what do health insurance litigators face in 2012 and beyond?

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What Do Health Insurance Litigators Face in 2012 and Beyond?

Bryan D. Bolton

Funk & Bolton

Baltimore, MD

Eric B. Myers

Aetna Inc.

Philadelphia, PA

Robert R. Pohls

Pohls & Associates

Walnut Creek, CA

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1. Judicial Challenges to the Affordable Care Act

2. Interim Final Regulation

3. Medical Loss Ratios

4. Questions and Answers

Agenda

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“. . . the hazards of sickness, accident, invalidism, involuntary unemployment, and old age should be provided for through insurance. This should be a charge in whole or in part upon the industries, the employer, the employee, and perhaps the people at large. “

A History of Health Care Reform in America

Teddy Roosevelt (August 1912)

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A History of Health Care Reform in America

March 23, 2010 Patient Protection and Affordable Care Act

March 30, 2010 Health Care and Education Reconciliation Act of 2010

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Affordable Care Act -- Overview · Alters rules for private insurers

· Creates health benefit exchanges

· Imposes new requirements on employers

· Mandates individual coverage

· Changes Medicare and Medicaid

· Commits $350 million to fighting waste, fraud and abuse

· Creates incentives for improving the quality of care

· Reforms the health care delivery system

· Modifies the tax code

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Judicial Challenges -- Timeline

3/23/2010 (Affordable Care Act Passed) Florida v. DHHS Virginia v. Sebelius Liberty University, Inc. v. Geithner Thomas More Law Center v. Obama 3/24/2010 Bellow v. Sebelius New Jersey Physicians, Inc. v. Obama 3/25/2010 Taitz v. Obama 3/26/2010 Assoc. of American Physicians and Surgeons, Inc. v. Sebelius

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Judicial Challenges -- Timeline

3/30/2010 (Reconciliation Act Passed) 4/2/2010 Walters v. Holder 4/7/2010 Calvey v. Obama 4/8/2010 Shreeve v. Obama 4/12/2010 Goudy-Bachman v. DHHS 4/22/2010 Fountain Hills Tea Party

Patriots, Inc. v. Sebelius 4/27/2010 Burlsworth v. Holder 5/4/2010 Peterson v. Obama 5/12/2010 U.S. Citizens Association

v. Obama

5/14/2010 Baldwin v. Sebelius 6/3/2010 Physicians Hospitals of America

v. Sebelius 6/9/2010 Mead v. Holder 7/7/2010 Kinder v. Dept. of Treasury 7/26/2010 Sissel v. DHHS 8/12/2010 Coons v. Geithner 8/31/2010 Independent American Party of

Nevada Eagle Forum v. Obama 9/20/2010 Purpura v. Obama 1/25/2011 Pruitt v. Sebelius

http://www.justice.gov/healthcare/

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Judicial Challenges – Pending Cases

Petitions for Certiorari Filed: Thomas More Law Center v. Obama (No. 11-117) Virginia v. Sebelius (11-420) Liberty University v. Geithner (No. 11-438) Petitions for Certiorari Granted: National Fed. of Ind. Business v. Sebelius (No. 11-393) HHS v. Florida (No. 11-398) Florida v. HHS (No. 11-400)

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Judicial Challenges – Key Provisions

The “Individual Mandate” · All individuals must obtain and maintain “minimal essential coverage” by January 2014 (unless exempt). · Anyone without minimum essential coverage will be required to make a “shared responsibility payment.” · Tax Year 2014: $95 or 1% of household income · Tax Year 2015: $325 or 2% of household income · Tax Year 2016: $695 or 2.5% of household income

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Judicial Challenges – Key Provisions

Expansion of Medicaid

· Under the Affordable Care Act, Medicaid is a cornerstone for expanded health care coverage.

· From 2014 to 2016, the federal government will pay 100% of the fees associated with the increased Medicaid eligibility

· The federal government’s percentage will then drop gradually each year until reaching 90% in 2020.

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Supreme Court – Process and Schedule

Oral Arguments: March 2012 Allotted Time: 5 and ½ hours Issues: 4 specific questions Decision(s): June 2012 (estimated)

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Question No. 1: Is the shared responsibility payment a tax?

· The Tax Anti-Injunction Act generally prohibits any suit which is filed to restrain the assessment or collection of a tax.

· If the Court concludes the share responsibility payment is a tax, it could decide that constitutional challenges to the individual mandate can be considered only as part of a suit for a tax refund.

26 U.S.C. §7421(a)

26 U.S.C. §6532; 26 U.S.C. §7422(a) 28 U.S.C. §1346(a); 11 U.S.C. §505(a)(2)

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Question No. 1: Is the shared responsibility payment a tax?

