Analysis of insurance payment denials using the prudent layperson standard

REIMBURSEMENT/BRIEF REPORT

Analysis of Insurance Payment Denials Using the Prudent Layperson Standard

From the Department of Emergency Medicine, University of North Carolina at Chapel Hill, Chapel Hill, NC.

Judith E. Tintinalli, MD, MS

Received for publication October 1, 1999. Accepted for publication November 29, 1999. Presented at the Society for Academic Emergency Medicine annual meeting, Boston, MA, May 1999. Reprints not available from the author. Address for correspondence: Judith E. Tintinalli, MD, MS, Department of Emergency Medicine, CB 7594, University of North Carolina, Chapel Hill, NC 27599-7594; E-mail [email protected]. Copyright © 2000 by the American College of Emergency Physicians. 0196-0644/2000/$12.00 + 0 47/1/104864 doi:10.1067/mem.2000.104864

See related articles, p. 267, p. 272, p. 277, p. 283, and p. 287. Study objectives: To review a sample of emergency department payment denials characterized as “not a medical emergency” and to determine medical necessity for each visit using an arbitrary “prudent layperson” standard. Methods: This study was conducted at a university hospital and was an analysis of a convenience sample of ED payment denials classified as “not a medical emergency” by 2 managed care providers. Each corresponding visit was analyzed if the bill was still outstanding in September 1998. ED records were analyzed for chief complaint and risk factors for morbidity. Any minor disorder lasting 1 day or more and with normal vital signs recorded was considered to not meet the prudent layperson standard of an emergency. Visits for minor trauma that occurred the same day that also required radiographs or suturing were considered emergencies. Results: Two hundred ED visits were retrospectively reviewed. Payer 1 denied 44 visits, of which 38 (86%) met the prudent layperson standard; payer 2 denied 156 visits, of which 113 (62%) met the standard (P>.05). Conclusion: A large proportion of ED visits for which payment is denied as “not a medical emergency” may meet the prudent layperson definition of an emergency. [Tintinalli JE. Analysis of insurance payment denials using the prudent layperson standard. Ann Emerg Med. March 2000;35:291-294.]

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INTRODUCTION

In 1997, the federal government, under the Balanced Budget Act, legislated that the Medicaid and Medicare programs must reimburse providers for emergency care that a reasonable person would consider necessary. Since that time, many states individually adopted the concept, which is now generally referred to as “prudent layperson” standard legislation. In North Carolina, 2 statutes enacting the prudent layperson standard were approved September 3, 1997,1 and September 17, 1997,2 and both became effective January 1, 1998. We reviewed a sample of emergency department payment denials characterized as “not a medical emergency” to determine the proportion that met an arbitrary prudent layperson standard definition. M AT E R I A L S A N D M E T H O D S

A convenience sample of ED payment denials classified as “not a medical emergency” by 2 managed care providers was analyzed. These 2 providers were selected because they had the largest proportion of such denials. All encounters classified as still outstanding in September 1998 were selected for review. In our institution, most billing encounters are closed within 6 months, which allows for 1 resubmission cycle. All chart material, including computerized and free-text information, was analyzed by a single experienced emergency physician, using content analysis. Comorbid conditions and mechanism of injury were analyzed because these factors could increase the potential for clinical deterioration or complications from an even minor illness or injury. Visits for minor trauma that occurred the same day and that also required radiographs or suturing were defined as meeting the prudent layperson standard for purposes of this study. Any minor disorder lasting 24 hours or more and with

normal vital signs recorded at triage was considered to not meet the prudent layperson standard. Both managed care providers refused to provide explicit criteria or International Classification of Diseases (ICD) codes that they used to define the prudent layperson standard, stating it was private corporate information. This study was considered exempt by the institutional review board. R E S U LT S

Two hundred ED visits were retrospectively reviewed (Table). A large proportion of ED visits for which payment was denied as “not a medical emergency” met an arbitrary prudent layperson standard definition. Payer 1 denied 44 visits, of which 38 (86%) met the prudent layperson standard; payer 2 denied 156 visits, of which 113 (62%) met the standard (P>.05). For payer 1, these denials represented 8.6% of all ED visits during the study period by patients so insured; for payer 2, denials represented 34% of all ED visits during the study period by patients so insured. Payer 1 eventually paid 42 cases submitted as meeting the prudent layperson standard. Payer 2 initially refused to review our records, stating the hospital and physician had no contractual right to intervene on behalf of the patient. Effective March 1999, payer 2 paid all claims meeting our definition of the prudent layperson standard and stated they adjusted their prudent layperson standard guidelines in favor of emergency care. For the quarter April to June 1999, they rejected only 4 encounters as “not a medical emergency.” DISCUSSION

The passage of federal and state prudent layperson standard statutes could be one of the most important legislative actions to provide proper reimbursement for insured

Table.

Descriptive statistics for payers of “medical emergency” ED visits for July through September 1998.*

Payer 1 2 *Thirteen

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Proportion of Managed Care (%)

Payer Collection Rate (%)

Proportion of Payer Denials Classified as “Not a Medical Emergency” (%)

No. of Denials Outstanding September 1998

Denials Meeting Arbitrary Layperson Standard (%)

20 17

57 41

13 45

44 156

86 62

percent of all ED visits were managed care in the study period.

