"Medical Necessity" in Private Health Plans
Wilke, Fleury, Hoffelt, Gould & Birney, LLP - Healthcare Newsletter

Private health plans generally cover only the costs of treatment and services that are "medically necessary." What constitutes medical necessity, however, depends on the language of the insurance contract. How health plans determine what is medically necessary, and how they apply that definition to plan participants, has a major impact on the participants' medical treatment coverage. While many states do not regulate how health plans define and apply the term, a number of states have passed legislation that defines "medical necessity". In addition, a large majority of states have legislation that allows private health plan participants to obtain, from an independent review organization, an independent review of a plan's denial of treatment decision.

In addition to state laws that provide protection to private health plan participants, federal law also provides a means for participants to challenge treatment coverage decisions. The Employee Retirement Income Security Act (ERISA) regulates private health plans. While ERISA does not define "medically necessary", ERISA requires every health benefit plan within its scope to provide adequate notice in writing to a participant when a claim is denied. Further, ERISA requires health plans to set forth the specific reasons for denying a claim and to present the written information in a manner calculated to be understood by the participant. Plan participants are also entitled to a "full and fair review" of a denial decision.

In 2000, the U.S. Department of Labor issued regulations that revise the obligations of health plans governed by ERISA. Under the regulations, health plans are required to make initial coverage decisions within 72 hours for urgent care claims, 15 days for pre-service claims, and 30 days for post-service claims. The regulations give health plan participants 180 days to appeal a coverage decision and require that someone other than the person who made the original decision, or that person's subordinate, decide the appeal. When a denial of coverage is appealed, ERISA-covered health plans must render a decision within 72 hours for urgent care claims, 30 days for pre-service claims, and 60 days for post-service claims. In addition, if coverage is initially denied based upon a finding that the treatment was not medically necessary, the health plan is required to consult with a health care professional in deciding the appeal and must disclose the scientific or clinical judgment used in making the decision.

The Federal Employees Health Benefit Plan (FEHBP) provides health insurance to government employees and their dependents. Like ERISA, the FEHBP does not define "medical necessity". FEHBP participants can appeal a denial of coverage decision to the U.S. Office of Personnel Management (OPM). If unsuccessful, participants can challenge the OPM's decision in federal court.

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