Thomas More Law Center v. Obama (6th Circuit): No Florida v. HHS (11th Circuit) No

Liberty University v. Geithner (4th Circuit) Yes

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Question No. 2: Does the individual mandate exceed Congress’ powers under Article I of the Constitution? Congress has “broad implied powers” under the Commerce Clause.

McCulloch v. Maryland, 17 U.S. 316, 421 (1819)

Congress has authority under the Necessary and Proper Clause to regulate local non-economic activities when the regulation “is a necessary part of a more general regulation of interstate commerce.”

Gonzales v. Raich, 545 U.S. 1, 16-17 (2005)

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Question No. 2: Does the individual mandate exceed Congress’ powers under Article I of the Constitution?

“The powers of the legislature are defined and limited; and those limits may not be mistaken or forgotten.”

Marbury v. Madison, 5 U.S. (1 Cranch) 137, 176 (1803)

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The exercise of Congress’ power under the Commerce Clause has been limited to three subjects:

· channels of interstate commerce;

· instrumentalities of interstate commerce; and

· activities that “substantially affect” interstate commerce.

United States v. Lopez, 514 U.S. 549 (1995)

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“Neither the Supreme Court nor any federal circuit court of appeals has extended Commerce Clause powers to compel an individual to involuntarily enter the stream of commerce by purchasing a commodity in the private market.”

Virginia v. Sebelius 728 F.Supp.2d 768 (E.D. Va. 2010)

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“The Secretary relies on what is commonly referred to as an aggregation theory, which is conceptually based on the hypothesis that the sum of individual decisions to participate or not in the health insurance market has a critical collective effect on interstate commerce.”


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“The power of Congress to regulate a class of activities that in the aggregate has a substantial and direct effect on interstate commerce is well settled. . . . But these regulatory powers are triggered by some type of self-initiated action.”


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“It would be a radical departure from existing case law to hold that Congress can regulate inactivity under the Commerce Clause. If it has the power to compel an otherwise passive individual into a commercial transaction with a third party merely by asserting . . . that compelling the actual transaction is itself ‘commercial and economic in nature, and substantially affects interstate commerce,’ it is not hyperbolizing to suggest that Congress could do almost anything it wanted.” Florida v. HHS, 648 F.3d 1235 (11th Cir. 2011)

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The Affordable Care Act recites Congress’ findings that health care and health insurance:

· affect the nation’s economy; · are commercial and economic in nature; and · substantially affect interstate commerce.

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The mere fact that Congress asserts a particular activity substantially affects interstate commerce “does not necessarily make it so.”

United States v. Morrison, 529 U.S. 598, 614 (2000)

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Under the Commerce Clause, the Supreme Court traditionally examines two issues:

· Did Congress have a rational basis for finding that the regulated activity affects interstate commerce?

· Is the means selected to regulate the activity reasonable and appropriate?

United States v. Morrison, 529 U.S. 598, 614 (2000)

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“Congress’s insurance industry reforms . . . will encourage individuals to delay purchasing private insurance until an acute medical need arises.”

Florida v. HHS, 648 F.3d 1235 (11th Cir. 2011)

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“. . . unless the individual mandate forces individuals into the private insurance pool before they get sick or injured, Congress’ insurance industry reforms will be unsustainable by the private insurance companies.”


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“. . . without full market participation, the financial foundation supporting the health care system will fail, in effect causing the entire health care regime to ‘implode’.”


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“. . . the provision regulates economic activity that Congress had a rational basis to believe has substantial effects on interstate commerce.”

“Congress had a rational basis to believe that the provision was essential to its larger economic scheme reforming the interstate markets in health care and health insurance.”

Thomas More Law Center v. Obama 651 F.3d 529 (6th Cir. 2011)

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“. . . the conduct regulated by the individual mandate – an individual’s decision not to purchase health insurance and the concomitant absence of a commercial transaction – in no way ‘burdens’ or ‘obstructs’ Congress’s ability to enforce its regulation of the insurance industry.”


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“At best, the individual mandate is designed not to enable the execution of the Act’s regulations, but to counteract the significant regulatory costs on insurance companies and adverse consequences stemming from the fully executed reform.”


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“That may be a relevant political consideration, but it does not convert an unconstitutional regulation . . . into a constitutional means to ameliorate adverse cost consequences on private insurance companies engendered by Congress’s broader regulatory reform of their health insurance products.”


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Question No. 3: Is the individual mandate severable from the rest of the Act?

