Can an HMO make a medical decision without looking at medical records?

February 27, 2018 10:31 am Published by

Sometimes you are the only thing that stands between the single crushing blow of HMO and a patient or provider.

— Ed Norwood

On the surface, requests for medical records seem innocuous. After all, Medical Professionals know that medical records are vital to determine treatment for their patients, so it seems that payors would need medical records to authorize treatment. But frivolous requests for medical records are a major concern in the industry. In our Prompt Payment Law Training, NCRA covers how payors can use frivolous requests for medical records as a stall tactic to delay payment and how to fight it. Imagine, then, that some payors are not even reading those records…

In light of the investigation of Aetna by the California Department of Insurance, we find ourselves asking how insurers can deny medical claims without reviewing medical records.

Why insurers deny patient medical claims due to “lack of medical necessity.”
Insurers review claims for medical necessity as a risk management function. To determine if the provider services did take place and to ensure there is no fraud, misrepresentation and over-utilization of care.
Improper insurer denials for medical necessity can result from:

  • Negligent physician reviews.
  • Misapplication of utilization review software or guidelines.
  • Unlawful attempts to rescind or modify an authorization.

I. How to challenge negligent physician reviews.

In Wilson v. Group Hospitalization and Medical Servs., Inc., 791 F. Supp. 309, 312 (D.D.C. 1992) the courts concluded:
“The insurance carrier which both issues a policy and administers it occupies dual roles that create an inherent conflict of interest. In its fiduciary role, the insurance company interprets the plan, determining what expenses are covered. This fiduciary, however, is the same company that will ultimately pay for those expenses from its own coffers. Thus, the insurance company’s “fiduciary role lies in perpetual conflict with its profit-making role as a business.” The inherent conflict between the fiduciary responsibilities of the insurance carrier and its own financial interests renders the insurance carrier’s interpretation of the plan suspect and requires that the Court scrutinize the carrier’s interpretation with great care to determine whether the carrier acted free of self-interest.”
A consumer or provider, in appealing these type of denials, should locate state specific utilization laws such as Health and Safety Code §1374.30 which state “a “disputed health care service” means any health care service eligible for coverage and payment under a health care service plan contract that has been denied, modified, or delayed by a decision of the plan, or by one of its contracting providers, in whole or in part due to a finding that the service is not medically necessary. A decision regarding a disputed health care service relates to the practice of medicine and is not a coverage decision.
CA Civil Code § 3428 holds health plans liable when: (1) The failure to exercise ordinary care resulted in the denial, delay, or modification of the health care service recommended for, or furnished to, a subscriber or enrollee.
Consumer protection laws, like CA Health and Safety Code Section 1367 (g) further dictate: The plan shall have the organizational and administrative capacity to provide services to subscribers and enrollees. The plan shall be able to demonstrate to the department that medical decisions are rendered by qualified medical providers, unhindered by fiscal and administrative management.
The covenant of good faith and fair dealing implied in all contracts requires each contracting party to refrain from doing anything to impair “‘the right of the other to receive the benefits of the agreement.'” (Murphy v. Allstate Ins. Co. (1976) 17 Cal.3d 937, 940 [132 Cal.Rptr. 424, 553 P.2d 584].)
As applied to insurance contracts, it does not merely “connote the absence…of positive misconduct of a malicious or immoral nature…” (Neal v. Farmers Ins. Exchange (1978) 21 Cal. 3d 910, 922, fn. 5 [148 Cal.Rptr. 389, 582 P.2d 980].); it demands that the insurer act reasonably. (Id. at p. 925.)
In a medical insurance policy, the insured’s expectation of security is relevant to the interpretation of medical necessity.
One of the most cited cases regarding managed care liability is Wickline v. State. In this case, the plaintiff received medical treatment through payments by Medi-Cal, a federally funded third-party medical payor. According to Medi-Cal’s pre-authorization procedure, Lois Wickline was cleared for surgery on an occluded abdominal aorta. After surgery, the treating physician requested an eight-day hospitalization extension to further observe her condition. Medi-Cal granted a four-day extension and denied coverage for further inpatient treatment as not medically necessary.
After her release, the patient suffered an infection, which resulted in a leg amputation or she would have died. In this case, the California Court of Appeal set forth the following standard of law:

The patient who required treatment and who is harmed when care which should have been provided is not provided should recover for the injuries suffered from all those responsible for the depravation of such care, including, when appropriate, health care payors. Third party payors of health care services can be held legally accountable when medically inappropriate decision result from defects in the design or implementation of cost containment mechanisms as, for example, when appeals made on a patient’s behalf for medical or hospital care are arbitrarily ignored or unreasonably disregarded or overridden.

