Background What Is "Medically Necessary" in Managed Care Systems? Problems with the Current Approach Taking a Different Approach Creating a Definition of "Medically Necessary" Conclusion

Protecting Consumer Rights in Public Systems:
Managed Mental Healthcare Policy

Contracting for Managed Behavioral Health Care

Defining "Medically Necessary" Services to Protect Plan Members

As Medicaid, mental health and child welfare systems are redesigned to adopt a managed care approach to the organization and delivery of services, important shifts occur in how services for adults and children with mental health care needs are regulated. This paper has been prepared by the Bazelon Center for Mental Health Law for the Center for Mental Health Services and concerns public agency contracts for managed behavioral health care.

This paper addresses a critical part of any such contract, the definition of what is a medically necessary service and the procedures used to determine when a service is medically necessary. "Medically necessary" criteria should require that services are designed to achieve appropriate goals and delivered in a manner adhering to state standards and principles. The criteria should result in appropriate access to the defined benefit package.

The paper is designed to assist consumers, families and advocates, as well as policymakers, to ensure that "medically necessary" standards in public-sector contracts for managed mental health care¹ protect consumers. It particularly emphasizes the rights and needs of adults with serious mental illness and children with serious emotional disturbance.

Background

Historically, public sector mental health services have been funded either through fee-for-service reimbursement or with funds received under a grant from local, state or federal governments. Now, increasingly, governments at all levels² are moving toward contracting out management of the mental health system, and often the entities entering into these contracts are private for-profit companies. In some states they are nonprofit providers or groups of providers that have joined together as a more comprehensive managed care entity.

This shift to managed care alters incentives in the system. Typically, managed care firms agree to provide an array of services (specified in the contract) to a defined group of individuals (also described in the contract) for a flat fee or payment negotiated in advance. Most often, the plan receives a capitation payment for each individual enrolled. The incentives under these arrangements are for managed care entities to control their costs. If they provide fewer services, they will make more profit or save more money. This directly, and deliberately, creates the opposite incentive to that in a fee-for-service system, where providers' income increases if more services are furnished. Yet, while controlling costs is an important objective for the public agency, it must be balanced with legal protections for covered individuals so that consumers have appropriate choices and are not denied services in order to save expenses or increase profit.

The shift to managed care often alters the providers' role in subtle ways as well. In a fee-for-service system, the provider's clinical judgment was largely insulated from cost-saving concerns, and when the Medicaid agency denied reimbursement, the denial was a clear-cut event which triggered a formal notice and the opportunity for appeal. Under these circumstances, the individual could often rely on the provider to support the appeal. Under managed care, the provider's role is more ambiguous, and the consumer may not have as clear a picture of the service options that can be considered or any understanding that a service has, in fact, been denied him by the treating provider. For the consumer, there is no clear "denial event" and, as a result, less opportunity for an appeal.

The shift from rules and regulations to contracts also represents a dramatic change, and requires the recrafting of essential principles for the service system into contract language. In this process, crucial aspects of the current system could be lost if not specifically included; yet the process also provides an opportunity to improve upon and strengthen the current system. Fundamental for developing sound contracts for public mental health services are the following principles:

• Even where the mental health system has been privatized, the ultimate responsibility for its operation still lies with the public agency. This includes ensuring compliance with federal and state law.
• State plans for the mental health system developed prior to the shift to managed care, and generally developed with significant public input, should be considered when moving to a restructured system. There is no need to reinvent the wheel if these plans are still appropriate, although at the same time improvements can be made.
• Consumers, family members and advocates should continue to have a voice in how the system is designed and run, and their knowledge of how systems can best serve consumers and families should be drawn upon. State planning processes, open public forums and other opportunities for public comments should not be discarded as the state develops requests for proposals (RFPs), reviews bids and negotiates contracts.

What Is "Medically Necessary" in Managed Care Systems?

Medical necessity is not a new concept. It has been used in Medicaid, Medicare and private insurance rules for many years, and managed care plans operating in the private sector typically use procedures to decide whether a particular service is appropriate, effective and necessary for the individual. Managed care plans agree to deliver covered services to covered individuals whenever those services are needed. They generally cannot refuse to serve an individual designated as a member of their plan, as can most agencies operating under a grant or fee-for-service system. Managed care plans therefore devise mechanisms for making decisions about what services to provide to whom, under what circumstances. Otherwise, the plan would have no control over utilization and expenditures and could not operate effectively.

