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Appendix F
Analysis of Agreements Between Utilization Management Organizations and Their Clients*

To secure more information about the operation of prior review programs, requests were made to several organizations for copies of their contracts or agreements with their clients. Copies of seven agreements were obtained, and these were reviewed to assess how they dealt with various matters. The contracts that were reviewed may or may not be fully representative of those used in the industry. Also, on certain important matters such as appeals procedures, some contracts referred to appendixes or attachments that were not provided for review. Despite these limitations, several observations can be made about the content and specific approaches used in the contracts that were reviewed.

Contractual Descriptions of Prior Review Services

Contracts for prior review services vary greatly in length. One reviewed contract was 28 double-spaced pages long and detailed the various steps that would be taken in conducting the services covered by the agreement. This contract, which is a standard form or generic agreement (as were several of the others that were reviewed), permits the client to select from among the utilization management company's services, which are described in detail (some of it repetitive) over 16 pages of the contract. At the other

*The initial draft of this appendix was prepared by Nathan Hershey.



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Page 282 Appendix F Analysis of Agreements Between Utilization Management Organizations and Their Clients* To secure more information about the operation of prior review programs, requests were made to several organizations for copies of their contracts or agreements with their clients. Copies of seven agreements were obtained, and these were reviewed to assess how they dealt with various matters. The contracts that were reviewed may or may not be fully representative of those used in the industry. Also, on certain important matters such as appeals procedures, some contracts referred to appendixes or attachments that were not provided for review. Despite these limitations, several observations can be made about the content and specific approaches used in the contracts that were reviewed. Contractual Descriptions of Prior Review Services Contracts for prior review services vary greatly in length. One reviewed contract was 28 double-spaced pages long and detailed the various steps that would be taken in conducting the services covered by the agreement. This contract, which is a standard form or generic agreement (as were several of the others that were reviewed), permits the client to select from among the utilization management company's services, which are described in detail (some of it repetitive) over 16 pages of the contract. At the other *The initial draft of this appendix was prepared by Nathan Hershey.

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Page 283 extreme was a contract that described the company's services in fewer than four pages. Notwithstanding the differences from contract to contract in the amount of detail about the organization's services (for example, the options available when an initial negative determination of medical necessity has been made), a reading of the contracts does not reveal substantial differences among organizations in the services themselves. Sources of Clinical Criteria and Standards The review-of contracts suggests that employers and other purchasers apparently have not required information about the sources of the clinical criteria and standards used by the organization with which they contract for review services. Little or nothing in the contracts describes the criteria or indicates their sources. One contract states that medical review will use ''recognized norms and standards, of the medical need for and appropriateness of proposed, ongoing or completed medical care.'' Regarding hospital admission review, the most comprehensive and detailed contract stated only that the review firm will evaluate proposed admissions to certify "medical necessity and appropriateness under the [insurer's] benefit plan." Another contract refers to "guidelines mutually agreed upon" by the contracting parties. The most specific contractual statement about criteria stated that the review organization would use the purchaser's "accepted review criteria and guidelines as the framework for making appropriateness decisions." These guidelines included the 1986 InterQual ISD-A criteria (intensity of service, severity of illness, discharge, and appropriateness screens). There may be extracontractual discussions and negotiations between the review organization and client regarding the criteria used to evaluate the necessity or appropriateness of care. However, these agreements, like most commercial contracts, state that the contract is the entire agreement between the parties and that the agreement cannot be modified, except by action of both of the parties. Distinction Between the Review Determination and Purchaser's Decision To Pay For Services Most of the contracts that were reviewed contain specific language about the distinct roles of the review organization and the purchaser. The contractual agreements generally specify that the review organization makes no decision respecting benefits, although an adverse review decision often will be the basis for an adverse decision on benefits. Note the following disclaimer language in one contract:

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Page 284 In performing the [review] services the [review organization] shall not determine a Participant's eligibility for benefits under the Group Contract. Group shall have final and sole authority for all benefit determinations. Another contract states: Unless specifically agreed in writing to the contrary, the [review organization] shall have no authority to bind you to any of its assessments, recommendations, findings or certifications in respect to Medical Review, and you reserve the right to act based upon your own judgment with respect to any and all claims or issues reviewed hereunder. Additional provisions in two contracts have relevance to the distinction between determinations of medical need and decisions about payment of benefits. In one agreement, stated performance standards for the review organization implicitly recognize that reviewers may occasionally certify days of hospitalization that do not meet the guidelines agreed to by the organization and its client; it states that "95% of all days certified by [the reviewers] shall be appropriately certified based on guidelines mutually agreed upon." This provision suggests that the client accepts that a small number of certifications will not meet the mutually agreed upon criteria in order to reduce the potential for conflict. It also recognizes implicitly that the exercise of clinical judgment by the review organization's physicians may sometimes result in decisions that do not fit the criteria, but it sets up penalties if this happens too often. Another contractual provision covers a utilization management organization's obligation to assist its client organizations in specified circumstances. The organization agreed to provide [the client] its case records, staff and professional medical consultation in the event that legal action is taken against [the client] for benefits which have been denied or reduced when [the client's] determination is supported by [the review organization] . . . or if [the client] is otherwise sued as a direct result of [the review organization's] . . . activities. One review organization's generic contracts, in addition to specifying that its advice pertains only to medical necessity and appropriateness, not to payment of benefit claims, further states that The decision or determination to obtain or deliver any health care service is always made only by the [health plan participant] and/or his or her physician, and any decisions made by the [review organization] . . . or the health benefit insurer... shall relate only to the obligation for payment for any such service under the terms of the . . . group insurance policy .... Indemnification and Liability Insurance Coverage Concern about liability, which is at a high level in virtually all areas of insurance and health care delivery, is clearly evident in contracts for prior review services. One manifestation is the indemnification provisions that

