I. Introduction
This Issue Brief will discuss appeal rights that apply when Medicaid services are reduced or terminated, with particular focus on prior authorization practices. Lawyers often call these appeal rights, “due process.” As discussed herein, “due process” refers to constitutional and statutory requirements for the state to provide Medicaid enrollees with written notice and an impartial hearing before it denies, reduces or terminates Medicaid covered services. After providing background and case-based illustration of the types of problems that are occurring as states introduce service restrictions, the Issue Brief will summarize the legal requirements for due process and offer recommendations for assuring due process.
II. Background on services restrictions and prior authorization
As the economic recession continues, states are searching for ways to reduce Medicaid expenditures. Medicaid services are being scrutinized for elimination or reduction and for application of more restrictive utilization controls. In fiscal year 2010, 20 states reported such benefit modifications to the Kaiser Commission on Medicaid and the Uninsured – the largest number of states reporting restrictions in one year since the Commission initiated annual surveys of state Medicaid programs in 2001. See Kaiser
Comm on Medicaid and the Uninsured, State Fiscal Conditions and Medicaid at 3 (Oct. 2010), available at www.kff.org/medicaid/upload/7580-07.pdf. Most of the reported changes involved utilization controls, particularly for therapeutic, personal care, and dental services. Id.
One of the utilization controls commonly implemented by states is prior authorization. A number of states are seeking to more aggressively employ its use. Prior authorization requires the health care prescriber to obtain approval from the state Medicaid agency or its contractor before providing the care or treatment. Prior authorization can be applied to a range of Medicaid services, from inpatient hospital services to home health services and outpatient prescription drugs.
Despite its widespread use, prior authorization has received little attention in the research literature. A 2003 study of prescription prior authorization programs by the Kaiser Commission concluded that “[t]here appears to be limited monitoring of the effects of prior authorization on beneficiaries and providers at the state level. Thus, although some basic information is available about issues such as waiting times for decisions, in most states virtually nothing is known about the effect of prior authorization on individual beneficiaries’ access to appropriate, medically necessary medications.”
Kaiser Comm on Medicaid and the Uninsured, Prior Authorization for Medicaid Prescription Drugs in Five States: Lessons for Policy Makers at 1 (Apr. 2003) (studying programs in California, Georgia, Oklahoma, Oregon, and Washington). As noted by the Commission, an audit of California’s Medi-Cal prior authorization program raised issues about timeliness of decision-making on prior authorization requests but found only “very small numbers” of appeals of denials. Id. at 22. The problems noted in California are not unique to that state.
In 2006, the North Carolina Medicaid agency contracted with a private company to conduct prior authorization of behavioral health services, including community support services, intensive in-home services, home and community-based waiver services, psychologist services, and inpatient/residential care. The prior authorization period for these services ranged from 60 days to a year.
Medicaid enrollees experienced significant reductions and loss of covered services. Early in 2008, they filed a lawsuit McCartney v. Cansler, No. 7:08-cv-00057-H (E.D.N.C.), alleging that the reductions and terminations were being made without adequate notice to enrollees and without allowing them the opportunity to explain to an impartial decision-maker why the decision was wrong. The following case example, taken from allegations set forth in the amended complaint, illustrates the problems:
DM is a 12-year-old Medicaid enrollee diagnosed with Fragile X syndrome, autism, and epilepsy. Prior to 2007, DM was authorized to receive Medicaid services, including doctor visits, prescriptions, case management, rehabilitative care, personal care, and 34 hours per week of community support services (CSS).
In May of 2007, DM’s case manager submitted a prior authorization form to the private contractor requesting reauthorization of the CSS for an additional 60-days. Over a month later and following repeated telephone calls, the contractor telephoned the case manager and informed her that DM would be authorized for only 21 hours per week of CSS from June 9, 2007 until July 27, 2007. No written notice of the reduction was provided. Meanwhile, on June 27th the case manager submitted a request for continued services for the next authorization period. Three weeks later, the contractor sent a written notice to DM and his case manager approving CSS for the 60-day period (July 28-Sept. 21), but for fewer hours than were requested. The written notice contained confusing information, but DM’s mother appealed the reduction in hours. The contractor and Medicaid agency then instructed DM’s case manager not to send any requests for reauthorization of services while the appeal was pending. However, an appeal was never heard. In early December of 2007, DM’s mother and case manager participated in a telephone conference with a hearing officer for the Medicaid agency who stated that, if a hearing were to occur, the only issue would be whether Medicaid had made the correct decision in reducing DM’s hours between July 28 and September 21. The hearing could not address DM’s current or future needs for CSS, and evidence concerning current or future needs would not be accepted. Based on this conversation, DM’s mother dismissed the appeal because it would have been meaningless.
