Mooney, Green, Saindon, Murphy & Welch, P.C.

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Washington, DC 20036

Telephone: 202-783-0010
Telecopier: 202-783-6088

Summer 2010

This is one of a continuing series of updates on recent developments in the law affecting labor rights and employee benefit plans.

REGULATIONS RELEASED ON REQUIRED REVIEW PROCESSES UNDER HEALTHCARE REFORM

Paul A. Green

Mooney, Green, Saindon, Murphy & Welch, P.C.

The two statutes collectively referred to as the “Healthcare Reform Laws” or “Reform Laws” are the Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act.

In yet another proliferation of prodigious prose, the Departments of Health and Human Services (HHS), Labor (DOL) and Treasury have produced 128 pages of regulations explaining the new requirements under the healthcare reform laws regarding claims and appeal procedures. As with the requirements for coverage of preventative care, these requirements do not apply to grandfathered plans. Furthermore, they also do not apply to retiree-only plans.

These regulations, which were published in the Federal Register on July 23, 2010, both overlap and extend the claims and appeals rules already applicable to employee benefit plans under ERISA, and DOL indicates that it will eventually modify those rules to coordinate with these. In general, the new regulations require plans to include both an internal review procedure and an external review procedure.

Internal Procedures

For an ERISA-covered plan, the requirement for an internal review procedure is generally satisfied if the procedures in place satisfy the existing ERISA claims and appeals regulations, with six major differences:

1. The definition of “adverse benefit determination” subject to appeal is broader than under the DOL regulations, in that it also covers rescissions of coverage.

2. The maximum time period for a plan to rule on urgent pre-service claims is reduced from the 72 hours permitted under the DOL regulations to 24 hours.

3. If the Plan receives any new or additional evidence or adopts a new guideline or rationale that would be used to deny an appeal, the plan must provide that evidence, guideline or rationale to the claimant sufficiently in advance of the deadline for ruling on the appeal that the claimant has a reasonable opportunity to respond.

4. Individuals who are or may be employed to adjudicate claims or appeals may not be evaluated based upon the likelihood that they will deny claims. Specifically banned are compensation schemes based upon the number of claims denied.

5. Notice of denials of either claims or appeals must include additional information, including information sufficient to identify the specific claim (such as the date of service, the name of the provider, the amount of the claim, the diagnosis code, the treatment code and an explanation of the codes); a description of the standard used to deny the claim (such as a description of the “medically necessary” standard); an explanation of both the internal and external review processes, information on how to contact an appropriate office of the health insurance consumer assistance agency or ombudsman established under the Reform Laws for help in preparing an appeal; and for an internal appeal denial, a discussion of the decision. Model notices are promised.

6. Any failure to comply with any part of these required procedures will result in the participant being treated as having exhausted his or her administrative remedies. A plan may not rely on its “substantial compliance” with the rules.

Furthermore, a participant in an “urgent care” situation must be permitted to pursue external appeals even if the internal process is still pending.

With a few exceptions, an individual insurance policy not covered by ERISA generally satisfies the regulations if its procedures would satisfy the requirements for an ERISA-covered plan. The exceptions are, first, that a decision whether to provide coverage in the first instance (i.e., an initial eligibility determination) is also subject to the claims and appeals requirements. Second, an individual insurance policy is prohibited from requiring a second level of internal appeal. Finally, insurers must maintain records of claims and notices associated with their internal appeal processes for at least six years, and these records must be made available without charge to claimants as well as state or federal officials, subject only to HIPAA privacy requirements.

External Review

In addition to requiring an internal review process, the Reform Laws also require an external process involving the use of an “independent review organization” or “IRO.” For plans and insurance policies that are already required under state law to have external review procedures that comply with the NAIC Uniform Model Act as of July 23, 2010, those procedures are adequate and satisfy the new legal mandate. Not only can this include individual insurance policies, it also applies to ERISA-covered group health plans that are provided through insurance policies subject to a conforming state-law external review processes. HHS has committed to determining which states have external review mandates that meet these requirements. In the meantime, plans are permitted to treat a state process as satisfying the applicable requirements. Furthermore, even if a state’s mandated review process is determined to not satisfy the applicable standards, it will be treated as adequate for plan years beginning prior to July 1, 2011 in order to give the state time to correct the deficiencies.

Plans that are not subject to a state-mandated external review process treated as meeting the requirements of the regulations (including all ERISA-covered self-insured plans) will instead be subject to a federal external review process. These regulations do not, however, actually establish that process. Instead, they sketch out guidelines and minimum requirements that the process must follow, and promise that the agencies will issue regulations establishing such a process at some future date. These standards, which are largely modeled on the NAIC standards, will:

· Describe how a claimant initiates an external review, include procedures for preliminary reviews to determine whether a claim is eligible for external review, include minimum qualifications for IROs, establish a process for approving IROs eligible to be assigned to conduct external reviews, establish a process for random assignment of external reviews to approved IROs, create standards for IRO decision-making, and include rules for providing notice of a final external review decision.

· Provide an expedited external review process for adverse benefit determinations involving urgent care.

· For claims involving experimental or investigational treatments, provide additional protections to ensure that adequate clinical and scientific experience and protocols are taken into account as part of the external review process.

· Provide that an external review decision is binding on the plan or issuer, as well as the claimant, except to the extent other remedies are available under State or Federal law.

· Establish external review reporting requirements for IROs.

· Establish additional notice requirements for describing the Federal external review procedures, including notice of the right to file a request for an external review of an adverse benefit determination or of a final internal adverse benefit determination in the summary plan description, policy, or other evidence of coverage provided to covered individuals.

· Require plans and issuers to provide information relevant to the processing of the external review, including, but not limited to, the information considered and relied on in making the adverse benefit determination or final internal adverse benefit determination.

Unlike the standards applicable to plans covered by approved state external review processes, individual eligibility determinations under group health plans (including ERISA-covered plans) will not be subject to external review.

Form of Notice

Required notices must be provided in a manner that is “culturally and linguistically appropriate.” Plans covering fewer than 100 participants, at least 25% of whom are only literate in the same non-English language, must provide notices in that non-English language upon request. Plans that cover 100 or more participants, of which at least the lesser of 500 or 10% are only literate in the same non-English language, must also provide notices in that non-English language upon request. Such plans must also include in the English versions of all notices a prominent statement in the non-English language offering non-English versions of the notice. Once an individual makes a request for a non-English notice, all future notices to that individual must also be made in that language. If a plan maintains a customer assistance process (such as a telephone hotline), the plan must provide also that assistance in the non-English language. For providers of individual health insurance, these same requirements apply if HHS determines that at least 10% of the population residing in an individual claimant’s county is literate only in the same non-English language.

Effective Date

For non-grandfathered plans, these requirements are effective for the first plan year beginning on or after September 23, 2010. Like the regulations that have been previously issued under the Reform Laws, these are published as interim final regulations, with a 60-day comment period ending September 21, 2010.

We will continue to keep you informed as matters develop. Please contact us if you have any questions.

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