Chapter 9.D.2--Health Insurance Coverage Disputes

This page has miscellaneous updates about health insurance coverage decisions under both private and public insurance, and a more in-depth treatment of appeal procedures under Medicare and Medicaid programs.

Miscellaneous Updates and Notes

Since 2002, "Peer Review Organizations (PROs) have been renamed "Quality Improvement Organizations” (QIOs).  See

In Black & Decker Disbility Plan v. Nord, ___ U.S. ___ (2003), the Court ruled that ERISA does not require employers to defer to the judgment of treating physicians in determining whether a worker is disabled.  For more on judicial review standards under ERISA, see Annot., 128 ALR Fed. 1

Here is a revised version of Bill Sage's "therapeutic coverage" view of medical necessity determinations, quoted in note 9:

The most important thing to appreciate about "medical necessity" is that it has always operated at two levels: symbolic and substantive. . . . To many physicians, the phrase "not medically necessary" means "not clinically indicated," which makes them question why a seemingly nonprofessional party such as a health plan has the right to challenge their professional opinion. To many health plans, it means "not covered even though not expressly excluded from coverage," which gives them a degree of comfort issuing denials based on established insurance practice even though such decisions outrage physicians. Consequently, decisions involving medical necessity are frequently characterized by inconsistent administration, poor communication, distrust and, if disputes arise, relatively unprincipled, results-oriented judicial resolution. . . .

 [M]edical necessity cannot do the heavy lifting of cost control, or of quality assurance, in health care. . . . [T]he financial "meat" of today's medical necessity language should be placed elsewhere in the design of insurance benefits. Options for this restructuring include reworking current categories of covered services, rethinking specific inclusions and exclusions, reevaluating the role of employers and other purchasing agents in promoting contractual fairness, and revisiting both consumer cost-sharing and the structure and compensation of provider networks. . . .

 [H]ealth plans and policymakers have paid too much attention to standardized rules for coverage decisions and too little attention to therapeutic effect. Health care is both an outcome and a process, and all parts of the process, including those involving insurers, need to be caring as well as efficient. Medical necessity determinations should indeed be scientific and equitable, but, like good medicine, should also demonstrate compassion, offer hope, promote trust, and avoid abandonment. . . .  An alternative conception of coverage decisionmaking is to model the interaction among an insured individual, her physicians, and her health plan so that it resembles--to the greatest extent possible--the classic doctor-patient relationship. One can call this approach "therapeutic coverage."

 William M. Sage, Managed care's Crimea: medical necessity, therapeutic benefit, and the goals of administrative process in health insurance, 53 Duke L.J. 597, 600-645 (2003).  Also taking a therapeutic jurisprudence or a legal process approach to analyzing coverage disputes, see  Kathy Cerminara,  Dealing With Dying: How Insurers Can Help Patients Seeking Last-Chance Therapies (Even When The Answer Is "No"), 15 Health Matrix 285 (2005);  Nan D. Hunter, Managed process, due care: structures of accountability in health care, 6 Yale J. Health Pol'y L. & Ethics 93 (2006); Charity Scott, Foreward to the Symposium: Therapeutic Approaches to Conflict Resolution in Health Care Settings, 21 Ga. St. U. L. Rev. 797 (2005).

For an international comparative perspective, see Timothy Jost, Health Care Coverage Determinations: An International Comparative Study (Open University Press, 2004).

"Stomach-stapling" surgeries for obesity are the latest area of litigation to emerge.  For analysis, see Mark A. Hall, State regulation of medical necessity: the case of weight-reduction surgery, 53 Duke L.J. 653-672 (2004); Manny v. Central States, Southeast and Southwest Areas Pensiona and Health Walfare Funds, ___ F.3d ___ (7th Cir. 2004) (Posner, J.).

Regarding coverage for experimental treatment, see Annot., 122 A.L.R.Fed. 1; Leslie Pickering Francis, Legitimate expectations, unreasonable beliefs, and legally mandated coverage of experimental therapy, 1 Ind. Health L. Rev. 213-251 (2004); Dina Berlyn, Routine Patient care in Clinical trials: Whose Cost is it Anyway?, 16 J. L. & Health 78 (2003).

For thorough analysis of medical, legal, and health policy issues relating to the type of treatment at issue in the Bechtold case, see Richard A. Rettig, False Hope vs. Evidence-Based Medicine: Bone Marrow Transplantation and Breast Cancer (Oxford University Press, forthcoming 2005).

Regarding coverage criteria under Medicare, see Muriel R. Gillick, Medicare Coverage for Technological Innovations: Time for New Criteria?, 350 New. Eng. J. Med. 2199 (2004); Eleanor Kinney, The New Medicare Coverage Decision-Making and Appeal Procedures: Can Process Meet the Challenge of New Medical Technology?  60 Wash. & Lee L. Rev. 1461 (2003); Phyllis E. Bernard, Mediating with an 800-pound gorilla: Medicare and ADR. 60 Wash. & Lee L. Rev. 1417-1459 (2003).
Here are links for Medicare Guideance Documents, Coverage Manual, and Coverage Determinations:

The Stanford Center for Health Policy has produced a host of insightful research publications relating to medical necessity determinations.  See also American Health Lawyers Association, Medical Necessity: Current Concerns and Future Challenges (2005).

