The continuing transition to a managed health care environment has increased enrollment in health maintenance organizations to nearly 4.5 million Pennsylvania residents. In view of this growing movement, Governor Tom Ridge called on the General Assembly to enact safeguards for individuals enrolled in managed care plans. He identified several fundamental principles for protecting the rights of managed care patients, with the stated objective of putting the patient first. On June 17th, Governor Ridge signed into law a bill that incorporates many of these principles. Act 68 of 1998 (the "Act"), among other things, provides for quality health care accountability and imposes new requirements on managed care plans operating in the Commonwealth of Pennsylvania. The Act will take effect on January 1, 1999.

The Act addresses a wide range of issues affecting the relationships between managed care plans and their enrollees, and the plans and their network providers. The Act also lends direction with respect to: the coverage of, and payment for, emergency services by managed care plans; the utilization review and appeals process; the right to receive continuous care from a non-participating provider under certain circumstances; and the prompt payment of claims.

The purpose of this memorandum is to review the rights and responsibilities created by the Act with respect to managed care plans, enrollees of managed care plans and health care providers.

Article XXI of the Act, entitled "Quality Health Care Accountability and Protection", applies to a managed care plan which is defined to be:

Managed care plans include health maintenance organizations, hospital plan corporations, professional health service plan corporations, fraternal benefit societies, and municipalities that contract with, or function as, a managed care plan. However, certain entities are not treated as managed care plans under the Act: (i) "ancillary service plans" (that is, plans that furnish exclusive coverage for dental or vision services, Medicare supplement policies, and CHAMPUS supplement coverage), and (ii) indemnity, fee-for-service arrangements. Moreover, the law does not apply to the Workers’ Compensation Act, the Workers’ Compensation Security Fund Act, utilization review and peer review performed under the Motor Vehicle Financial Responsibility Law, and the fee-for-service Medicaid program. Nor does the Act "regulate or authorize regulation which would be ineffective by reason of the state law preemption provisions of the Employee Retirement Income Security Act of 1974."

The Act imposes a number of requirements on managed care plans. For example, managed care plans are required to:

• Consult with health care providers in active clinical practice regarding professional qualifications and necessary specialists to be included in the plan.
• Adopt a definition of "medical necessity" to be used by the plan in determining coverage of health care services.
• Ensure that emergency services are provided on a 24-hour per day basis, and provide reasonable payment for such services.
• Adopt procedures by which an enrollee can obtain health care services outside of the plan’s service area.
• Adopt procedures by which an enrollee with a "life-threatening, degenerative or disabling disease or condition" may obtain either (i) a standing referral to a specialist, or (ii) the designation of a specialist to coordinate the enrollee’s primary and specialty care.
• Provide direct access to obstetrical and gynecological services without requiring prior approval.
• Adopt complaint, grievance and credentialling processes in accordance with the Act.
• Ensure that the plan’s network includes providers that are "physically accessible to people with disabilities and can communicate with individuals with sensory disabilities" in accordance with the Americans with Disabilities Act of 1990.
• Adopt procedures to ensure that identifiable information regarding enrollee health, diagnosis and treatment is adequately protected and remains confidential in accordance with state and federal laws and professional ethical standards.

In addition, the Act specifically prohibits managed care plans from:

• Utilizing financial incentives that compensate providers for furnishing less than medically necessary and appropriate care to the enrollees. Managed care plans, however, may utilize capitation and other financial risk-sharing arrangements in contracting with their network providers.
• Utilizing "medical gag clauses" which penalize or restrict providers from discussing (i) treatment options, (ii) the process by which the managed care plan determines coverage issues, or (iii) the plan’s decision to deny payment for a particular health care service.
• Terminating a provider’s contract based on the provider’s engagement in the following activities: (i) advocating for medically necessary and appropriate health care "consistent with the degree of learning and skill ordinarily possessed by a reputable health care provider practicing according to the applicable legal standard of care"; (ii) filing a grievance, or (iii) protesting a decision or policy of the managed care plan that the provider reasonably believes interferes with the provider’s ability to furnish appropriate health care.

The Act, however, does not prohibit managed care plans from making determinations not to cover a particular treatment or service, or from enforcing reasonable peer review and utilization review protocols. Nor are the plans prohibited from refusing to cover certain health care services based on "moral or religious grounds", as long as the plans make relevant information available to enrollees and prospective enrollees in this regard.

The Act significantly impacts the manner in which many managed care plans address services furnished to enrollees experiencing a medical emergency. The Act defines "emergency service" to mean any health care service provided to an enrollee:

When an enrollee seeks emergency care, the provider is required by the Act to initiate the necessary intervention to evaluate and, if necessary, stabilize the enrollee’s condition without seeking prior authorization from the managed care plan. The plan is obligated to pay "all reasonably necessary costs associated with the emergency services provided during the period of emergency". The managed care plan is further obligated to consider both the presenting symptoms and the services provided when adjudicating a claim for payment for such services. The emergency health care provider is required under the Act to notify the managed care plan of the enrollee’s condition.