Managed care plans use different mechanisms to control the use of services and hold down their costs. One way is to negotiate discount rates to pay their providers. However, Medicaid rates are generally low to begin with, so plans must also create greater efficiency through stringent controls on the use of care. Some put their provider network under pressure to control costs by making capitated payments to the providers, thereby passing on to them a substantial part of the risk. (Providers at risk face the possibility that revenues will not be sufficient to cover expenditures incurred in the delivery of necessary services.) In some managed care plans, as in fee-for-service, specific limits are placed on the duration of care (such as no more than 20 outpatient sessions or 30 inpatient hospital days per year).

More frequently, however, managed care plans operate without arbitrary upper limits on the length of specific treatments, and instead provide care in an individualized manner. To do this, they set up internal systems to determine when a service is medically necessary for a particular individual. Utilization review and prior authorization are two common mechanisms for doing this.³

"Medically necessary" definitions, in effect, set the boundaries between what the managed care contract will cover and what is left as the public agency's continuing responsibility (such as housing, job training, etc.)—or as no one's responsibility at all.

Definitions of "Medically Necessary" Services

Before creating a state definition of medically necessary services, it is important to understand Medicaid law and regulations and the courts' interpretations of those rules.

Because, broadly speaking, individuals have no legal right to mental health services provided by the government, access to mental health services and supports is at government discretion.⁴ The Medicaid statute defines the rights and entitlements of eligible individuals. They are entitled to the array of health and mental health services and supports described in the state Medicaid plan. For adults, beyond a minimal list of mandatory services, states generally have the flexibility to provide only the services in the state Medicaid plan. Children have a greater entitlement. Medicaid law requires states to furnish children "necessary health care, diagnostic services, treatment and other measures (authorized under Medicaid law) to correct or ameliorate defects and physical and mental illnesses and conditions...whether or not such services are covered under the state plan."⁵

When states shift to managed care, the waiver plan approved by the federal Health Care Financing Administration supersedes the state Medicaid plan as the basic document defining eligible individuals' right to services. However, even under a waiver, certain aspects of Medicaid law remain in effect, including federal requirements concerning the provision of medically necessary services.

Medicaid law permits states to define the "amount, duration and scope" of any covered service and to "place appropriate limits on a service based on such criteria as medical necessity or on utilization control procedures."⁶

This means, for example, that states may require authorization to be obtained prior to receipt of services or may limit certain procedures only to those for whom they are appropriate. However, while states may limit services, based on medical necessity, their discretion is not unbridled. Medical necessity cannot be used to deny needed services arbitrarily or to discriminate invidiously in the provision of services.

Medicaid law requires that a covered service be provided in sufficient amount, duration and scope "to reasonably achieve its purpose."⁷ States are also prohibited from denying or reducing the amount or scope of covered services based on an individual's diagnosis, type of illness or condition suffered.⁸

Some courts have held that a broad interpretation of the term "medical necessity"⁹ is required to carry out the remedial goals of the Medicaid program.¹⁰ Perhaps the most thoughtful of these decisions is Visser v. Taylor, in which a federal judge ordered the state of Kansas to provide Medicaid payment for the prescription drug Clozapine when a doctor had determined that it was the last remaining therapy appropriate for his patient. The court wrote:

The touchstone of the [amount, duration and scope cases] is medical necessity. Federal statutes and regulations providing for medically necessary treatment are to be liberally construed in favor of the intended beneficiaries of the Medicaid program.... The determination of whether a treatment is medically necessary, for purposes of Medicaid, is a professional judgment which must be decided and certified by the treating physician. A state may not eliminate funding for medical services certified by a qualified physician as being medically necessary.¹¹

The U.S. Supreme Court has not squarely addressed the issue, but in Beal v. Doe, it expressed serious concerns about state Medicaid plans that did not include medically necessary treatment in their coverage: "[S]erious statutory questions might be presented if a state Medicaid plan excluded necessary medical treatment from its coverage."¹²

Courts have also considered the process by which "medically necessary" determinations are made and have held that, in enacting the Medicaid program, Congress intended to invest broad discretion in treating physicians, but not others, to determine what treatment is medically necessary. For example, in Weaver v. Reagen, a federal appeals court ordered the state of Missouri to fund AZT treatment for Medicaid recipients with AIDS whose doctors had determined that the treatment was medically necessary. The court declared that:

The Medicaid statute and regulatory scheme create a presumption in favor of the medical judgment of the attending physician in determining the medical necessity of treatment.¹³

In an earlier decision, this same court held:

The decision of whether or not certain treatment or a particular type of surgery is 'medically necessary' rests with the individual recipient's physician and not with clerical personnel or government officials.¹⁴

Thus, federal rules, supported by court decisions, prevent states from limiting access to Medicaid services through arbitrary means that have the effect of denying care solely because of the diagnosis or type of illness or condition.

