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Chapter 19   Managed Care: Utilization Review and Management




Physicians Must Appeal Denials

Law Prevents Plans From Retaliating Against Physicians.

Entitlement to Competent Review of Appeals

What to do if the Appeal Does Not Attain Desired Results

Denials under Medicare

Right to Decision/Hearing


Sanctions Against HMOs

Sanctions Where Care was Warranted and Federal Government is Responsible



Denial of Inpatient Care

Denial of Authorization for Hospital Stays of Mothers and Newborns

Denial of Authorization of Mastectomy and Related Services

Denial of Pain Management Medication







Physician Data Which May Be Used

Methods of Profiling

Average Utilization Review Rates Should Be Viewed With Caution



In Nevada, Managed care means a system for delivering health care services that promotes the efficient use of services by using employed or independently contracted providers of health care such as a physician, hospital or other person who is licensed or otherwise authorized in this state to furnish any health care service. NRS 695G.070.

Techniques to provide managed care may include, without limitation:

  1. Managing the health care services of an injured who has a serious, complicated, protracted or other health-related condition that requires the use of numerous providers of health care or other costly services.
  2. Providing utilization review; which entails the various methods that may be used by a managed care organization to review the amount and appropriateness of the provision of a specific health care service to an insured. NRS 695G.080.
  3. Offering financial incentives for the effective use of health care services.
  4. Any combination of those techniques.

NRS 695G.040.

A managed care organization refers to any insurer or organization authorized . . . to conduct business in this state that provides or arranges for the provision of health care services through managed care. NRS 695G.050.

Unlike retrospective review, which can result in withholding of payment for services rendered, prospective and concurrent utilization review can result in a significant health risk to the patient. An imminent denial of coverage could influence patients to either forego the proposed treatment altogether, or to obtain an inferior treatment, resulting in serious injury or death.

Unfortunately, the repercussions of prospective and concurrent review fall heavily on physicians because: (1) the process may impede a physicians professional judgement; and (2) a physicians malpractice risk may increase when a managed care plan decides to disapprove or reduce a patients treatment for the plans financial reasons. Therefore, it is important for physicians to know what rights and liabilities are implicated with respect to denials of care.

This chapter discusses:

  1. a) A physicians request to understand how and why care was denied;
  2. b) Physician and patient duties and rights with regard to appeals of denials of care; and
  • 1) Specific laws relating to denials of emergency care and denials of care rendered to patients with a terminal illness.


Authorization of recommended and covered health care services are required. Each managed care organization will authorize coverage of a health care service that has been recommended for the insured by a provider of health care acting within the scope of his or her practice if that service is covered by the insureds health care plan, unless:

  • 1) The decision not to authorize coverage is made by a physician who:
  • 2) is licensed to practice medicine in the State of Nevada pursuant to chapter 630 of NRS;
  • 3) possesses the education, training and expertise to evaluate the medical condition of the insured; and
  • 4) has reviewed the available medical documentation, notes of the attending physician, test results, and other relevant medical records of the insured.

The physician may consult with other providers of health care in determining whether to authorize coverage.

5)                  The decision not to authorize coverage and the reason for the decision has been transmitted in writing in a timely manner to the insured, the provider of health care who recommended the service, and the primary care physician of the insured, if any.

Written criteria concerning coverage of health care services and standards for quality of health care services has been established. NRS 695G.160 provides:

  1. Each managed care organization will establish written criteria:
  2. a) setting forth the manner to determine whether to authorize coverage of a health care service.
  3. b) setting forth the method for reviewing standards for the quality of health care services provided to an insured.
  4. Such written criteria must be:
  5. a) developed with the assistance of practicing providers of health care
  6. b) designed using generally recognized and, if appropriate, specialized clinical principles and processes
  7. c) reviewed and/or updated at least annually
  8. d) available to review by request of the insured any time the managed care organization denies coverage of a specific health care service to the insured.


Physicians must appeal denials

Managed care plans may refuse to authorize or pay for services which physicians believe are medically necessary. The plans denial may come in the form of a plan determination that such services are not medically necessary, or a refusal to cover the service because it is experimental or investigational. This section provides information on what physicians should do under such circumstances.

