This "Dear Colleague" was sent to Members of Congress on 3/10/99 by Rep. Greg Ganske (R-Iowa), author of the "Managed Care Reform Act of 1999" (HR 719)


"Dear Colleague:

On May 30, 1996, a small, nervous woman testified before the House Commerce Committee. Her testimony was buried in the fourth panel at the end of a long day about the abuses of managed health care. The reporters were gone, the television cameras had packed up, most of the original crowd had dispersed.

She should have been the first witness that day, not one of the last. She told about the "choices" that managed care companies and self-insured plans are making everyday when they determine "medical necessity." Linda Peeno had been a claims reviewer for several HMOs.
Here's her story:

"...I wish to begin by making a public confession. In the spring of 1987, as a physician, I caused the death of a man.

"Although this was known to many people, I have not been taken before any court of law or called to account for this in any professional or public forum. In fact, just the opposite occurred: I was 'rewarded' for this. It brought me an improved reputation in my job, and contributed to my advancement afterwards. Not only did I demonstrate I could do what was expected of me, I exemplified the "good" company doctor: I saved a half million dollars!"

As she spoke, a hush came over the room. The representatives of the trade associations who were still there averted their eyes. The audience shifted uncomfortably in their seats, both gripped and alarmed by her story. Her voice became husky and I could see tears in her eyes. Her anguish over harming patients as a managed care reviewer had caused this woman to come

forth and bare her soul.

She continued, " . . . Since that day I have lived with this act, and many others, eating into my heart and soul. For me, a physician is a professional charged with the care, or healing, of his or her fellow human beings. The primary ethical norm is: do no harm. I did worse: I caused

death. Instead of using a clumsy, bloody weapon, I used the simplest, cleanest of tools-my words. This man died because I denied him a necessary operation to save his heart. I felt little pain or remorse at the time. The man's faceless distance soothed my conscience. Like a skilled soldier, I was trained for this moment. When any moral qualms arose, I was to remember: I am not denying care; I am only denying payment."

By this time, trade association representatives were staring at the floor. The Congressmen who had spoken on behalf of the HMO's were distinctly uncomfortable, and the staff, several of whom subsequently became representatives of HMO trade associations, were thanking God that this witness came at the end of the day.

Dr. Peeno's testimony continued, " the time, this helped me avoid any sense of responsibility for my decision. Now I am no longer willing to accept the escapist reasoning that allowed me to rationalize this

action. I accept my responsibility now for this man's death, as well as for the immeasurable pain and suffering many other decisions of mine caused."

She then listed the many ways managed health plans deny care to patients. But she emphasized one particular issue--the right to decide what care is medically necessary. "There is one last activity that I think deserves a special place on this list, and this is what I call the smart bomb of cost containment, and that is medical necessities denials . . . Even when medical criteria is used, it is rarely developed in any kind of standard, traditional, clinical process. It is rarely standardized across the field. The criteria is rarely available for prior review by the physicians or members of the plan. . . ."

"We have enough experience from history to demonstrate the consequences of secretive, unregulated systems that go awry . . . " After exposing her own transgressions, she closed by urging everyone in the room

to examine their own conscience. " . . . One can only wonder: how much pain, suffering, and death will we have before we have the courage to change our course? Personally, I have decided even one death is too much for me."

The room was stone-cold quiet. The Chairman mumbled: "Thank you, Doctor."

Linda Peeno could have rationalized her decisions as so many do: "I was just working within guidelines" or "I was just following orders" or "we have to save resources" or "this isn't about treatment, it's really just about benefits." Dr. Peeno refused to continue this denial and will do

penance for her sins the rest of her life by exposing the dirty little secret of HMO's determining "medical necessity."

My friend, if there is only one thing you read before voting on patient protection legislation, I beg you to read the following. Before voting on any patient protection legislation, please keep in mind the fact that no amount of procedural protection or schemes of external review can

help patients if insurers are legislatively given broad powers to determine what standards will be used to make decisions about coverage.

