After Further Review

Texas IRO System Can Reverse Bad Calls by Insurance Companies

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Cover Story -- March 2003

By Walt Borges
Associate Editor

Doctors and consumer groups rejoiced and issued a flurry of celebratory press releases last December when a six-year court battle resulted in final judicial approval of independent review of health insurers' decisions against covering care physicians believe to be medically necessary.       

But the reaction from the organizations that actually conduct those reviews was somewhat subdued. While not ready to lump themselves in the same category as the Maytag repairman, many independent review organizations (IROs) said physicians and patients have not used the reviews as often as they could since the Texas Legislature set up the system in 1997.

Just ask Gilbert Prudhomme, the secretary director of Independent Review Inc. (IRI), an Austin-based IRO.

"Too many in the medical community don't know about the process, don't understand it, and, more importantly, don't believe it," he said. "Many doctors think we're a highfalutin' utilization review agency that is under the thumb of some insurer."   

Mr. Prudhomme says many doctors are skeptical whether the Texas Department of Insurance (TDI) will enforce IRO decisions, which are binding on health insurers and their utilization review agents. Other doctors fear they will end up in court if they use the process, he says.

Those aren't the only challenges facing IROs. The possibility of being forced to reveal the names of their reviewers under the Texas Public Information Act has some IROs worried about potential harassment of their reviewers. Others are concerned that expanding independent review into the workers' compensation system has opened the door for insurers and interest groups to suggest using guidelines to decide medical necessity, a development that undermines the system's independence.

Independent review allows patients and physicians to contest an insurer's decision that a treatment was not medically necessary and thereby reducing or denying payment for the procedure or course of treatment. The insurer pays for the review, and an insurer cannot appeal a decision in court, although patients and doctors may do so.

The process is not set up to review all health plan decisions. IRO appeals are permitted only after a patient or physician has exhausted the insurer's internal appeals, although decisions on treatments for life-threatening medical conditions are expedited in less than a week. Doctors and their patients also cannot ask for a retrospective review of denials after a medical treatment has been performed.

IROs Order More Treatment

In the first six years after the legislature approved the use of IROs, 59 percent of the appeals resulted in full or partial overturning of a health insurer's decision.

Through Dec. 31, 2002, TDI assigned 2,589 cases to IROs, and 2,542 were completed. Patients and their physicians won 51 percent of their appeals and obtained partial reversals of insurers' decisions in another 8 percent.

For the year ending June 30, 2002 , the Office of Public Insurance Counsel (OPIC) reported that IROs performed 447 reviews, down from 584 the year before. Sixty percent of the insurers' decisions were overturned completely or in part.

OPIC reported that decisions by Aetna U.S. Healthcare Inc. were contested 318 times, which accounted for 68 percent of the IRO appeals. CIGNA HealthCare of Texas Inc., with 54 complaints, and Humana Health Plan of Texas Inc., with 26, followed in the volume of IRO appeals.

Aetna had about 18 percent of the health insurance market in the 2001-02 OPIC study period. Blue Cross and Blue Shield's HMO Blue Texas, with 17 percent of the HMO market and 25 percent of the total Lone Star health care market, had only 2 percent of the appeals.

Aetna officials did not respond to inquiries about the IRO system and the company's record in IRO appeals.

Among the state's five largest health insurers, Aetna won IRO approval in 45 percent of the cases appealed and thus did not have to pay for additional treatment. Humana was backed in one-third of its 24 contested decisions, HMO Blue Texas was fully validated in 3 of 10 decisions, and IROs bestowed full approval for PacifiCare of Texas Inc. in 4 of 18 cases (22 percent). CIGNA won complete approval in 9 of 53 cases, a 17-percent success rate.

Aetna health plans and subsidiaries were responsible for the initial legal problems for the independent review process, filing a lawsuit in 1997 to preempt Senate Bill 386, the bill that allowed patients to sue managed care organizations and authorized greater state regulation of them. Aetna's goal was to void the regulation and patients' right to sue, but that argument failed at trial and before the 5th U.S. Circuit Court of Appeals. Both the trial and appeals courts held that the federal Employee Retirement Income Security Act (ERISA) preemption instead knocked out IRO appeals provisions. Physicians, patients, and insurers all were caught by surprise, but insurers maintained their commitment to use the IRO process while appeals went forward.