“Unless it is evident that the Legislature would not have enacted those provisions which are within its power, independently of that which is not, the invalid part may be dropped if what is left is fully operative as a law.”

Alaska Airlines, Inc. v. Brock, 480 U.S. 678 (1987)

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Given the vagaries of the legislative process, “this inquiry can sometimes be ‘elusive’.”

Virginia v. Sebelius, 728 F.Supp.2d 768 (E.D. Va. 2010)

“. . . it is reasonably ‘evident’ . . . that the individual mandate was an essential and indispensable part of the health reform efforts, and that Congress did not believe other parts of the Act could (or it would want them to) survive independently.”

Florida v. HHS, 780 F.Supp.2d 1286 (N.D. Fla. 2011)

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“The presumption of severability is rooted in notions of judicial restraint and respect for the separation of powers in our constitutional system.”

“The Act’s other provisions remain legally operative after the mandate’s excision, and the high burden needed under Supreme Court precedent to rebut the presumption of severability has not been met.”


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Question No. 4: Does the expansion of Medicaid violate state sovereignty?

“Congress shall have power . . . to pay the Debts and provide for the common Defence and general Welfare of the United States.”

U.S. Constitution, Art. I, Sec. 8, Cl. 1

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“. . . legislation enacted pursuant to the spending power is much in the nature of a contract: in return for federal funds, the States agree to comply with federally imposed conditions.” Pennhurst State Sch. & Hosp. v. Halderman

451 U.S. 1, 17 (1981)

“Medicaid is a jointly financed federal-state cooperative program, designed to help states furnish medical treatment to their needy citizens.”

Moore ex rel. Moore v. Reese, 637 F.3d 1220, 1235 (11th Cir. 2011)

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Four primary restrictions on legislation under the Spending Clause:

· must be in pursuit of the general welfare; · must be reasonably related to the legislation’s stated goal; · Congress’ intent to condition funds on a particular action must be unambiguous so that states can knowingly choose whether to participate; and · cannot induce state activities which are unconstitutional.


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“The powers not delegated to the United States by the Constitution, nor prohibited by it to the States, are reserved to the States respectively, or to the people.”

U.S. Constitution, Tenth Amendment

Congress may not employ the spending power in such a way as to “coerce” the states into compliance with the federal objective

South Dakota v. Dole, 483 U.S. 203, 211 (1987)

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“Congress cannot directly compel a state to act, nor can Congress hinge the state’s right to regulate in an area that the state has a constitutional right to regulate on the state’s participation in a federal program.”


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“Congress cannot place restrictions so burdensome and threaten the loss of funds so great and important to the state’s integral function as a state . . . as to compel the state to participate in the ‘optional’ legislation.”

“This is the point where ‘pressure turns into compulsion’.”


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“. . . the Act’s expansion of Medicaid is not unduly coercive.”

· Congress reserved the right to make changes

· federal government will bear nearly all of the costs

· states have plenty of notice

· no certainty that states will lose Medicaid funding if they opt out


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“. . . the Act’s expansion of Medicaid is not unduly coercive.”

· Congress reserved the right to make changes

· federal government will bear nearly all of the costs

· states have plenty of notice

· no certainty that states will lose Medicaid funding if they opt out


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HEALTH CARE REFORM AND THE CHANGED LITIGATION LANDSCAPE

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Background: The Interim Final Regulation

The IFR modified the existing DOL claims and appeals regulations in several respects and imposed a number of new requirements on plans and insurers. Expanded the scope of an “adverse benefit determination” to include rescission of coverage, regardless of whether the rescission pertains to a specific adverse decision.

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The Interim Final Regulation

Reduced the timeframe for deciding urgent care claims from a maximum of seventy-two (72) hours, to twenty-four (24) hours after receipt of the claim

Requiring plans and insurers to provide claimants (at no cost) with the opportunity to review their claim file, as well as any new or additional evidence considered, relied upon, or generated by the plan or insurer in connection with a claim, as well as any new or additional rationale for denial during the internal appeals process, and allow a reasonable opportunity to respond to any new evidence or rationale

Requiring claims and appeals be adjudicated in a manner designed to ensure independence and impartiality by the decision-maker.

