Use and abuse of medical necessity criteria – Health insurers’
denial of the Hepatitis C drug Harvoni. These drugs offer a cure for the
estimated 3.2 million people living in the United States with chronic
Hepatitis C infection.
Published in: Consumer Attorneys Of California January/February 2016
Authored by:
Robert S. Gianelli
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Health insurance policies cover medical services that are “medically
necessary.” Over the years, this term was been expanded to include
a number of criteria used by health insurers to deny expensive but critical
care. The latest example of this practice can be found in health insurers’
restrictions on access to the new cure for Hepatitis C, the drug Harvoni.
Harvoni denied
On December 1, 2015 the United States Senate Finance Committee released
the results of an investigation into the pricing and marketing of
two break-through Hepatitis C drugs, Sovaldi and Harvoni.2 These drugs
offer a cure for the estimated 3.2 million people living in the United
States with chronic Hepatitis C infection. The problem is the price –
$94,500 for a 12-week course of the successor drug Harvoni. The Committee’s
investigation revealed that Harvoni’s owner, Giliad Science Inc.,
set the price of the drug to maximize revenue while ignoring its impact
on the drug’s availability. That a publicly traded drug company
would set a high price on a new drug that can cure millions of afflicted
people is neither illegal nor surprising. It is called a free-market health
care system where, for better or for worse, for-profit companies
seek fortune in a $3 trillion health care economy. What is surprising
is the response of many health insurers. Despite their obligation to cover
Harvoni, many insurers have decided to deny it to all but the sickest
Hepatitis C patients, those with liver fibrosis scores (Metavir) of F3
(severe fibrosis) or F4 (cirrhosis). This is so even though Harvoni is
recommended at all stages of the disease and halts the progression of fibrosis.
In rejecting the requests of those with fibrosis scores below F3, insurers
have relied on a frequently used denial basis – medical necessity.
For instance, as set forth in recently filed lawsuits, Blue Cross of California,
dba Anthem Blue Cross, advises the less-afflicted Hepatitis C patients
that: After careful review of the submitted medical records the determination
is denial as not medically necessary of the requested Harvoni (medication)
.... We cannot approve your request because records show you do not have
advanced scarring in your liver. Blue Shield of California takes a similar
approach but also limits coverage to a competing drug, Viekira Pak,
which has a bigger list of side effects and contraindications. Blue Shield
entered into a deal with Viekira Pak’s manufacturer to buy the drug
at a significant discount. Blue Shield denies coverage for the better
drug, Harvoni, because it “does not meet the medically necessary
diagnosis and step therapy requirements for coverage.”
Expansive “medically necessary” definitions
The Harvoni denials are the latest manifestation of insurers’
use of expansive definitions of “medically necessary” to limit
coverage for expensive but critical care. The term is defined to include
various generalized criteria such as that a service must be “safe
and effective,” “in accordance with generally accepted
medical practice,” and “cost-effective.”
For instance, Blue Shield’s definition of “Medically Necessary”
services provides in relevant part:
1. Services which are medically necessary include only those which
have been established as safe and effective, are furnished under generally
accepted professional standards to treat illness, injury or medical condition,
and which, as determined by Blue Shield, are:
a. consistent with Blue Shield of California medical policy;
b. consistent with the symptoms or diagnosis;
c. not furnished primarily for the convenience of the patient, the
attending Physician or other provider; and
d. furnished at the most appropriate level which can provided safely and
effectively to the patient
2. If there are two or more medically necessary services that may
be provided for the illness, injury or medical condition, Blue Shield
will provide benefits based on the most cost-effective service.
The Blue Cross contracts define “medically necessary”
services as services that are “[i]n accordance with generally accepted
standards of medical practice” which, in turn, is defined as standards
that are “based on credible scientific evidence published in peer
reviewed medical literature generally recognized by the relevant
medical community, national physician specialty society recommendations
and the views of medical practitioners practicing in relevant clinical
areas and any other relevant factors.”
Most health insurers also utilize internal guidelines called “medical
policies” that set forth their criteria for covering certain types
of treatment. As set forth above, insurers like Blue Shield include a
requirement in their medical necessity definitions that any service
must be consistent with their internal medical policies.
The definitions and medical policies introduce a number of criteria that
allow health insurers to make subjective rather than objective assessments
about the covered nature of a given service. Those subjective
assessments, in turn, are influenced by insurers’ financial motives
as evidenced by their positions on Harvoni.