In two California cases, Wickline v. California, 192 Cal.App.3d 1630, 239 Cal.Rptr. 810 (1986) and Wilson v. Blue Cross, 222 Cal.App.3d 660, 271 Cal.Rptr. 876 (1990), the court found that third party payors can be held responsible when medically inappropriate decisions result from defects in the design or implementation of cost containment mechanisms. For example, the Health Net HMO was hit with an $89 million verdict, including $77 million in punitive damages, for failure to give timely authorization for a bone marrow transplant. The case was subsequently settled for an undisclosed amount.

However, under Wickline and Wilson, physicians may also be held legally accountable if they acquiesce without protesting (i.e., appeal) third-party determinations which they believe to be erroneous. Cases involving a denial of medically necessary services may end up in litigation. In order to avoid being sued, or to extricate yourself from a lawsuit, the physician will need written documentation of his or her efforts to obtain the necessary care. Documentation of the efforts to inform the patient of the negative health effects of not receiving the necessary services is crucial. If the procedure was denied because a certain predicate did not exist, the patients chart should be flagged to indicate that when the patients condition reaches the point at which services will be approved, authorization for the service will be readdressed.

Patients should meet with their employee benefits managers and explain any problems regarding plan denial of medically necessary services. The plan may reverse the decision after succumbing to the pressure of the employer. If the organization still denies the procedure or service after all appeal mechanisms had been attempted, patients have occasionally achieved authorization by publicizing the issue through the media.

Law prevents plans from retaliating against physicians

Physicians who advocate for medically appropriate health care for their patients are generally protected from retaliation by managed care plans.   Nevada physicians are protected under Nevada law providing that a managed care organization shall not terminate, demote, or refuse to compensate a provider because the provider in good faith advocates for a patient, seeks reconsideration of a decision denying a health care service, or reports a violation of law to an appropriate authority. NRS 695G.250.

Entitlement to competent review of appeals

Upon an appeal by a physician of a claim denial, the plan must refer the claim to the medical director or another appropriately licensed provider based on: 1) clinical issues; 2) the necessity for treatment; or 3) the type of treatment proposed or utilized. This health care provider must competently review the clinical issues on appeal, and make a determination on the appealed claim. Competent to evaluate the specific clinical issues means the reviewer has the pertinent education, training, and expertise for evaluating the specific clinical issues.

What to do if the appeal does not attain desired results

If the physician and patient have exhausted all appeal mechanisms and the plan still will not authorize the care, the physician has the following options:

  1. provide the service without reimbursement, hoping the plan will reconsider.

You can also refer your patient to a clinic or hospital where the service may be obtained for free or a reduced rate.

  1. check your contract plan because some plans prohibit physicians from billing patients for services deemed medically unnecessary. If this is not the case, the physician may conduct the service for a discounted fee or work out a payment plan with the patient.

iii.         it is in the best interest of the hospital to provide necessary inpatient services; therefore, involve the medical staff if the denied service involves a hospital inpatient procedure. Obtaining a written decision by the medical staff utilization review committee which deems the services medically necessary should influence the plan.

  1. bring a lawsuit or claim in arbitration. If the dispute is not resolved successfully in the appeals process, a lawsuit against the plan for wrongfully withholding reimbursement for services, alleging the insurer breached the implied covenant of good faith and fair dealing, may be the only available recourse.

Denials under Medicare

Medicare has specific rules relating to care denials. Among these, the HMO must provide meaningful procedures for hearing and resolving grievances with enrollees. 42 U.S.C. 1395 mm (c)(5)(A). Additional appeal protections are found in regulations. 42 C.F.R.417.600-417.638. Each HMO must establish appeal procedures and ensure that beneficiaries receive written information about the appeal and grievance procedures. If the HMO makes a utilization review determination adverse to the enrollee, it must notify the enrollee of the determination within 60 days of receiving the enrollees request for payment for services. The notice to the beneficiary must state the specific reasons for the determination and inform the enrollee of his or her right to a reconsideration. 42 C.F.R. 417.608(b). Failure to provide timely notice is an adverse determination and may be appealed by the enrollee. 42 C.F.R. 417.608(c). An enrollee dissatisfied with an adverse determination may file for a reconsideration within 60 days of the date of the notice. 42 C.F.R. 417.614 & 417.616(b).

