PATIENT PROTECTION AND MANDATORY EXTERNAL REVIEW: AMENDING ERISA'S CLAIMS PROCEDURE

CRS Report for Congress
Received through the CRS Web
Patient Protection and Mandatory External
Review: Amending ERISA's Claims Procedure
Jon O. Shimabukuro
Legislative Attorney
American Law Division
Summary
This report discusses the existing claims procedure required by the Employee
Retirement Income Security Act of 1974 (ERISA), and legislative efforts in the 106^t^h
Congress to amend ERISA to provide for the mandatory external review of denied
benefits. Although most of the patient protection bills introduced in the 106^t^h Congress
included provisions for external review and more rigorous standards for the internal
review of denied benefits, this report focuses on the Patients’ Bill of Rights Plus Act of
1999, S. 1344, passed by the Senate on July 15, 1999, and the Bipartisan Consensus
Managed Care Improvement Act of 1999, H.R. 2990, passed by the House of
Representatives on October 7, 1999.
The need to improve existing grievance and appeals procedures for individuals
receiving health care coverage through employer-sponsored benefit plans was recognized
in most of the patient protection bills introduced during the 106^t^h Congress.¹ Although
H.R.2990, as introduced by Representatives Talent and Shadegg, was concerned primarily
with tax deductions and incentives, the remaining bills each provided for modified
grievance and appeals procedures: S. 6 and S. 1256, introduced by Senator Daschle; S.

300, introduced by Senator Lott; S. 326, introduced by Senator Jeffords; S. 374,

introduced by Senator Chafee; H.R. 358, introduced by Representative Dingell; H.R. 216,
introduced by Representative Norwood; H.R. 448, introduced by Representative Bilirakis;
H.R. 719, introduced by Representative Ganske; H.R. 1133, introduced by Representative
Nadler; H.R. 2095, H.R. 2089, and H.R. 2926 introduced by Representative Boehner;
H.R. 2723, introduced by Representatives Norwood and Dingell; and H.R. 2824,
introduced by Representatives Coburn and Shadegg.²

¹ See Jean P. Hearne, Patient Protection and Managed Care: Legislation in the 106^th Congress,
CRS Issue Brief IB98017.
² See Hearne, supra note 1 (H.R. 2089 was offered as part of a package of eight other bills). On
(continued...)
Congressional Research Service The Library of Congress

Under existing law, employer-sponsored benefit plans are required to provide only
a "reasonable opportunity. . . for a full and fair review by the appropriate named fiduciary"
if a participant is denied a plan benefit.³ To accomplish such "full and fair review," the
Department of Labor (DOL) requires that plans establish review procedures for
participants interested in appealing benefit denials.⁴ The internal review structure outlined
by the DOL has few guidelines: the appropriate named fiduciary has 60 days to issue a
decision after receiving a claimant's request for review; under special circumstances, the⁵
fiduciary has up to 120 days after the receipt of the request for review to issue a decision.
These minimal guidelines have promoted little uniformity among the internal review
procedures of employer-sponsored plans. Further, while some plans provide external
review procedures, none are required.
Although the managed care industry contends that the existing claims procedure
works well and fears that an additional level of review will increase costs, many believe
that improved procedures will not only empower patients, but enhance access to treatment⁶
and improve the quality of care provided. The creation of a mandatory external review
process for benefit denials is one of the most fundamental changes being considered by
Congress. Proponents argue that external review would act as an oversight mechanism
that could identify procedural errors, provide substantive review, and detect patterns of⁷
inappropriate denials. In addition, they believe that external review would assure
participants of an impartiality and independence that may be lacking in the internal review
process.⁸
Congress is not alone in focusing on the external review process. In its report on
managed care and the rights of patients, the President's Advisory Commission on
Consumer Protection and Quality in the Health Care Industry stated that consumers were
entitled to a "fair and efficient process for resolving differences with their health plans. .⁹
. [including] an independent system of external review." Numerous states have enacted
statutes that require independent review for managed care participants who believe that
their claims for benefits have been wrongfully denied.¹⁰ However, in Corporate Health
Insurance, Inc. v. Texas Department of Insurance, the U.S. Court of Appeals for the Fifth

² (...continued)
July 15, 1999, the Senate passed an amended version of S. 300 as S. 1344.
³ 29 U.S.C.A. § 1133(2) (West 1985 & Supp. 2000).
⁴ See 29 C.F.R. § 2560.503-1.
⁵ 29 C.F.R. § 2560.503-1(h).
⁶ See Tracy E. Miller, Center Stage on the Patient Protection Agenda: Grievance and Appeal
Rights, 26 J. L. Med. & Ethics 89 (1998).
⁷ Id. at 92.
⁸ Id.
⁹ National Advisory Commission on Consumer Protection and Quality in the Health Care Industry,
Consumer Bill of Rights and Responsibilities (Washington, D.C.: National Advisory Commission
on Consumer Protection and Quality, Nov. 1997).
¹⁰ See also Candace L. Romig, Patient Rights Still Hot Topic in Congress and the States, AORN
J., May 1, 1999, at 1031.

