Denial-of-benefits appeals need consistency

Two factors make it tricky to get a clear, current picture about denial-of-benefits (DoB) appeals. For one, it’s difficult to pin down even such basic numbers as percentages of claims (or policy applications) denied, denials appealed internally, denials finding their way to external review and denials overturned on review. 

The second factor is that no one can be certain what final regulations will require because changes brought to this area by the Affordable Care Act (ACA) are still subject to an Interim Final Regulation. With those two caveats in mind, consider this our best effort at clarifying the current state of denials, appeals and reviews.

The numbers 

Though comparative data are hard to come by, looking at different sources brings this picture into some focus. 

A March 2011 report by the U.S. Government Accountability Office (GAO) found that “rates of coverage denials, including denials for preauthorizations and claims, varied significantly” from 11% in Ohio in 2009 to 24% in California in the same year, based on data from four states. However, the report noted that methodological variations likely accounted for much of the difference. 

“There’s no useful data … at all,” on the gross number of denials that are formally appealed, says Peter Kongstvedt, M.D., FACP, of the Department of Health Administration and Policy at George Mason University. “We don’t know how many upheld appeals go to external review, but of those that do, roughly half are overturned [internally],” he says. 

According to an analysis by the California Department of Insurance, reviews of DoB appeals between 2001 and 2013 resulted in a health plan’s decision being overturned 43% of the time. From prior experience at a regional health insurer, Roberta Herman, M.D., current director of healthcare strategy for Navigant, says that fewer than 15% of level 1 appeals were denied and fewer than 15% were overturned on external review. 

In various contexts, America’s Health Insurance Plans (AHIP) has cited about 3% of benefits claims that are ultimately denied-that is, after both internal (insurer) appeal and external (independent) review. 

Members of the National Association of Independent Review Organizations  (NAIRO) are reporting “a steady upward trend in federal external appeals as a result of the ACA regulations,” says president Andrew G. Rowe, who is also CEO of AllMed Healthcare Management Inc. in Portland, Oregon. However, such appeals “still represent a very small percentage of overall case review requests from health plans,” he adds. 

Further, full or partial approval of care (that is, overturning health plans’ denials) has been running at approximately 25% to 35% of all internal appeals cases, compared with just above 20% for final federal external appeals, Rowe says. 

It appears likley that the internal appeals process is sound enough that only a minority of its findings are reversed on external review. 

The reasons

In contrast to the data, experts’ observations on the reasons for DoB appeals are more consistent. 

AHIP spokesperson Clare Krusing says it’s important to note that claims are denied for many reasons that are not always the fault of health plans. The association’s latest claims survey report from 2011 showed that nearly half of all claims were pended because of duplicate claims, lack of complete information or other information needed to justify the claim, or invalid codes. 

About an additional quarter of pended claims, Krusing explains, were because of coverage issues, including no coverage based on date of service, non-covered or non-network benefit or service, or coordination of benefits. 

Similarly, the March 2011 GAO report stated that “coverage denials occurred for a variety of reasons, frequently for billing errors and eligibility issues and less often for judgments about the appropriateness of a service.” 

Among non-bureaucratic reasons for appeals, says Rowe, a common issue centers on the question: “What is the standard of care?” Often, he says, these can involve advances in cancer therapies, such as experimental or investigational therapies. Rowe points to Avastin (bevacizumab), a very expensive drug originally approved to combat colorectal cancer, but subsequently used off-label for other cancers. 

“Care standards are constantly shifting,” he says. 

In her experience at Harvard Pilgrim, Herman says the highest volume of appeals was in behavioral health (as much as 40%), followed by rehab facility options. DoB appeals in both often arose from members seeking out-of-network care-where they contended there was not adequate local expertise-or from disputes over the level of care needed, such as inpatient versus outpatient, she explains.

Appeals post-ACA

Health reform’s changes to DoB appeals and reviews derive from just a handful of sentences at 42 U.S.C. 300gg-19, which mandate that health insurers have in place a compliant internal claims appeal process that complies with the applicable state external review process, or they must implement their own compliant external review process. Enrollees must be notified about both. 

In July 2010, the Department of Health and Human Services (HHS) and the U.S. Labor and Treasury departments published Interim Final Regulations establishing standards for internal claims and appeals and also external reviews; the Interim Final Reviews were then amended in June 2011. State regulations regarding appeals must be at least as strict as those specified by federal law or federal regulations will apply. 

Kimberly Lewis, managing attorney in the Los Angeles office of the National Health Law Program, says that there are three options on the external review side. First, a state can adopt an “NAIC [National Association of Insurance Commissioners]-parallel” process, based on the Uniform Health Carrier External Review Model Act, written by the NAIC. Second, it can adopt an “NAIC-similar” process, which is subject to approval by HHS.   

If a state does neither, it must follow federal rules, submitting external/independent reviews to either HHS or to an independent review organization (IRO). 

The rules for NAIC-similar processes should have been established by now, but in March 2013, the Centers for Medicare and Medicaid Services (CMS) extended the transition period for NAIC-similar state external review processes till Jan. 1, 2016. 

The changes regarding internal appeals appear to have been less significant for insurers. Most large plans’ internal policies and procedures were already similar to what ACA now mandates, says Kongstvedt.  An NAIC spokesperson notes that, “appeals have become more consistent over the years with states adopting the NAIC model for the individual market and the Department of Labor setting the standards for group plans,” though states still differed in minor ways. 

With such details becoming more consistent under the ACA, regulations can simplify things for multistate carriers, NAIC points out. 

Adoption is proceeding, despite the NAIC-similar extension. As of late May, according to CMS’ Center for Consumer Information & Insurance Oversight, 32 states (plus Puerto Rico) met the NAIC-parallel standard, and 10 (along with the District of Columbia) met NAIC-similar, leaving only eight states under the HHS-or-IRO option. 

The ACA also has helped out consumers. A previous gap in ERISA regulations (governing self-insuring entities) meant that there was no final (binding, external) recourse or appeals process for DoB appeals, says Rowe, one that regulations put in place following ACA implementation have now closed. 

In addition, Krusing says, the ACA expanded the list of claims that could be appealed (including denials, reductions in coverage or termination of coverage) by adding rescissions of coverage, which can be appealed if an error on an insurance application purportedly didn’t involve fraud or misrepresentation. 

More broadly, in states like California, robust consumer-protection laws already covered DoB appeals, says Lewis. In states without such laws, the ACA’s enactment provides additional protections to policyholders. 

Looking ahead

Members of NAIRO have seen a steady increase in the number of federal external appeals under ACA, partly because of more people being insured, says Rowe, who adds that he expects this to continue. 

The ACA could use more teeth with respect to appeals, says Katherine T. Vukadin, assistant professor at Texas Southern University’s Thurgood Marshall School of Law. 

“The deck is stacked heavily against consumers when it comes to claim denials,” she says. 

When a consumer wins an appeal, Vukadin says, they only receive the benefit that was originally due. On the other hand, a plan gains profit if the wrong decision goes unquestioned-something  that doesn’t change under the ACA. In most situations, a penalty is given for not paying or paying late, so Vukadin offers that insurers be penalized upon wrongly deciding claims.

Although experts would like to see more monitoring and data on how well the DoB appeals rules are working thus far, changes seem to be settling in reasonably well overall. 

“The ACA created a base standard, and a relatively tight one,” says Kongstvedt. “It’s not a simple process, but it’s uniform, and that’s worth a lot.”  

Scott Baltic is a freelance writer based in Chicago.