The Act also allows for the continuity of an enrollee’s care through a non-participating provider under certain conditions. For example, an enrollee may continue an ongoing course of treatment with a provider whose contract is terminated by the managed care plan (other than "for cause"), for a transitional period of up to sixty (60) days. If the enrollee is in the second or third trimester of pregnancy, the transitional period extends through postpartum care. In addition, a new enrollee may continue an ongoing course of treatment with a non-participating provider for up to sixty (60) days (and through postpartum care when the new enrollee is in the second or third trimester of pregnancy). However, when care is extended under these circumstances, the managed care plan may require the non-participating provider to meet the same terms, conditions and standards as those imposed on the plan’s participating providers.

The managed care plan’s credentialing process must include written criteria and procedures for the enrollment of providers as well as the termination of credentials. If the plan denies the enrollment of the provider or the renewal of the provider’s credentials, the plan must furnish to the provider written notice which includes a "clear rationale" for the decision. The plan’s credentialing process needs to be approved by the Department of Health. Also, the Act extends protections afforded by the state’s Peer Review Protection Act to individuals who furnish information during the credentialing process.

In addition, the Department of Health is required under the Act to establish credentialing standards for the managed care plans. In this regard, the Department of Health is permitted to adopt nationally recognized accrediting standards.

Managed care plans are required to supply to each enrollee (and, upon request, to each health care provider and prospective enrollee) certain written information in an "easily understandable" format, including:

A description of the plan’s benefits, including limitations, exclusions, and the definition of "medical necessity" used by the plan.

• A description of all necessary prior authorizations or other requirements for non-emergency care.
• An explanation of the enrollee’s responsibility for the payment of premiums and co-payment amounts, as well as an explanation of the enrollee’s financial responsibility for care that is rendered by a non-participating provider.
• A summary of the plan’s utilization review, complaint and grievance procedures (including the employee’s right to designate a representative to participate in the complaint and grievance processes).
• A description of the procedure regarding emergency services, including the definition of "emergency services" as set forth in the Act.
• The procedure by which an enrollee may select participating providers or change primary care providers and specialists.
• The circumstances under which an enrollee may obtain a standing referral for a specialist or the designation of a specialist for primary/specialty care coordination purposes.

Managed care plans are required to provide additional information to enrollees upon written request. This information includes: (i) a description of the provider credentialing process, (ii) a list of participating providers affiliated with participating hospitals, (iii) a description of the plan’s procedures regarding coverage of experimental treatments, and (iv) the names of the plan’s board of directors and officers.

The Act sets forth certain requirements for the resolution of enrollees’ complaints. The complaint process is not intended to be used to resolve disputes concerning claim denials based on medical necessity determinations. A request to reconsider a claim denial in that respect constitutes a "grievance" (discussed below).

The Act requires managed care plans to establish a process for reviewing complaints filed by enrollees. The internal complaint process must consist of two levels of review.

The initial review will be conducted by a committee consisting of at least one (1) employee of the managed care plan. The complaint can be initiated in either written or oral form, and the initial review committee must complete its investigation within thirty (30) days. The enrollee must be notified in writing of the results of the review and given an opportunity to appeal the complaint to a second internal level.

The second level review will be conducted by a committee consisting of at least three (3) individuals who did not participate in the initial review. At least one-third of this committee’s members must be individuals who are not employed by the managed care plan. The enrollee may appear before the second level review committee, and the committee is required to complete its review within forty-five (45) days. The committee must advise the enrollee in writing of the committee’s decision and of the procedure for appealing the decision to either the Department of Health or the Insurance Department.

If the enrollee appeals the second level review decision to the Department of Health or the Insurance Department, the enrollee is entitled to be represented by an attorney "or other individual." If the applicable Department determines that a violation of the Act has occurred, it may impose penalties on the managed care plan (discussed below). The Act does not prohibit the Department of Health or the Insurance Department from communicating, at any time during the complaint process, with either the enrollee, the provider or the plan to assist in resolving the complaint. The plan is also required to report to the Departments on the number, type and disposition of the complaints filed with the plan.

Utilization review does not include either (i) requests for clarification of coverage or eligibility, or (ii) a provider’s internal quality assurance or internal review process unless such review results in the denial of payment for a health care service.

Managed care plans often contract with outside entities to perform utilization review on the plan’s behalf. The Act requires that any such outside entity, or "utilization review entity", be certified by the Department of Health. Neither a managed care plan nor a licensed insurer is required to obtain separate certification as a utilization review entity, although the licensed insurer or managed care plan is required to comply with the utilization review standards set forth in the Act.

The Act establishes the following operational standards for utilization review:

• Time frames for the different forms of utilization review: (i) prospective utilization review must be completed within two (2) business days; (ii) concurrent utilization review must be completed within one (1) business day; and (iii) retrospective utilization review must be completed within thirty (30) days.
• The personnel conducting utilization review must be licensed and properly credentialed (where applicable).
• All utilization review decisions must be in writing and provide the underlying clinical rationale.
• The utilization review entity is required to notify the provider of additional facts required within forty-eight (48) hours of the receipt of a request for review.