On December 21st, DM’s case manager submitted another prior authorization request for continued CSS. A month later, the case manager contacted the contractor and was told that DM’s appeal had been dismissed and there was no authorization for DM to receive any CSS services. The contractor instructed the case manager to withdraw the December 21st request and to obtain approval for another service-1.25 hours per week of case management.
After DM lost his CSS, his behavior worsened considerably. He began having multiple tantrums per day at school. In February 2008, DM was put into handcuffs by a police officer at the school because his teachers did not know how to calm him. Thereafter, DM’s case manager submitted yet another prior authorization request, for 21 hours per week of CSS. The contractor telephoned her, informing her that the request would be denied, that DM would be approved for five hours per week of CSS for a short period of time and that, during that time, DM should make appointments to obtain evaluations – even though, as the case manager explained, DM had already had those evaluations. About two and one-half weeks later, the contractor issued a written notice of its decision. Again, the notice was confusing. Among other things, it did not cite the legal authority forming the basis for the decision. It also included a checklist of “alternative services” as a basis for the denial; however, the contractor had already been informed by the case manager that these “alternatives” were clearly inappropriate for or unavailable to DM.
During telephone conversations occurring over the time period described above, utilization reviewers discouraged DM’s providers from requesting services or encouraged them to withdraw requests for the services that they had prescribed. Also over this time period, the contractor’s decisions to reduce and terminate services were made without requesting information from treating clinicians, giving weight to the opinions of those treating clinicians, or making any findings that DM’s condition had medically improved. It also appeared that the private contractor was basing its decisions to reduce and terminate DM’s services on unpromulgated, internal guidelines about how many hours would be approved.
The McCartney case was filed to address these problems, which clearly affected all aspects of the coverage decision: (1) the initial decision-making process (e.g. application of secret coverage standards); (2) access to the hearing process (e.g. improper notices, oral discouragement); and (3) the hearing itself (e.g. improper dismissals of hearing requests, delays in hearings, refusal to provide de novo hearings).
III. Legal Requirements
It has long been recognized that Medicaid enrollees have a property interest in Medicaid benefits. See generally Bd. of Regents v. Roth, 408 U.S. 564, 577 (1972) (noting that property interests subject to due process are created by “existing rules or understandings that stem from an independent source such as state law-rules or understandings that secure certain benefits and that support claims of entitlement to those benefits”). Because they have a property interest, Medicaid enrollees’ benefits are protected by the Due Process Clause of the U.S. Constitution. See U.S. Const., amend. XIV, § 1; Goldberg v. Kelly, 397 U.S. 254 (1970) (holding that when welfare benefits are terminated, the recipient has due process rights to an effective notice and pre-termination hearing); Mathews v. Eldridge, 424 U.S. 319 (1976) (holding due process rights vary among property interests and the specific dictates require consideration of, first, the private interest affected by the action; second, the risk of an erroneous deprivation of that interest through the procedures being used and the probable value of additional procedures; and third, the government’s interest, including the fiscal and administrative burdens the additional procedural requirement would entail).
The Medicaid Act and implementing regulations also require states to provide the opportunity for a fair hearing when an individual’s claim for assistance is denied or not acted on with reasonable promptness. See 42 U.S.C. § 1396a(a)(3); 42 C.F.R. §§ 431.200-431.250; 42 C.F.R. § part 438 (complaint procedures for managed care systems); see also Id. at § 431.205(d) (explicitly requiring hearing system to meet Goldberg standards). For a recent case, finding § 1396a(a)(3) creates federal rights enforceable under 42 U.S.C. § 1983, see McCartney v. Cansler, 608 F. Supp. 2d 694, 698-99 (E.D.N.C. 2009), affd on other grounds, 382 Fed. Appx. 334 (4th Cir. 2010).