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individuals who need emergency care. However, passage of legislation does not ensure compliance,3,4 and organizations that wish to be in compliance most certainly face operational challenges in identifying encounters that meet the prudent layperson standard. Consensus is needed to operationalize the definition of the prudent layperson standard.5 Research is needed to expand ICD coding systems to include variables such as triage severity, chief complaint, comorbidities, and mechanism of injury to enable accurate computerized classification of encounters that meet the prudent layperson standard. There are no explicit or consensus definitions of the prudent layperson standard currently available or operational. The definitions used in this study were arbitrary, and could either underclassify or overclassify conditions by the prudent layperson standard. Minor conditions lasting 24 hours or more were considered to be reasonable exclusions because a personal physician could be contacted within that time frame. Despite the effective date of the prudent layperson standard in North Carolina of January 1, 1998, payer 2 stated verbally it would recognize the prudent layperson standard only for those policies that were renewed after February 1, 1998, and that compliance with the prudent layperson standard would only be effective at the renewal date. In defense of the insurance organization, it does take time to implement reimbursement changes. This study, conducted about 6 months after the adoption of the prudent layperson standard in North Carolina, may not have allowed enough time for a reasonable response by the 2 payers. It should be further noted that the 2 payers eventually paid most of the claims that met our definition of the prudent layperson standard. It will be difficult to determine whether compliance in the future is related to the prudent layperson standard legislation, consumer pressure, physician pressure, or improvement in classification systems and expanded chart review by insurance organizations. It does not appear to be constructive for any party for an insurance organization to prohibit dissemination and communication of the criteria it develops to define a reimbursement threshold using the prudent layperson standard. Some of the comments contained herein were unfortunately the result of undocumentable personal communications with representatives of the 2 managed care organizations studied. Their opinions may or may not have been congruent with organizational policies. It is preferable to have documented policies and procedures available for review and comment, and regrettably, these were considered confidential by the 2 payers.

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This study included some elements of selection bias that could affect our results. Cases were selected for analysis by the university billing service. No attempt was made to reconfirm that the bill was still outstanding, nor to confirm that all outstanding bills were identified. We did not determine whether bills that had been already paid were paid by the patient or the payer. In summary, after the enactment of prudent layperson standard legislation in North Carolina, 2 payers denied 8.6% and 34% of ED visits, respectively, as “not a medical emergency.” Of these denials, 86% and 62%, respectively, met an arbitrary definition of the prudent layperson standard. REFERENCES 1. Coverage Required for Emergency Care. Senate Bill 455, NC ST 58-3-190. General Assembly of North Carolina, 1997 session. 2. Managed Care Reporting and Requirements. Senate Bill 932, NC ST 58-3-191. General Assembly of North Carolina, 1997 session. 3. HCFA checking emergency room provider complaints over ‘prudent layperson’ ignorance by health plans, states.’ News and Strategies for Managed Medicare and Medicaid. Washington, DC: Atlantic Information Services Aug 23, 1999:5(30);708. Available at: http://www.aispub.com. 4. Page J. Carolina ACCESS dialogue: has it been resuscitated?’ EPIC North Carolina College of Emergency Physicians. Summer 1995:5. 5. Buesching DP, Jablonski A, Vesta E, et al. Inappropriate emergency department visits. Ann Emerg Med. 1985;14:672-676.

EDITOR’S NOTES

As of this writing, the prudent layperson standard has been adopted for Medicare and Medicaid programs and by more than half the states. Although the emergency medicine community can certainly take pride in its advocacy efforts for these legislative accomplishments, the data in this study illustrate the importance of ongoing implementation challenges. Implementation delays and disputes over the operational definition of the prudent layperson standard are 2 specific challenges highlighted by the study. Payer 2 applied the legislative change only to policy renewals after the implementation date, effectively delaying use of the prudent layperson standard for up to a year. This disagreement has occurred in other states and should be monitored as more states adopt the prudent layperson standard. The most effective method of addressing the problem is to specify in the legislation that all existing plans are included under the new statute as a “grandfather clause.” For states that pass the prudent layperson standard, attention should shift to the regulatory agencies responsible for implementing the legislation. These data provide a useful example of the problem and should be used in

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other states to clarify legislative intent and avoid similar implementation delays. The major limitation of the study, as addressed by the author, is the arbitrary definition of the prudent layperson standard. Although the definition of conditions that do not meet the prudent layperson standard appears intuitively reasonable, it is important to emphasize once again that we do not have a clinical definition of the prudent layperson standard, nor do we have a body of case law to formulate a legal definition. Until we gain greater experience with the prudent layperson standard, disputes over payment may be common. The positive response of the payers in this study after resubmission of claims is encouraging; however, it is not clear whether this response was related to adoption of the prudent layperson standard or simply part of the increasingly common cycle of submissions and denials that are a hallmark of health care financing in an era of cost containment. The traditional approach to defining emergency medical conditions has been a retrospective analysis by payers using the final diagnosis to guide decisions. One of the strengths of the prudent layperson standard is its prospective emphasis on the layperson’s interpretation of symptoms. If we want to have a better informed definition of the prudent layperson standard, we need a greater understanding of how lay people define an emergency medical condition. Although we are not likely to find a common layperson definition for emergencies, it seems logical and important to incorporate the opinions of lay people in our working definition of the prudent layperson standard. Brent R. Asplin, MD, MPH

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