It took the U.S. Supreme Court exactly two years to accept and review conflicting decisions from the 5th Circuit and the 7th U.S. Circuit Court of Appeals. On June 20, 2002, the Supreme Court ruled that ERISA did not preempt an Illinois program of independent review.

On Dec. 16, 2002, Texas physicians and patients got the long-awaited word from the courts: The independent review of managed care decisions on medical treatment is legally okay. A two-judge panel of the 5th Circuit Court issued an opinion that applied the earlier U.S. Supreme Court decision to Texas law and reversed the 5th Circuit's decision that the Texas independent review process was preempted by ERISA.

Physicians and consumer groups hailed the Supreme Court decision as a major victory for lawmakers, physicians, and patients and as a limit on the use of ERISA to prevent states from creating IROs to review managed care decisions. (See "Cracks in the Wall," March Texas Medicine , pages 35-39.)

In subsequently applying the high-court decision to the Texas case, U.S. Circuit Judge Patrick Higginbotham said federal employees and self-funded plans could not take advantage of independent review because ERISA and the Federal Employee Health Benefit Act governing federal workers were intended to exclusively govern their benefit plans.

According to TDI, roughly half of insured Texans are covered by self-funded plans.

Judge Higginbotham noted that the Supreme Court agreed with the 5th Circuit that the IRO process related to ERISA and was also an insurance regulation that was allowed under ERISA. But where the 5th Circuit chose to hold that independent review conflicted with the intent for ERISA to be an exclusive remedy, the Supreme Court took another tack. It ruled that IRO appeals were an alternative method for securing the same remedies available under ERISA. While more extensive remedies than ERISA might be preempted, the Supreme Court found that the Illinois IROs were in line with ERISA remedies. Texas statutes were similar to those in Illinois, Judge Higginbotham wrote.

Health insurers and managed care organizations spoke clearly about their judgment on independent review when they continued to use the system after the 5th Circuit said ERISA preempted the Texas law, notes Allan Chernov, MD, the medical director of HMO Blue Texas and Healthcare Quality Programs for Blue Cross and Blue Shield of Texas.

"Despite an adverse decision, all the plans continued to use independent review," said Dr. Chernov. Although they may have initially been skeptical of the value of independent review organizations, health plans soon began to view the system "as a safety valve for public concerns," Dr. Chernov explained. "Health plans saw independent review as an effective method to deal with some of the difficult issues."

New Challenges

Although legal challenges have been resolved, independent review faces new challenges emerging from changes in the health care system and the expansion of the IRO process to include appeals of workers' compensation decisions.

In May 2002, the Consumers Union issued a report on the Texas IRO process, analyzing 263 decisions during a six-month period in 2001.

It found that 22 percent of the cases analyzed were disputes over the length of hospital stays, 21 percent involved substance abuse treatment, and 17 percent related to the treatment of mental health conditions. In 7 percent of the sample, contested prescription drugs were the issue, and in 6 percent, the treatment of obesity through gastric bypass surgery provided the conflict.

In reviews involving mental health and obesity, the health insurers' judgment was upheld completely in only 30 percent of the appeals. But insurers won 68 percent of the appeals involving specific prescription drugs.

The report recommended several changes to address shortcomings of the IRO system. One was to make a record of all IRO decisions available to the public via the Internet, and a second suggested seeking voluntary use of the IRO process by self-funded ERISA plans.

The consumer group also recommended the state's IRO laws be amended "to clearly apply to retrospective review," a change supported by many physicians, patients, and IROs.

The Consumers Union concluded that the IRO process was working for patients because more than half of the patients and physicians who appealed HMO decisions to an IRO were authorized for additional treatment.

IRO Appeals Drop

Despite the successes, the statistics show that the number of appeals is falling. There's more to that trend than a lack of public knowledge, IRO leaders say.

