Studdert DM, Gresenz CR. Enrollee Appeals of Preservice Coverage Denials at 2 Health Maintenance Organizations. JAMA. 2003;289(7):864-870. doi:10.1001/jama.289.7.864
Author Affiliations: Department of Health Policy and Management, Harvard School of Public Health, Boston, Mass (Dr Studdert) and RAND, Arlington, Va (Dr Gresenz).
Context Congress and state legislatures are considering patient bills of rights
that seek to strengthen opportunities for patients to have denials of coverage
reconsidered by their health plans. Little is publicly known about such appeals
Objective To improve understanding of the sources, types, and outcomes of conflicts
between patients and managed care organizations over coverage of services.
Design and Setting Descriptive study of information abstracted from 1774 preservice appeals
out of a larger stratified random sample of 3519 appeals lodged between January
1998 and June 2000 at 2 large US health maintenance organizations.
Main Outcome Measures Classification of preservice appeals according to whether they contested
access to out-of-network care, the contractual limits of coverage, or the
medical necessity of services; analysis of contractual coverage and medical
necessity appeals by the services in dispute and out-of-network appeals by
enrollees' reasons for seeking care; and comparison of the proportions of
appeals won by enrollees across types of appeals and services.
Results Approximately one third (36.9%) of preservice appeals involved medical
necessity determinations, another third (36.6%) centered on the scope of contractually
covered benefits, and most of the remainder (19.7%) involved out-of-network
care. Enrollee wins were significantly more frequent among medical necessity
appeals than out-of-network or contractual coverage appeals (52.2% vs 35.4%
and 33.2%, respectively; P<.001). Appeals were
concentrated among relatively few services and among therapies that are generally
regarded as nonessential.
Conclusions A majority of preservice appeals disputed choice of provider or contractual
coverage issues, rather than medical necessity. Medical necessity disputes
proliferate not around life-saving treatments but in areas of societal uncertainty
about the legitimate boundaries of insurance coverage. Greater transparency
about the coverage status of specific services, through more precise contractual
language and consumer education about benefits limitations, may help to avoid
a large proportion of disputes in managed care.
Procedural protections have emerged as the keystone of reforms aimed
at safeguarding the interests of patients in managed care.1- 7 The
perennial worry, poignantly dramatized in recent films such as John Q and The Rainmaker, is that financial
incentives lead managed care organizations to refuse coverage for needed care.8 One policy response has been to mandate coverage of
specific services, such as obstetrical care,2,3 infertility
treatments,9 and autologous bone marrow transplantation
for breast cancer.10 But most commentators
regard wider prescriptions of "medical necessity" as neither possible nor
desirable.11 Consequently, recent regulatory
interventions designed to protect consumers are primarily concerned with ensuring
that the processes used to decide questions of coverage in managed care are
fair, prompt, careful, and, most importantly, subject to review.
External review mechanisms now exist in more than 40 states,12 and the US Supreme Court recently endorsed their
legality in a widely publicized decision.13 However,
the first recourse for most enrollees who are denied coverage is an appeal
to the health plan itself. Previous research suggests that health maintenance
organizations (HMOs) across the country adjudicate more than 250 000
such appeals annually for their privately insured enrollees alone.14 Recognizing the pivotal importance of plan-based
appeals systems in protecting patients, policy makers nationwide have moved
to bolster them.2,3,15- 18 But
despite the tremendous reliance being placed on appeals, virtually nothing
is publicly known about their characteristics or outcomes.
We reviewed the administrative files associated with 3519 appeals lodged
by privately insured enrollees at 2 large HMOs. Our study goals were to improve
understanding of the sources of conflict between patients and managed care
organizations, and to provide data to help shape effective policies for protecting
Two of the largest HMOs in the country shared their data on appeals
of coverage denials. Both participating plans (hereafter "plan 1" and "plan
2") are based in California, insure several million enrollees, and operate
well-established appeals systems. They also deliver care through a "delegated"
model in which the plans transfer authority and substantial risk for utilization
review to several hundred medical groups with which they contract to provide
services to their enrollees.19,20
Approximately half of managed care enrollees nationwide receive care
through this type of delivery model.21- 23 However,
responsibility for appeals functions generally resides with the plan24; in California, state law mandates this. Hence, the
appeals consist of plans' reconsiderations of benefits denials made by medical
groups, with the medical groups customarily bearing responsibility for the
costs of any services approved in the appeal.