CA Business and Professions Code §510 was later enacted to protect providers from retaliation:

(b) It is the public policy of the State of California that a health care practitioner be encouraged to advocate for appropriate health care for his or her patients.  For purposes of this section, “to advocate for appropriate health care” means to appeal a payer’s decision to deny payment for a service pursuant to the reasonable grievance or appeal procedure established by a medical group, independent practice association, preferred provider organization, foundation, hospital medical staff and governing body, or payer, or to protest a decision, policy, or practice that the health care practitioner, consistent with that degree of learning and skill ordinarily possessed by reputable health care practitioners with the same license or certification and practicing according to the applicable legal standard of care, reasonably believes impairs the health care practitioner’s ability to provide appropriate health care to his or her patients.

In filing a precertification request or appeal based on the medical need for treatment, providers and consumers may wish to cite supporting cases or statutes, which remind carriers of their potential liability for poor treatment position. The best approach is to simultaneously file a letter of medical necessity from the treating physician and any other specialists involved in the patient’s care.
They should also request the credentials of the medical reviewer. If the request or appeal is denied, ask that the review be conducted again by a medical professional with similar credentials as the person who provided the treatment. You may also request that an outside reviewer not employed by the carrier review the matter (See attached Case Study.)

II. How to challenge misapplication of utilization review software or guidelines.

Often insurers will rely on industry guidelines such as Milliman Care Guidelines to deny claims for not medically necessary, without conducting a proper physician review. However, as shown on their website, Milliman Guidelines are not to be used solely as medical necessity criteria in place of a qualified health care professional’s clinical judgment.
Their website reads in pertinent part:

“Qualified healthcare professionals may use our guidelines as a tool to support medical necessity decisions, but they should not use them as the sole basis for denying treatment or payment. Our guidelines must be applied to individual patients on a case-by-case basis and always in the context of a qualified healthcare professional’s clinical judgment.” (Emphasis Added) (See Attached)

Thus, the sole use of UR software cannot replace an experienced, knowledgeable physician, nor can it replace medical necessity determinations by the attending physicians.
Because insurer utilization review guidelines and medical necessity reviews are legally advisory in nature, compliance with federal and state laws, and industry guidelines are essential. If a utilization review individual or entity fails to comply with applicable state laws and industry guidelines, its opinion will be useless and legally carries no weight.
If utilization reviewer refuses to comply with federal or state utilization review laws, its review is incomplete and prejudiced, cannot be used and should be challenged vigorously.

III. How to challenge unlawful attempts to rescind or modify an authorization.

There are preventive measures a healthcare provider can take to prevent medical necessity denials such as obtaining an authorization.
I. The Relevance of an Authorization
Not only do most state laws prohibit a payor from rescinding or modifying an authorization, but once the authorization is obtained, in theory a contract has been created between the payor and the healthcare provider, as well as a strong case for additional civil causes of action.
For instance, in California, Health and Safety Code Section 1371.8 states:

A health care service plan that authorizes a specific type of treatment by a provider shall not rescind or modify this authorization after the provider renders the health care service in good faith and pursuant to the authorization for any reason, including, but not limited to, the plan’s subsequent rescission, cancellation, or modification of the enrollee’s or subscriber’s contract or the plan’s subsequent determination that it did not make an accurate determination of the enrollee’s or subscriber’s eligibility.

Regarding California HMO Post-Stabilization Claims, per Health and Safety Code Section 1262.8(d):

(1) A health care service plan, or its contracting medical provider, that is contacted by a noncontracting hospital [for authorization of post-stabilization care], shall, within 30 minutes from the time the noncontracting hospital makes the initial contact, do either of the following:

(A) Authorization poststabilization care.

(B) Inform the noncontracting hospital that it will arrange for the prompt transfer of the enrollee to another hospital.

(2) If the health care service plan, or its contracting medical provider, does not notify the noncontracting hospital of its decision pursuant to paragraph (1) within 30 minutes, the poststabilization care shall be deemed authorized, and the health care service plan, or its contracting medical provider, shall pay charges for the care (Email our office for help on specific laws that govern your State HMO payment practices.)

Arguably, when the authorization is obtained by the healthcare provider, a valid contract has been created. Additionally, an authorization will support a civil cause of action for negligent misrepresentation. A claim for negligent misrepresentation “must establish that the defendant negligently made an incorrect statement of a past or existing fact, that the plaintiff justifiably relied on it and that his reliance causes a loss or injury.” [5] Thus, when the payor has provided an authorization to a healthcare provider, the payor has essentially acknowledged notice that the non-participating provider is rendering necessary medically necessary services and care to the insured. When the payor provides the authorization, the healthcare provider relies on this authorization or promise that the payor will reimburse for the care rendered.

ERN/ The National Council of Reimbursement Advocacy (NCRA)
Ed Norwood, Chief Compliance Officer
(714) 995-6900 ext. 6926


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