As Dr. Peeno so poignantly observed, insurers now routinely make treatment decisions by determining what goods and services they will pay for. The difference between clinical decisions about medically necessary

care and decisions about insurance coverage are especially blurred. Because all but the wealthy rely on insurance, the power of insurers to determine coverage gives them the power to dictate professional standards of care.

Make no mistake, along with the question of health plan liability, the determination of who should decide when health care is medically necessary is the key issue in patient protection legislation.

Contrary to the claims of HMOs that this is some new concept, for over two hundred years most private insurers and third-party payers have viewed as medically necessary those products or services provided in accordance with the "prevailing standards of medical practice." This is the

definition used in many managed care reform bills, including my own--the Managed Care Reform Act of 1999. The courts have been sensitive to the fact

that insurers have a conflict of interest because they stand to gain financially from denying care and have used "clinically derived professional standards of care" to reverse insurers' attempts to deviate from these


This is why it is so important that managed care reform legislation include an independent appeals panel with no financial interest in the outcome. A fair review process utilizing clinical standards of care guarantees that the decision of the review board is made without regard to

the financial interests of either the HMO or the doctor. On the other hand, if the review board has to use the health plan's definition of "medically necessary," there is no such guarantee.

In response to the growing body of case law and their own need to demonstrate profitability to shareholders, insurers are now writing contracts that threaten even this minimal level of consumer protection. They are writing contracts in which standards of medical necessity are not

only separated from standards of good practice but are also essentially not subject to review. Here is one example, of many, of a health plan's definition of "medically necessary services."

"Medical necessity means the shortest, least expensive, or least intense level of treatment, care or service rendered, or supply provided, as determined by us (the health plan), to the extent required to diagnose or

treat an injury or sickness. The service or supply must be consistent with the insured person's medical condition at the time the service is rendered, and is not provided primarily for the convenience of the injured person or

doctor." (emphasis added)

Contracts like this demonstrate that some health plans are manipulating the definition of medical necessity to deny appropriate patient care by arbitrarily linking it to saving money, not the patient's medical needs.

On the surface, some may say, "So what's wrong with the 'least expensive treatment'?"

Here's just one example out of the thousands I could cite: as a reconstructive surgeon, I treated children with cleft palates. Clinical standards of care would determine that the best treatment is surgical correction. Under this HMO's definition of medical necessity, they could

limit coverage to a piece of plastic to fill the hole instead. After all, this plastic obturator would be cheaper. However, instead of condemning him to a lifetime of using a messy prosthesis, the proper treatment--reconstruction using the child's own tissue--would give him the

best chance at normal speech and a normal life.

Paradoxically, insurers stand to benefit from misguided legislative changes that displace case law! Last year, legislation that passed the House and the GOP bill in the Senate would have granted insurers the explicit power to define medical necessity, without regard to current

standards of medical practice. This would have been accomplished by allowing them to classify as medically unnecessary any procedures not specifically found to be "necessary" by the insurer's own technical review

panel. The Senate bill would have even given insurers the power to determine what evidence would be relevant in evaluating claims for coverage and would have permitted insurers to classify some coverage decisions as

exempt from administrative review.

I know that many of our colleagues who supported those bills last year had no idea of the implications of the medical necessity provisions in them.

Specifically, insurers now want to move away from clinical standards of care applied to particular patients to standards linking medical necessity to "population studies." On the surface this may seem "scientific" and rational. However, as a former medical reviewer myself who

worked with many insurers large and small, let me explain why I think it is critical that we stick with medical necessity as defined by clinical standards of care:

* First, sole reliance on broad standards from generalized evidence isn't good medical practice;

* Second, there are practical limits to designing studies that can answer all clinical questions; and

* Third, most studies aren't of sufficient scientific quality to justify overruling clinical judgment. Let me explain these points further (I also recommend the article on these shortcomings by Rosenbaum, et al, in the January 21, 1999 edition of the New England Journal of Medicine).