Right to decision/hearing

Within 60 days of the request, the HMO may make a fully favorable decision to the enrollee. 42 C.F.R. 417.620(a). If it makes a decision that partially or completely affirms the adverse determination, it must explain its decision in writing and forward the case to the Health Care Financing Administration (HCFA). 42 C.F.R. 417.620(b). If the enrollee is dissatisfied with the result of the reconsideration, and the amount remaining in controversy is $100 or more, the enrollee has a right to a hearing before an administrative law judge (ALJ). 42 C.F.R. 417.630. The enrollee can appeal that hearing decision to the Appeals Council and then to the district court.


Sanctions against HMOs

The secretary may impose a number of sanctions to ensure HMO compliance with the Medicare statute and regulations. First, the Secretary may not enter into a contract with an HMO unless it conforms to law requiring the HMO to provide all Medicare services to eligible enrollees, to have particular open enrollment periods, to provide enrollees annually with information on their rights, including appeal rights, to provide covered services with reasonable promptness, to provide the above-mentioned procedural protections, and not to exceed certain limits on rates charged to beneficiaries. 42 U.S.C. 1395mm(c) and 1395mm(e).

Additionally, the Secretary may terminate any contract with an HMO if it is determined that the HMO has not met the terms of the contract or has not satisfied statutory or regulatory requirements. 42 U.S.C. 1395mm (I)(1). If the Secretary determines that an HMO has failed to provide necessary covered services to an enrollee and that failure has adversely affected the patient, the Secretary may seek civil money penalties, suspend enrollment, or suspend payment to the HMO. 42 U.S.C. 1395mm(I)(6).

Sanctions where care was warranted and federal government is responsible

In 1993, five Medicare beneficiaries in Arizona sued the Secretary, alleging, among other claims, that the Secretary has failed and refuses to take effective action to implement beneficiaries notice and appeal rights when they are denied health care services by their HMOs. The plaintiffs also alleged that the Secretary failed and refused to provide Medicare beneficiaries enrolled in HMOs with a procedure of obtaining review of HMO denial decisions contemporaneously with the denial decisions. The lower court held that adverse HMO determinations constitute state action, triggering constitutional due process requirements and issued an injunction mandating HMOs to comply with the above-referenced requirements. The lower court found that the notices issued by HMOs were inadequate because they were often illegible, failed to specify the reason for the denial, and failed to inform the enrollee about their right to present additional evidence to the HMO.

In the Grijalva case, the main issue was whether the challenged action may fairly be treated as action by the federal government. The Ninth Circuit found that, because the Secretary delegates Medicare coverage decisions to HMOs, HMO denials of services with inadequate notice constitute federal action. The Ninth Circuit found that HMOs and the federal government are essentially engaged as joint participants to provide Medicare services such that the actions of HMOs in denying medical services to Medicare beneficiaries and in failing to provide adequate notice may fairly be attributed to the federal government.


A Medicare HMO, competitive medical plan, or health care prepayment plan must maintain procedures for expediting appeals of care denials of home health or outpatient services when the standard 60 day processes could seriously jeopardize the life or health of the enrollees ability to regain maximum function. 42 C.F.R. 417.609(b). The plan must always grant the request of a physician for an expedited appeal, regardless of whether the physician is affiliated with the plan. 42 C.F.R. 417.609(c)(4). An expedited review must occur as expeditiously as the enrollees health condition requires, but within 72 hours of the request.   An extension of up to 10 working days is permitted if requested by the enrollee or if the plan finds that additional information is necessary and the delay is in the interest of the enrollee. 42 C.F.R. 417.609(c)(3).


Denial of inpatient care

A Medicare enrollee who disagrees with a determination made by a plan or a hospital that inpatient care is no longer necessary, may remain in the hospital and may request an immediate review of the determination. The plan continues to be financially responsible for the costs of the hospital stay until noon of the calendar day following the day the enrollee was notified of the review determination. 42 C.F.R. 417.605(c).