The following compelling narrative about how medical director recalls making medical necessity decisions is excerpted from Congressional testimony given by Linda Peeno, M.D., May 30, 1996.  She is an outspoken critic of managed care who testifies regularly for plaintiffs:

The two cases, and the notes that follow, explore the statutory, administrative and constitutional issues involved in appealing Medicare and Medicaid coverage decisions:
Heckler v. Ringer
466 U.S. 602 (1984)

Syllabus.... Judicial review of a claim under the Medicare Act is available only after the Secretary of Health and Human Services renders a "final decision" on the claim in the same manner as is provided in 42 U.S.C. § 405(g).... [This is] the sole avenue for judicial review of all "claim[s] arising under" the Medicare Act. Pursuant to her rulemaking authority, the Secretary has provided that a "final decision" is rendered on a Medicare claim only after the claimant has pressed the claim through all designated levels of administrative review.

In January 1979, the Secretary issued an administrative instruction to all fiscal intermediaries [which are private insurance companies that with Medicare to process claims. The Secretary instructed] that no payment is to be made for Medicare claims arising out of a surgical procedure known as bilateral carotid body resection (BCBR) when performed to relieve respiratory distress. [BCBR involves the surgical removal of the carotid bodies, structures the size of a rice grain which are located in the neck and which control the diameter of the bronchial tubes. Proponents of the procedure claim that it reduces the symptoms of pulmonary diseases such as asthma, bronchitis, and emphysema]. Until October 1980, Administrative Law Judges (ALJs), who were not bound by the instruction, consistently ruled in favor of claimants whose BCBR claims had been denied by the [fiscal] intermediaries. The Appeals Council also authorized payment for BCBR Part A expenses in a case involving numerous claimants. On October 28, 1980, the Secretary issued a formal administrative ruling, intended to have a binding effect on the ALJs and the Appeals Council, prohibiting them from ordering Medicare payments for BCBR operations occurring after that date, the Secretary having concluded that the BCBR procedure was not "reasonable and necessary" within the meaning of the Medicare Act.

Without having exhausted their administrative remedies, respondents brought an action in Federal District Court challenging the Secretary's instruction and ruling.... Respondents are four Medicare claimants for whom BCBR surgery was prescribed to relieve pulmonary problems. Three of the respondents (Holmes, Webster-Zieber, and Vescio) had the surgery before October 28, 1980, and filed claims for reimbursement with the fiscal intermediary, and the fourth respondent (Ringer) never had the surgery, claiming that he was unable to afford it.... The District Court dismissed the complaint for lack of jurisdiction, holding that ... respondents must exhaust their administrative remedies pursuant to § 405(g) before pursuing their action in federal court. The Court of Appeals reversed, holding that to the extent respondents were seeking to invalidate the Secretary's procedure for determining entitlement to benefits, those claims were cognizable under the federal-question and mandamus statutes, without the administrative exhaustion requirement of § 405(g) since exhaustion would be futile and might not fully compensate respondents for their asserted injuries in view of the fact that they sought payment without the prejudice--and the necessity of appeal--resulting from the existence of the Secretary's instruction and ruling....

Justice REHNQUIST delivered the opinion of the Court.

... [The first three] respondents clearly have an adequate remedy in § 405(g) for challenging all aspects of the Secretary's denial of their claims for payment for the BCBR surgery, including any objections they have to the instructions or to the ruling if either ultimately should play a part in the Secretary's denial of their claims.... § 405(g) is the only avenue for judicial review of respondents' Holmes', Vescio's, and Webster-Zieber's claims for benefits, and, when their complaint was filed in District Court, each had failed to satisfy the exhaustion requirement that is a prerequisite to jurisdiction under that provision. [Editor's Note: Section 405(g) states: Any individual, after any final decision of the Commissioner of Social Security made after a hearing to which he was a party, . . . may obtain a review of such decision by a civil action commenced within sixty days . . . ." 42 U.S.C. § 405(h) further states that "no . . . decision of the Secretary shall be reviewed by any person, tribunal, or governmental agency except as herein provided." The statute further states that "claims arising under" Medicare may not be brought under other statutes that normally provide for jurisidiction over federal controversies.] . . .

Respondents urge us to hold them excused from further exhaustion and to hold that the District Court could have properly exercised jurisdiction over their claims under § 405(g). We have held that the Secretary herself may waive the exhaustion requirement when she deems further exhaustion futile. Mathews v. Eldridge, 424 U.S., at 328.... [But] it cannot be said that the Secretary has in any sense waived further exhaustion. In the face of the Secretary's vigorous disagreement, the Court of Appeals concluded that the Secretary's formal ruling denying payment for BCBR claims rendered further exhaustion by respondents futile. But as we have pointed out above, the administrative ruling is not even applicable to respondents' claims because they had their surgery before October 28, 1980.... Although respondents would clearly prefer an immediate appeal to the District Court rather than the often lengthy administrative review process, exhaustion of administrative remedies is in no sense futile for these respondents, and they, therefore, must adhere to the administrative procedure which Congress has established for adjudicating their Medicare claims....

