Summary of Section One  HEALTH PLAN STANDARDS, LICENSING PROCEDURES  and ENFORCEMENT MECHANISMS

Background - Health plan market entry is an appropriate starting point for discussion of state regulation and quality oversight of the managed care industry. The McCarran-Ferguson Act gives states the primary responsibility to regulate the insurance industry. A managed care plan must be licensed by a state in order to conduct business in the private commercial marketplace.

The licensing process is typically conducted by a state insurance commissioner and is based on the establishment of health plan standards that must be met as a condition of market entry. Plan standards typically cover a wide spectrum of plan activities, from fiscal solvency requirements to provider network adequacy to marketing practices. The National Association of Insurance Commissioners (NAIC) is influential in this process by recommending model plan licensing standards for states to adopt.

The Health Care Financing Administration (part of the Department of Health and Human Services) also approves participation by HMOs for the Medicare and Medicaid programs using "conditions of participation" that look very similar to licensing standards established by states.

In recent years, large employers have moved beyond the state licensing process by demanding that any HMOs under contract for the provision of health services to their employees be privately accredited by independent entities, such as the National Committee on Quality Assurance (NCQA). Accreditation standards are similar and may exceed the licensing standards established by states.

The state procedure for licensing a plan usually entails review of a plan's written license application and typically an onsite evaluation of a plan's operation. States renew plan licenses on a periodic basis and major changes in a plan's operations must be approved. State licensing is self-supporting through the assessment of licensing fees on health plans. State licensing enforcement mechanisms typically include the ability to curtail or stop plan enrollment, assess financial penalties, and suspend or revoke a plan license. The gravity of enforcement mechanisms vary by state.

Concerns with the quality of care provided by managed care plans have led many state's to enact legislation establishing plan standards. Prohibitions on gag rules and permitting mothers the choice of 48 hour maternity stays in hospitals are two well-publicized examples of legislative activity at the state and federal level.

Conclusion - The establishment of consumer-oriented health plan standards, licensing procedures, and enforcing those standards is an important first step in assuring quality health care in the managed care setting. The scope is limited, however, because the process attempts to measure and influence a plan's internal capacity to deliver quality health care services. It does not measure patient care treatments and outcomes, and it does not create external consumer protection and quality monitoring and improvement programs.

Model Legislation Highlights

Standards must include: 24 hour access to emergency services based on a "prudent layperson's" definition of emergency services; an enrollee's right to choose a primary care physician from the plan's network; the designation of OB-GYNs as primary care physicians; standing referrals to specialty physicians if medical conditions warrant; full disclosure and limitations on physician payment incentive contracts; elimination of gag rules that prohibit physicians from discussing treatment options with patients; anti-discrimination requirements prohibiting plans from avoiding high risk populations by excluding health care professionals with a patient base of high risk individuals or by excluding health care professionals located in geographic areas with high health service utilization.

Standards for plan and facility staffing and service quality.

In some areas, the model legislation does not prescribe specific health plan standards but requires states to do so based on local conditions. These areas include: primary care and specialty physician to enrollee ratios in a plan; staff to patient ratios for health care institutions and a requirement that plans only contract with institutional providers that comply with state mandated staffing standards; proximity of participating providers to enrollees; timely physician appointments; and waiting times.

Standards for quality assurance and improvement. Plans must organize an internal quality system that: addresses overuse, underuse and poor technical quality; focuses on process and outcome; monitors quality for all covered services, including services for vulnerable populations; corrects poor practice and performance; employs case review and population-based evaluation methods; employs scientifically rigorous practice guidelines and quality benchmarks; documents quality improvements; involves providers and patients in the improvement process; provides practitioners with information to improve performance. Managed care plans must have an organizational structure for quality assurance and improvement led by a senior medical officer or director, with nursing quality assurance programs coordinated by a registered nurse. Ultimate plan responsibility and accountability for quality assurance and improvement, however, rests with the health plan through the governing board structure. A plan's internal system must be supported by a patient encounter and clinical data base and plan's must comply with any data reporting requirements established by the state Managed care information Council (see chapter two - Managed Care Information System and Consumer Guide for Health Plan Selection). A plan must also cooperate with the state-sponsored Quality Improvement Foundation (QIF) (see chapter four - Independent Quality Monitoring and Improvement Program).

Standards for utilization review.

Plan's must have a utilization review program that requires utilization review criteria to be clinically based, updated on a periodic basis, developed with participating providers, available to participating providers and all enrollees. Utilization review decisions must be made on a timely basis by licensed and practicing physicians and must be appealable by enrollees and the enrollee's primary physician. A health plan's preservice denials and the reduction or termination of medical services require expedited appeals if the care in question is deemed urgent by the enrollee (see also chapter three - Independent Complaint and Appeals System).

Standards for enrollee information and rights.

Information that enrollees are entitled to receive directly from their health plan includes: a description of plan benefits, services and copayments; an explanation of the plan's complaint and appeals system including the right to appeal beyond the health plan; a detailed description of a plan's network of participating providers including comparative information on the credentials and qualifications of physicians in participating networks and the results of patient care assessments patient satisfaction surveys; an explanation of the enrollee's right to choose a primary care physician; and a description of rules governing an enrollee's access to specialists and out of network physicians. Plan information available to an enrollee upon request is also described.

Standards for health provider and health professional credentialing.

Plans must verify the qualifications of health providers and professionals participating in a plan's networks. Plans are also required to establish and make available criteria, for the evaluation of health provider and professional performance. Under no circumstances may a health professional's contract with a plan be terminated because of the utilization of services caused by high risk patients.

Standards for health plan governance and operations.

Require enrollee and employee participation on the governing boards of health plans licensed in a state. Enrollees must constitute 1/3 and employees 1/6 of a plan's governing board. Plan enrollees elect the enrollee representatives to sit on boards. Plans are also required to establish consumer advisory committees of the plan to solicit input and recommendations on plan policies, procedures, and operations.

Standards for the marketing practices of managed care plans.

Independent insurance agents acting as brokers and the marketing personnel of a plan must be state licensed by completing a specified training program and passing a comprehensive examination. All plans must have marketing plans and materials reviewed and approved by the state. Gifts or payments as an inducement for enrollment are strictly prohibited. Marketing materials must alert consumers of enrollee copayment requirements, uncovered expenses, and must clearly state all the rights of plan members. If enrollment is discussed between the health plan and a potential enrollee in a language other than English, then the health plan must supply the potential enrollee with a written translation of the enrollee contract in that language.

State health plan licensing procedures.

The legislation prescribes the information that must be included in a plan's application for license, including bylaws, audited financial statements, marketing and network adequacy plans. It requires plans to file with the state any substantial change in plan operations. It establishes state licensing renewal procedures on a biennial basis. It permits states to contract with private accrediting bodies to satisfy some or all of state licensing requirements but only if accreditation standards meet or exceed plan standards established by the state. Under no circumstances, may a state delegate its final licensing and enforcement authority. States are permitted to assess licensing fees on plans in amounts that fully support the administration and operation of the state licensing program.

Enforcement mechanisms.

Enforcement mechanisms are stipulated that grant states the authority to impose penalties and restrictions on plans that fail to comply in part, or in whole, with licensing requirements. Enforcement mechanisms include: administrative orders requiring plans to cease services or enrollment; civil monetary penalties for each violation, with the amount determined by the State; suspension or revocation of a health plan's license; and imposition of criminal sanctions.

Consumer Coalition for Quality Health Care

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