Denial of Authorization for hospital stays of mothers and newborns

Health plans are ordinarily prohibited from restricting coverage for hospital care to a time period less than 48 hours following a normal vaginal delivery or less than 96 hours following a delivery by caesarian section.  NRS 689A.042 describes coverage relating to complications of pregnancy as follows:.

  1. No health insurance policy may be delivered or issued for delivery in this state if it contains any exclusion, reduction or other limitation of coverage relating to complications of pregnancy, unless the provision applies generally to all benefits payable under the policy.
  2. As used in this section, the term complications of pregnancy includes any condition which requires hospital confinement for medical treatment if:
  3. The pregnancy is not terminated, is caused by an injury or sickness not directly related to the pregnancy or by acute nephritis, nephrosis, cardiac decompensation, missed abortion or similar medically diagnosed conditions or
  4. If the pregnancy is terminated, results in nonelective caesarean section, ectopic pregnancy or spontaneous termination.
  5.  A policy subject to the provisions of this chapter which is delivered or issued for delivery on or after July 1, 1977, has the legal effect of including the coverage required by this section, and any provisions of the policy which is in conflict with this section is void.

NRS 689A.0425 details the relevant prohibited acts by individual health benefit plans that include coverage for maternity care and pediatric care, and also includes the requirement to allow a minimum stay in the hospital in connection with child birth.

Denial of Authorization for Mastectomy and Related Services

A law entitled the Cancer Patient Protection Act of 1998, required every plan or health insurer that provides coverage for mastectomies and lymph node dissections on or after January 1, 1999, to:

  1. allow the length of necessary hospital stays to be determined by the attending physician in consultation with the patient, consistent with sound clinical principles. No plan may require a treating physician to receive prior approval from the plan in determining the length of hospital stay following these procedures.
  2.  cover prosthetic devices or reconstructive surgery, including devices or surgery to restore and achieve symmetry for the patient incident to the mastectomy. Coverage for prosthetic devices and reconstructive surgery is subject to applicable deductible and coinsurance requirements.
  3. cover all complications from a mastectomy, including lymphedema.

The law defines the relevant terms as follows. Coverage for prosthetic devices or reconstructive surgery means any initial and subsequent reconstructive surgeries or prosthetic devices, and follow-up care deemed necessary by the attending physician. Prosthetic devices include the provision of initial and subsequent prosthetic devices pursuant to an order of the patients physician. To restore and achieve symmetry means that in addition to coverage of prosthetic devices and reconstructive surgery for the diseased breast on which the mastectomy was performed, prosthetic devices and reconstructive surgery for a healthy breast is also covered if, in the opinion of the attending physician, this surgery is necessary to achieve normal symmetrical appearance.

Only a licensed physician competent to evaluate the specific clinical issues involved, may deny requests for authorization for the above-referenced health care services. In addition, no plan may accord any of the following:

  1.  lessen or limit the reimbursement of the attending physician for the provision of care to an enrollee in accordance with the above requirements.
  2. induce an attending physician by providing monetary or other incentives resulting in the provision of care to an enrollee in a manner inconsistent with the above requirements.
  3.  provide rebates or monetary payments to an enrollee to encourage acceptance of less than the above requirements.

On or after July 1, 1999, every plan must include notice of the coverage required by this section in the plans evidence of coverage.

Denial of Pain Management Medication

Every health care service plan contract that covers prescription drug benefits must provide coverage for appropriately prescribed pain management medications for terminally ill patients.


[Medical Director][Plan Name][Plan Address]

RE:[Patient Name]–Acct#:[ ]

Dear [Medical Director]:

  1. On behalf of my patient, [Patient Name], I am appealing your denial of a [Type and/or Explantion of Service, Procedure or Treatment] on [Date of Denial].
  2. A [Type of Service] is medically necessary in this case because [Indications, and any other relevant facts about patient symptoms and diagnoses which indicate the need for service]. I assume that [Name of Plan] has reviewed all relevant medical records, but please let me know if I can be of assistance in making the relevant records available for your review. Your denial or a [Type of service] is inappropriate/inapplicable in this case because [reasons why denial inappropriate].