Due process rights apply to actions affecting mandatory and optional Medicaid services. See generally Md. Dept of Health & Mental Hygiene v. Brown, 935 A.2d 1128, 1145 (Md. Ct. App. 2007) (noting federal and state Medicaid fair hearing rights apply to optional and mandatory services). Due process also attaches to requests for prior authorization and continued benefits. See Ladd v. Thomas, 962 F. Supp. 284 (D. Conn. 1997), same case, 14 F. Supp. 2d 222 (D. Conn. 1998); Perry v. Chen, 985 F. Supp. 1197 (D. Ariz. 1996); Kessler v. Blum, 591 F. Supp. 1013 (S.D.N.Y. 1984). Compare Kapps v. Wing, 404 F.3d 105, 115 (2d Cir. 2005) (noting “every circuit to address the question – has concluded that applicants for benefits, no less than current benefits recipients, may possess a property interest in the receipt of public welfare entitlements”) with Schreur v. Dept of Human Services, _ N.W.2d. _, 2010 WL 2505921 (Mich. App. Jun. 22, 2010) (holding due process protections outlined in Goldberg apply only to Medicaid recipients and not applicants for benefits).
As commonly understood, due process requires:
(1) Written notice prior to the date of an intended action
If the Medicaid agency intends to take an action that is adverse to a recipient, he or she must receive advance written notice of the intended action. An adverse action includes the termination, suspension or reduction of Medicaid covered services. See 42 C.F.R. § 431.201.
When the intended action involves termination, suspension, or reduction of services (as opposed to an initial request for services), the notice generally must be sent at least ten days before the date of the action and inform the individual of how he can receive continued benefits pending the outcome of the an appeal (sometimes called aid paid pending). See Id. at §§ 431.206, 431. 211, 431.214. But see Id. at § 431.213 (specifying circumstances when same-day notice can be used). See Perry, 985 F. Supp. at 1203 (requiring managed care contractors to inform individuals of rights to aid paid pending)
The notice must be “reasonably calculated, under all the circumstances,” to inform the individual of the action being taken and “be of such a nature as reasonably to convey” information regarding the right to appeal. Mullane v. Central Hanover Bank & Trust Co., 339 U.S. 306, 314 (1950); see Goldberg, 397 U.S. at 267-68 (requiring welfare recipients to receive “timely and adequate notice detailing the reasons for a proposed termination”).
The notice must contain a statement of the intended action, reasons for the action, specific legal support for the action, and an explanation of the individual’s hearing rights.
See Id. at § 431.206, 431.210. See, e.g., V.L. v. Wagner, 669 F Supp. 2d 1106, 1120-21 (N.D. Cal. 2009) (finding plaintiffs likely to succeed on due process claim where individuals with disabilities and/or inability to read English would not be able to understand “difficult to read” notices of reductions in Medicaid-covered in-home support services); Ortiz v. Eichler, 616 F. Supp. 1066 (D. Del. 1985) (holding adequate notice must include the specific regulations supporting the action and an explanation of the reasons for the intended action), affd, 794 F.2d 889, 892 (3d Cir. 1986) (requiring notice to include “detailed individualized explanation of the reason(s) for the action being taken, in terms comprehensible to the claimant,” including calculations used to make the decision).
It is not enough for the notice to be a generic form that identifies possible reasons for the action. See generally Gray Panthers v. Schweiker, 652 F.2d 146, 167-68, n. 44 (1980) (rejecting agency-approved Medicare notices that failed to inform beneficiaries which of two different reasons for the decision applied). In Baker v. Dept of Health & Soc. Services, the Alaska Medicaid agency had implemented a 13-page Personal Care Assessment Tool (PCAT) for state-contracted nurses to use to determine eligibility. 191 P.3d 1005 (Alaska S. Ct. 2008). In the months following introduction of the PCAT, over 900 individuals experienced reductions of services. Affected individuals complained that the written notices they received did not convey critical data that would allow them to appeal the determination. Citing Goldberg, the court ruled for the plaintiffs. The court rejected the agency’s argument that “notice” should be broadly construed to include not only the written notice but also other
information enrollees received about the assessment process. Because the plaintiffs were welfare recipients, the court found that the agency needed to go to “greater lengths- incurring higher costs and accepting inconveniences – to reduce the risk of error” and to “be as transparent as possible in its methodology.” Id. at 1010-11.
(2) A pre-termination hearing before an impartial hearing officer
An individual must be allowed a reasonable time to request a hearing. The agency can require the request to be in writing. See 42 C.F.R. § 431.221. But see Angelo v. Toia, 402 N.Y.S.2d 881 (N.Y. App. Div. 1978) (statute of limitations for requesting hearing tolled when agency fails to comply with notice requirements).