Case law
Three cases from the 1980s address what was then fairly limited policy
language regarding medical necessity. In
Sarchett v. Blue Shield of California (1987) 43 Cal.3d 1, the policy defined medically necessary services as
those that are “reasonably intended, in the exercise of good medical
practice, for the treatment of illness or injury.” The question
was whether the insurer must yield to the treating physician’s
judgment or could decide medical necessity on its own. The trial court
found that the policy was ambiguous because it did not state who would
make the medical necessity determination. The Supreme Court determined
that another provision of the policy relating to the settlement of disputes
unambiguously provided that an impartial review committee subject
to an arbitrator’s review would make medical necessity determinations
and this controlled. (Id., 43 Cal.3d at 10.) The court also rejected an argument that it was against
public policy to deny coverage for services ordered by the treating
physician. Nevertheless, the court instructed that “we believe the
subscriber’s expectations can be best fulfilled not by giving his
physician an unreviewable power to determine coverage, but by construing
the policy language liberally, so that uncertainties about the reasonableness
of treatment will be resolved in favor of coverage.” (Id.) In
McLaughlin v. Connecticut General Life Ins. Co. (N.D. Cal. 1983) 565 F.Supp. 434, the policy required that, to be covered,
services must be “essential for the necessary care and treatment
of the ... sickness.” The insurer argued that the plaintiffs used
a cancer therapy that was not approved by the FDA making it medically
unnecessary. The court found that the sparse medical necessity language
“provides no clear guidance as to when and under what circumstances
the policy will cover experimental and unconventional treatments
like immuno-augmentative therapy.” (Id., 565 F.Supp. at 450.) The court determined that “‘necessary
care’ implies that the care is in some degree beneficial to the
patient.” (Id. at 451.)
Hughes v. Blue Cross of No. Cal. (1989) 215 Cal.App.3d 832 addressed the propriety of a medical necessity
declination in relation to “the medical standards of the community.”
The court determined that “good faith demands a construction of
medical necessity consistent with community medical standards that
will minimize the patient’s uncertainty of coverage in accepting
his physician’s recommended treatment.” (Id., 215 Cal.App.3d at 846.) Since these decisions, medical necessity
policy provisions have been greatly expanded – as can be seen by
the language quoted in the preceding section. No published California
decision has addressed the meaning of such language but any decision will
rely on insurance policy interpretation rules that have been clarified
beginning with
AIU Ins. v. Superior Court (1990) 51 Cal.3d 807. It is well settled that insurance contracts are treated
the same as other contracts. (Bank of the West v. Superior Court (1992) 2 Cal.4th 1254, 1258.) The mutual intention of the parties
at the time of contracting governs interpretation and the mutual
intention, if at all possible, is to be inferred solely from the terms
of the contract. (AIU Ins. v. Superior Court,
supra, 51 Cal.3d at 821-822.) In assessing the “plain meaning” of
the terms, courts are to interpret them in their ordinary and popular
sense, as a layperson would interpret them. (Waller v. Truck Ins. Exchange, Inc. (1995) 11 Cal.4th 1, 18.) Additionally, if policy language is ambiguous
or uncertain, it will be interpreted according to the reasonable expectations
of the insured. If that expectation cannot be ascertained, the language
will be construed in favor the insured. (Bank of the West, supra, 2 Cal.4th at 1264-1265.) There are, however, exceptions to the construction
of plain language in the insurance context. Exclusions considered
unusual or unfair cannot be enforced unless brought to the insured’s
attention and explained. (Haynes v. Farmers (2004) 32 Cal.4th 1198, 1210-1211.) Additionally, if policy language is
clear but would render the coverage illusory, it is construed in a manner
the insured would reasonably expect. (Safeco Ins. Co. of America v. Robert S. (2001) 26 Cal.4th 758, 765-766.) And although policy language may be plain
and clear in isolation, it may be ambiguous when read in context
of the policy as a whole and the circumstances of the case. (MacKinnon v. Truck Ins. Exchange (2003) 31 Cal.4th 635, 652.)
Medical necessity criteria misconstrued and misapplied
Sarchett v. Blue Shield of California, supra, makes clear that insurers are allowed to determine whether a service is
medically necessary. But this determination must be made in an objective
way based upon identifiable and discernable standards. (Sarchett, supra, 43 Cal.3d at 10;
Hughes v. Blue Cross of No. Cal.,
supra, 215 Cal.App.3d at 846.) Unlike exclusions describing a certain type
of treatment (e.g., custodial care or dental care), medical necessity
provisions using over-generalized standards that insurers can interpret
in a subjective fashion do not provide an objective test.