Circuit determined that the independent review provisions of the Texas Health Care
Liability Act are preempted by ERISA.¹¹ The Fifth Circuit contended that the provisions
impermissibly attempt to impose a state administrative regime on coverage¹²
determinations. Because the states may be unable to mandate external review for
individuals enrolled in employer-sponsored plans, the proposed bills would modify
ERISA's requirements.
Patients’ Bill of Rights Plus Act of 1999, S. 1344
The Patients’ Bill of Rights Plus Act of 1999, S. 1344, was introduced by Senator
Trent Lott (R-MS) on July 8, 1999, and passed by the Senate on July 15, 1999. S. 1344
sought to amend ERISA to provide additional requirements for group health plans and
health insurance issuers offering coverage in connection with group health plans.
If enacted, S. 1344 would have required group health plans and health insurance
issuers to develop written procedures for addressing grievances. A grievance was defined
by the bill as any complaint made by a participant or beneficiary that does not involve a
coverage determination. Once a grievance was addressed, a resulting determination would
not have been appealable.
S. 1344 would have allowed participants and beneficiaries to appeal any adverse
coverage determination to an internal review process. An adverse coverage determination
was defined as any determination under the plan which results in a denial of coverage or
reimbursement. A participant or beneficiary seeking internal review would have been
allowed at least 180 days after the date of the adverse coverage determination to make an
appeal. Review would have been conducted by an individual with appropriate expertise
who was not involved in the initial determination. Appeals involving issues of medical
necessity or experimental treatment would have been conducted by physicians with
appropriate expertise.
Internal review would have been completed within 30 working days of receiving the
request for review. Where delay could jeopardize the life or health of the claimant, S.
1344 would have required that review was completed no later than 72 hours after
receiving the request for review. A request for expedited review would have to include
documentation of a medical exigency by the treating health care professional. For routine
determinations, notice of the decision would have to be issued no later than 2 working
days after the completion of review. For expedited determinations, notice would have to
be issued within the 72-hour review period. Failure to issue a timely decision would been
treated as an adverse coverage determination for purposes of obtaining external review.
If enacted, S. 1344 would have required all plans and issuers to have written
procedures to permit access to an independent external review process. External review
would have been available to selected adverse coverage determinations. Those
determinations included coverage decisions that (1) are based on medical necessity and

¹¹ 215 F.3d 526 (5^th Cir. 2000).
¹² For further discussion of Corporate Health Insurance, Inc. v. Texas Department of Insurance,
see Jon O. Shimabukuro, ERISA’s Impact on Medical Malpractice and Negligence Claims
Against Managed Care Plans, CRS Report 98-286A (2000).

exceed a significant financial threshold; (2) are based on medical necessity and involve a
significant risk of placing the life or health of the participant in jeopardy; or (3) involve an
experimental or investigational treatment. To obtain external review, a claimant would
have to complete the internal review process and file a written request for review within

30 working days of receiving the internal review decision.

Within 5 working days after receiving the request for external review, the plan or¹³
issuer would have selected an external appeals entity. This external appeals entity would
have designated an external reviewer who would conduct the review. The external
reviewer would have to (1) be appropriately credentialed or licensed to deliver health care;
(2) not have any material, professional, familial, or financial affiliation with the case under
review; (3) have expertise in the diagnosis or treatment under review and be a physician
of the same specialty, when reasonably available; (4) receive only reasonable and
customary compensation from the plan or issuer; and (5) not be held liable for decisions
regarding medical determinations. The external reviewer would have been required to
consider all valid, relevant, scientific, and clinical evidence to determine the medical
necessity, appropriateness, or experimental nature of the proposed treatment.
Review would have been conducted in accordance with the medical exigencies of the
case, but would have to be completed within 30 days of the date on which the reviewer
was designated or all necessary information was received, whichever was later. For cases
where delay could jeopardize the life or health of the participant, review would have to be
conducted within 72 hours of the date on which the reviewer was designated or all
necessary information was received, whichever was later. The determination of the
external reviewer would have been binding upon the plan or issuer.
Bipartisan Consensus Managed Care Improvement Act of 1999,
H.R. 2990
The Bipartisan Consensus Managed Care Improvement Act of 1999, H.R. 2990,
combined two bills: the Quality Care for the Uninsured Act of 1999, originally H.R. 2990,
was introduced by Representatives James M. Talent (R-MO) and John B. Shadegg (R-AZ)
on September 30, 1999, and the Bipartisan Consensus Managed Care Improvement Act
of 1999, originally H.R. 2723, was introduced by Representatives Charlie Norwood (R-
GA) and John D. Dingell (D-MI) on August 5, 1999.¹⁴ The combined bill was passed by
the House of Representatives on October 7, 1999. H.R. 2990 would not only have
required group health plans and health insurance issuers to provide an external review
process for denied claims, but would have also established new deadlines for the internal
review process and mandated the creation of a formal grievance system.