Federal rules, again supported by court decisions, also require states to protect consumers' access to services that are necessary to "reasonably achieve their purpose,"¹⁵ and courts have required that these decisions rely heavily on treating physicians' judgments, and that they not be made by clerical personnel or government officials.

States cannot meet these responsibilities if they cede to a managed care entity the full responsibility for determining when a service will be considered medically necessary.

Finally, other aspects of Medicaid law affect the process of making final determinations regarding the necessity of a service. Medicaid has a defined system for appeals and fair hearings for Medicaid-covered individuals, and these rules cannot be overridden by a move into managed care.

Who Should Define What Is Necessary?

States, as guardians of the public trust, must themselves both decide what services are to be covered in the plan (i.e., define the benefit package) and set the parameters as to who receives these services, when and for how long. It is the state, with appropriate public input, that must develop as part of its contracting process the specific definition used to determine when services are medically necessary.

One option would be for the legislature to define the term and then require that managed care contracts be consistent with this legislative definition. Alternatively, the state agency (either Medicaid or mental health authority) could define the term.

Contracts now in place between states and managed care entities show a disturbing trend. Although states frequently provide detailed descriptions of a broad benefit package that covers a wide array of appropriate services, contracts generally provide little, if any, guidance to managed care firms regarding appropriate decisions on the necessity of care. Some states have no definition at all of "medically necessary."¹⁶ As a result, managed care plans are deciding, with little or no public input, requirements or oversight, who will be served, how long they will receive services, which services they will receive and how much money will be spent on their care.

In addition to creating its own definition of "medically necessary," the state should expect that managed care plans, as they implement that definition, will set more detailed and condition-specific criteria. States should therefore require that the plan's internal rules for implementing the state's definition, such as practice guidelines, be made available both to the state and to advocacy groups in the state. In this manner, the plan's operating criteria can be reviewed to ensure that they meet the state's expectations with respect to the provision of services.

Consumer, family and advocacy groups are increasingly concerned about whether managed care for mental health services will allow individual choice and be provided in sufficient amount to meet individual needs. These groups are now organizing to influence many aspects of their state's RFP and contract, including the definition of "medically necessary." Many states are now recognizing the need to consult consumers, families and advocates about the contracts. Since these documents will govern the public system for years to come, their success depends on their support by important stakeholders in the state.

Problems with the Current Approach

There are some serious problems with the current state contracts concerning medically necessary care. Most are not specific enough and grant managed care companies too much discretion. As a result, states may leave themselves liable for mandated Medicaid services that the plans will not provide—in particular, services that go beyond the plan's very traditional concepts of what is necessary.

Most contracts between states and managed care entities provide minimal guidance on what is to be considered a medically necessary mental health service. Some have no definition at all of this important phrase. This gives the managed care entity extremely broad discretion to determine what services will be furnished to individual members of the plan at particular times and can also lead to confusion among members as to what services they are entitled to receive. In some cases, the state will find that mandated Medicaid services are not being provided through the managed care entity and that this is quite legal under the contract. In that situation, the state will remain legally obligated to continue to provide the covered service through some other means.

A review of extant definitions of "medically necessary" finds three broad categories: one set of definitions that are extremely basic and medically focused, with no mention of mental health or behavioral health services; a second set of definitions that include references to mental health or mental disorders, but are still clinically focused; and finally some definitions that adopt a more comprehensive approach referencing social supports and services to ensure high functioning and quality of life.¹⁷

Most states provide only basic descriptions of what they consider to be medically necessary services. Current state definitions use language that is almost boilerplate, describing medically necessary services as those needed to diagnose and treat certain illnesses or conditions. They often include the qualifications required for providers and require that services reflect good practice and are expected to be effective. Generally they encourage provision of services only if there is not an equally effective but less costly alternative. Many of these definitions also identify services that the state does not consider medically necessary.

This language leaves significant discretion with the managed care plan. As a result, many plans initially have chosen to operate their public-sector contracts under standards similar to those they use for their private-sector business clients. However, an employed population's need for behavioral health services can be very different from the needs of individuals in public systems. Managed care plans in the private sector heavily emphasize short-term hospital stays, traditional outpatient therapy and the use of medications. While these are important components of a comprehensive system of care, they are far from the full array of services necessary for adults with serious mental illness and children with serious emotional disturbance. As a result, under these plans, people enrolled in public-sector managed care tend to have access only to a limited part of the Medicaid benefit package the state has created.