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Notices of denial of claims or appeals must include the following content: a. sufficient information identifying the claim, such the date

of service, the health care provider, and claim amount; b. diagnosis and treatment codes and their corresponding

meanings; c. denial code and corresponding meaning, as well as a

description of any standard applied. A final adverse internal benefit determination also must include a discussion of the decision;

d. description of available internal appeals and external review processes, including how to initiate; and

e. the availability of, and contact information for, an applicable office of health insurance consumer assistance or ombudsman

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If a plan or insurer fails to strictly adhere to the requirements of the IFR, then the claimant was deemed to have exhausted the plan or insurer’s internal claims and appeals process

Regardless of whether the plan or insurer substantially complied with the IFR or the violation was de minimis

Allowing the claimant to initiate any available external review process or remedies available under ERISA or state law

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Directing all insured (both individual and groups) and non-ERISA self-funded plans, such as state and local government and church plans), are subject to state external reviews, consistent with the protections afforded by the NAIC Uniform Model Act, including: (a) apply to decisions involving medical necessity, health care setting,

level of care and effectiveness; (b) allow exceptions to exhaustion requirement consistent with appeals

rules; (c) require the plan or insurer to pay the costs of an independent

review organization (“IRO”) for the external review; (d) impose no minimum dollar limit on the claim; (e) allow four (4) months for an external appeal; (f) establish rules for the assignment and independence of the

independent reviewer; (g) decisions on external review are binding on insurer or plan; and (h) allow expedited review of certain claims.

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Changes to the Interim Final Rule

The amendment eliminates the IFR requirement that urgent care claims be decided within twenty-four (24) hours.

The amendment retains the current rule that urgent care claims must be decided as soon as possible, taking into account medical exigencies, but not longer than seventy-two (72) hours.

The Preamble states a plan or insurer must defer to an attending provider’s determination as to whether a claim is “urgent.”

The IFR’s required disclosure of diagnosis and treatment codes was also eliminated.

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• The amendment to IFR still requires disclosure of diagnosis and treatment codes, as well as their meanings, but only if requested.

• A request for diagnosis or treatment codes is not a request for an internal appeal or an external review.

• The amendment to the IFR also reversed the “deemed denied” provision, which provided no exception for even a de minimis violation of the IFR.

• The amended regulation permits the internal review process to continue if the violation was: (a) de minimis; (b) non-prejudicial; (c) attributable to good cause or matters beyond the plan or insurer's control; (d) part of a good faith exchange of information between the claimant and the plan or insurer; and (e) not indicative of a pattern or practice of non-compliance.


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If a claimant files for external or judicial review, but the attempt at immediate review is rejected based on a de minimis violation, then the claimant may resubmit the claim to the plan and pursue an internal appeal. The plan or insurer must notify the claimant of the right to resubmit the claim for internal appeal within ten days after rejection by the external reviewer or court. The time for re-filing the claim begins upon the claimant's receipt of the notice from the plan or insurer.


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Federal External Review

The amendment to the IFR narrowed the scope of the federal external appeal process for self-funded ERISA plans, and in so doing, narrowed the scope of appeals that are subject to external review.

The amendment suspended the requirement that “any” adverse benefit determination (other than one involving eligibility) was subject to external review.

During the suspension period, only claims involving medical judgment and rescissions will be subject to the federal external review process.


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The amendment also provides a definition of “medical judgment.”

“Medical judgment” is defined to include claims for: medical necessity, appropriateness of care, health care setting, level of care, effectiveness of a covered benefit, or determinations of whether a treatment is experimental or investigational.

The Preamble also suggests a broad view of what constitutes a medical judgment, including a claim denied on the basis of a preexisting condition exclusion would be eligible for external review.


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The amendment to the IFR also explains whether a claim involves a medical judgment is to be “determined by the external reviewer.”

The Technical Release and Preamble to the amendment further clarify that plans must rotate external review among contracted IROs, to minimize the risk that and IRO may become dependent on the plan.

Careful scrutiny will be applied to any “process other than rotational assignment” in determining whether a plan qualifies for the non-enforcement safe-harbor.


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THE IMPLEMENTATION AND IMPACT

OF MEDICAL LOSS RATIOS

• Insurers offering coverage in the small group or individual market must meet a minimum MLR of eighty percent (80%). 42 U.S.C. § 300gg-18(b)(1)(A)(ii).

• Insurers offering coverage in a large group market must meet a minimum MLR target of eighty-five percent (85%). 42 U.S.C. at § 300gg-18(b)(1)(A)(i).

• The MLR regulation adopts a threefold approach to achieving this goal. (1) public reporting on premium dollar spending; (2) setting standard percentages of each premium dollar that must be spent on health claims and quality improvement expenses; (3) requiring insurers to rebate a pro-rata portion of premium if the MLR is less than the standard percentage.

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IMPACT OF MLR

Insurers must pay all other expenses of transacting business out of this remaining twenty percent (20%). The remaining expenses insurers must bear include, but are not limited to, overhead, commissions, underwriting expenses, fraud prevention/detection, employee salaries, compliance costs, as well as profit.