If the individual requests a hearing, he or she must generally be given recourse to the hearing process. Federal regulations provide an exception for automatic changes in coverage due solely to a change in state or federal law. In these instances, the state agency must provide notice of the change but not a fair hearing. See 42 C.F.R. § 431.220(b); see also Cota v. Maxwell-Jolly, 688 F. Supp. 2d 980, 997 (N.D. Cal. 2010) (refusing to allow agency to “pass the buck” to private contractors and finding plaintiffs likely to succeed on due process claim where agency planned no pre-termination notice of reduction of Medicaidcovered adult day services). Compare Rosen v. Goetz, 410 F.3d 919 (6th Cir. 2005) (refusing to require pre-termination hearings for all affected recipients when change in coverage resulted from change in state law) with Harriman v. Dept of Children & Families, 867 So.2d 1264 (Fla. Ct. App. 2004) (requiring hearing when claimant challenged termination of benefit for reasons other than the change in law automatically affecting her benefits).
Prior to the hearing, the individual must have an opportunity to examine his or her case file, as well as all policies and documents that form the basis for the decision. See 42
C.F.R. § 431.242. In other words, the decision must be based on “ascertainable standards.” Holmes v. New York City Hous. Auth., 398 F.2d 262, 265 (2d Cir. 1968). In Salazar v. District of Columbia, a federal district court recently required a managed care company to disclose the clinical coverage guidelines it uses to deny services even though the company claimed the guidelines were protected trade secrets. 596 F. Supp. 2d 67 (D.D.C. 2009), modified by, _ F. Supp. 2d _, 2010 WL 4553534 (D.D.C. Nov. 12, 2010). See also 42 C.F.R. §§ 438.10(f)(6)(v) (requiring state and managed care contractors to provide all enrollees information about amount, duration and scope of benefits in sufficient detail to ensure that enrollees understand the benefits to which they are entitled). See generally Morton v. Ruiz, 415 U.S. 199, 232 (1974) (“No matter how rational or consistent with congressional intent a particular decision might be, the determination of eligibility cannot be made on an ad hoc basis by the dispenser of the funds.”). For additional discussion, see Jane Perkins, National Health Law Program, Q & A: Due Process Issues with Private Contractors (Oct. 2008) (available from TASC or NHeLP).
The hearing must be fair, meaning that it must occur at a “reasonable time, date and place” and be conducted by an impartial hearing officer. 42 C.F.R. § 431.240; see, e.g., Schweiker v. McClure, 456 U.S. 188 (1982) (impartial hearing officer a necessary prerequisite). The hearing must provide the individual with “an effective opportunity to defend by confronting any adverse witnesses and by presenting his own arguments and evidence orally.” Goldberg, 397 U.S. at 268; see also Ortiz, 794 F.2d at 895-96 (hearing officer could not admit into evidence or consider statements by witnesses who were not present at hearing for confrontation by the claimant); see also 42 C.F.R. § 431.242. For additional discussion, see Robert P. Capistrano, Making the Fair Hearing More Fair, 44 CLEARINGHOUSE REV. J. OF POV. L.&POL. 96 (July-Aug. 2010).
The hearing decision must “rest solely on the legal rules and evidence adduced at the hearing.” Goldberg, 397 U.S. at 271. The recipient should be able to obtain a de novo hearing when either a local evidentiary hearing or an agency’s decision on the application is appealed. See 42 C.F.R. §§ 431.232, 431.233 (requiring de novo hearing on appeal from local evidentiary hearing); see Curtis v. Roob, 891 N.E.2d 577, 280 (Ind. Ct. App. 2008) (allowing plaintiffs to proceed with due process complaint against state policy prohibiting claimants from offering at the appeal hearing evidence of disability not contained in the initial application or considered by the agency). The right to a de novo hearing is crucial and should not be confused with de novo review. Under de novo review, the hearing officer steps into the shoes of the previous decision-maker, reviews the same evidentiary record and decides whether the decision was right or wrong. By contrast, a de novo hearing is not limited to the existing record, so new evidence and argument can be introduced. Cf. Murphy v. Curtis, 930 N.E.2d 1228 (Ind. Ct. App. 2010) (holding de novo hearing must include additional evidence relevant to Medicaid disability decision under review but need not include open-ended inquiry into every conceivable condition that claimant might have).
The right to present evidence orally does not necessarily extend to presenting the evidence to the hearing officer in person. Some states have recently begun to conduct hearings telephonically, and challenges to these practices have not generally been successful. See Murphy v. Terrell, _ N.E.2d _, 2010 WL 5123719 (Ind. Ct. App. Dec. 16,
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