Medicaid law authorizes a broad array of services that go far beyond narrowly defined "medical" care. Under Medicaid, individuals are eligible for prevention, treatment, rehabilitation and support services (such as case management, family education, social-skills training and family-support services). Increasingly, a wide array of the services needed by adults with serious mental illness and children with serious emotional disturbance who depend upon the public sector have been provided under Medicaid.

Especially disturbing is language in several contracts that services need not be provided if the member fails to comply fully with the medical regime established by a physician or other provider of services. This not only limits choice, but can divert attention from issues that reflect problems of the service system, rather than being the fault of the individual member. In addition, this language can be interpreted as overruling the plan's requirement to provide services when needed.

Problematic language in some contracts permits plans to use community, rather than national, standards of practice in making decisions. This language may be used to deny services that are not available within the community, even though that service may be the most appropriate choice. This is especially likely to occur in rural communities, where services are currently more sparse.

Taking a Different Approach

Managed care plans define "medically necessary" services in a very concise and limited way. These definitions are typically only a few lines long, making it impossible to take more than a very limited approach. In the public sector, on the other hand, definitions of what constitutes an appropriate service for reimbursement, although not termed "medically necessary," are much longer and more detailed. They encompass considerably more than "medical" services in the strict definition of the term, and they address a host of service-delivery issues, such as requiring care be furnished in the least restrictive setting and in a culturally competent manner.

As managed care techniques are adopted for the public sector, it is neither appropriate nor advisable for public agencies to take traditional managed care definitions as their model. They have no reason to limit their definition of medically necessary services to a few lines, perforce omitting essential elements of good public-sector care.

States should instead use the "medically necessary" definition to protect consumers' choice and access to high-quality services, furthering the overall goals of their mental health system. To achieve this, states need to design detailed definitions of medically necessary services.

A wide array of commonly used treatments and rehabilitation approaches is effective for individuals with mental illness—in some circumstances and for certain conditions. Research indicates that no single approach is universally superior, and few treatment approaches can be eliminated as universally ineffective. The most important characteristic of an effective mental health service system is the appropriate matching of services and need, based on individual clinical conditions and circumstances and individual choice. This means that listing benefits alone is not sufficient to produce good outcomes.

The benefit package can provide incentives that will encourage desired patterns of utilization to enhance effective care, such as substituting lower-cost equivalent services. However, a judicious mix of benefit design and individualized decisionmaking is still needed to match individuals and services correctly. Benefits must therefore be flexible, and financial incentives promoting lower-cost services that are equally or even more effective in the long term (such as in-home services, consumer-run services, assertive community treatment and medications) must be balanced by controls on the use of such services by individuals who do not need them. Selecting the right match of services to effectively address the plan member's individualized problems, while respecting the member's preferences, is the purpose of "medically necessary" criteria.

To accomplish this end, this paper suggests a different approach to defining medically necessary services—one more consistent with the law. In place of broad but short stipulations requiring plans to ensure that services adhere to professional standards, are safe and effective and emphasize less costly alternatives (as the typical contract definition does today), states could incorporate more of the essential values and directions they desire from their mental health service system. The section of the contract that deals with when a service is medically necessary should then stipulate:

• the desired goals of services (e.g., to promote recovery);
• the range of services that are to be considered "medically" necessary (e.g., rehabilitation as well as clinical treatment);
• principles for service delivery (e.g., members should be fully engaged in services planning and be given choices); and
• that plans are prohibited from subverting desired goals through arbitrary restrictions on amount, duration and scope of services.

The definition of medically necessary services should also include standards for the process of making these determinations. Further, a system of member appeals should be linked to the definition. Standards for the appeal system can then be set elsewhere in the contract. Some states may also wish to include stipulations of what is not considered to be a medically necessary service (e.g., custodial care). In plans that cover children and adolescents as well as adults, the specific needs of children should be addressed.

This approach incorporates links between the definition of medically necessary services and other contract stipulations. Too often, the medical-necessity definition has little or no connection to other requirements in the final contract. The definition of "medically necessary" must be linked to (or re-state) the state's concepts regarding individual rights, the benefit package, approaches to service delivery, quality of care and mechanisms for appeal. Cross-referencing these items in the medical-necessity definition would greatly enhance the state's ability to enforce the standards in individual cases. The medical-necessity definition is then more grounded in the underlying principles and standards of the contract, and the state ensures that other important provisions of the contract will be considered as a plan reviews whether a particular service is medically necessary

Creating a Definition of "Medically Necessary"

The following material is not intended to be a model definition. Instead, it presents the elements of a definition and provides suggestions, meant to be useful and provocative, for specific clauses in the contract.

