By Sara Rosenbaum

Today’s Implementation Brief looks at patient appeals rights under the Affordable Care Act. The right to a fair review of a claim denial by a health insurer or health benefit plan is a fundamental tenet of fairness. In this regard, the Affordable Care Act does what Congress failed to do for years prior to passage, namely establish the right to an independent external review, a right that has been the subject of a years-long battle beginning in the 1990s. By “independent,” the law means that an independent review organization asked to review a claim denial is truly that — independent of the plan’s decision. It means that the reviewer can start fresh (de novo in legal terms), with the power to examine all of the plan documents that spell out the terms of coverage as well as the evidence on which the plan’s decision is based.

The impact of this new power to protect patients is profound. In 1989, the United States Supreme Court, in Firestone Tire and Rubber v Bruch, 489 U.S. 101, ruled that courts must defer to the final decisions on claims made by ERISA plans; both before and after the Affordable Care Act, the vast majority of workers and their families are enrolled in ERISA plans. This deference rule applies even in the face of an obvious institutional conflict of interest — that is, the potential ability of a plan to gain by denying a claim — which is not considered sufficient by the courts to overturn the deference standard. thus, when a patient appeals to court, the deck is stacked against her; for more than 20 years, patients have faced overwhelming odds in trying to get a denial overturned in court because of this judicial rule.

The Affordable Care Act is a complete game changer. Under its terms, as implemented by the US Labor Department, when a patient appeals a claims denial to an external reviewer, the review now is to be completely independent and binding on the plan. If the plan should refuse to go along with the decision, the patient can go to court and seek an order enforcing the decision against the plan.

Obviously external reviewers may still decide against patients; indeed, about half of all appeals result in wins for plans. But the Affordable Care Act utterly transforms the relationship among pateints, plans, and courts, effectively stripping away the protective shield that judges have built around ERISA plans. The impact of this change can be expected to be enormous, particularly in cases involving patients suffering from severe conditions such as cancer, heart disease, and serious mental illness, who need extensive treatment that a plan has an incentive to deny.

The health insurance industry is sure to challenge how the terms of the law have been implemented by the Obama Administration, just as it has so frequently challenged any past efforts to strip away its discretionary powers over claims decisions. The challenge will come when a plan administrator of a self insured plan immune from state law refuses to honor a decision by an external reviewer that awards benefits to a patient, a replay of the very same case appealed to the United States Supreme Court in Rush Prudential HMO v Moran, 536 U.S. 355 (2002), which involved an insurer that sold a state regulated HMO product to an ERISA plan .

The changes take effect for health insurers and group health plans that are not grandfathered on September 23rd 2010. Read more about the new regulations here.