Respondent Ringer is in a separate group from the other three respondents in this case ... because he wishes to have the operation and [he] claims that the Secretary's refusal to allow payment for it precludes him from doing so. . . . [Therefore], it can be argued that Ringer does not yet have a "claim" to present to the Secretary and thus that he does not have a "claim arising under" the Medicare Act so as to be subject to [the statute's] bar to [ordinary] federal-question jurisdiction. . . . We find that argument superficially appealing but ultimately unavailing.

Although it is true that Ringer is not seeking the immediate payment of benefits, he is clearly seeking to establish a right to future payments should he ultimately decide to proceed with BCBR surgery. The claim for future benefits must be construed as a "claim arising under" the Medicare Act because any other construction would allow claimants substantially to undercut Congress' carefully crafted scheme for administering the Medicare Act. . . . If we allow claimants in Ringer's position to challenge in federal court the Secretary's determination, embodied in her rule, that BCBR surgery is not a covered service, we would be inviting them to bypass the exhaustion requirements of the Medicare Act by simply bringing declaratory judgment actions in federal court before they undergo the medical procedure in question. Congress clearly foreclosed the possibility of obtaining such advisory opinions from the Secretary herself, requiring instead that a claim could be filed for her scrutiny only after the medical service for which payment is sought has been furnished....

Because Ringer has not given the Secretary an opportunity to rule on a concrete claim for reimbursement, he has not satisfied the nonwaivable exhaustion requirement of § 405(g). The District Court, therefore, had no jurisdiction as to respondent Ringer.... The judgment of the Court of Appeals is accordingly reversed.

Justice STEVENS, with whom Justice BRENNAN and Justice MARSHALL join, concurring in the judgment in part and dissenting in part.

The Medicare Act is designed to insure the elderly against the often crushing costs of medical care.... The complaint indicates that Ringer, "who is 68 years of age, suffers from severe, chronic obstructive airways disease, (i.e., severe emphysema), cor pulmonale and right heart strain," and that he is eligible for Medicare benefits and needs the operation but cannot afford it unless the Secretary agrees to pay for it.... Today, the majority holds that Ringer must have the operation that he cannot afford and cannot obtain because of the Secretary's ruling before he can challenge that ruling.... Of course, the reason he has not filed such a claim is that there is nothing to reimburse--he has incurred no expenses because he cannot afford to do so. Without anything to reimburse, the Secretary refuses to provide a hearing on what she and the Court believe to be a nonexistent "claim." Thus the only way Ringer can pursue his § 405(g) remedy is by doing something that the Secretary will not let him do.

Thus, it would seem, Ringer both does and does not have a claim which arises under the Medicare Act. He cannot file a claim under the Medicare Act until after he has the operation; he cannot have the operation unless he can challenge the Secretary's ruling; and he cannot challenge that ruling except in an action seeking judicial review of the denial of a claim under the Medicare Act. This one-eyed procedural analysis frustrates the remedial intent of Congress as plainly as it frustrates this litigant's plea for a remedy. The cruel irony is that a statute designed to help the elderly in need of medical assistance is being construed to protect from administrative absolutism only those wealthy enough to be able to afford an operation and then seek reimbursement....

Daniels v. Wadley
926 F.Supp. 1305 (M.D. Tenn. 1996), vacated in part, 145 F.3d 1330 (6th Cir. 1998).
JOHN T. NIXON, Chief Judge.

... This case is the continuation of a class action started in 1979 regarding the provision of medical assistance under Tennessee's pre-1994 Medicaid program. Plaintiffs in the current action are Medicaid-eligible enrollees of the Tennessee Medicaid Demonstration Project ("TennCare"). Plaintiffs seek to modify the Second Consent Decree in this action, ... in order to prevent the denial, delay, reduction, suspension or termination of medical assistance or other adverse action to enrollees without due process and a timely fair hearing in accordance with ... the "Medicaid Act" [and] the United States Constitution.1 ...

Under TennCare ... Managed Care Organizations ("MCOs") have financial incentives to deny enrollees health care even when such health care is medically appropriate. These incentives arise out of significant changes to Tennessee's Medicaid Program, which took effect with the inception of TennCare. Based on these changes, the Court finds that it is appropriate to modify the Second Consent Decree.

The Tennessee Medicaid program in place at the time that the Second Consent Decree was negotiated permitted a recipient to choose his or her provider. The program required providers, for the most part, to directly bill the state for services rendered.... If the Medicaid Bureau denied a provider's claim for payment, the provider could sometimes directly bill the recipient. A Medicaid recipient could be directly billed if the recipient was ineligible at the time that the service was provided, if the service was not covered, or if limits for a particular service had been exceeded. If payment was denied due to provider error, the provider was prohibited from seeking any payment from the recipient.

In many situations prior authorization for medical care was not required under the Tennessee Medicaid program. Where prior authorization was required, the Medicaid Act permitted the recipient to request a fair hearing ... to appeal a denial of authorization.... The Medicaid Act required that the coverage dispute be resolved within ninety days of the recipient's request for a hearing. In many circumstances, the Medicaid Act mandated that services to the recipient continue until the coverage dispute was resolved through a fair hearing....

