Federal External Review of Benefit Claims and Appeals

McGuireWoods Healthcare Reform Guide: Installment No. 10

September 1, 2010

This is the 10th in a series of WorkCite articles concerning the recently enacted Patient Protection and Affordable Care Act and its companion bill, the Health Care and Education Reconciliation Act of 2010 (referred to collectively as the Act). This WorkCite deals specifically with a new federal process for the external review of benefit claims and appeals under self-insured group health plans that are not “grandfathered” plans under the Act.


In July 2010, the IRS, DOL, and HHS issued an interim final regulation (IFR) containing expanded rules for internal claims for benefits under group health plans and appeals of those claims (see the ninth article in our series for our discussion of the IFR). The IFR also covers a state-based external review process, but the agencies indicated that they would use future guidance to provide information on the federally-based external review system mandated by the Act.

On August 23, 2010, the DOL published Technical Release 2010-01 (a copy may be found at www.dol.gov/ebsa). The Technical Release creates an interim enforcement safe harbor (Safe Harbor) that may be used by non-grandfathered, self-insured group health plans that are subject to the federal external review process for plan years beginning on or after September 23, 2010. The Safe Harbor will remain in effect until superseded by more permanent guidance on the federal external review process.

While the Safe Harbor is in effect, the DOL and the IRS will not take enforcement action against any plan that complies with either of the following compliance methods:

  • Compliance with the Technical Release: The plan complies with the procedures of Technical Release 2010-01, which are based on the Uniform Health Carrier External Review Model Act (Model Act) created by the National Association of Insurance Commissioners.
  • Voluntary Compliance with State External Review Process: Where a state has expanded access to its own external review process to plans that are not subject to applicable state laws, the plan voluntarily complies with the state external review process.
    • The notice indicates that HHS will issue further guidance as to which state external review laws have been determined to satisfy the minimum standards of the Model Act.

The federal external review process, as published in the Technical Release, creates a new layer of complexity, risk, and expense for sponsors of self-insured group health plans that do not meet the grandfathered plan rules.

External Reviewer for Self-Insured Group Health Plans

Under the Technical Release, the external review will be handled by an accredited independent review organization (IRO) that is assigned by the plan. Accreditation of IROs is the responsibility of URAC, a nonprofit organization promoting healthcare quality by accrediting healthcare organizations.

  • The plan must contract with at least three IROs for these assignments, and must rotate claim assignments or use other unbiased methods for selection.
  • IROs are not eligible for any financial incentive that is based on the likelihood that they will support a denial of benefits.

Comment: The IFR requires that the agreement be between the plan and the IRO. Employers that have outsourced claims adjudication processes to third party administrators may have to add their administrators as parties to their IRO agreements.

Comment: There are relatively few IROs that have been accredited by URAC. Plan sponsors should begin identifying IROs to perform external review services.

Plan Contracts with IROs

The Technical Release sets forth an extensive list of provisions that an IRO contract must contain, including the following:

  • The IRO must use legal experts, where appropriate, to make coverage determinations.
  • The IRO must provide timely written notice to the claimant of a request’s eligibility and acceptance for external review, and must inform the claimant that he may submit additional information within 10 business days following receipt of the notice.
  • The plan must submit documents and information to the IRO within five business days after the assignment of the IRO. Failure to do so may automatically reverse the decision reached in the internal review process.
  • The IRO must forward any information received from the claimant to the plan within one business day after receipt of such information.
  • The IRO must review all documents and information de novo, and may not be bound by any decisions or conclusions reached during the plan’s internal claims and appeals process.

Comment: This is a significant new position for the DOL. Essentially, it permits the IRO to disregard the reasoning of the plan administrator and to reach a different result on the basis of the same or supplementary information.

Comment: Under federal law, courts generally must give deference to the decision of the plan administrator with respect to the claim. It is not clear what impact a de novo decision by an IRO will have on a court in a subsequent appeal or on the plan administrator when faced with similar fact patterns in future claims.

  • Absent expedited review situations (see below), the IRO must provide written notice of the final external review decision within 45 days after it receives the request for external review.
  • The IRO’s decision notice must contain relevant information regarding the claim and the basis for the IRO’s decision, as well as all of the following:
    • A statement that the determination is binding, except to the extent that other remedies may be available under state or federal law to either the group health plan or the claimant.
    • A statement that judicial review may be available to the claimant.
    • Current contact information, including the phone number, for any applicable office of health insurance consumer assistance or ombudsman established under Section 2793 of the Public Health Service Act.
  • Following a final external review decision, the IRO must maintain records of all claims and notices associated with the review process for six years. These records must be available for examination by the claimant, plan, or a state or federal oversight agency on request, except where disclosure would violate state or federal privacy laws.