The structures of the appeals systems operated by each plan are similar
to those previously reported in surveys of HMOs.24,25 We
have described them in detail elsewhere.14 In
summary, enrollees who were formally denied coverage by their medical group
received a letter notifying them of the denial and of their opportunity to
appeal it to their plan. Plan 1 offered 3 levels of appeal and plan 2 offered
2 levels. At plan 1, enrollees who lost their appeal at level 1 could request
another reconsideration (level 2) and, if the denial stood, one final reconsideration
(level 3). At plan 2, enrollees who lost their appeal at level 1 had it automatically
reconsidered at level 2 whenever "medically reviewable" issues were involved;
for all other types of appeal there was only 1 level of review.
Nonphysician case managers handled tasks associated with the first level
of appeal at both plans, including obtaining medical records and other information
relevant to the denial from the treating clinician or medical group, although
they were instructed to collaborate with a medical director when dealing with
appeals that presented clinical issues. Level 2 at both plans triggered committee
review, which included 1 or more medical directors. Level 3 reconsiderations
at plan 1 consisted of review by 1 or 2 medical directors who had not previously
been involved in adjudication of the appeal.
At plan 1, we randomly sampled 2491 (19%) of all 13 033 appeals
lodged by privately insured enrollees between January 1, 1998, and December
31, 1999; at plan 2, we randomly sampled 1500 (67%) of all 2223 appeals lodged
between January 1 and June 30, 2000. These time periods were chosen because
they were recent intervals during which the structure and operation of the
appeals systems at both plans were stable and comparable. The division of
the sample sizes across plans balanced resource constraints, an interest in
securing reasonable representation from both plans, and the larger number
of appeals available at plan 1.
We used a stratified random sampling approach. One set of strata corresponded
to the level at which the appeal terminated. At plan 1, we selected 15% (n
= 1813) of the appeals that terminated at level 1, 95% (n = 543) of those
that terminated at level 2, and all appeals that went to level 3 (n = 135).
At plan 2, we selected 65% (n = 1366) of the level 1 appeals and all level
2 appeals (n = 134). In addition, to permit closer investigation of appeals
involving particular services, and because existing electronic data at plan
1 provided a reasonable guide to the treatments in dispute, for plan 1 we
oversampled appeals involving durable medical equipment (DME), laboratory/diagnostic
testing, and surgery.
We derived weights to adjust for the sampling design, and all estimates
in this study are weighted to represent the general population of appeals
at each plan.
We gathered information from the administrative files associated with
each sampled appeal through an explicit review methodology. The "appeals file"
is the hard copy repository for all information accumulated by the plan through
the life of an appeal that is deemed relevant to judging its outcome. This
includes the enrollee's original request for reconsideration (a letter or
written summary of a telephone call), copies of plan-medical group and plan-enrollee
correspondence, and, where relevant and applicable, medical records, minutes
of committee review meetings, and the evaluations of case managers, medical
directors, and medical experts.
To extract detailed information about each appeal from the file, we
designed an appeal file abstraction form (AFAF). The AFAF was used to collect
data on the appeal, including type (preservice/postservice), reason for the
medical group denial, the services or equipment in dispute (including Current Procedural Terminology code), diagnosis information
(including International Classification of Diseases, Ninth
Revision code), sociodemographic characteristics of the enrollee (eg,
age, sex), and details of the plan's decision (eg, level, outcome).
We recruited 5 abstractors at plan 1 and 4 abstractors at plan 2 to
review the files associated with sampled appeals. The abstractors, who were
college undergraduate and graduate students, were trained in 1-day workshops
at each site and supplied with a manual on use of the AFAF. Abstraction proceeded
June through November 2000 at plan 1 and September through January 2001 at
plan 2. Study personnel were on site or available to abstractors by telephone
throughout the review periods. To test reliability of the abstraction process,
approximately 10% of the sampled files at each plan were independently reviewed
by 2 different abstractors.
The study and our confidentiality assurance plans were approved by the
institutional review boards at RAND and the Harvard School of Public Health.
We focused exclusively on preservice (or prospective) appeals in this
analysis. These are disputes over coverage for services or equipment that
enrollees seek, as opposed to disputes over financial responsibility for services
already obtained (postservice/retrospective).14
Prior to analysis we excluded appeals against denials of pharmaceuticals
(n = 224) because information on these appeals was incomplete at both plans
due to the involvement of external agencies in the adjudication process. We
also eliminated appeals filed mistakenly (because no initial denial had occurred)
(n = 70), duplicate cases (n = 36), provider-plan disputes that had been misclassified
as appeals (n = 17), appeals withdrawn before adjudication at the first level
(n = 5), and other disputes that were not actual appeals for miscellaneous
reasons (n = 35).
Our analyses are descriptive. We first classified preservice appeals
into 4 basic types: (1) out of network, (2) contractual coverage, (3) medical
necessity, and (4) administrative issue.