III.       If [Patient Name] does not receive a [Name of Service], he or she is likely to [develop or incur] [potential harmful results to patient]. Moreover, if the patient does not receive [the recommended treatment], third parties could be harmed due to the patients [inability to see, hear, etc.].

  1. The [Specialty Society or Other Peer Review Organizations] recommends [the Service or Treatment] under circumstances where [reiterate patients symptoms/diagnoses].
  2. Providing a [Name of Service] now, will be economically prudent because [discuss any potential cost savings, e.g., the fact that the service should eliminate the need for frequent office visits and hospitalization].
  3. [In my practice of over the last [ ] years, this is especially the type of patient whom I feel benefits from [type of service]. To deny him/her [type of service] would not be in [his/her] best medical interests.]

Thank you for reconsidering your decision.


Physicians Name

California Medical Association 1999. Reprinted with permission.


Physician Name:________________________________________________________________

Patient Name:________________________________________________________________

Name of Plan:__________________________________________________________________

Medically Necessary Procedure or Service:___________________________________________





Date Service First Requested:______________________________________________________

Date Service First Denied/Reason for Denial:_________________________________________





Dates of Subsequent Appeals/Denials and Reasons for Denials: (Attach all documentation. Include dates of phone calls and names of persons with whom you spoke.)___________________





Final Patient Decision Regarding Denied Service (e.g. pay physician on a private pay basis; forgo the treatment because patient cannot afford to pay, etc.):___________________________




California Medical Association 1999. Reprinted with permission.



Patient name

Patient Address


On_____________(DATE), I prescribed                     (TEST/PROCEDURE)                   .

On        (DATE) ,                 (Name of PPO, IPA, HMO                 refused to authorize payment for same. On that basis, you have informed me of your decision to forego the        (TEST/PROCEDURE, I have prescribed. I expressed my concerns regarding your decision during our discussion on             (DATE       about the potential ramifications of your refusal to undergo the     TEST/PROCEDURE                       .

The purpose of this letter is to recommend that you appeal the        NAME OF PPO, IPA, HMO

                            denial of benefits and reconsider your decision to forego the       (TEST/PROCEDURE)               In light of the potential consequences of your refusal.


Should you wish to discuss this further, please so not hesitate to contact me.




Physicians Name

California Medical Association 1999. Reprinted with permission.



This is to certify that I, [name of patient ____________________________________________,

a patient who has received services at [name of the hospital]_____________________________,

consent to my discharge earlier than 48 hours following a normal vaginal delivery or 96 hours following a cesarean section.

I acknowledge that I have been informed of my rights under the Newborns and Mothers Health Act of 1997, which include:

______My health plan will cover me and my baby for an inpatient stay of 48 hours following a normal vaginal delivery or 96 hours following a cesarian section delivery if prescribed.

_____If I consent to an earlier discharge, my health plan will cover a post-discharge follow-up visit within 48 hours of my discharge if prescribed.

_____My physician has prescribed a follow-up visit within 48 hours. We have determined that the following visit will occur on   (date)                         at   (time)                   at:

_____My home

_____My physicians office

_____Another facility under contract with my health plan

Facility name___________________________

Facility location_________________________

_____I agree that I do not need a follow-up visit within 48 hours, but that I will make appointments for follow-up visits for myself and my baby in the next few days, or immediately if either of us develop problems.

Date:__________________________Time________________________ a.m./p.m .

Signature                     (Patient)                                         

Witness [optional]____________________

California Medical Association 1999. Reprinted with permission.


Historically, physicians have assessed their clinical skills and practices and compared them with peers or to an ideal. Proper utilization of medical resources is one aspect of quality assessment. Physicians strive to provide the most appropriate medical care for patients.

Profiling may be defined as gathering data and using relevant methodology, for the purpose of describing and evaluating a physicians medical practice performance. Evidence of physician efficiency, utilization, care management, and outcomes are relatively new and has become prevalent with the establishment of managed care organizations (MCOs). Data included in informational profiles include: 1) length of stay (LOS); 2) readmission or recidivism rates; 3) number and costs of specialist referrals; 4) prescription charges; 5) inpatient charges; 6) outpatient frequency and charges; 7) Emergency Department referrals; 8) lab and imaging tests; and 9) delivery of preventive care. Although measurement tools for physician profiling are possibly imprecise or ineffective, profiling may have educational validity.

