Insurers Urge Independent Panel for Appeals of Rescission

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LOS ANGELES, CA — Reeling from public outrage and lawsuits over the practice of canceling policyholders’ medical coverage after they fall ill, health plans are pushing aggressively for legislation that would let dropped patients appeal cancellations to an independent panel.

The proposal also would shield the plans from future lawsuits.

But rather than helping patients regain their health insurance, the proposal would create new obstacles for the insured and be skewed in favor the health plans, consumer advocates say.

The insurance industry wants a third-party review system mirrored after one used by many states, including California, to settle disputes between patients and health plans over denied treatments.

A multinational for-profit medical services company that reviews such disputes nationwide is in talks with California health plans about forming the new review panels. Critics say the company is beholden to the insurance industry.

The proposal comes at a time when health plans are facing harsh reprisals from state regulators and law enforcement officials for the practice of retroactively canceling individual policyholders’ coverage, a practice known in the industry as rescission.

In February, a retired judge awarded $9 million – most of it in punitive damages – to a woman who had her medical coverage withdrawn by Woodland Hills-based Health Net while she was being treated for breast cancer. The highly publicized arbitration ruling put the entire health insurance industry on high alert.

Both Health Net and Blue Cross have since announced they are developing a review process to vet such cases, rather than halt policy cancellations altogether.

Health plans contend they may revoke a policy after a customer submits claims for medical services if they discover the patient omitted or misrepresented personal information on his or her application.

But patients’ lawyers argue that confusing applications and mandatory arbitration clauses have stacked the odds against the patients.

A handful of individual lawsuits, as well as multiple class actions, claim that the health plans violate state regulations when they investigate patients and withdraw coverage after the patients become sick.

In addition, two state bills being debated this month in Sacramento would bar or limit rescission.

Now, health plans are trying to pre-empt those reforms with efforts of their own.

In December, a national trade group for health plans outlined a proposal for third-party review legislation. The white paper has been circulated widely in the industry and among regulators and lawmakers, though not officially published.

The group, America’s Health Insurance Plans, has stepped up lobbying efforts on the proposal this month as part of its wider agenda for mandatory health insurance.

"We are in the last stages of developing actual legislative language," Mohit Ghose, senior vice president for the organization, said. "Rescissions, though very low in numbers, are something our members want to address."

Ghose said the group is trying to insert key elements of its proposal into legislation in California and other states.

Most controversial are provisions that would make the third-party review mandatory before patients can file a lawsuit, put severe limits on later litigation and, in some cases, do away with punitive damages. If enacted, such provisions could lead to a drastic drop in lawsuits filed over canceled coverage.

"We really don’t believe that the trial bar does anyone any good when it comes to health care," Ghose said.

He added that avoiding litigation was "the whole idea behind the independent panel review."

William M. Shernoff, managing partner of Shernoff Bidart & Darras in Claremont, said the proposal would not solve the problem for the plaintiffs he represents.

"They are trying to come up with a creative solution that only benefits them," Shernoff said.

The proposal also suggests that, in subsequent litigation, should a patient lose and decide to sue, the burden of proof would be on the consumer, and the health plan’s denial would be presumed correct.

"I think that’s going too far," said Steve Prater, a law professor at Santa Clara University and expert on the health care industry.

Prater said that the courts, and even arbitration proceedings to some degree, benefit patients because they allow for discovery. Independent reviews would focus primarily on a patient’s medical history and miss out on important fact-finding about the health plan’s practices, he said.

Prater also echoed the concerns of some consumer advocates, who are calling into question the fairness of the third-party review system that operates in other kinds of insurance dispute areas.

"I would be real suspicious about how the reviewers become well-connected enough to be part of the third-party panel," he said.

The health insurance industry insists it has a fair and effective model at work: the medical review process that California and 43 other states use when a health plan denies a patient medical services.

In these instances, consumers typically appeal to state regulators, who contract with private companies that specialize in auditing medical services.