Out-of-network appeals differ conceptually from contractual coverage
and medical necessity appeals in having the identity of the provider at issue,
rather than access to the service itself; in other words, enrollees in these
appeals had rejected the proposed in-network provider and sought care from
one unaffiliated with the medical group and/or plan. We classified appeals
as contractual if the service at issue required the adjudicator to refer primarily
to terms of coverage in the enrollee's insurance policy. Medical necessity
appeals were those that involved services for which adjudicators' primary
reference point was the prevailing clinical standard of care. We standardized
classifications within specific service types based on the dominant tenor
of the disputes therein. However, these demarcations are sometimes challenging.
The distinction between contractual coverage and medical necessity can be
particularly vexing for services such as physical therapy and certain types
of DME when coverage is specified in the insurance policy but the circumstances
call for a blend of contractual and clinical considerations.
We analyzed out-of-network appeals by the enrollee's stated reason for
seeking the care, and contractual coverage and medical necessity appeals by
the services in dispute. Within appeal types, we also tested for differences
in the proportion of disputes resolved in favor of the enrollee using Pearson χ2 tests corrected for the weighted design.26 We
performed all analyses using STATA v7.0 (STATA Corp, College Station, Tex).
We completed abstraction of 3519 appeals files, 88% of the sample (83.3%
at plan 1 and 96.3% at plan 2). The rest were not locatable. Sixty-one percent
(n = 2161) of the files abstracted involved preservice appeals. The exclusions
left 1774 preservice appeals, of which 951 (53.6%) came from plan 1 and 823
(46.4%) came from plan 2.
Enrollees or their relatives brought 95% of these appeals. The rest
were initiated on behalf of enrollees by treating physicians (4.2%), attorneys
(0.2%), and other third-party representatives (1.1%). Most preservice appeals
(86.3%) were resolved at the first level; 4% proceeded to the highest level
at plan 1 and 1% did so at plan 2.
Approximately 93% of the appeals fell into 1 of 3 major types (Table 1). Approximately one third of appeals
(36.9%) were medical necessity disputes, another third (36.6%) were over contractual
limits of coverage, and 1 in 5 (19.7%) contested access to out-of-network
services. Overall, the plans decided 41.9% of appeals in favor of the enrollee,
overturning the medical group's denial. Enrollee wins were significantly more
likely among medical necessity appeals (52.2%) than among out-of-network (35.4%)
or contractual coverage appeals (33.2%) (P<.001).
There were several notable interplan differences. Out-of-network appeals
accounted for a higher proportion of appeals at plan 2 than at plan 1 (26.0%
vs 17.9%, P<.001). But when this type of appeal
is excluded from comparisons, the proportions of contractual coverage and
medical necessity appeals across plans were nearly identical. Outcomes differed
markedly by plan, with enrollees winning approximately twice as frequently
at plan 2 as at plan 1 in all 3 leading types of appeal. Outcome differences
were particularly sharp for appeals over ancillary services and DME, which
may stem partly from interplan differences in the scope of covered benefits.
However, the contrasting win rates between the plans did not disrupt the overall
difference in outcomes by type: medical necessity appeals were significantly
more likely than other types of appeal to be decided in favor of the enrollee
at both plans.
In the reliability testing, 3 of the 161 files independently reviewed
by 2 abstractors differed on outcome and none conflicted directly on service
type, although 4 services were not strictly consistent (3 recorded a more
general description than the other and 1 recorded a Current
Procedural Terminology code where the other did not). We resolved the
outcome differences by reference to administrative data at the relevant plan
and used the more specific of the service descriptions.
Enrollees' stated reason for seeking care outside their network in 60%
of out-of-network appeals was that they believed a specific provider was of
superior quality to the one available to them within their network (Table 2). For example, one appeal involved
an enrollee's desire to obtain care from an out-of-network sleep specialist
instead of the plan physician she was seeing in-plan because she believed
the former had more experience with her disorder. Another enrollee sought
access to a pediatric ophthalmologist, rather than the general ophthalmologist
who was currently treating her son's nasolacrimal duct obstruction. Yet another
enrollee was aware of more technologically advanced imaging equipment at an
out-of-network facility and sought access to it for follow-up diagnostic work
on his epileptic condition.
The other leading motivations for out-of-network appeals were geographic
distance to the assigned network provider (10.8%) and enrollees' desire to
consult clinicians with whom they were familiar because the preferred clinician
had previously treated them or someone they knew (17.2%). There were no significant
interplan differences in the frequency of any of these leading reasons.