Under TennCare enrollees are not free to choose their own providers. To obtain services from specialists, enrollees must obtain a referral from their primary care physician who is under contract with an MCO. TennCare forms contracts with MCOs to pay for enrollees' health care. MCOs receive a flat fee for each enrollee that the MCO covers. MCOs make a profit to the extent that their total income in flat fees exceeds the amount that the MCO pays to doctors and hospitals for treating sick enrollees. In order to prevent enrollees from receiving "too much" care, which would hurt an MCO's profit margin, MCOs screen enrollee care requests through primary care physicians with whom the MCOs have contracts....

Under TennCare if an enrollee wishes to appeal an adverse coverage decision, the enrollee does not have immediate access to an impartial decision maker. An enrollee's claim is not heard before an administrative [law] judge [ALJ] or hearing officer ... until after the enrollee has waded through several stages of preliminary review.2 The entire appeals process may take more than ninety days. And services do not continue pending resolution of the coverage dispute by an impartial decision maker.

The Court finds that because of the pecuniary incentives that MCOs have for denying, suspending, or terminating care under the TennCare system .. TennCare enrollees need strong due process protections to protect themselves from inappropriate denials of health care....

The appeals process currently in place is designed to address [two] categories of appeals: (1) appeals of adverse decisions regarding applications, premiums, and disenrollment; ... (2) appeals of decisions to deny medically necessary services.

If an MCO issues an unfavorable decision regarding an enrollee's enrollment status, ... the enrollee or prospective enrollee has thirty days to request administrative review by the TennCare [Medical] Review Unit [MRU].... If the enrollee disagrees with the decision, the enrollee may, within thirty days, request a hearing before the Commissioner of the Tennessee Department of Finance and Administration. If the matter involves an amount in controversy of less than $500, there will be an informal hearing. Otherwise there will be a formal hearing. Either variety of hearing will be presided over by an administrative judge or a hearing officer. [The adequacy of these procedures to challenge enrollment decisions was not questioned.]...

[Once enrolled,] if an MCO has denied an enrollee's request for care, the enrollee's physician may, with the enrollee's authorization, choose to request an expedited review of that decision. To obtain an expedited review, the enrollee's physician must notify the MCO that an expedited review is medically necessary. (Given that such physicians are effectively employed by the MCOs, the Court notes that they may receive pressure not to request expedited review.) The MCO must reconsider its decision within two working days of notification. If the MCO denies the request on review, the MCO must notify the physician in writing of the reason for the denial. Within two working days, the physician may request an expedited administrative review of the decision by the MRU. The MRU will request that the MCO, within five working days, provide any documents that the MCO wishes to submit in support of its decision. The MRU then must issue a written decision within two working days of receiving the documents from the MCO. If the decision is favorable to the enrollee, the decision is binding on the MCO. If it is not, the physician may request an expedited medical appeal, conducted by an ALJ or hearing officer, within two working days of receipt of the MRU's decision. Such a hearing will be held within ten working days, and a decision will be rendered within two working days....

The Court finds that the TennCare process for appealing disputed coverage decisions fails to meet Medicaid Act requirements. TennCare violates the Medicaid Act for two reasons: (1) TennCare fails to provide pre-deprivation hearings in situations in which the Medicaid Act would require such hearings; (2) TennCare fails to provide for sufficiently rapid resolution of disputed claims.

First, under the Medicaid Act benefits may rarely, if ever, be terminated prior to a hearing....

Second, under TennCare, claim resolution takes too long. Under the Medicaid Act, the agency must take final administrative action within ninety days from the date that a hearing is requested. 42 C.F.R. § 431.244(f). The current TennCare procedures appear to allow claims to languish longer than that before they are resolved.... [T]he TennCare appeals process [also] violates procedural due process requirements set forth under the Fourteenth Amendment.

In Goldberg v. Kelly, 397 U.S. 254, 90 S.Ct. 1011, 25 L.Ed.2d 287 (1970), New York City residents receiving benefits through the federal program Aid to Families with Dependent Children or through New York State's Home Relief program brought suit challenging the adequacy of procedures for notice and hearing in connection with decisions to terminate aid. The Supreme Court held that procedural due process requires pretermination evidentiary hearings before public assistance payments to welfare recipients may be discontinued. The Court also held that due process requires that such hearings provide recipients with an opportunity to appeal personally with or without counsel before an impartial decision maker and orally present evidence and confront adverse witnesses. The Goldberg Court noted that welfare recipients are entitled to pre-deprivation process because of their extreme vulnerability in the face of wrongful benefit termination....

Like the plaintiffs in Goldberg, the Plaintiffs in the current action, Medicaid-eligible TennCare enrollees, have limited financial resources. Moreover, they have no means other than Defendants' fastidious adherence to Medicaid requirements to ensure that they are not wrongfully denied their property [and liberty] interest in continued coverage. If Plaintiffs' health care benefits are wrongfully denied, they will likely be forced to forgo the contested medical treatment and could suffer substantial physical harm as a result. Several Plaintiffs in this action, and undoubtedly others like them, suffered harm due to denial of coverage during the protracted process of resolving coverage disputes.9 Given the importance of prompt medical treatment, and Plaintiffs' lack of other alternatives, this is unacceptable. The potential damage to Plaintiffs in this situation is much worse than the potential damage to the state if the state continues providing benefits pending the completion of a hearing by an impartial adjudicator and then subsequently recoups the benefits if it prevails. See Mathews v. Eldridge, 424 U.S. 319 (1976). The Court rejects the suggestion that Defendants should be allowed to terminate coverage pending resolution of a claim dispute with the stipulation that they reimburse an enrollee if the enrollee prevails at the hearing. Given that Medicaid-eligible enrollees lack financial resources, it is unrealistic to expect them to continue coverage on their own pending resolution of the coverage dispute....