What is Medical?

The narrow array of services traditionally offered by managed care plans has led to discussions about changing the term "medically necessary" to some alternative that might suggest a broader range of services. Several new terms have been recommended, such as "clinical necessity," "social necessity" (particularly for child welfare systems) or "bio-psychosocial necessity." Another option is to drop the adjective altogether and cover all "necessary" services.

However, changing the terminology is probably neither required nor advisable. With the wrong definition, any term will fail to protect consumers. The key to ensuring appropriate delivery of care is to have the right criteria. With the right definition, "medical" necessity is preferable because it builds on current Medicaid law that considers a wide array of services to be "medically necessary."

It is important to note that Medicaid itself recognizes a range of services as "medical." Under Medicaid, nonmedical clinical services (i.e., services of psychologists and psychiatric social workers), case management, rehabilitation, personal assistance, speech therapy and occupational therapy are reimbursable. Using the term "medically necessary services" in a Medicaid context therefore does not substantially limit the range of mental health services covered.

Defining Elements of a Definition of "Medically Necessary "

Below is a proposed definition of medically necessary services for inclusion in managed care contracts, based on the approach suggested here. The sections that follow lay out issues to address under each facet of the definition, illustrating the new approach with suggested language. This material is not intended as a "model" definition. Each state definition will need to be crafted individually to reflect the unique aspects of a state's current legal code, goals, consumer, family and advocate aspirations, and the organization of the state's service system.

Definition of Medically Necessary Services

A medically necessary service is a service:

Medically necessary services shall be provided in accordance with paragraph (E), which prohibits arbitrary actions by the contractor to limit services, and through a process that meets the requirements in paragraph (F) and shall be appropriately linked to the grievance and appeal system as required in paragraph (G).

A. Goals of Services

The first question a "medically necessary" definition must answer is: necessary for what end? Services and supports are provided to achieve certain goals, both for the individual and for society. Articulation of these goals in the medical necessity definition will enable the state to clearly articulate the overall objectives of its mental health system and provides the foundation for addressing other critical issues.

Many states have articulated goals in their waiver plans or requests for proposals, and a few include them in their contract language. However, including this language in the contract does not necessarily create a legally binding requirement on the managed care plan. To achieve that goal, the definition should directly reference the goals of services.

Each covered individual (Member) shall be eligible for services, as defined in section ____, provided in sufficient amount, duration and scope to enable Members to function at the highest possible level, given the severity of their disorder, in the least restrictive setting of their choice, and for children under age 21, to progress developmentally as individually appropriate.

Medically necessary services:

(a) are designed to promote recovering and healing, enhance quality of life, promote wellness and improve functioning;
(b) are provided with the goal of ensuring that Members are successful and satisfied in the setting of their choice, with the least amount of ongoing professional intervention;
(c) reflect Member choice and are designed to achieve outcomes desired by the Member;
(d) are offered in the most integrated settings appropriate to the Member's needs;and
(e) for Members under age 21, enable the child to progress developmentally as individually appropriate, designed to enable the child to live at home or in a homelike setting, and address both the needs of the child and the related needs of the family.

B. Purpose of Services

In addition to being directed towards the advancement of members' life goals, services must be designed to accomplish certain objectives. Additionally, the definition of medically necessary services must be explicitly broad and encompass not only clinical treatment but also screening, prevention and rehabilitation. Most state definitions address these issues to some degree and the language below is based on language that appears in several state definitions of "medically necessary."

A medically necessary service shall mean a service identified in Section ____ (Benefit Package), and supplies and technologies furnished by or under the supervision of a physician or other licensed practitioner of the healing arts within the scope of their practice under State law, that are provided consistent with the Member's desires and wishes and in sufficient amount, duration and scope to effectively:

(a) screen and assess the presence of a mental illness condition;
(b) identify and evaluate a mental illness that is suspected;
(c) treat, ameliorate, diminish or stabilize symptoms of mental illness, including impairment in functioning;
(d) alleviate suffering or pain;
(e) prevent, arrest or delay the development or progression of a mental illness and to prevent or delay relapse;
(f) provide rehabilitation to enable the Member to attain or maintain an optimal level of functioning (including functioning in all important areas of life, such as daily activities, social relationships, and independent living);
(g) affirmatively ensure access to and promote appropriate utilization of services (including overcoming barriers caused by inability to obtain transportation).

C. Standards of Service Delivery

In addition to describing the goals and purposes of services, the definition of "medically necessary" should ensure compliance with important services delivery standards. For example, the definition should make clear that medically necessary services must be responsive to members' unique needs, provide choice among possible alternatives, and be furnished in an appropriate manner. Such standards are incorporated into law in many states or reflected in mental health system planning documents.