Four service types—DME, ancillary health services, dental care,
and alternative medicine—accounted for 84.4% of contractual coverage
appeals (Table 3). Disputes over
DME were the most common (47.5%), with foot orthotics (22.2%) being the dominant
item. The next most common service types were ancillary services (18.2%),
dental care (11.0%), alternative medicine (7.7%), and investigational or experimental
Overall, several types of services showed enrollee win rates that differed
significantly from the mean win rate (33.2%) for contractual coverage appeals.
Relatively few DME cases were decided in the enrollee's favor (27.1%, P = .02). This result was driven largely by the exceptionally
low overturn rate among appeals involving orthotics (14.9%, P<.001). By contrast, enrollees were significantly more likely to
win appeals over chiropractic care (63.6%, P = .002)
and dental care (54.7%, P = .004).
Three service categories—surgical procedures (29.2%), office consultations
with specialists (24.0%), and diagnostic tests (19.7%)—accounted for
nearly three quarters of medical necessity appeals (Table 3). Among appeals over surgery, the 3 most common types of
operations were gastric bypass (7.3%), breast alteration (5.7%), and procedures
to remove varicose veins (3.3%); 57% of appeals over surgery disputed coverage
of 1 of these 3 procedures. One in 10 medical necessity appeals involved surgical
treatments related to obesity—namely, gastric bypass, gastric stapling,
liposuction, and dermolipectomy. Rulings in favor of the enrollee were significantly
less likely in disputes over gastric bypass surgery (26.1%, P = .004) than the average medical necessity appeal.
Enrollees disputed coverage for access to a diverse range of specialists,
with visits to dermatologists (3.4%), orthopedic surgeons (3.3%), and psychiatrists
(2.8%) most frequently at issue. Together these 3 specialties accounted for
nearly 40% of all appeals over the medical necessity of specialist consultations.
One half of the disputed diagnostic tests were magnetic resonance imaging
(4.4%) or dual-energy x-ray absorptiometry/bone density studies (4.4%). Finally,
disputes over denied treatment for scars or benign skin lesions were common
(12.3%); these were medical or minor surgical procedures sought from dermatologists
or plastic surgeons.
Nearly 60% of the preservice appeals we studied contested the contractual
scope of coverage or access to out-of-network care rather than issues of medical
necessity. Among those appeals that did center on medical necessity, enrollees
won approximately half. Inventory of the services involved in preservice appeals
showed that both medical necessity and contractual coverage appeals were remarkably
concentrated within a fairly small group of services. Cosmetic and nonessential
therapies were important epicenters of dispute. The policy questions raised
by these types of coverage disputes have tended to escape notice, receding
into the background amid preoccupation with the insurance status of treatments
with much more dramatic health consequences.27- 29
Most previous studies of coverage denials in the managed care setting
have involved normative analyses of how such determinations should be made.11,30- 32 There
have been several attempts to use empirical methods to investigate actual
decision making,33- 36 but
few have ventured into the territory of appeals37,38 and
none, besides Richardson and colleagues' 1993 summary of external review decisions
in the Medicare program,39 have undertaken
large-scale analysis of plan data. Thus, it should not be surprising that
the recent wave of regulation directed at internal review procedures has approached
them in a fairly monolithic fashion.
Our findings suggest that a more nuanced understanding of appeals could
aid ongoing public and private efforts to protect consumers and inform the
design of more effective approaches to dispute resolution. Each of the 3 major
types of appeals raises distinct issues.
Restrictions on access to out-of-network care have long been a core
component of strategies used by managed care organizations to control costs.40,41 Our findings highlight the friction
that such rules create. They also suggest that a majority of disputes in this
area spring from enrollee beliefs about the superior quality of particular
outside providers. Leading patients' rights proposals2,3 aim
to lower plan-imposed barriers to specialist care, but the deference to "covered"
benefits in such mandates means that they are unlikely to disrupt existing
limits on access to out-of-network providers.
With respect to contractual coverage appeals, foot orthotics, speech
therapy, physical therapy, dental care, alternative medicine treatments, investigational
therapies, and infertility treatments together accounted for 61%. Some of
these disputes involve significant health issues and demand a blend of contractual
and clinical considerations. But many of them challenge the denial of elective
treatments by directly contesting stated exclusions in the insurance product.
Appeals systems, whether internal or external, are a peculiar mechanism for
resolving such disputes. More careful and concise prespecification of covered
benefits would seem the obvious "ounce of cure" here.