First, while it may sound counter-intuitive, it isn't good medicine to solely use "outcome-based" studies of medical necessity, even when the science is rigorous. Why? Because the choice of the outcome is inherently value-laden. The medical reviewer for the HMO is likely, as shown by the above mentioned contract, to consider cost the essential value. But what about quality?

As a surgeon I treated many patients with broken fingers simply by reducing the fracture and splinting the part. For most patients this would restore adequate function. But for the musician who needs a better range of

motion, surgery might be necessary. Which outcome should be the basis for the decision about insurance coverage: playing the piano or routine functioning? My point is this-taking care of patients involves much


Definitions of medical necessity must be flexible enough to take into account the needs of each patient. "One size fits all" outcomes make irrelevant the doctor's knowledge of the individual patient and is bad medicine, period.

Second, there are practical limitations on basing medical necessity on "generalized evidence," particularly as applied to HMO's. Much of medicine is the result of collective experience, and many basic medical treatments

haven't been studied rigorously. Furthermore, aside from a handful of procedures that are not explicitly covered, most care is not specifically defined in health plans because the number of procedures and the circumstances of their application are limitless.

In addition, by their very nature many controlled clinical trials study treatments in isolation, whereas physicians need to know the benefits of one type of treatment over another. Prospective, randomized comparison studies

on the other hand are expensive. Given the enormous number of procedures and individual circumstances, if coverage is limited to only those that have scientifically sound generalized outcomes, care could be denied for almost all conditions. Come to think of it, maybe that is why HMO's are so keen to get away from prevailing standards of care!

Third, the validity of HMO guidelines and how they are used is open to question. Medical directors of HMOs were asked to rank the sources of information they use to make medical decisions. Industry guidelines generated by the trade associations representing health plans ranked ahead of information from national experts, government documents, and NIH consensus conferences. The most highly ranked respected source-medical journals-was used less than 60% of the time!

Industry guidelines are frequently done by Milliman and Robertson, a strategy shop for the HMO industry. This is the same firm that championed "drive through deliveries" and outpatient mastectomies. Many times, these

practice guidelines aren't grounded in science but are cookbook recipes derived by actuaries to reduce health care costs. Here are two examples of the errors of their guidelines:

* A National Cancer Institute Study released in June found that women receiving outpatient mastectomies face "significantly higher" risks of being re-hospitalized and have a higher risk of surgery-related complications like infections and embolisms.

* A 1997 study published in the Journal of the American Medical Association showed that babies discharged within a day of birth faced increased risk of developing jaundice, dehydration, and dangerous infections.

Objectivity of medical decision making requires that the results of studies be open to peer review. Yet much of the decision-making by HMO's is based on unpublished, "proprietary," and unexamined methods and data. Such

secret and potentially biased guidelines simply can't be called scientific.

This is not to say that outcomes-based studies don't make up a part of how clinical standards of care are determined. They do. But we are all familiar with the ephemeral nature of new "scientific" studies such as those

on the supposed dangers of alar!

Clinical standards of care do take into account valid and replicable studies in the peer-reviewed literature, as well as the results of professional consensus conferences, practice guidelines based on government funded studies, and guidelines prepared by insurers that have been determined to be free of any conflict of interest. But most importantly, they also include the patient's individual health and medical information and the clinical judgment of the treating physician.

Congress should pass legislation defining this standard of medical necessity because: 1) ERISA shields plans from the consequences of most decisions about medical necessity, 2) under ERISA, patients generally can

only recover the value of benefits denied, and 3) even this limited remedy is being eroded by insurance contracts that give insurers the authority to make decisions about medical necessity based on questionable evidence. And to ensure these protections, Congress must provide patients with a speedy, external review of all coverage decisions, not merely those that insurers decide are subject to review.

It is time for Congress to defuse the "smart bomb" of HMO's.


Greg Ganske

Member of Congress

ERISA Disability Lawyer