Moreover, the Court finds that the hearing requirements, which must be met to comport with the Fourteenth Amendment, are not satisfied until an appeal is heard by an impartial adjudicator.... In the current action the MCOs have a direct and substantial pecuniary interest in denying or delaying costly services for which the MCOs must pay. [Therefore, they are not impartial.]...

For these reasons the Court finds that the current TennCare hearing process violates the procedural due process requirements of the Constitution.

Plaintiffs' Relief

The Court denies Plaintiffs' request for reimbursement of money that they have already paid to secure health care. The Court bases this decision on the principle of sovereign immunity. Edelman v. Jordan, 415 U.S. 651 (1974)....

The Court finds that the facts of this action meet the standard for issuing an injunction.... In the meantime, the Court enjoins Defendants' from denying benefits to any Medicaid-eligible TennCare enrollee prior to a hearing conducted by an impartial adjudicator where the Medicaid Act would provide for such a hearing. The Court also enjoins Defendants from permitting coverage disputes to continue unresolved for over ninety days after an enrollee's request for review of an adverse decision....

1 ... Defendants argue that Plaintiffs do not have the capacity to bring this action. The Court rejects this argument.... Plaintiffs allege that state officials have failed to comply with fair hearing requirements imposed under the Medicaid Act. The Medicaid Act contains no provisions designed to resolve disputes of the nature presented here, so there is no statute-based remedy to preempt Plaintiffs' claims....

2 ... The point at which an ALJ or hearing officer becomes involved in an adjudication is significant because under Tennessee law such adjudicators must be objective and impartial. The impartiality necessary to fairly resolve coverage disputes under the TennCare program might not be possible where the adjudicator has a pecuniary or employment interest in a given case, as would be the case where an MCO employee presided over a TennCare coverage dispute.... The Court notes that a hearing [in court] would pose even less of a risk of partiality than a hearing before an ALJ or hearing officer, but given the speed with which disputes regarding health care coverage must be resolved in order to prevent harm to an enrollee, such hearings are not plausible.

9 There are many examples of the harm that TennCare enrollees suffer when coverage is denied during a protracted dispute resolution process. For example, during the course of H.B.'s coverage dispute, her condition deteriorated so much that she may now require a liver transplant as well as a small bowel transplant. H.G. suffered a stroke while contesting her MCO's denial of coverage for specialist care to clear arteries in her neck. M.T. suffered serious pain as a result of being denied coverage for pediatric oral surgery to cap her badly decayed teeth. As a result of this decay M.T. has had to ingest large quantities of antibiotics. Such scenarios are capable of repetition among TennCare's other Medicaid-eligible enrollees under the current TennCare dispute resolution process.

Notes: Medicare and Medicaid Patient Appeal Procedures

1. Medicaid Judicial Review. The Medicaid statute contains no special limitation of judicial review like that in the Medicare statute. Therefore, for a time, judicial review of Medicaid decisions was readily available under general federal question jurisdiction (via the § 1983 civil rights statute) without the same need for thorough exhaustion of administrative remedies. Wilder v. Virginia Hospital Ass'n, 496 U.S. 498 (1990). However, this has changed sharply following the Court's decision in Gonzaga v. Doe, 536 U.S. 273 (2002), which held that "it is rights, not the broader or vaguer 'benefits' or 'interests,' that may be enforced under § 1983."  Following that decision, several Circuits have refused to entertain direct challenges by beneficiaries or providers to state Medicaid coverage and payment decisions. For instance, in Sanchez v. Johnson, --- F.3d ----, 2005 WL 1804195 (9th Cir. 2005), the court  ruled that Medicaid beneficiaries and providers may not sue under § 1983 to challenge the adequacy of services for the developmentally disabled, even though § 30(A)of Medicaid requires a State to “provide such methods and procedures relating to ··· care and services ··· as may be necessary to ··· assure that payments are consistent with efficiency, economy, and quality of care.”  The court reasoned that:

[in Gonzaga,] the Court repeatedly stressed that it is Congress's use of explicit, individually focused, rights-creating language that reveals congressional intent to create an individually enforceable right in a spending statute.  As examples of paradigmatic rights-creating language, the Court cited the texts of Title VI of the Civil Rights Act of 1964 . .  . . , [which provides] that “No person in the United States shall ··· be subjected to discrimination.”  . . . Since Gonzaga no federal court of appeals of which we are aware has concluded that § 30(A) [of the Medicaid statute] provides Medicaid recipients or providers with a right enforceable under § 1983.  . . . In contrast, . . . there is nothing in the text of § 30(A) [of the Medicaid statute] that unmistakably focuses on recipients or providers as individuals. . . . In Gonzaga, the Supreme Court instructed that, when a “provision focuse[s] on ‘the aggregate services provided by the State,’ rather than ‘the needs of any particular person,’ it confer[s] no individual rights and thus [cannot] be enforced by § 1983.”  . . . The [Medicaid] statute speaks not of any individual's right but of the State's obligation to develop “methods and procedures” for providing services generally. . . . . After Gonzaga, there can be no doubt that . . . a plaintiff seeking redress under § 1983 must assert the violation of an individually enforceable right conferred specifically upon him, not merely a violation of federal law or the denial of a benefit or interest, no matter how unambiguously conferred.

