External Review of Health Plan Decisions: An Overview of Key Program Features in the States and Medicare

In 1978, the state of Michigan established a system to call on independent medical experts to help resolve disputes between health plans and patients about the medical necessity and appropriateness of care. Since then, twelve other states and the Medicare program have established similar kinds of external review programs. In the first half of 1998, five more states enacted external review laws (and two states passed laws modifying or expanding existing programs).

The term “external review” means different things to different people. In this paper, “external review” refers to a formal dispute resolution process, established by a state or federal agency to be independent of disputing parties, that has the capacity to evaluate and resolve at least those disputes involving medical issues. State health plan regulators have other responsibilities that are sometimes characterized as external review. For example, virtually all state insurance departments, and many state health departments, accept, investigate and help resolve consumer complaints about their health plans regarding marketing behavior, premiums, and contractual terms of coverage and exclusion of benefits. However, these complaint resolution processes were not included in this study unless they also incorporate a formal process for resolving disputes over medical issues.

Using this definition, this research identified and studied external review programs in thirteen states and in the Medicare program. Medicare’s external review system, established in 1989, is one of the oldest-behind Michigan (1978) and Florida (1985). Unlike state programs, which require consumers to affirmatively request an appeal, Medicare requires that all denials upheld by the health plan’s internal review process must automatically be forwarded for external review. Only in three states and Medicare are external review systems set up to resolve all types of consumer disputes – whether or not they involve clinical issues. The other ten study states have established a separate external review process for disputes involving issues of medical necessity or appropriateness; other disputes not about clinical issues must be pursued through a different process. Based on a review of these programs and interviews of experts involved with them, this paper identifies critical features of external review systems and how they vary. (See Table 1.) State and federal policymakers contemplating creation of new external review requirements may benefit from the lessons learned by the states and Medicare.

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