Insurers’ decisions to limit Harvoni under the guise of medical
necessity provide a case in point. While insurers have denied Harvoni
to patients with liver fibrosis scores below F3 on the basis that the
drug is “not medically necessary” for them, the letters to
the insureds do not explain why that is the case. Industry documents indicate
that insurers have relied on a set of guidelines published by the American
Association for the Study of Liver Diseases and the Infectious Diseases
Society of America. While those guidelines do reference the prioritization
of new Hepatitis C drugs for patients with F3 and F4 stage fibrosis, they
do so relative to when “resources limit the ability to treat
all infected persons immediately as recommended ....”3 Absent this
limitation, the guidelines state that the drugs are “best administered
in the early course of the disease before fibrosis progression and the
development of complications ....” 4
Harvoni has been available and its cost does not threaten the solvency
of any insurer. The end result is that Blue Cross, Blue Shield and other
insurers have limited coverage for Harvoni based upon profit concerns,
not on some lack of consensus of medical opinion regarding its beneficial
use for millions of Hepatitis C patients. This is not a proper medical
necessity denial basis. (Hughes v. Blue Cross of No. Cal.,
supra, 215 Cal.App.3d at 846.)
Even if there was some credibility to the position that Harvoni should
not be provided to the less afflicted, there is no reasonable method for
an insured to assess that from the policy language. For example,
Blue Cross’s medical necessity provision references a generally
accepted medical practice standard that is further defined as based
upon “credible” peer reviewed articles that are themselves
“generally recognized” by the “relevant” medical
community, specialty societies, etc. This language creates various levels
of uncertainty requiring that it be construed in accordance with
the insured’s reasonable expectations and, ultimately, a finding
of coverage. “[U]ncertainties about the reasonableness of treatment
will be resolved in favor of coverage.” (Sarchett v. Blue Shield of California,
supra, 43 Cal.3d at 10.)
Insurers have limited coverage for Harvoni based upon profit concerns,
not on some lack of consensus of medical opinion regarding its beneficial
use for millions of Hepatitis C patients. This is not a proper medical
necessity denial basis.
There is also a substantial argument that the subjectivity infused in the
medical necessity determination triggers one or more of the plain language
exceptions. Allowing an insurer with a financial interest to pick
and choose self-serving medical articles would support a denial in almost
any circumstance rendering the language illusory. (Safeco Ins. Co. of America v. Robert S., supra, 26 Cal.4th at 765-766 [interpretation of illegal acts exclusion as applying
to the violation of any law, not just criminal laws, could be used to
negate coverage in almost any circumstance].)
And policy language that includes the insurer’s internal medical
policies as a separate medical necessity criterion is itself vague and
ambiguous. The medical policy is not disclosed and its content is, nevertheless,
the product of a subjective and biased determination. (Potter v. Blue Cross Blue Shield of Michigan 2013 WL 4413310 (E.D. Mich. March 30, 2013) [finding medical policy “internally
inconsistent, ambiguous, and most fatally, not supported by the evidence
in the record.”].)Blue Shield’s additional “medically
necessary” requirement that Hepatitis C patients use an alternative
drug because it is more cost-effective for Blue Shield raises another
troubling issue. The alternative drug, Viekira Pak, carries substantially
more side effects and contraindications than Harvoni. Indeed, on October
22, 2015, the FDA warned that Viekira Pak “can cause serious liver
injury mostly in patients with underlying advanced liver disease.... [W]e
are requiring the manufacturer to add new information about this safety
risk to the drug labels.”5 Because Blue Shield already limits treatment
to patients with F3 or F4 liver fibrosis scores, Viekira Pak may present
them with higher risks.Medical necessity determinations should not disadvantage
insureds by forcing them to face higher medical risks. If a treating physician
recommends Harvoni as the best drug for a patient, the insurer should
not be allowed to elevate its financial interests over the insured’s
interest to be protected from risk of side effects, further doctor visits,
etc. The insurer is duty bound to “give at least as much consideration
to the welfare of its insured as it gives to its own interests. (Egan v. Mutual of Omaha Ins. Co. (1979) 24 Cal.3d 809, 818.) n
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1 Commercial health coverage is provided in California by both insurance
companies regulated by the Department of Insurance and by health care
service plans regulated by the Department of Managed Health Care. For
simplicity, this article refers to the providing companies as “insurers”
and their products as “policies.”
2
The Price of Sovaldi and Its Impact on the U.S. Health Care System, United States Senate Finance Committee, Dec. 2015.
3
Hepatitis C Guidance: AASLD-IDA Recommendations for Testing, Managing,
and Treating Adults Infected With Hepatitis C Virus, Hepatology, Vol. 62, No. 3, 2015, p. 935.
4
Id.
5 FDA Safety Announcement dated Oct. 22, 2015.