See also Long Term Care Pharm. Alliance v. Ferguson, 362 F.3d 50, 59 (1st Cir.2004) (“providers such as pharmacies do not have a private right of action”).

Even where judicial jurisdiction exists, the TennCare case indicates that judicial remedies against state government are sharply limited in federal court, to prospective injunctive relief rather than retrospective monetary awards. Therefore, litigants may find state court preferable. See Jeanne Finberg, Litigating Medicaid Class Actions, 26 Clearinghouse Rev. 1592 (1993); Ann Lever & Herbert Eastman, "Shake it Up in a Bag": Strategies for Representing Beneficiaries in Medicaid Litigation, 35 St. Louis U.L.J. 863 (1991).

2. Medicare Judicial Review. Under Medicare, judicial review is available only for claims above $1000, even if administrative remedies are exhausted as required by Ricker. Litigants have sometimes found inventive ways to circumvent these jurisdictional limitations. See Mathews v. Diaz, 426 U.S. 67 (1976) (administrative exhaustion waived by agency); Bowen v. Michigan Academy of Family Physicians, 476 U.S. 667 (1986) (under prior version of statute, allowing judicial review of the method for determining reimbursement but not of reimbursement amounts (whatever that means)); City of New York v. Heckler, 476 U.S. 467 (1986) (failure to follow normal appeals route excused by the futility and irreparable injury of strict compliance); Mount Sinai Medical Center v. U.S., 13 Ct. Cl. 561 (1987) (jurisdictional limitations do not apply to review by the Court of Claims); Bartlett v. Bowen, 816 F.2d 695 (D.C. Cir. 1987) (amount-in-controversy limits do not apply to constitutional claims); VNA v. Heckler, 711 F.2d 1020 (11th Cir. 1983) (All Writs Act may be invoked in cases of extreme hardship to obtain an injunction preserving the status quo pending full administrative appeals). However, the Supreme Court subsequently closed a number of these loopholes by ruling that the requirement of first pursing administrative remedies prior to going to court is "nearly absolute."  Shalala v. Illinois Council of Long Term Care, 120 S.Ct. 1084 (2000).  Moreover, even when judicial review is obtained, courts give heavy deference to federal and state agencies' interpretations of their governing statutes, so it is difficult to win on the merits. See Gray Panthers v. Schweiker, 453 U.S. 34 (1981); Atkins v. Rivera, 477 U.S. 154 (1986). See generally Eleanor Kinney, ed., Guide to Medicare Coverage Decision-Making and Appeals (2002); Joh Cogan & Rodney Johnson, Administrative Channeling under the Medicare Act Clarified, 9 Ann. Health L. 125(2000); Eleanor Kinney, The Role of Judicial Review Regarding Medicare and Medicaid Program Policy, 35 St. Louis U.L.J. 761 (1991); J. M. Rogers, A Way Out of the Social Security Jurisdiction Tangle, 21 Ariz. L. Rev. 689 (1979).

3. Administrative Appeals. The TennCare case emphasizes that speedy, impartial administrative appeals may be more important than ultimate judicial review. The greatest threat to impartiality occurs in managed care settings where the insurer stands to profit from claims it denies. But, even in fee-for-service settings where insurers are paid merely to administer claims, not to render treatment, can it be said that a hearing office employed by the insurer is wholly impartial? See Schweiker v. McClure, 456 U.S. 188 (1982) (Medicare hearing officer appointed by insurer is not disqualified from reviewing insurer's own decisions). What else is required in a fair hearing besides an impartial decisionmaker? Would a simple telephone call suffice? Gray Panthers v. Schweiker, 652 F.2d 146 (D.C. Cir. 1980) (telephone hearings are permissible in most circumstances). "Hearings" can also consist of simply an exchange of paperwork. Is it realistic for non-law professors to be able to argue and defend their position in this fashion without assistance? Can HMO patients expect their doctors to help them, as might occur in a fee-for-service setting?

4. Constitutional Requirements. The constitutional arguments applied to Tennessee's Medicaid program do not have as strong a force under Medicare, because its recipients are not presumed to be financially needy. Therefore, formal hearings prior to denying benefits are not usually constitutionally required; it is sufficient to provide a hearing after the denial. See Mathews v. Eldridge, 424 U.S. 319 (1976) (no hearing required prior to terminating disability recipients); Himmler v. Califano, 611 F.2d 137 (6th Cir. 1979)(same for denial of Medicare benefits). Also, Goldberg v. Kelly concerned welfare recipients whose benefits were cut off entirely, not simply limited. Moreover, an applicant for a program does not have the same constitutional rights as one who is already receiving its services. Given these precedents and distinctions, how should we regard an existing Medicare or Medicaid recipient who is seeking a particular treatment?