Comment: IRO contracts should be reviewed by legal counsel to ensure all applicable legal requirements are satisfied.

Process for Standard External Review

The standard external review process for a non-grandfathered, self-insured group health plan includes:

  • Timing of Request for External Review: Claimants must be permitted to file external review requests within four months after the date they receive notice of an adverse benefit determination or final internal adverse benefit determination.
  • Preliminary Review: The group health plan must complete a preliminary review within five business days following receipt of an external review request to determine whether:
    • The claimant is covered under the plan at the time the healthcare item or service is requested or provided;
    • The adverse benefit determination or final adverse benefit determination does not relate to the claimant’s failure to meet eligibility requirements;
    • The claimant has exhausted the plan’s internal appeal process (unless the claimant is not required to do so); and
    • The claimant has provided all information and forms needed to process the external review.

Within one business day after completing the preliminary review, the plan must provide written notice to the claimant. If the request is not eligible for external review, the notice must include the reasons for its ineligibility. If the request is not complete, the notice must advise the claimant that he/she may perfect the incomplete requests by the end of the 4-month period or, if later, the 48-hour period following receipt of the notice.

Comment: The time frame for completing the preliminary review and responding to claimants is relatively short. Plan sponsors will need to create appropriate procedures to review and respond to requests for external review quickly.

  • Referral to Independent Review Organization: The plan must assign an accredited IRO to conduct the external review.
    • The plan must contract with at least three IROs for these assignments and rotate claim assignments, or use other unbiased methods for selection.
    • IROs may not be eligible for any financial incentives based on the likelihood that they will support a denial of benefits.

Comment: Contracting with at least three IROs may be burdensome on small plan sponsors. Larger plan sponsors may require significantly more than three IROs to adequately administer requests for external review.

  • Reversal of Plan’s Decision: If the IRO reverses the internal plan decision, the plan must immediately provide coverage or payment for the claim.

Comment: This means that the plan must pay the claim before appealing the decision in court. If the plan wins the appeal, it will be forced to undertake the difficult process of recovering the benefit payment from the claimant or from a service or equipment provider that has not been a party to the proceedings.

Process for Expedited External Review

Self-insured, non-grandfathered group health plans must also permit claimants to request expedited external review of an adverse benefit determination or a final adverse benefit determination according to the following procedures:

  • Request for Expedited External Review: A claimant may request an expedited external review at the time the claimant receives:
    • An adverse benefit determination for a claim that involves a medical condition for which the time frame for completion of an expedited internal appeal 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 a request for an expedited internal appeal;
    • A final adverse benefit determination, if a claimant has a medical condition where the time frame for completion of a standard external review would jeopardize the life or health of the claimant or would jeopardize the claimant’s ability to regain maximum function; or
    • A final internal adverse benefit determination concerning an admission, availability of care, continued stay, or healthcare item or service for which the claimant received emergency services but has not been discharged from a facility.

Comment: It is unclear what circumstances would seriously jeopardize the life or health of a claimant or what would jeopardize a claimant’s ability to regain maximum function. Plan sponsors should consider adopting internal policies to address these issues.

Comment: Note that the first alternative eliminates the plan’s ability to review its original denial of the claim on appeal.

  • Preliminary Review: Group health plans must immediately perform a preliminary review according to the standards described above on receipt of a request for expedited external review.
  • Referral to Independent Review Organization: If the plan determines that a request is eligible for external review, the plan must assign an IRO and send all necessary documents and information electronically, by telephone, facsimile, or other expeditious method.
    • The assigned IRO must consider the documents and information under the standard procedures for review in this article. Again, the IRO’s review of the claim must be de novo and is not bound by any decisions reached during the plan’s internal claims and appeals process.

Comment: It is not clear what happens if the plan decides that the claim is not eligible for expedited review. Presumably, the claimant may appeal that decision in court or go through the standard review process.

  • Notice of Final External Review Decision: The IRO must provide notice of its decision as quickly as possible, but in no event more than 72 hours after the IRO receives the request for an expedited external review.
    • If the notice provided to the claimant is not in writing, the IRO must provide written confirmation of the decision to the claimant and the plan within 48 hours after providing the notice.

Comment: The requirements of the expedited external review process will pose significant burdens on plan sponsors due to the condensed time frame by which preliminary reviews must be completed and information must be submitted to IROs.

Model Notices

The agencies have posted three model notices (one for adverse benefit determination, one for final internal adverse benefit determinations, and one for final external review decisions) that can be used to satisfy the disclosure requirements of the IFR. These may be found at www.dol.gov/ebsa and www.hhs.gov/ociio/regulations/consumerappeals.

For more information on the Act and the Technical Release, please contact the authors or any member of the McGuireWoods Employee Benefits team.

Visit the Healthcare Reform section for additional updates and resources.

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