PPACA Claims and Appeals Procedures Pack a Punch for Non-Grandfathered Health Plans

On July 23, 2010, the Departments of the Treasury, Labor and Health and Human Services jointly released Interim Final Regulations under the Patient Protection and Affordable Care Act (“PPACA”) (75 Fed. Reg. 43,330 (July 23, 2010)), detailing the internal claims and appeals and external review processes for non-grandfathered insured and self-insured group health plans. Just one month later, on August 23, and again on September 20, the Department of Labor (“DOL”) issued additional guidance in Technical Release 2010-01 and 2010-02, which set forth interim procedures for the federal external review process for non-grandfathered self-insured group health plans. Together, these regulations and the releases make significant changes to the claims and appeals procedures for non-grandfathered plans that must be implemented for plan years beginning on or after September 23, 2010 (e.g., January 1, 2011, for calendar year plans).

Internal Review Process

The final PPACA claims regulations add seven new requirements for the internal claims and appeal process, which are in addition to those set forth in the already-existing DOL claims regulations. Non-grandfathered group health plans and health insurance issuers must incorporate these requirements into their internal claims and appeal process for plan years beginning on or after September 23, 2010 (except where the enforcement grace period provided in Technical Release 2010–02 applies, as noted below). These regulations do not apply to grandfathered plans, retiree-only plans and “excepted benefits” such as limited scope dental/vision plans and most health FSAs.

  • The regulations broaden the existing DOL claims regulation’s definition of “adverse benefit determination” to include the rescission of coverage. This means that, for the first time, the claims procedures and appeal rights will be triggered if a plan rescinds coverage. As defined in other health care regulations, rescission is a cancellation or discontinuance of coverage that has a retroactive effect, unless the rescission results from a failure to pay premiums.
  • For urgent care claims, plans must now notify the participant of their determination as soon as possible but in no event later than 24 hours after receipt of the claim, provided that the participant provides sufficient information for the plan to determine whether or not services are covered under the plan. Previously, the DOL claims regulations permitted a 72-hour notification period for urgent care claims. Pursuant to Technical Release 2010–02, affected plans and issuers have an enforcement grace period for this requirement extending until July 1, 2011. This means that the Departments will not take any enforcement action against, or assess excise tax liability against, any group health plan or self-funded, nonfederal health plan working in good faith to implement this new requirement.
  • The regulations also set forth additional criteria to ensure full and fair review of claims. Specifically, the plan must now allow the claimant to review his or her entire claim file, not just the portion relevant to his or her claim. Also, a plan must provide the claimant, free of charge, with any new or additional evidence considered, relied upon, or generated by the plan or at the direction of the plan, in connection with the claim. Further, if a plan intends to issue an adverse benefit determination based on new or additional rationale, it must provide the new or additional rationale to the claimant. It must be provided free of charge, as soon as possible and sufficiently in advance of the date on which the notice of adverse benefit determination is required to be provided, in order to give the claimant sufficient time to present evidence and provide testimony prior to that date.
  • To avoid conflicts of interest, plans must ensure that decisions regarding hiring, compensation, termination, promotion, or similar matters with respect to any individual involved in claims review — such as a claims administrator or medical expert — will not be based on the likelihood that the individual will support the denial of benefits.
  • The regulations require that notices to enrollees must be culturally and linguistically appropriate, which includes providing summary plan descriptions and other plan documents in non-English languages depending on the demographics of the group. In particular, for plans with fewer than 100 participants at the beginning of the plan year, if 25 percent of all plan participants are literate in the same non-English language, linguistically appropriated notices must be provided to them. For plans covering 100 or more participants, the threshold is the lesser of 500 participants or 10 percent of all participants who are literate in the same non-English language. Pursuant to Technical Release 2010–02, the enforcement grace period extending until July 1, 2011, applies to this requirement.In addition, the regulations specify in greater detail the information that a plan must provide in the notice of adverse benefit determination, including:
    • sufficient information to identify the claim (including the date of service, health care provider, claim amount, diagnosis code, treatment code and the corresponding meaning of such codes);
    • the denial code and corresponding meaning of the code;
    • a description of the standard used in denying the claim;
    • a description of the available internal and external review processes, including an explanation of how to initiate an appeal; and
    • a disclosure of the availability of and contact information for any applicable office of health insurance consumer assistance or ombudsman available to help a claimant with the claims and appeals process.A sample of notice adverse benefit determination is available on the DOL website at The enforcement grace period extending until July 1, 2011, also applies to this requirement. According to the FAQs released by the DOL on September 21, 2010, the grace period only applies to the new content requirements. Plans are still required to satisfy the notice requirements set forth in the DOL claims regulation (29 CFR 2560.503–1) during the transition period.
  • In the event that a plan fails to strictly adhere to the requirements of the internal claims and appeals process, the claimant will be deemed to have exhausted his or her internal claims and appeals process, regardless of whether the plan claims to have substantially complied or whether any error was de minimis. If such failure occurs, the claimant may initiate an external review process (described below) and pursue any available remedies under law, including initiating a law suit. This change is significant because it essentially imposes a strict liability standard, as opposed to the substantial compliance standard that previously existed. If a claimant chooses to bring suit, courts will likely review the claim under a de novo standard of review, meaning that the court will not grant any deference to the plan’s decision if the internal and external claims procedures were not strictly followed. As provided in Technical Release 2010–02, the enforcement grace period extending until July 1, 2011, applies to this requirement for affected plans and issuers.
  • Plans are now required to provide continued coverage pending the outcome of an internal appeal. This means that for claimants receiving an ongoing course of treatment, such treatment cannot be reduced or terminated without providing advance notice and opportunity for advance review.