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Page 285 were present in all but one of the contracts reviewed. Generally accompanying these provisions are statements that the providers and purchasers of review services are independent contractors. Representative of these provisions is the following: No provision of this agreement is intended to create, nor shall it be deemed to create, a relationship between [the client] and [the review organization] other than that of independent contractors. In addition, neither of the parties hereto, nor any of their respective employees, agents, or contractors, shall be deemed to be, or shall represent themselves as being, the employer, employee, or representative of the other, except as specifically provided in this Agreement. Some indemnification provisions are broad or general; others specify the matters to which they apply. One illustrative indemnification provision states: [The client] agrees that [the review organization] shall be held harmless by [the purchaser] from all liability due to decisions made by officers or employees of [the purchaser] concerning eligibility of any [individual] insured for benefits under the provisions of the policyholder or contract holder's health benefit program. [The review organization] agrees that [the purchaser] shall be held harmless for all liability arising from failure by [the review organization] to exercise due care in its review procedures, in rendering its decisions, and in reporting them to [the purchaser]. Another relatively specific provision that is accompanied by an indemnification clause of a general character applies to breaches of described confidentiality obligations that would involve liability on theories other than negligence. It provides, in part: Should legal action be brought against either party or its affiliates as a result of a breach of said confidentiality, the party causing said breach agrees to indemnify and hold harmless the other party and affiliates for any loss, cost, or damage, including reasonable attorney fees, arising therefrom. Several of the contracts contain provisions describing or requiring liability insurance coverage. For example, one contract provides that the review organization "is responsible for maintaining during the life of this Agreement liability insurance sufficient to protect it from claims of personal injury or property damage which may arise from its activities under this Agreement." The same contract also obliges the organization to require its physician reviewers "to carry or otherwise be covered by insurance in amounts adequate to protect them against professional liability claims which may arise hereunder." Only one of the contracts that contained an insurance requirement specified the amount of coverage. Staffing and Performance Criteria Purchasers of utilization management services seek more appropriate use of health services by those covered under their benefit plan. This is

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Page 286 expected to translate into reduced benefit costs in comparison with costs in the absence of utilization management services. Among matters relevant to the successful functioning of a review organization are the composition and qualifications of its staff and the criteria by which its performance is to be measured. Most of the contracts reviewed contain little detail regarding staff. Typical is such language as "appropriate staffing levels" and "services shall be performed by physicians, registered nurses or record technicians as appropriate." Generally, references to physicians are preceded by ''licensed,'' and references to board certification are occasionally present in descriptions of appeal processes. The contracts usually specify the time periods within which determinations of medical necessity, length of stay, and other decisions are to be made. These can become, in effect, implicit staffing requirements (unless the review organization has flexibility in deciding how many cases to review in detail), since they require the organization to review, make determinations, and communicate with benefit plan beneficiaries and/or health care providers. within stated time periods. Provisions in several contracts related directly to performance criteria. One standard contract, in respect to a bill screening and audit service, one of the services that could be selected by the purchaser, states the following: [the review organization] guarantees that the savings from the [bill review and medical audit] will exceed fees paid to [the review organization]. Another, more complicated, provision focused on adherence to numerical standards in performance under the contract. [the review organization] shall maintain the following performance standards for initial certification, recertification and appeal referrals: (a) 95% of all days certified by [physician reviewers] shall be appropriately certified based on guidelines mutually agreed upon between [review organization and purchaser]. (b) 85% of all referrals shall involve direct contact between the [physician reviewer] and the attending physician. (c) 85% of all referrals shall be resolved within (12) business hours of the initial contact by the [review staff]. This contract goes on to provide penalties for failure to meet these performance standards, based on a reduction in the monthly retainer fee for each percentage point below those mentioned in the contract, up to a stated maximum. No other contract reviewed made specific links between the review organization's activity and its compensation. Proprietary Information and Competition Both providers and purchasers of prior review services recognize that they will, in the operation of a review program, learn much about each

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Page 287 other's processes and practices. Almost all the reviewed contracts contained provisions to maintain the confidentiality of proprietary information, with legal recourse in the event of the breach. Two contract provisions are particularly noteworthy because they illustrate the overlap of some review organizations and purchasers in terms of their knowledge of utilization control procedures. For example, a health insurer that provides review services for some insured groups but contracts services out for others may be concerned that its subcontractor will try to solicit the health insurer's clients. One contract provides in part: [the review organization] shall use its best efforts to avoid soliciting the sale of its services to then current [clients] of [the health insurer] except in any cases where a [client] elects not to obtain from [the health insurer] such services. In the event [the review organization] inadvertently solicits any party prior to having actual knowledge that such party is then a current [client] of [the health insurer], [the review organization] agrees to terminate such solicitation promptly upon its gaining such knowledge. The potential clash of interests may run in the opposite direction. For example, another contract, recognizing that a purchaser of review services can gain information to enable it to enter the utilization management business, contains the following limitation: [the purchaser] covenants and agrees that for the full term of this Agreement, including any extensions thereof, neither it nor any of its subsidiaries or affiliates will compete with [the review organization], either directly or indirectly, by performing or rendering the same or similar services within the United States of America, as rendered or performed by [the review organization] pursuant to this agreement.