Utilization reports or profiles may be used for purely educational purposes, for calculating payment, and for making contract termination decisions. The report must consider factors which properly influence utilization rates and outcomes in order to enable physicians to educate themselves and allow an MCO a fair basis for payment or termination decisions. These chronicles need to reflect and facilitate appropriate medical judgment and be implemented to promote physician knowledge.

The primary objective of profiling should be to encourage high-quality care, including appropriate utilization and improved patient satisfaction. Pertinent uses of Utilization Review Profiles are as follows:

  1. physician Education. A physician may be cost-effective in one aspect of his or her practice and not in another. Data on a physician should be classified by MCOs in order to evaluate and educate a physician, in terms of services provided, referral services, inpatient services, etc.
  2. Profiles should inform the physician about cost effective management of patient sub-populations. Data can illustrate efficient or deficient cost effectiveness demonstrated by the physician in managing specific types of patients. The physician knows precisely where improvement may be needed.
  3. basis for Bonuses: to provide higher reimbursement to those physicians who care for more acute or more complex patients.
  4. criteria for determining which physicians are promoted to partnership within a group practice or included in a MCO.
  5. decision making regarding retention of providers: However, a contract termination decision should never be based exclusively on a physicians profile unless: 1) the problem is ongoing; 2) the physician has been informed of the problem and given sufficient time to correct the behavior; 3) with respect to termination for overutilization, the physicians patient population has been carefully considered and appropriately risk adjusted.
  6. redentialing decisions about physicians may be based on profiles, but should not be determinative. A profile is one of many factors to consider.
  7. for the purpose of research to determine the practice patterns of a physician group regarding procedure time, number of patients seen during a certain time period, or to develop a better profile instrument.
  8. to determine whether a problem exists with underutilization of physician services.

Physician Data Which May Be Used

Certain aspects of physicians practices can be profiled reliably, but others cannot be.

Attributes that can be objectively quantified and reliably measured may be profiled such as clinical outcomes or medical case management based on medically appropriate clinical guidelines. Those physician attributes for which validated objective measures are nonexistent, should not be profiled.

Methods of Profiling

A profile is no better than the methods used to construct it. A profile that is constructed to answer specific questions and uses appropriate methods may differentiate physicians with a valid degree of reliability:

  1. before physicians are profiled, MCO physicians should define credible clinical standards to measure the profiles against. Before profiling begins, the practicing physicians should achieve substantial consensus as to the treatment being profiled.
  2. Practices both inside and outside the relevant medical group should be reviewed by physicians developing standards. This would prevent problems related to inappropriateness in the medical groups practices which may necessitate additional costs.
  3.  the profile must be designed to answer a concise question and be clearly interpretable.
  4. data sources for utilization reports range from claims databases maintained by health plans to individual patient medical records kept in physicians offices. MCOs should ensure their data sources are accurate, and have an awareness of the limitations of certain data sources as follows:
  5. Claim Forms may be insufficient to determine performance results. Such information may also be incomplete because (i) claim forms do not capture clinical characteristics about patients such as blood pressure readings or test results; (ii) they do not include the outcome of the care provided; and (iii) they do not provide information on the severity of the condition.
  6. Coding may hamper data accuracy and reliability related to unclear definitions of diagnosis, condition or treatment or inaccurate coding.
  7. Medical Records may be incomplete or imprecise. Physicians may err in conducting the physical examination or interpretation tests, or make faulty clinical observations, or documentation.
  8. a profile should be based on a scientifically-drawn sample of eligible subjects or on a complete census. MCOs should not formulate a profile until enough data are acquired to render the profile statistically useful. To attain statistical validity, adequate amounts of data need to be collected over a sufficient time period or data may need to be pooled with other sources, if physician confidentiality is protected.

Average utilization review rates should be viewed with caution

Comparing utilization review patterns to detect deviations above and below the norm are frequently conducted. Penalizing a physician for exceeding utilization rates may be inappropriate unless rates are risk adjusted for the patient population. Of course, comparison of utilization patterns should only be between physicians of the same specialty.