Under Medicare, some courts have ruled that due process requirements are just as stringent as in Goldberg v. Kelly when the denial of benefits affects not just financial liability but also the opportunity to obtain services. This occurs when Medicare recipients are subject to prospective utilization review, that is, the denial of coverage prior to treatment. Kraemer v. Heckler, 737 F.2d 214 (2d Cir. 1984); Grijalva v. Shalala, 152 F.3d 1115 (9th Cir. 1998); cf. Gray Panthers v. Schweiker, 652 F.2d 146 (D.C. Cir. 1981). Heckler v. Ringer did not confront this issue because it was decided on jurisdictional grounds, but elsewhere the Supreme Court has held that due process does not require a fair hearing prior to transferring or discharging a Medicaid nursing home patient. In one case it reasoned that patients do not have a protected constitutional interest in being at a particular facility, only in receiving benefits generally, O'Bannon v. Town Court Nursing Center, 447 U.S. 773 (1980), and in another case it reasoned that a private facility's own transfer decision does not constitute state action. Blum v. Yaretsky, 457 U.S. 991 (1982). Despite these rulings, the court in Grijalva v. Shalala, 152 F.3d 1115 (9th Cir. 1998), vacated, 526 U.S. 1096 (1999), imposed hearing requirements on Medicare HMOs similar to those imposed in Daniels vs. Wadley. It reasoned that HMOs are state actors when they contract with Medicare for the full range of program obligations and benefits, and that many medical services have life-saving or life-altering effects.

These rulings are cast into some doubt, however, by the Supreme Court's subsequent decision in a workers compensation case.  In American Manufacturers Mutual Insurance Co. v. Sullivan, 526 U.S. 40 (1999), the Court found no constitutional violation in a state allowing workers comp insurers to withhold payment of medical benefits pending a utilization review for medical necessity.  Rather than balancing the costs and benefits of requiring payment pending  review, the Court pre-empted any due process analysis by holding:  (1) private insurers are not state actors even though they provide their benefits under a state-administered and heavily regulated scheme; and (2) there is no protected property interest in receiving medical benefits until claimants establish their entitlement, so there can be no due process deprivation in refusing the benefits prior to resolving disputes over entitlement.  It is unclear what impact this ruling will have on utilization review by Medicare HMOs.  (The Supreme Court vacated the Grijalva decision noted above for reconsideration in light of its American Manufacturers opinion, and the state action aspect of the Daniels opinion was vacated as moot due to the parties' having settled the substance of the case.)  Although Medicare HMOs are also private insurers, they are not merely regulated by the state; they contract with the government to provide benefits under a public insurance program, so the argument for state action is stronger.  However, the second point might be used to undermine the argument that due process requires more procedural protections than those afforded by regulations, since it seems to accept the previously rejected argument that substantive entitlements can be conditioned on limited procedural protections.  For a contrasting decision under state law, see Rudolph v. Pennsylvania Blue Shield, 717 A.2d 508 (1998) (UR entity created by statute for Blue Cross is subject to constitutional due process requirements, and a UR entity affiliated with Blue Cross is not an impartial panel).

5. Statutory and Regulatory Appeal Rights. Many of these administrative appeal issues have been resolved by statutes or regulations. For nursing home patients, Medicaid requires notice and a hearing for all patients, not just public patients, before discharging or transferring them, and many states impose similar requirements on nursing homes through their licensing laws. See M. Schuster, et al., Nursing Home Transfer and Discharge Protections, Clearinghouse Rev., Oct. 1992, at 619. How these notice and hearing requirements apply to Medicaid HMOs, however, is still being decided. The denial of some medical services has as much or more impact as transfer from a nursing home, but not so for all medical services. Is it feasible to provide an advance hearing before each contested medical decision?

Under Medicare, decisions to discharge a patient from the hospital can be challenged by an immediate appeal to the local Quality Improvement Organization (formerly called “Peer Review Organizations"). Hospitalized Medicare patients must be given written notice of discharge decisions, and a several-day grace period in which to pursue their appeal, during which time they can remain in the hospital with full coverage.

Outside the hospital, Medicare and Medicaid regulations are sensitive to the retroactive effect of billing patients after the fact for services they thought were covered but ultimately learn are not. For instance, Medicare contains "liability protection" provisions that prevent physicians from billing for Part B services that Medicare refuses to cover as unnecessary or unreasonable. In order to bill for noncovered services, physicians must have their patients sign a waiver prior to treatment that discloses the treatment may not be covered by Medicare. 42 U.S.C. § 1395u(l). This is not allowed under Medicaid.

In the 2001 Medicare amendment known as "BIPA" (for Benefits Improvement and Protection Act), Congress required DHHS to create an administrative appeals process, which ultimately leads to judicial review, for coverage decisions prior to actually undergoing treatment, thus partially overruling Heckler v. Ringer.  42 U.S.C. 1395ff(f).  The Medicare Modernization Act of 2003 extended some of these appeal rights to providers as well as beneficiaries.  Implementing regulations are contained in 45 CFR Part 405 (2005). You'll be relieved to know that we won't go into the details here.

6. The Components of Administrative Appeals. Observe that the administrative appeal procedures under Medicare are similar to the 4 or 5 steps outlined in Dennis v. Wadley. However, the precise steps and the institutional names vary between Part A and Part B, and between fee-for-service and HMOs. Under Part B, "fiscal intermediaries" are known as "carriers." For hospitalization, most issues are determined by "Quality Improvement Organizations” (QIOs, formerly called “Peer Review Organizations"), described in the main text. The multiple steps required in pursing full administrative appeal and judicial review can easily consume many years.