External Review Process

For plan years beginning on or after September 23, 2010, non-grandfathered health plans are also required to comply with new external review processes added by the regulations. Non-grandfathered insured plans and non-ERISA self-funded plans are required to comply with any applicable state external review processes, and if a state process does not exist, to comply with the federal external review process. The federal external review process generally applies to all ERISA self-insured plans.

State Standards

Under the new regulations, the state external review process must, at a minimum, comply with the National Association of Insurance Commissioners (“NAIC”) Uniform Model Act in order to satisfy the requirements of the regulations. The Departments of the Treasury, Labor and HHS have the authority to determine whether the state process meets the requirements of PPACA. To give states time to revise their processes to comply with the PPACA regulations, the regulations provide a transition rule that treats state review processes as satisfying the requirements until July 1, 2011.

Consistent with the NAIC Uniform Model Act, the regulations set forth the following requirements for state external review processes:

  • An external review is required for decisions involving medical necessity, health care setting, level of care and effectiveness of a covered benefit. It is not required for eligibility claims.
  • Issuers or plans must provide written notice to claimants notifying them of their rights with respect to the external review of an adverse benefit determination.
  • If the state process requires exhaustion of an internal claims and appeals process, the state external review process must have a process in place for making exhaustion unnecessary if the claimant has applied for expedited external review that is concurrent with expedited internal review.
  • Plans must cover the cost of an external review by an independent review organization (“IRO”), except for a nominal fee of up to $25 that may be charged to the claimant.
  • The external review process must not impose a minimum dollar restriction for a claim to be eligible for external review (e.g., the plan may not impose a $500 minimum claims threshold).
  • The claimant must have up to four months after receipt of the adverse benefit determination to request an external review.
  • An IRO must be assigned on a random basis, or on another basis that ensures independence and impartiality.
  • The state must maintain a list of approved IROs based on the nature of the health care that is the subject of the review.
  • To avoid potential conflicts of interest, the state process must provide that an IRO may not own or control or be owned or controlled by the issuer, plan or sponsor of the plan. The state process must further provide that the IRO and clinical reviewer may not have a material professional, familial or financial conflict of interest with the issuer, plan or claimant.
  • The state process must allow the claimant at least five business days to submit, in writing to the IRO, additional information that the IRO must consider.
  • The process must provide that the decision of the IRO is binding on the plan and the claimant, except to the extent other remedies are available under state or federal law.
  • A standard external review must take no more than 45 days after receipt of the request for review. However, urgent care claims must be reviewed as soon as possible, but in no event later than 72 hours after the request is received.
  • Plans must include the state external review procedures in the summary plan description, policy, certificate of coverage or other document evidencing coverage.
  • The state process must require IROs to maintain written records and provide them, upon request, to the state.

In light of these extensive new state requirements, employers with non-grandfathered insured plans should contact their insurer to verify that steps are being taken to comply with the state review process.

Federal Standards

Technical Release 2010–01 establishes the safe harbor requirements for non-grandfathered ERISA self-insured plans that are not subject to the state external review processes. Plans subject to the federal external review process must implement the new procedures for plan years beginning on or after September 23, 2010, to avoid any DOL or IRS action against the plan, and to avoid excise tax penalties. The release sets forth the standard review procedures as well as the procedures for expedited review.

The standard external procedures must include the following:

  • The plan must allow the claimant to request external review within four months of receipt of the adverse benefit determination.
  • Within five days of the receipt of a request for external review, plans must complete a preliminary review of the claim to determine whether or not:
    • the claimant is or was covered under the plan at the time the service was requested or at the time the service was provided;
    • the adverse benefit determination relates to the claimant’s failure to meet the eligibility requirements of the plan;
    • the claimant has exhausted the internal review process; and
    • the claimant has provided all of the information and forms necessary to process the review.
  • Within one day of completing the preliminary review, plans must notify the claimant in writing of any issues. If the request is complete but not eligible for external review, the notice must explain the reasons why the claim is ineligible and provide contact information for the DOL’s Employee Benefits Security Administration. If the claim is eligible but not complete, the notice must describe the information needed and the claimant must be permitted to complete the request within the four-month filing period or within 48 hours after receiving the notification, whichever is later.
  • If the claim is eligible for external review, the plan must assign an IRO to review the claim. The release does not specify a timeframe for assigning the claim to an IRO. The requirements for an IRO are set forth below.
  • If the IRO reverses an adverse benefit determination or a final internal adverse benefit determination, the plan must immediately provide coverage or payment for the claim.

