One of the primary legal risks for insurers is a lawsuit from health care providers or members who challenge the decisions made by vendors. For instance, vendors hired by managed care organizations (MCOs) to handle prior authorization requests have been accused of using improper claim algorithms to increase denial rates, thereby inappropriately cutting costs for MCOs. Both MCOs and vendors have been sued by providers and members alleging breach of contract, bad faith, negligence, fraud and violations of federal and state laws. In addition to the potential liability for alleged improper claim denials, MCOs also face potential penalties, punitive damages and attorneys’ fees.
Another legal risk for MCOs is regulatory scrutiny or enforcement actions from federal or state agencies that oversee health insurance markets and consumer protection. For instance, the Centers for Medicare and Medicaid Services (CMS) has audited MCOs and vendors for compliance with Medicare and Medicaid rules and standards, and has imposed fines, sanctions or corrective actions for violations. Additionally, some states have enacted laws or regulations that impose specific requirements or limitations on the use of prior authorization, utilization review or claim audit processes by MCOs and vendors, such as disclosure, transparency, timeliness, accuracy and appeal rights.
On top of these litigation and regulatory risks are potential reputational harms to MCOs related to unfavorable publicity stemming from failure to properly oversee and manage vendors’ claims review activities. As a result of these potential pitfalls, MCOs should carefully research, select and monitor their vendors, paying attention not only to cost savings achieved by partnering with them but also ensuring that they have adequate contractual safeguards, operational controls and quality assurance mechanisms in place. Our team has identified areas of concern and suggested actions to help minimize legal risk.
Strategies for mitigating the risks
Sources for claim review
Whose policy is being used? If the MCO has created its own medical policy, it will want to ensure the vendor uses that policy in its claim reviews rather than a competing policy created by the vendor.
Are the payment and medical policies that vendors use up to date? There is significant risk when: (1) the most recent medical and scientific literature is ignored in claims reviews and audits; and/or (2) the vendor fails to apply the current medical and scientific literature appropriately.
On the first issue, MCOs need to ensure that the vendor has appropriate procedures in place to identify current medical and scientific research, evaluate medical services and treatments, and understand the standard of care in the medical industry.
As to the second issue, many medical policies used to define benefit exclusions are based upon the application of research studies to validate the medical treatment. In particular, MCOs should be mindful of applying overly restrictive policies that deny a treatment for want of a specific research study when other generalized studies would support its efficacy.
A key example of where this debate has been at the forefront is coverage for proton beam therapy. MCOs may bear unnecessarily higher legal risk in taking a narrow or restrictive view of the efficacy of research studies. In many instances, a better approach may be to consider various studies as evidence of the treatment across different types of cancers where there are significant similarities between medical conditions.
For some MCOs, the issue regarding coverage of these treatments may be the cost of the care compared to other types of treatments. In the proton beam therapy context, this debate usually revolves around coverage of the services in comparison to intensity-modulated radiation therapy (IMRT). Coverage decisions regarding proton beam therapy may be restricted based on the view that IMRT produces equal (or perhaps better) results and is substantially less costly than proton beam therapy treatment. In such situations, a possible solution for reducing legal risk, and reducing abrasion with members, is for the payor to work with vendors by shifting these coverage determinations away from a medical policy determination and instead develop benefit plan terms in which these treatments are covered but only up to the cost of what the MCO believes is a comparable treatment. Thus, in this instance, instead of total exclusion of proton beam therapy treatments, the MCO can develop its benefit plans or work with its self-funded customers to cover these treatments through limited benefit plan coverage language, up to the cost of a similarly situated treatment, and any amounts beyond becoming the member’s responsibility as an exception to an allowed amount determination.
Do the policies meet specific federal or state requirements? MCOs should ensure that the medical and reimbursement policies being used by vendors for these utilization management determinations or claims reviews are based on individualized patient circumstances rather than generalized datasets. This approach aligns with the CMS guidelines, which require that medical necessity determinations consider the patient's medical history, physician recommendations and clinical notes. By developing policies that prioritize patient-specific information, MCOs can reduce the risk of inappropriate denials and potential legal challenges.
Robust audits of the methods and criteria being used by vendors
A second critical aspect for MCOs to mitigate legal risks regarding the use of vendors is to employ robust audits and ensure adequate oversight of the vendor’s reviews to guarantee accurate application of benefit plan terms and medical and reimbursement policies. These audits should assess the validity and fairness of vendor decisions based on a precise application of medical policies and consistent application of those policies across claims reviews without regard to the underlying benefit plan type. The following are a few best practices to consider:
- Validate that there is equal and consistent application of plan terms and medical and reimbursement policies across plans. This includes ensuring:
- Equal and consistent application of reviews and policies between fully-insured plans versus self-funded plans.
- Consistent application of reviews and policies across self-funded plan accounts to ensure there is no preferential treatment for certain accounts.
- If algorithms or artificial intelligence platforms are used to make initial determinations, ensure that these tools are applied equally and consistently; if they generate pre-authorization or claim denials, then ultimate denials must be made by an appropriately credentialed person.
- Secret shoppers. The use of secret shoppers also can be an effective tool for MCOs to assess the performance of vendors and validate the member experience. Secret shoppers, posing as members, can evaluate various aspects of vendor services, including wait times, accessibility and the accuracy of medical necessity determinations. The use of secret shopper programs can be a helpful audit tool to test the process on the frontend and complements a robust audit program that focuses on claim reviews on the backend of the process.
Vendor compensation structures
Integrating the right compensation structures similarly can mitigate legal risks by aligning vendor incentives with the delivery of quality care and accurate payment of claims. Traditional contract arrangements, where vendors are incentivized to cut costs, can raise questions about inappropriate denials and potential legal challenges. MCOs should consider compensation structures that reward vendors for accurate adjudication or negotiate a flat rate service rather than merely shared savings. Similarly, if a shared savings model is employed, a hybrid approach should be considered in which payments are tied to additional metrics related to the validation of payments rather than being solely based upon savings derived from the denial of improperly billed claims or recovery of non-reimbursable services. The following chart illustrates potential vendor compensation models and their possible legal risk.
By aligning vendor incentives with the delivery of quality care and validation of accurate billing and payment of services, MCOs can reduce the risk of potentially inappropriate denials and subsequent legal exposure.