The TennCare case illustrates that patients' appeal rights must be given even more attention in an HMO setting, due to their doctors' inherent conflict of interest and the greater likelihood that patients will never learn there is a medical difference of opinion. In addition to Medicaid regulations, state HMO licensing regulations also impose requirements for grievance and appeal procedures that cover private patients as well, but licensing regulations do not impose the same extensive protections as mandated by Dennis v. Wadley. For another decision that amasses a thorough catalogue of the defects in HMO review procedures, this time under Medicare, see Grijalva v. Shalala, 946 F. Supp. 747 (D. Az. 1996), aff'd 152 F.3d 1115 (9th Cir. 1996), vacated, 526 U.S. 1096 (1999). That court required internal review for urgent care within 3 days, and outside review within 10 days, with services to be continued pending final decision. Most acute care services are considered "urgent."  Grijalva was vacated because new federal regulations under Medicare usurped the decision by requiring many of the elements sought by the plaintiffs, such as requiring that Medicare HMOs ordinarly resolve initial appeals within 72 hours rather than the 60 days previously allowed. 62 Fed. Reg. 23368 (1997).  Administrative appeal procedures have also been included in the set of provisions known as Medicare+Choice that seek to implement a managed competition system for Medicare.  See Jennifer E. Gladieux, Medicare+Choice Appeal Procedures: Reconciling Due Process Rights and Cost Containment, 25 Am. J. L. Med. 61 (1999).

See generally Jennifer L.Wright, Unconstitutional or Impossible: The Irreconcilable Gap Between Managed Care and Due Process in Medicaid and Medicare.  17 J. Contemp. Health L. & Pol'y 135-180 (2000); Gordon Bonnyman & Michele Johnson, Unseen Peril: Inadequate Enrollee Grievance Protections in Public Managed Care Programs, 65 Tenn. L. Rev. 359 (1998); Eleanor Kinney, The New Medicare Coverage Decision-Making and Appeal Procedures: Can Process Meet the Challenge of New Medical Technology?  60 Wash. & Lee L. Rev. 1461 (2003); Phyllis E. Bernard, Mediating with an 800-pound gorilla: Medicare and ADR. 60 Wash. & Lee L. Rev. 1417-1459 (2003).

7. Informal Rules. Patients often find it frustrating to pursue full exhaustion of administrative remedies because insurance carriers, hearing officers, and administrative law judges consider themselves bound by agency rules and policy statements like those issued in Ricker. As in Bechtold above, these administrative reviewers cannot alter coverage policy, only interpret and apply it. Moreover, the Medicare statute limits substantive relief even in court. For "national coverage determinations" (general rulings like the one at issue in Ricker), the statute declares that the determination does not have to comply with full rulemaking procedures, and it limits the remedy for an improper rulings to simply a remand to HCFA for reconsideration. 42 U.S.C. § 1395ff(b)(3). Moreover, many of the rulings that intermediaries, carriers, HMOs, PROs, and ALJs feel bound by are not adopted as official determinations and therefore cannot be clearly challenged as such. Instead, they are maintained as "secret" criteria for conducting utilization review screens, or they are adopted informally simply as program instructions such as those in the Medicare Coverage Issues Manual referred to in Bechtold supra. These informal pronouncements have caused considerable legal difficulty in determining whether they must be issued through formal rulemaking procedures. See generally Erringer v. Thompson, __ F.3d. ___ , 2004 WL 1276840 (9th Cir. 2004); Eleanor Kinney, Rule and Policy Making Under the Medicaid Program: A Challenge to Federalism, 51 Ohio St. L. J. 855 (1991); Eleanor Kinney, National Coverage Policy Under the Medicare Program, 32 St. Louis U.L.J. 869 (1988).

Problem: Appealing Adverse Coverage Decisions by HMOs

This problem is adapted from a real case history developed by the Center for Health Care Rights in California. What procedural remedies does the patient likely have under private insurance and under Medicare or Medicaid? Are they adequate?

Mr. H. was a diabetic and had severe ulcers on his feet. He was a member of an HMO, and his primary care physician had prescribed a treatment regimen that was proving ineffective. In response, the primary care physician offered Mr. H. an amputation below the knee as his only option. Mr. H. went out-of-plan to a local wound care center that specialized in diabetic wound treatment where he was advised that vein by-pass surgery would likely take care of his problem. The HMO denied such surgery because Mr. H. referred himself to the specialist without permission. The HMO advised Mr. H.'s family that its utilization review department was reviewing the case, but that it would take at least a month to review. Subsequently, the HMO agreed to approve such surgery, but only if done by Mr. H.'s current medical group, which did not have any physician who had ever performed vein by-pass surgery. Mr. H.'s family asked for him to be transferred to a primary care physician at the medical group which staffs the wound care center. The HMO responded that although they sometimes approve such requests, they would not do so in Mr. H.'s case and that they had already granted enough of his requests. They gave as their reason a provision in the plan documents that prevent referrals outside the plan's network when the network's physicians have the capability to perform the required procedure.

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