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Section 2718(a) requires insurers to submit a public report detailing the MLR calculations to HHS for each plan year.

Each insurer is required to submit an aggregate report to HHS, on a State-by-State basis for each market.

Reports are due by June 1 of the following MLR reporting year.

IMPACT OF MLR

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Section 2718(a)(2) of the Act allows insurers to include any costs spent on “activities that improve health care” in the MLR numerator.

This could significantly increase the ability to comply with the applicable MLR requirement.

The question, of course, is what constitutes “activities that improve health care”?

IMPACT OF MLR

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The four categories in § 2717 encompass activities and benefits that: (A) improve health outcomes through the implementation of activities such as quality reporting, case management, care coordination, and chronic disease management; (B) implement activities to prevent hospital readmissions; (C) implement activities to improve patient safety and reduce medical errors through the appropriate use of best clinical practices, evidence based medicine, and health information technology; and (D) implement wellness and health promotion activities.

IMPACT OF MLR

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The MLR regulation directs an activity can only be classified as a quality improvement activity if it first falls within one of the categories provided in § 2717, and further meets all the requirements in § 158.150.

The regulation requires any proposed quality improvement activity be both primarily designed to improve patient care and the effectiveness of any proposed activity must be capable of objective measurement and produce verifiable results.

An insurer is not required to present initial evidence of effectiveness, but must demonstrate “measurable results stemming from the executed quality improvement activity.”

IMPACT OF MLR

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The MLR regulation contains a specific listing of activities that definitively are within and without the category of quality improvement activities. The list includes such items as blood glucose monitoring programs and medication adherence programs.

IMPACT OF MLR

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An activity primarily designed to “control or contain costs” cannot be categorized as a quality improvement activity, even if it meets all of the category’s requirements.

If an activity’s primary design is to improve health outcomes, and a secondary effect is a cost savings, then the activity can qualify as a healthcare quality improvement activity, assuming all other requirements are satisfied.

IMPACT OF MLR

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Most administrative expenses were determined not related or primarily designed to improve the quality of patient health. Some traditional administrative expenses may qualify as a quality improvement activity, provided they meet all other criteria for the category.

One example is “prospective utilization review” as compared to “concurrent” and “retrospective utilization reviews.”

Prospective utilization review is considered a quality improvement activity because it is forward looking, rendered before care is given and with the goal of ensuring the most appropriate medical treatment in the most appropriate setting.

IMPACT OF MLR

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If an insurer fails to meet the minimum MLR requirement, then the insurer must rebate directly to the consumers the difference between the insurer’s actual MLR percentage for the reporting year and the required MLR standard for that market.

The rebate must be paid directly to the each individual enrollee in the applicable market.

The rebate must be paid by no later than August 1 following the end of the reporting year.

IMPACT OF MLR

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An insurer has discretion to choose among a range of options available to provide the rebate.

The rebate for a current enrollee may be given in the form of “a premium credit, lump-sum check, or, if an enrolled paid the premium using a credit card or direct debit, by lump-sum reimbursement to the account used to pay the premium.”

Rebates for former enrollees must be paid in either a lump-sum check or, in the case of electronic premium payment, a lump-sum reimbursement to the account used to pay the premiums.

IMPACT OF MLR

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Fraud prevention is not a quality improvement activity.

Insurers can offset fraud detection and recovery expenses against actual recoveries, up to the amount recovered, if the recovery efforts are successful.

By excluding the costs of fraud prevention and detection from the MLR numerator, the regulations discourage insurers from devoting resources to fraud detection and prevention.

IMPACT OF MLR

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The definition of “Federal Taxes” that could be excluded from the premium revenue in the MLR denominator created some controversy.

Chairs of the congressional committees that drafted legislation wrote to HHS stating the intent was to only exclude “Federal taxes and fees that relate specifically to revenue derived from the provision of health insurance coverage that were included in the PPACA.”

HHS disagreed, defining the exclusion for taxes broadly, to include most Federal taxes other than taxes on investment income and capital gains.

IMPACT OF MLR

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Commissions are not part of the MLR calculation and must be absorbed as non-claims related administrative expenses. Agents are concerned that their commissions will be reduced and/or jobs eliminated as insurers are forced to reduce costs to comply with the MLR.

IMPACT OF MLR

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Questions?

Bryan D. Bolton

Funk & Bolton

Baltimore, MD

Eric B. Myers

Aetna Inc.

Philadelphia, PA

Robert R. Pohls

Pohls & Associates

Walnut Creek, CA


what do health insurance litigators face in 2012 and beyond?

Documents