review time frames, in particular making sure that complete case information is available to reviewers in a timely fashion.

External review decisions usually are binding on health plans. In Medicare and all but two states studied, the decision of the independent external reviewer is binding on health plans. In the two non-binding states, health plans rarely, if ever, fail to follow the external reviewer's recommendation.

External review appears to have a sentinel effect on health plan behavior. Experts we interviewed stressed this repeatedly, citing their own impressions as well as data indicating positive health plan responses to the process. At the outset of Pennsylvania's program, for example, a significant portion of reviews involved denial of emergency room care. Over time, the number of such reviews has dwindled and regulators attribute this to HMOs learning and understanding the state's expectations.

External review programs are widely regarded as valuable and fair. The health plan regulators, external review agency staff, and industry representatives interviewed, alike, reached this conclusion about the process. The fact that the disposition of external review equally favored consumers and plans was cited as both an indication of the need for the process as well as evidence of its objectivity and credibility. Regulators stressed their reliance on these programs for independent medical expertise. Several experts also noted that the growing number of private health plans voluntarily submitting to external review can be interpreted as a vote of confidence in the external review process. Health plan industry representatives stressed external review helps improve public perceptions about managed care and suggested it may reduce the need for health plan liability laws.

Table 1. Summary Highlights of State and Medicare External Review Programs
Program	Scope of External Review	Review Cost	Who Pays for Review?	No. of Covered Enrollees	No. and Disposition of Cases *	Program Effective Date
AZ	Medical necessity determinations	Negotiated between health plans and reviewers	Health plan	Not available	not applicable	July 1998
CA	Experimental and investigational therapies for terminally ill persons	Negotiated between health plans and reviewers	Health plan	Not available	Not applicable	July 1998 (postponed)
CT	Medical necessity determinations	$ 285-$410 depending on contractor	State (with plan licensing fees) Consumer pays $25 filing fee	Not available	18 cases January - July 1998 (6 dismissed at preliminary review, 12 to full review) 66% decided for consumer (of 9 cases decided; 3 reviews pending)	January 1998
FL	Any consumer grievance not resolved by the plan	$65/hour	State (with plan licensing fees)	4.4 million (include 400,000 Medicaid enrollees)	403 cases from 1993 through April 98 (100 cases settled prior to full review; 303 cases to full review) 60% decided for consumer (cases going to full review)	1985
MI	Any consumer grievance not resolved by the plan	Nominal (volunteer reviewers paid expenses)	State	1.8 million commercial and Medicaid HMO enrollees	49 cases from 1995 through June 1998 39% of cases decided for consumer	1978
MO**	Medical necessity determinations (statutory process) Informal regulatory process still applies to coverage issues and preexisting condition determinations	$76/hour	State	1.6 million managed care enrollees	60 cases from 1994 through June 1998 50% of cases decided for consumer	1994
NJ	Medical necessity determinations	$330-$350 (depending on contractor)	Health plan Consumer pays $25 filing fee, reduced to $2 for hardship	3.5 million managed care enrollees	69 cases from March 1997 through July 1998 42% of cases decided for consumer	March 1997
NM	Medical necessity determinations	Nominal (volunteer reviewers)	State	Not available	10 cases March 1997-March 1998 (8 dismissed after preliminary review; 2 to full review) 50 % of cases decided for consumer	March 1997

Table 1. (continued) Summary Highlights of State and Medicare External Review Programs
Program	Scope of External Review	Review Cost	Who Pays for Review?	No. of Covered Enrollees	No. and Disposition of Cases *	Program Effective Date
OH	Experimental and investigational therapies for terminally ill persons	Negotiated between health plans and reviewers	Health plan	2.6 million HMO enrollees	Not applicable	October 1998
PA***	Any consumer grievance not resolved by the plan	$300 or less	State	5 million	729 cases from 1991 through June 1998; 185 cases in 1997 37% of cases decided for consumer	1991
RI	Emergency cases (prospective and retrospective) and prospective non-emergency medical necessity determinations	$250-$475 (depending on contractor)	Plan pays half, consumer pays half	Not available	59 cases in 1997 68% of cases decided for consumer	1997
TX	Medical necessity determinations	$460-650 (depending on type of case)	Health plan	2.7 million enrollees	218 cases from November 1997 to September 4,1998 (194 cases decided and 24 pending) 48% of cases decided for consumer (includes 11 partially overturned cases)	November 1997
VT****	Medical necessity determinations in mental health and substance abuse claims	Volunteer reviewers paid honoraria and expenses	State (with licensing fees)	275,000	15 cases sent to independent panel (3 completed formal review; remainder were dismissed at preliminary review or plan paid for care prior to full review) 33% of cases decided for consumer	November 1996
Medicare	Any disputed HMO denial not resolved by the plan	Less than $300 per case	Medicare	5.2 million	Approximately 40,000 cases since 1989, 9025 cases in 1997 31.5% of cases decided for consumer	1989

* Percentage applies to number of cases reaching full external review.

** Table includes information about both Missouri's current external review program, mandated by law, and prior program established by regulatory authority.

*** Information in table pertains to Pennsylvania's existing external review program established by regulatory authority. A modified program with different features was enacted in 1998 and will take effect in 1999.

**** Information in table pertains to program for Vermont's mental health and substance abuse claims. The state recently enacted a law expanding a somewhat different external review program for other types of health claims. It will take effect in 1999.

This report is also available in PDF format.

---

The Kaiser Family Foundation is an independent health care foundation and is not affiliated with Kaiser Permanente or Kaiser Industries.

Return to top External Review of Health Plan Decisions: An Overview of Key Program Features in the States and Medicare Report | Part 1 | Part 2 | Fact Sheet