¹³ S. 1344 identified the following entities as appropriate to serve as external appeals entities:
--An independent external review entity licensed or credentialed by a state;
--A state agency established to conduct independent external reviews;
--Any entity under contract with the federal government to provide independent external review
services;
--Any entity accredited as an independent external review entity; or
--Any entity meeting criteria established by the Secretary of Labor.
¹⁴ The provisions of the original H.R. 2990 were included in Division A of the new bill and the
provisions of H.R. 2723 comprised Division B of the bill.

Under H.R. 2990, group health plans and health insurance issuers would have been
required to maintain a system that addressed oral and written grievances. These
grievances would have included any aspect of the plan's or issuer's services, but would not
include a claim for benefits. Once resolved, grievances would not have been subject to
appeal.
If enacted, H.R. 2990 would have permitted a participant, beneficiary, or enrollee to
request and obtain an internal review of his claim within 180 days following a denial of a
claim for benefits. Review would have been conducted by a named fiduciary if the dispute
involved a claim for benefits under the plan. For disputes involving denied coverage,
review would have been conducted by a named appropriate individual. If the case
involved medical judgment, review would have been conducted by a physician.
Internal review would have been completed in accordance with the medical exigencies
of the case, but not later than 14 days after receiving the request for review. If additional
information was needed, this deadline could be extended to 28 days. Where delay could
seriously jeopardize the life or health of the claimant, review would have to be completed
within 72 hours after receiving a request for expedited review. This request could be
submitted orally or in writing by the claimant or provider.
H.R. 2990 would have required all plans and issuers to create an external review
process. External review would have been available for benefit denials that were either
based on medical necessity or involved investigational or experimental treatment. External
review would have also been available when a decision as to whether a benefit is covered
involved a medical judgment. H.R. 2990 would have allowed the Secretary of Labor to
establish additional standards for external review, including a filing deadline. The plan or
issuer would have been permitted to condition external review on the exhaustion of the
internal review process. In addition, the plan or issuer would have been able to charge a
filing fee for external review. However, this fee could not exceed $25.
External review would have been conducted by a certified external appeal entity. For
group health plans, the entity would have to be certified either by the Secretary of Labor,
under a process recognized or approved by the Secretary of Labor, or by a qualified
private standard-setting organization. For state health insurance issuers, the entity would
have to be certified by the applicable state authority or under a process recognized or
approved by such authority. If the state had not established a certification process, the
entity would have to be certified either by the Secretary of Health and Human Services,
under a process recognized or approved by such Secretary, or by a qualified private
standard-setting organization. The external appeal entity would have to conduct its
activities through a panel of not fewer than three clinical peers, and have sufficient
medical, legal, and other expertise and sufficient staffing to conduct its activities in a timely
manner.
The determination of the external appeal entity would have been made in accordance
with the medical exigencies of the case, but not later than 21 days after receiving the
request for external review. Where delay could seriously jeopardize the life or health of
the claimant, a determination would have to be made within 72 hours after receiving the
request for external review. The decision of the external appeal entity would have been
binding on the plan and issuer involved in the determination.

Please see the following CRS Issue Briefs and Reports for additional information.
Issue Briefs
CRS Issue Brief IB98002, Medical Records Confidentiality.
CRS Issue Brief IB98017, Patient Protection and Managed Care: Legislation in the 106^th
Congress.
CRS Issue Brief IB98037, Tax Benefits for Health Insurance.
Reports
CRS Report 97-643, Medical Savings Accounts.
CRS Report 98-286, ERISA's Impact on Medical Malpractice and Negligence Claims.
CRS Report RL30077, Managed Care: Recent Proposals for New Grievance and
Appeals Procedures.
CRS Report RL30144, Side by Side Comparison of Selected Patient Protection Bills in
the 106^th Congress.
CRS Series on Managed Health Care
CRS Report 97-482, The Use of Financial Incentives.
CRS Report 97-913, A Primer.
CRS Report 97-938, Federal and State Regulation.