However, purchasers' distaste for explicit rationing, together with
apprehension about "incomprehensible road maps" of covered benefits, have
traditionally chilled interest in a more prescriptive approach to coverage.42- 44 Our findings should
reinvigorate this debate. The conglomeration of disputes around relatively
few service types that we observed suggests that greater contractual specification
of benefits may be both feasible and valuable. Contractual specification is
no panacea. External oversight is still critical to ensure that contractual
clarity is not used to promote substandard care.45 Moreover,
clearer statements among plans, purchasers, and enrollees about the coverage
limits that apply to commonly disputed services will not eliminate disputes
over contractual coverage issues, nor will it end consumer dissatisfaction
over noncovered benefits, but it would promote transparency and consumer awareness.
Three features of medical necessity appeals were particularly striking.
First, they accounted for less than 40% of appeals at both plans but had quite
high rates of overturn. Although these prevalence and merit statistics are
clear enough within the appeals population, they do not reveal the extent
to which enrollees who experience inappropriate medical necessity denials
actually appeal. Similarly, within the appeals system itself, it is unclear
whether the paucity of upper-level appeals reflects satisfaction with first-level
decisions or enrollees simply being worn down and therefore reluctant to press
on with their appeals. Research in other domains shows that significant disconnects
may exist between actionable experiences and claiming behavior.46- 48 However,
compared with tort lawsuits such as medical malpractice, the relative ease
of lodging coverage appeals and reappeals—including no fees, options
for telephone initiation, mandatory notification rules, and the absence of
a need for representation—suggests that the disconnect may not be as
Second, we again observed a marked concentration of appeals among a
small band of services: 5 service types—surgery for obesity or obesity-related
conditions, breast alterations, varicose vein removal, bone density and sleep
studies, and treatments of scars or benign lesions—accounted for nearly
40% of medical necessity appeals. The relatively homogeneous nature of many
of the diagnoses that accompany these treatments suggests some further possibilities
for prespecification in coverage contracts.
Third, the medical necessity disputes frequently converged not around
life-sustaining therapies, but in areas of ongoing uncertainty about the proper
limits of insurance coverage. Sabin and Daniels49 have
conceptualized "medical necessity" using a treatment/enhancement paradigm;
the distinction here is between interventions meant to prevent, cure, or ameliorate
impairments, and those that merely improve conditions that are part of normal
human functioning. A number of the services that provoke medical necessity
disputes—for example, varicose vein removal, liposuction, dermolipectomy,
scar treatments, and a variety of cosmetic therapies—appear either to
fall into the enhancement category, or else to make particularly "hard" cases
for the treatment/enhancement distinction (the same is true in the contractual
coverage area, as evidenced by the contentiousness of services like alternative
medicine, infertility treatments, and certain types of DME). Thus, to a significant
extent, flash points for managed care disputes appear to track areas of societal
uncertainty about the legitimate boundaries of insurance coverage.
Debate, education, and better community consensus about the coverage
status of services in this "gray zone" should help to avoid both inappropriate
denials and conflict. Demystifying medical necessity—whether by greater
attention in coverage contracts to the most contentious services or by some
other means—may also permit stakeholders to incorporate considerations
of clinical efficacy and cost-effectiveness into decisions about covered benefits.42,50- 52 Most
importantly, it would allow oversight authorities to hone in on the disputes
with the greatest potential for harm to enrollees. For example, specific types
of medical necessity appeals may require faster review and higher standards
than current laws mandate; some may also demand assurances of or special access
to external review; others, especially those in the enhancement category,
may call for less scrutiny.
Our study is limited by the fact that we did not undertake independent
clinical review of the merits of the appeals; hence, we cannot determine the
extent to which denials were upheld or overturned inappropriately. Another
limitation is that the appeals data come from 2 health plans in California
that operate delegated models of care. A substantial proportion of HMO enrollees
nationwide receive their care through this type of delivery system, but characteristics
of appeals from other types of plans may differ. There was variation in overturn
rates even among the 2 plans we studied, and overturn rates generally may
be lower in nondelegated models when the plans themselves are at direct financial
risk for any coverage approved. The prominence of certain service types, such
as cosmetic therapies, may also differ regionally.
Finally, we reiterate the difficulty we faced in some cases in delineating
different types of appeals, particularly in making the contractual coverage/medical
necessity divide. The distinction sometimes blurs. Recent legal cases contesting
the coverage of physical therapy for incurable but treatable illnesses illustrate
the potential for decisions that ostensibly fall within contractual coverage
and out-of-network categories to be infused with medical necessity considerations.53,54
This analysis provides new insights into the plan-based review processes
that have come to figure so prominently in patients' rights legislation. Improved
knowledge of the content of appeals, particularly the services involved, should
help refine public and private efforts to protect managed care enrollees.
However, it will also sharpen the focus on difficult questions for society
as a whole about where and how the boundaries of insurance coverage should