Since 2001, California’s Department of Managed Health Care, which regulates health maintenance organizations, has largely overseen the program, called Independent Medical Review. The state’s Department of Insurance also handles medical reviews, though in far smaller numbers.

Both departments contract with a multinational, for-profit company called Maximus Inc. to review the cases of patients seeking care that their health plans deem "experimental" or unnecessary and decide whether the insurer’s denial was proper.

Department of Managed Health Care spokeswoman Lynne Randolph said the review process has proven "very effective as a second opinion for denial of care."

Randolph said state regulators believed a similar panel could work for reviewing policy cancellations.

"The Department would be prepared to oversee an independent review of rescission cases if that is what is determined by the state Legislature," she said.

Kevin Donahue, an attorney with the department, said the process is efficient and does not involve lawyers.

"The decision is based upon the medical records [alone]," Donahue said.

He added that participating in the medical review process does not restrict patients from suing later or limit punitive awards.

Tom Naughten, division vice president for Maximus Inc., said all the company’s reviewers are board- certified medical professionals selected for cases based on their specialization. Naughten said some reviewers see as many as 20 cases a month.

He said there was no formula for determining how often the review should side with the health plans or patients in order to be fair.

In 2006, third-party reviewers decided 1,015 cases in California, where patients had treatments denied for various reasons. In 61 percent of them, the reviewer sided with the health plan, and in 39 percent of the cases with the patient, according to data collected by the Department of Managed Health Care

The state’s statistics are nearly identical to those nationwide for 2003 and 2004, according to reports by America’s Health Insurance Plans. Industry representatives say the 60-40 average is fair.

But consumer advocates say the Independent Medical Review panels fall short of being unbiased and should not be expanded to rescission cases.

"The numbers don’t tell the whole story," said Jerry Flanagan, an advocate for health care reform with the Foundation for Taxpayer and Consumer Rights in Santa Monica.

"Most patients never get to the appeals process or the independent medical review, so the ones that fight themselves into this administrative process have a really strong case," Flanagan said. "The fact that they only win 40 percent is a problem. The expectation is that the patients should win much more often."

He said that Maximus and its reviewers have a financial incentive to land repeat business with the insurance companies and sign new contracts for other services, like in Florida, where Maximus has contracts to settle claims disputes between doctors and insurers.

Naughten, who oversees California operations, defended the third-party review process.

"There is no incentive for reviewers to decide one way or the other," he said.

Naughten said that Maximus Inc. was in talks with health plans to develop third-party review protocols, like those Blue Cross and Health Net have announced. He said the company could work with state regulators or the health plans on an individual client basis.

"Our opinion is the state should take the lead, but it could go the other way," Naughten said about the company dealing directly with health plans.

That would mean less oversight and more variety in the way health plans reviewed rescissions. As envisioned by the health plans, the third-party panels would differ in some ways from existing medical reviews. For one thing, the panels would comprise health care attorneys, as well as doctors.

Besides that, lawyers would be far less involved with appealing health plan decisions.

That does not sit well with consumer attorneys, who first brought the problem of rescission to the public’s attention with high-profile lawsuits against the health plans.

Shernoff, who won the recent $9 million ruling against Health Net, said that he has not seen the industry proposal but that its provisions were disturbing because review panels would lack subpoena and investigative powers, as well as the ability to award damages.
"This sounds like their wish list to get around litigation," said Shernoff, who also has brought a class action against Blue Cross on behalf of policyholders who had their coverage rescinded after post-claims investigations.

Shernoff said that case, which once looked like it would settle but now could go to trial, and others like it, do not belong in front of an arbitrator or a third-party review panel.

"They should be heard by a jury," he said.
Health Plans’ Proposal Limits Litigation:

– Patient must exhaust internal appeal process before third-party review.
– Patient must complete third-party review before litigation.
– If health plan wins, punitive damages are unavailable in later litigation.
– If health plan wins, the burden of proof is placed on the patient in litigation.

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