Medically necessary services must be:

(a) based upon an individualized assessment of the individual's assets, strengths, desires, needs and environmental supports;
(b) furnished in accordance with an individualized services plan, which is based on a comprehensive assessment, developed in partnership with the Member (or in the case of a child, the child to the extent feasible and the child's family) and designed to attain specific outcomes desired by the Member; the services plan shall be monitored, reassessed and revised periodically, based on progress, outcomes and consumer satisfaction; Members shall be given ultimate authority to review and approve the services plan;
(c) services of the Member's choice (or, in the case of a Member child unable to make choices, services of the Member's family's choice). The Member has the right to refuse services consistent with law and such refusal may not be used as grounds to deny other services; the plan may deny services that would be ineffective or for which there is a cost-effective alternative that otherwise satisfies the standards for medically necessary services, as set forth herein and in Sections (A), (B), (D), (E), (F) and (G);
(d) in conformance with any psychiatric advance directive the Member has prepared;
(e) delivered in a timely manner, with an immediate response in emergencies in a location that is convenient and accessible to Members;
(f) responsive to unique needs of linguistic and cultural minorities and furnished in a culturally relevant manner;
(g) responsive to the unique needs of people with mental and physical impairments and furnished with accommodations to their needs, as required under the Americans with Disabilities Act and other applicable law;
(h) provided in the least restrictive appropriate setting; inpatient and residential treatment shall be used only when all less restrictive levels of treatment have been unsuccessful or cannot be safely provided;
(I) provided in the Member's home or home community, except in limited extraordinary circumstances;
(j) designed (when relevant) to prevent the need for involuntary treatment or institutionalization;
(k) provided in a manner that facilitates continuity and coordination of services within a system of care;
(l) furnished so as to include referrals to and coordination with agencies providing other relevant services to the Member, including providers of other health care services, social service providers, education providers, preschool and child care providers and vocational rehabilitation providers;
(m) consistent with national standards of practice, including standards of practice in community psychiatry and psychiatric rehabilitation, as defined by standard clinical references, generally accepted professional practice or empirical professional experience;
(n) consistent with the plan's Quality Assurance standards and procedures, and its placement criteria, in Sections _____ of the contract; and
(o) consistent with the standards for confidentiality in Section ____ of the contract.

D. Additional Standards for Children

Not all managed behavioral health care plans include children. In some states, children's services are left in the traditional state system or provided through a separate managed care plan. Any managed care plan that covers children and adolescents must address several unique issues. This paper highlights children's issues here, but these issues could be addressed by incorporating them in sections (B) and (C) above.

Under Medicaid law, children are entitled to Early and Periodic Screening, Diagnosis and Treatment, which must include access to any federally reimbursable Medicaid service, regardless of whether it has been included in the state plan. Definitions of "medically necessary" must reflect this legal entitlement for children.

Thus, the definition of "medically necessary" must make clear that:

(With respect to the issues under (B) above):

Members under age 21 shall have access to all services reimbursable under Title XIX of the Social Security Act.

For Members under age 21, the Member's individualized services plan shall be coordinated with the child's Individualized Education Program (IEP) or Individualized Family Service Plan (IFSP); the plan shall consider services covered in the child's benefit package to be medically necessary by virtue of their inclusion in the IEP or IFSP.¹⁸

In addition to the purposes identified in Section (B), services are medically necessary if furnished to Members under age 21 for the purpose of :

(i) identifying mental illnesses or conditions, and to identify children at risk of such conditions as a result of the identified specific risk factors cited in Section ____ of the contract;
(ii) ameliorating or correcting a condition identified during a periodic or interperiodic screen; and
(ii) provide anticipatory guidance to parents of children with respect to mental health and emotional development.

(With respect to issues under (C) above):

In addition to the standards of service delivery identified in Section (C), services to Members under age 21 must:

(a) be provided as early as possible in the child's life in order to prevent or identify potential conditions in their early stages;
(b) be provided in accordance with a services plan developed with the participation and approval of the appropriate family member(s). For children with serious emotional disturbance, the plan shall integrate family education and support services, as defined in section ____;
(c) include notification, at least annually, of families or enrollees under the age of 21 of the availability of comprehensive preventive and interperiodic screens on a regular basis, as defined in the Benefit Package in section ____;
(d) emphasize and promote developmental progress of the child, as individually appropriate; and
(e) be delivered in the most natural environment possible, which for Members' under age 21, in addition to home and community settings, shall include child care centers or preschool programs.