Health insurers have shifted away from the health maintenance organization (HMO) as the basic component of managed care and dropped HMO preauthorization requirements that have proved controversial with patients, thus undermining the IRO process where preauthorized treatments were the grist for most appeals.

Instead of deciding on coverage or medical necessity before treatment, insurers allow physicians to perform procedures and treat patients. The insurer then evaluates medical necessity after the treatment has been performed. If payment is then denied for the treatment, the IRO process cannot be invoked because it would be retrospective.

Mr. Prudhomme says use of the system is down significantly because of preferred provider organization contracts. "It's little known, but physicians who perform many procedures will be identified as outliers and can be deselected by the insurer. This has a silent impact on the physician and on his patients. It's a silent sword hanging over the physician," he said.

 "The insurance carriers have learned the trick: Let the physician do the work, then judge the claim on whether it was medically necessary," Mr. Prudhomme said. "The physician is then put at risk for departing from the insurer's model."

Robert Gunby, MD, chair of TMA's Council on Socioeconomics, says TMA is monitoring the situation and called on association members to report post-treatment denials.

"With the relaxation of preapproval requirements by health insurers, it's what happens on the back end that is important," Dr. Gunby said. "We are hearing that physicians are not being paid for services they provided that are later classified by insurers as not being medically necessary. There's no appeal to the IRO process in that situation."

"If there is enough bad stuff reported to us, TMA will push hard to address the issue," Dr. Gunby said.

Doctors can report such experiences to TMA's health care financing staff at (800) 880-1300, ext. 1414, or (512) 370-1414.

The decline in IRO cases is complicating the finances of some of the IROs the state uses. Envoy Medical Systems is one of three IROs that were certified by TDI to conduct reviews. When three other IROs were certified recently, Envoy received only one sixth of the appeals, compared with a third a few months ago.

"We now get only one or two new cases a week, and unlike the IROs that also do utilization reviews, our business is solely independent medical necessity review," said Dan Chin, president and managing director of Envoy Medical Systems.

IRO Impact

Health plans have adjusted their business practices and contracts as a result of the IRO appeals, says Phil Dunne, chief executive officer of the Texas Medical Foundation (TMF), the first IRO approved by TDI. Mr. Dunne says insurers are aware that having claims of several thousand dollars go through an independent review immediately adds to the cost of the claim -- win or lose -- the $650 fee that is paid to the IRO to resolve the dispute.

"I think many companies are willing to take a second look at a denial, and often they may decide to go ahead and authorize it rather than pay for an appeal that may be lost," Mr. Dunne said.

He says insurers also are placing caps in their contracts on some types of repetitive treatments, such as physical therapy.

"Insurers used to cover medically necessary physical therapy, but now they may say [in their contracts]: 'We will cover medically necessary physical therapy following an accident, but not to exceed 25 sessions.'"

Dr. Chernov, the HMO Blue Texas medical director, says the system is a success, but he admits the insurer has occasionally been unsatisfied with the explanations given for particular decisions. The Consumers Union report noted a similar problem. "Some IRO decision letters offered great insight into the medical condition and the decision-making process, while others simply included a few sentences with few details," a report summary stated.

As the field of IROs has expanded, the explanations for the decisions are becoming better, Dr. Chernov says.

Envoy's Mr. Chin attributes the greater detail in opinions to the increased interest in the independent review process by TDI and TWCC administrators not familiar with the actual case under review. During the first few years of the process, the IRO review decisions were delivered to the insurers, doctors, and patients involved in the case, and summary explanations were fully sufficient, Mr. Chin says.

Now, the IROs include additional detail for use by outside observers.

IROs still have some dissatisfaction with issues involving deadlines for obtaining medical records and with an attorney general's opinion that erodes the confidentiality of physician reviewers.

"The system can always be better in its thoroughness in obtaining medical records," said Mr. Prudhomme. Although there is a 20-day deadline for IROs to obtain the records, they are hard pressed to meet it, and sometimes records are incomplete when reviewed, he explains.

Mr. Prudhomme recommends the IRO be given an additional five days to obtain records in cases that don't involve life-threatening situations.