The release also establishes the requirements for expedited external review, including the following:

  • A claimant must be allowed to request an expedited review at the time the claimant receives:
    • an adverse benefits determination if the determination involves a medical condition for which the timeframe for completion of the expedited internal review would seriously jeopardize the life or health of the claimant, or would jeopardize the claimant’s ability to regain maximum function, and the claimant has filed for expedited internal appeal; or
    • a final internal adverse benefit determination, if the claimant has a medical condition for which the timeframe for completion of standard external review would seriously jeopardize the life or health of the claimant, or would jeopardize the claimant’s ability to regain maximum function, or if the final internal adverse benefit determination concerns the admission, availability of care, continued stay or health care item or service for which the claimant received emergency services and the claimant has not been discharged.
  • Plans must immediately determine whether the claim meets the external review requirements and notify the claimant of its determination.
  • If a claim is eligible for external review, the plans must assign the claim to an IRO. The IRO must make a determination within 72 hours of its receipt of the request. If notice of the decision is not in writing, the notice must then be given within 48 hours.

To ensure compliance with these new federal external review requirements, non-grandfathered ERISA self-funded plans should review their current external review procedures immediately to determine if they meet the PPACA requirements.

Contract Requirements between Plans and IROs

Finally, in addition to detailing the federal external review process, Technical Release 2010–01 establishes specific requirements that must be included in contracts between IROs and plans. Employers with a non-grandfathered ERISA self-insured plan are required under this release to contract with at least three accredited IROs. However, in FAQs released by the DOL on September 21, 2010, the DOL states in Q&A 8 that a plan’s failure to contract with three IROs would not automatically result in a violation of the PPACA regulations. Instead, a plan may demonstrate that it has taken steps to ensure an independent and unbiased external review process.

In establishing a contract with an IRO, plans must ensure that all of the following provisions are included:

  • The IRO must use legal experts where appropriate to make coverage decisions under the plan.
  • The IRO must timely notify the claimant in writing of the requested claim’s eligibility for external review. This notice must also inform the claimant that he or she may submit additional information within ten business days to the IRO for consideration in making its decision.
  • Plans must provide the IRO all information considered in making the adverse benefit determination or final internal adverse benefit determination within five business days after the claim is assigned to the IRO. If the plan fails to provide this information within the appropriate timeframe, the IRO may terminate external review and reverse the claim denial. The IRO must notify the claimant and the plan within one business day of such a reversal.
  • The IRO must forward to the plan, within one business day, any additional information received from the claimant. The plan may then reconsider its claim denial in light of the new information. If the plan decides to reverse the claim denial, it must notify the claimant and IRO within one business day.
  • The IRO will conduct a de novo review of all information and documents timely received. To the extent that it is provided, the IRO must consider the following information when making its decision:
    • the claimant’s medical reports;
    • the attending health care professional’s recommendations and reports;
    • the terms of the plan;
    • appropriate practice guidelines, including the applicable evidence-based standards;
    • any applicable clinical review criteria developed and used by the plan; and
    • the opinion of the IRO’s clinical reviewer.
  • The IRO must provide written notice of its decision within 45 days after the IRO receives the request for external review.
  • The IRO’s decision notice must contain the following information:
    • A general description of the reason for the request for external review, including information sufficient to identify the claim, the diagnosis code and its corresponding meaning, the treatment code and its corresponding meaning, and the reason for the previous denial
    • The date the IRO received the claim assignment
    • R References to evidence or documentation considered in the decision
    • A discussion of the principal reasons for the decision, including any evidence-based standards relied upon
    • A statement that the decision is binding, except to the extent that other remedies may be available under federal or state law
    • A statement that judicial review may be available to the claimant
    • Contact information for any applicable consumer assistance or ombudsman established under the Public Service Health Act.
  • The IRO must maintain records of all claims and notices for external review for six years and must make those records available upon request for examination by the claimant, the plan or any state or federal oversight agency.

Employers with a non-grandfathered ERISA self-insured plan should review any existing IRO contracts to ensure they satisfy these new requirements. In addition, pursuant to the DOL’s FAQs released September 21, 2010, even if a plan contracts with a third party administrator (“TPA”), who, in turn, contracts with an IRO, the contract requirements above must be satisfied in the same manner as if the plan had contracted with the IRO directly. This, however, does not relieve a plan from responsibility if there is a failure to provide an external review. Plans have a duty to monitor their TPA and IROs to ensure compliance.

Next Steps

Because noncompliance with the PPACA claims requirements may result in the loss of deferential review, non-grandfathered health plans should contact their claims administrator and review their internal and external claims procedures immediately to ensure they adhere to the new PPACA requirements. All plan documents and summary plan descriptions must be updated to reflect these changes.