E. Arbitrary Limits

Managed care is a delivery mechanism intended to facilitate individualized care decisions. Placing arbitrary caps on mental health services, such as limiting outpatient sessions to 20 or hospital days to 30 per year, is inconsistent with individualization and often results in the denial of necessary care.

On the other hand, in place of caps, many plans use a system of triggers to guard against overutilization of services. The continued need for a particular service is reviewed after a member receives a certain quantity of the service—for example, five days in a crisis facility. In some cases, additional services may be pre-authorized. While it may be appropriate for a plan to use triggers, their use should be carefully monitored to ensure that they do not become de facto pre-set limits on care.

To protect against arbitrary limits states should make clear that:

(a) all services shall be provided in sufficient amount, duration and scope to reasonably achieve their purpose;

(b) services shall not be denied based on pre-set limits on the duration of services; instead, reviews of the continued need for services shall be conducted on an individualized basis; (c) pre-authorization procedures are not de facto limits on duration of services; (d) services may not be denied or reduced in scope based on an individual's diagnosis, type of illness or condition suffered, and (e) services may not be denied pending appeal.

F. Process to Determine When Services Are Medically Necessary

The best definition of "medically necessary" will be of no avail if the managed care entity has established a system for determining necessity that results in inadequate or inappropriate implementation of the criteria.

Managed care plans may use a variety of methods to make determinations of medical necessity. Prior authorization for certain services, concurrent utilization reviews, centralized assessment and referral, gatekeeper screenings, case management and designated provider networks are all methods used by managed care plans to limit access to services. Errors in implementation of any of these mechanisms can deny consumer choice and access to services.

To guard against improper denials, states should establish standards in their contracts with managed care entities for the process by which medical-necessity determinations are made. For example, some managed care contracts require that personnel who make medical-necessity determinations have specific credentials. In addition, some states have enacted relevant statutes, which should be referenced in the contract.

At a minimum, states should include in the contract provisions the process that should be followed.

Medical necessity determinations shall be made in accordance with the following standards:

(a) decisions should initially be made by the Member and the Member's treating provider; however the plan may establish protocols for when further approval is necessary;
(b) when further approval is necessary, decisions shall be made in a timely fashion and the plan shall respond within _____ to pre-authorization requests;
(c) decisions shall be made by appropriately trained mental health professionals with sufficient clinical experience (including experience in treating adults with serious mental illness and children with serious emotional disturbance);
(d) the plan shall document how decisionmakers considered the recommendations regarding medically necessary services from the treating professionals as well as the desires of the Member and document specific reasons for overriding such recommendations and desires;
(e) determinations of medically necessary shall be based on practice guidelines (if the plan uses written practice guidelines), which shall be consistent with the provisions of Sections A-D;
(f) criteria for medically necessary services and any practice guidelines used are distributed to all providers who participate in the plan and, upon request, are available for review by plan Members; plan Members shall receive information describing the method for obtaining access to the criteria and guidelines.¹⁹

G. Link to an Appeal System

Regardless of how well the plan does, there will always be occasions of dispute between the plan and members about decisions on medical necessity. The contract should therefore clearly spell out an appropriate grievance and appeal mechanism, and the contract's definition of "medically necessary" should form the basis for resolving such disputes.

(a) decisions as to whether a particular service, supply or technique is medically necessary shall be subject to appeal by a Member under section ____ (appeal provisions); the definition of medical necessity set forth in ____ shall form the basis for resolving such disputes;
(b) Members may also use the grievance process set out in _____ (grievance process) to complain about medical necessity decisions. The definition of medical necessity set forth in Section ______ shall form the basis for resolving such grievances;

Sanctions

In developing contracts for managed mental health care, states will need to address the issue of what sanctions are applied should the plan fail to comply with the provisions of the contract. Unless specific sanctions apply if a plan violates the requirements of the medical-necessity criteria, the state will have only limited options: to ignore the violations, to pressure the plan to address the violations or to cancel the entire contract. A better approach would be to delineate specific interim sanctions, such as monetary penalties, for failure to follow the medical-necessity criteria appropriately.

Failure of a plan to deliver services according to the above criteria shall be cause for sanctions, as described in Section ____ of the contract.

Conclusion

The material in this document covers a significant range of issues, expanding the concept of medically necessary beyond the definitions in most current state contracts. It is intended to stimulate new thinking about decisionmaking regarding what services will be furnished to an individual under public-sector managed care plans, when and for how long. The elements discussed in sections (A) through (G) above should all be addressed. The language in this document is included as an example, and states may wish to adapt it to reflect their current state mental health policies and definitions or to fit the approach to managed mental health care being taken in the state.

