Fairness to All Parties: Resolving Utilization Review Disputes under ERISA with the Contingent Claims Contract Model
- Presenter:
Chair: Richard Hirth; Discussant: Alan Monheit Tue June 6, 2006 13:45-15:15 Room 326
Insurance coverage decisions today are frequently clinical medical decisions made on an individual basis, as part of utilization review (UR). Coverage denials under UR have become the subject of legal disputes. The law surrounding these cases has proven to be confusing and unsatisfactory. The 2004 Supreme Court decision, Davila, has essentially left managed care organizations (MCOs) associated with ERISA-protected plans with no liability for the consequences of UR-based coverage denials. Such protection is alleged to bolster MCO automatic denial policies that do not consider the merits of individual cases. Despite widespread dissatisfaction with this state of affairs, both Congress and the courts are reluctant to expand MCO liability, apparently because they fear something like the medical malpractice situation will occur, undermining costcontainment strategies, raising health care expenditures, raising premiums, and increasing the number of uninsured. We review the history of court decisions on UR coverage denials, illustrating how all attempts to disentangle the medical and contractual/economic elements have proven impossible, resulting in the recent Davila decision. We build on the view that, for these UR disputes, contract law is preferable to tort law (Havighurst 1995, Danzon 1997). We illustrate how contract law with consequential damages could be applied to individual medical decisions using a contingent claims contract (CCC) model. We examine the ways in which real world health insurance contracts could become more like CCCs, by enhancing clinical specificity through a variety of means. We also analyze how transactions costs, selection, cognitive limitations, behavioral economics, and technological change limit the ability of real world health insurance to mimic CCCs. Thus, any real world contract will inevitably fall far short of such an ideal. Nonetheless, we illustrate the further value of the CCC model in providing courts with a conceptual test that can be used to settle UR-based coverage disputes. Specifically, in an economic framework, patient/plaintiffs are entitled to coverage for more expensive care if they have paid the higher actuarially fair premium needed to cover the more expensive care. The courts can ask if plaintiffs could reasonably think that they had purchased such coverage and if insurers reasonably thought that they had sold it. Such after-the-fact assessments of “meeting of minds” are common in contract law. We illustrate the forms of evidence that courts could use in coming to such decisions.