Mr. Chin says another threat to the independent review process emerged through an opinion issued by then-Texas Attorney General John Cornyn, who held that some IROs must produce the names of the reviewing doctors when requested to do so under the Texas Public Information Act. Mr. Chin says physician reviewers could be influenced and harassed by patients, physicians, or insurers who lost or anticipate losing appeals. That pressure could be as annoying as a critical phone call, or as serious as being dropped from an insurer's network or denied referrals by insurers and other doctors.

"We would be in jeopardy of losing many of our reviewers, as they would be reluctant to serve in the face of such harassment," Mr. Chin said.

An injunction against the attorney general preventing him from releasing the information is on appeal at the 3rd Court of Appeals in Austin, but the opinion remains in force pending a decision.

TWCC: Parallel System?

Mr. Chin said the IRO process has faced several problems since the legislature decided in 2001 to use it in appeals of workers' compensation medical necessity decisions. For the IROs, the statute provided an opportunity for new business, as the Texas Workers' Compensation Commission (TWCC) receives about 3,000 review requests each year compared with 500 for TDI's independent review.

Mr. Chin says the process is unpopular with some workers' comp insurance carriers and some chiropractors. TWCC's system allows retrospective review of workers' comp medical necessity denials if the loser of its internal process, typically the worker's medical provider, fronts the fee for an independent review. The losing party reimburses the fee ($630 for appeals by patients and physicians and $460 for hospitals and other providers) if the appeal is successful.

Envoy faced a court challenge in 2002 when several chiropractors sued Envoy and TWCC, arguing that the Texas Constitution prevents the legislature from assigning disputes to an administrative process. Mr. Chin says a state trial court in December found no violation of the state constitution.

He says reviews of chiropractic treatment often result in withdrawn appeals. All IROs have been impacted, he says, but IROs such as Envoy and IRI that have no other lines of peer review business have been especially stressed.

Along with a drop-off in appeals, Envoy is seeing "very high withdrawal rates," Mr. Chin said. "The chiropractors flood us with cases, but after we receive and process a request, they yank it."

The IRO can collect fees for the reviews only if the records have been sent to the reviewer, Mr. Chin explains. But 30 to 40 percent of the review expenses are accrued in preparing the case file. The IRO requests and obtains case material, removes duplicative and irrelevant material, and organizes the remaining material before the appeal is sent to the reviewing physician, Mr. Chin says.

"We are discussing this with TWCC and TDI," Mr. Chin said.

Mr. Chin also says some insurers are pressuring Envoy and other IROs to use medical treatment and Medicare guidelines to determine what is appropriate care. "That would expunge the word 'independent' from IRO, as our reviewers would no longer be able to make independent medical necessity decisions. It would essentially make us into utilization review agencies of a different color."

IRO Appeals -- July 1, 2001, to June 30, 2002

 

Cases

Cases Decided in Favor of HMO

Cases Decided in Favor of Patient/Enrollee

Cases Decided Partially in Favor of Both

Pending Cases

Aetna U.S. Healthcare, Inc. (includes Prudential)

318

138

140

28

12

AmCare Health Plans of Texas, Inc.

    2

  --

    2

  --

  --

Amil International (Texas), Inc.

    1

  --

    1

  --

  --

CIGNA HealthCare of Texas, Inc.

  54

    9

  41

  3

  1

Community First Health Plans, Inc.

    1

  --

    1

  --

  --

Cook Children's Health Plan

    1

  --

    1

  --

  --

FIRSTCARE

  14

    7

    4

  2

  1

HMO Blue Texas

  10

    3

    7

  --

  --

Humana Health Plan of Texas, Inc.

  26

    8

  16

  --

  2

MethodistCare, Inc.

    3

    3

  --

  --

  --

One Health Plan of Texas, Inc.

    2

  --

    2

  --

  --

PacifiCare of Texas, Inc.

  18

    4

  12

  2

  --

Texas Children's Health Plan, Inc.

    1

    1

  --

  --

  --

Texas Health Choice, LC

    4

  --

    3

  --

  1

Unicare

    3

    2

  --

  1

  --

UnitedHealthcare of Texas, Inc.

    7

    2

    4

  --

  1

 

465

177

234

36

18

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