A"60 Minutes" episode suggested that "Mangled Care" might be a more apt description. The "managed care" industry would have us believe that it performs a vital service, by holding down the rapidly escalating cost of health care. Whether it has done that or not is debatable. What is certain is that it has succeeded in generating hundreds of millions of dollars in profits for the "managed care" industry, while leaving in shambles a system of health care delivery that, even with all its faults, was once the envy of the world.

And just exactly WHO is the "managed care" industry? Look closely and you will find that most of the larger managed care companies are subsidiaries or affiliates of major insurance companies. If you start from the very simple premise that insurance companies make their profits by not paying claims, it's easy to see who is being fleeced and who is doing the fleecing.

Although I would love to write a treatise on the economics of greed of the insurance industry, that is not my purpose here. However, as a practicing lawyer, I would like to address a few legal issues concerning "managed care" as they relate to my area of practice, which is ERISA.

Most employer-sponsored medical benefit plans are governed by the Federal ERISA act. ERISA is an extremely technical, highly specialized area of the law, which few lawyers even understand. Most "managed care" employees are not lawyers. In fact, most are not even medical doctors. Sometimes, managed care companies employ registered nurses to make "certification" decisions about whether a proposed course of medical treatment will be approved under an employee benefit plan. However, it is not uncommon for managed care employees to have no medical training at all. Usually, the managed care employee will have access to a "consultant," who is a medical doctor. If the managed care employee has any questions concerning whether a proposed course of treatment should be "certified," he or she will pick up the phone and call the medical consultant for advice. Therefore, important treatment decisions are made by managed care employees and consultants, none of whom may have ever once seen or even spoken to the patient. Treatment decisions are made quickly and may be based upon second or third hand information, transmitted over the phone or fax machine.

The focus of managed care procedures is upon the narrow issue of "medical necessity." Obviously, employee benefit plans promise benefits, but medical benefits are always limited to "medically necessary" treatment. But what exactly does that term mean? Who decides? Often, the managed care company will use its own internal "certification guidelines" for determining whether a particular course of treatment is "medically necessary." These "guidelines" are seldom published anywhere. No one, except the managed care company may even know what they are. Usually, these "certification guidelines" are not a part of any plan document describing coverage and they may even contradict what the plan documents say about coverage. Very often, neither the managed care employee, who is responsible for making "certification" decisions, nor the medical consultant has any idea about what the plan documents say. As a result, plan provisions are often ignored. But under the Federal ERISA act, it is the substantive content of the plan provisions that should control.

Because of the inherent ambiguity of the term "medical necessity," it is easy to see how the rights of a plan participant can run head on into the perceived right of a Plan to deny benefits, retroactively, pursuant to some "medical necessity" exclusion or limitation. In order to supposedly eliminate the uncertainty attending a proposed course of future treatment, certain "managed care" procedures have been devised. Among these is "utilization review," which generally consists of "pre-admission review" and "concurrent review."

At the "pre-admission review" stage, an employee of the managed care company will either grant or withhold "pre-certification" for a proposed inpatient admission. Then, after the patient is admitted, the managed care company may conduct periodic "concurrent reviews" for purposes of deciding whether continued inpatient care will be "certified" as "medically necessary." Such reviews are done by an employee of the managed care company, who usually discusses the case, telephonically, with the medical provider to determine whether the Plan will authorize further treatment.

If this first (and perhaps low level) managed care employee refuses to certify treatment, there is almost always some right to "appeal" the refusal to some higher authority at the managed care company. There is a misconception that if the managed care company ultimately withholds certification (even after the appeal), that a benefit claim is not covered. That is not necessarily true. Depending upon what the plan documents say about coverage, neither the refusal of a managed care company to "pre-certify" an admission, nor the refusal to "certify" continued treatment necessarily means that a subsequent claim is not covered. Nor does it necessarily mean that the Plan will not pay a subsequent claim for treatment. In this sense, a "lack of certification" may mean absolutely nothing, except that the Plan does not guarantee payment. (It is worth noting here that even if the managed care company does certify the treatment, it doesn't always mean that payment is guaranteed. Coverage is still subject to plan exclusions, limitations, eligibility requirements, etc.). However, from the standpoint of a medical provider, the act of certification does have great importance, as it is intended to lay to rest the issue of "medical necessity," so that the provider can render treatment without concern for whether the Plan will later deny a claim on grounds of "medical necessity." (It should also be noted here that in my practice I have even seen several instances where inpatient treatment was both "certified" and "case managed" and yet claims were still wrongfully denied on grounds of "lack of medical necessity." )

Most managed care companies are very careful in their communications with patients and medical providers to disclaim any final decision making authority with respect to the actual claim for benefits under the Plan. Usually, managed care companies do not want the final responsibility for making benefit determinations because they do not want to act as "plan fiduciaries" and they do not want to get sued. ERISA imposes significant requirements upon "plan fiduciaries." The plan documents should identify exactly who the "plan fiduciaries" are (e.g. the "plan administrator" ). It is the "plan fiduciaries," who are charged by Federal law, under ERISA, with the responsibility of conducting a "full and fair" review of all claims denials, and with making final decisions regarding claims (by issuing a final "decision on review" ). It is also the "plan fiduciaries," who must face the legal consequences for failure to follow ERISA and/or the plan documents. This is more responsibility than almost any managed care company would want to assume.

Notwithstanding the fact that few managed care companies assume "fiduciary responsibilities," it is quite common to see cases where the actual "plan fiduciary" simply defers to the judgment of the managed care company, as to whether or not a particular course of treatment is covered under the plan. This can be a dangerous practice for two reasons. First of all, if the "certification criteria" used by the managed care company are different from the actual "plan document" criteria for determining benefits, any reliance upon those certification criteria should be held "arbitrary and capricious" and should not withstand scrutiny by the court even under a Deferential Standard of Review. Secondly, if the plan administrator just passes the buck to the managed care company (or even to a claims administrator) to make final decisions regarding claims, but if there is no written plan instrument authorizing a delegation of fiduciary responsibility, then a court may abandon the deferential standard of review and employ a de novo standard of review instead.

The bottom line is that fiduciary standards apply to claims review procedures, under ERISA. Managed care companies are generally not ERISA fiduciaries. In fact, "managed care" and "fiduciary responsibility" are such diametrically opposed concepts, that it is difficult to envision either co-existing with the other. The purpose of "managed care" (at least as we know it today) is to control costs . The purpose of "fiduciary responsibility" is to protect plan participants. Under ERISA, a fiduciary must discharge his duties solely in the interests of the plan participants and beneficiaries and for the exclusive purpose of providing plan benefits to them. A fiduciary may not act in any capacity involving the plan, on behalf of a party whose interests are adverse to the interests of the plan, its participants, or its beneficiaries. Therefore, whenever a managed care company attempts to undertake fiduciary responsibilities, the potential for a conflict of interest is enormous. Simply put, the internal, subjective, cost-containment standards that a managed care company may choose to apply, prospectively, to certify the "medical necessity" of a proposed treatment are not necessarily the same as the more objective standards to be applied by a "plan fiduciary" or by the courts, when making a retrospective claims determination as to "medical necessity."

Ó 1997 Michael A. McKuin - ERISA Lawyer