The Act prohibits a managed care plan from compensating any person or entity for utilization review activities where such compensation contains either direct or indirect incentives to approve or deny payment for the delivery of health care services. Also, the Act requires that a denial of payment for a health care service be made by a licensed physician (except that a licensed psychologist may perform utilization review for behavioral health care services as long as such services do not involve inpatient care or prescription drugs).

If an enrollee (or a health care provider with the written consent of the enrollee) requests the managed care plan or utilization review entity to reconsider a decision "solely concerning the medical necessity and appropriateness of a health care service", a "grievance" arises if the managed care plan either (i) disapproves payment for the requested service, (ii) approves the requested service at a lower scope or duration, or (iii) disapproves payment of the requested service but approves payment of an alternative service. Managed care plans are required under the Act to establish an internal grievance process that consists of two (2) levels of review and an expedited process available under certain circumstances. Any initial or second level internal review shall include a licensed physician (or, where appropriate, an approved licensed psychologist). If the grievance is not resolved to the enrollee’s satisfaction, an external grievance process is made available under the Act.

The initial grievance review is conducted by at least one (1) person selected by the managed care plan who did not previously participate in the decision to deny payment. The review must be completed within thirty (30) days and written notification to the enrollee or provider is required. The notice must include the clinical rationale for the decision, as well as the procedure to file a request for a second level review.

The second level review is to be conducted by a committee consisting of at least three (3) persons who did not previously participate in any decision to deny payment for the service in question. The enrollee (or provider) has the right to appear before this committee, and the committee must complete its review within forty-five (45) days. The committee’s determination must be in writing and include the clinical rationale for its decision, as well as the procedure for appealing that decision.

If the enrollee’s "life, health or ability to regain maximum function" is in jeopardy, a grievance must be reviewed by the plan on an expedited basis. In this case, the plan is required to make a determination within forty-eight (48) hours after the request is filed.

The Act establishes an external grievance process which will be administered by the Department of Health. Requests for external review must be made within fifteen (15) days following the completion of the plan’s internal grievance process. The managed care plan may impose a fee, not to exceed twenty-five dollars ($25), for filing an external grievance. The grievance will be assigned by the Department of Health on a random basis to approved utilization review entities. The utilization review entity must review all information submitted in connection with the internal grievance process, as well as other written material submitted by the enrollee or provider. A determination will be made by:

The Act establishes the standard of review to be applied by the utilization review entity. The standard is:

The utilization review entity must make a determination within (60) sixty days and issue a written decision to the managed care plan, enrollee and provider. The external grievance decision is subject to appeal to a court of competent jurisdiction within sixty (60) days, and the Act establishes a rebuttable presumption in favor of the utilization review entity’s decision. The managed care plan is required by the Act to authorize or pay for any service determined to be medically necessary by the external review entity, even if the plan files an appeal.

The fees and costs associated with the external grievance (excluding attorneys’ fees) are paid in accordance with the following:

• By the non-prevailing party if the external grievance was filed by a provider.
• By the managed care plan if the external grievance was filed by an enrollee.

The Act permits managed care plans and providers to agree to an alternative dispute resolution system to the external grievance procedure as long as (i) the procedure satisfies the Act’s requirements, and (ii) the Department of Health approves the contract that includes the procedure. A decision issued pursuant to an approved alternative dispute resolution system is final and binding. However, an alternate dispute resolution system cannot be used to address external grievances filed by enrollees.

The managed care plan is required to report to the Departments on the number, type and disposition of the grievances filed with the plan.

Prompt Payment of Claims

The Act imposes prompt payment requirements on managed care plans and licensed insurers. A "clean claim" (that is, a "claim for payment for a health care service which has no defect or impropriety") must be paid within forty-five (45) days of receipt. If a clean claim is not paid within the prescribed time frame, interest will accrue at the rate of ten percent (10%) per annum. However, if a provider is under investigation for fraud or abuse regarding a particular claim, that claim is not considered to be "clean" under the Act.

The Department of Health and Insurance Department are responsible for ensuring compliance with the Act and are required to promulgate regulations to carry out the Act. A violation of the Act is subject to a civil penalty of up to five thousand dollars ($5,000) per violation. In addition, the Departments may seek injunctive relief to enforce the Act, and may require a managed care plan to develop a plan of correction (which shall be available to the plan’s enrollees) to remedy violations.

Act 68 of 1998 joins the flurry of legislation passed recently in other jurisdictions focused on protecting patients’ rights and holding managed care plans accountable for coverage determinations. To some extent, the Act reinforces by statute the protections that some managed care plans currently include in their programs. However, in certain key respects (such as the manner in which emergency services will be covered and the external grievance process), the Act imposes new and fundamentally different standards on the operation of managed care plans in Pennsylvania. Of particular interest to managed care plans and health care providers will be the manner in which the Act may affect, directly or indirectly, financial risk-sharing arrangements involving the plans and integrated delivery systems.