The Center for Mental Health Services and the Bazelon Center for Mental Health Law are interested in receiving feedback on the concepts in this paper, and in assisting consumers, families and advocates in understanding and securing appropriate definitions of when a service will be considered medically necessary for adults with serious mental illness and children with serious emotional disorders.

Prepared by:
   Chris Koyanagi
   Ira Burnim
   Joseph Bevilacqua
   Michael Allen
Judge David L. Bazelon Center for Mental Health Law, March 1997

Notes

1. Throughout this paper reference is made to mental health services; however, these recommendations are equally applicable in concept to addiction services and could be adapted to address both mental health and substance abuse services (behavioral health services) in states that have managed care plans addressing both needs. Return to text.

2. Public managed care arrangements can be set up at the state, local or regional level. For the sake of simplicity, the word "state" is used in this document to represent any government entity contracting for managed behavioral health care. Return to text.

3. Utilization reviews evaluate the necessity and appropriateness and efficiency of services, such as reviewing appropriateness of admissions, services ordered and provided, length of stay on a concurrent or retrospective basis. Prior authorization is the approval a provider must obtain from a payor before furnishing certain services, used particularly for inpatient hospital care. Return to text.

4. Under the U.S. Constitution, individuals have a right to mental health care when they are confined by the government, Youngberg v. Romeo, 457 U.S. 307 (1982), or when the government otherwise plays a dominant role in their lives, Spivey v. Elliott, 41 F.3d 1497 (11th Cir. 1995) ("the question is...the extent the State exercised dominion and control over that individual"). See also Thomas S. v. Flaherty, 902 F.2d 250 (4th Cir.), cert. denied, 498 U.S. 951 (1990); Halderman v. Pennhurst State School and Hospital, 784 F. Supp. 215, 222-23 (E.D. Pa.), aff'd, 977 F. 2d 568 (3d Cir. 1992); McNamara v. Dukakis, 1990 WL 235439 (D.Mass. 1990). State constitutions and statutes may also create entitlements to mental health care. Return to text.

5. 42 U.S.C. §§ 1396d(a)(6), 1396d(a)(11), 1396d(a)(13), 1396d(r)(5). Return to text.

6. 42 C.F.R. § 440.230(d). Return to text.

7. 42 C.F.R. § 440.230(b). Return to text.

8. 42 C.F.R. § 440.230(c)(1). The U.S. Supreme Court has used a similar standard in defining the scope of the constitutional "right to treatment." Youngberg v. Romeo, 457 U.S. 307 (1982). See generally Stefan, Leaving Civil Rights to the "Experts": From Deference to Abdication Under the Professional Judgment Standard, 102 Yale L.J. 639 (1992). Return to text.

9. The term medical necessity is used in other related areas of law. For example, several courts have considered the meaning of "medical necessity" when it appears in private insurance contracts. Return to text.

10. The judicial opinions cited here are binding only within the territory over which the deciding court has jurisdiction. However, these opinions are likely to influence other courts. In deciding a legal issue, courts review how other courts have handled the matter and often defer to the reasoning of the other court's decisions. Thus, the opinions cited in this section can be considered as guidance as states develop their policies for setting standards with regard to when a service is medically necessary. Return to text.

11. 756 F. Supp. 501, 507 (D. Kan. 1990) (internal citations omitted). Return to text.

12. 432 U.S. 438, 444 (1977). Return to text.

13. 886 F.2d 194, 200 (8th Cir. 1989). Return to text.

14. Pinneke v. Preisser, 623 F.2d 546, 550 (8th Cir. 1980). See also S. Rep. No. 404, 89th Cong., 1st Sess., reprinted in 1965 U.S. Code Cong. & Admin. News 1943, 1986, ("the physician is to be the key figure in determining utilization of health services"). Return to text.

15. 42 C.F.R. § 440.230(b). Return to text.

16. Medicaid Managed Mental Health Care: Survey of the States, April 1996, Bazelon Center for Mental Health Law, Washington, D.C. Return to text.

17. 1997 Bazelon Center survey of states, in press. Return to text.

18. Under Medicaid law, Medicaid, not the school system, must pay for covered services furnished to a child, even when these services have been found necessary and included in the child's IEP or IFSP. This language would ensure that the managed care plan assumes Medicaid's financial responsibilities in these circumstances. Return to text.

19. This point may have to be argued, based on state law. Managed care entities will attempt to avoid releasing this information on the basis that it is proprietary. However, in a public program of benefits, all standards and criteria should be open to public scrutiny. Return to text.