How an External Review of a Denied Claim Works

Answer first: it is a second decision by someone who is not the plan

Federal law requires most health plans and insurers to run two layers of review over a denied claim. The first is internal — the plan reconsiders its own decision. The second is external, and the point of it is that the decision-maker is not the plan. The statute, 42 U.S.C. 300gg-19, requires a plan or issuer to either comply with a qualifying state external review process or to implement an effective external review process meeting minimum federal standards.

The implementing regulation, 45 CFR 147.136, spells out what that second layer must look like. The reviewer is an independent review organization, referred to throughout the rule as an IRO. Under the federal process, the plan or issuer must contract with at least three IROs and rotate assignments among them, or use another independent, unbiased selection method such as random selection. The rule also states that the IRO may not be eligible for any financial incentives based on the likelihood that it will support the denial of benefits, and that the IRO process may not impose any costs, including filing fees, on the claimant requesting the review.

The most consequential sentence in the whole structure is a short one. The regulation directs that the assigned IRO "will review the claim de novo and not be bound by any decisions or conclusions reached during the plan's or issuer's internal claims and appeals process." De novo means the question is decided fresh. The plan's reasoning does not carry forward as a finding the reviewer has to defer to.

Not every denial is eligible, and the dividing line is medical judgment

The federal external review process does not reach every disagreement with a plan. The scope paragraph limits it to three categories. The first is an adverse benefit determination that involves medical judgment — the rule's own examples include determinations based on the plan's requirements for medical necessity, appropriateness, health care setting, level of care, or effectiveness of a covered benefit, a determination that a treatment is experimental or investigational, and a determination about entitlement to a reasonable alternative standard for a reward under a wellness program. The second is a determination involving compliance with the surprise billing and cost-sharing protections in certain other sections. The third is a rescission of coverage, whether or not the rescission has any effect on a particular benefit at that time.

The exclusion is stated in the same paragraph and is worth reading closely: a denial, reduction, termination or failure to pay "based on a determination that a participant, beneficiary, or enrollee fails to meet the requirements for eligibility under the terms of a group health plan or health insurance coverage is not eligible for the Federal external review process." An eligibility dispute — whether someone is covered at all — is a different kind of argument from a coverage dispute about a covered person, and this process is built for the second one.

That distinction decides more cases than it looks like it would. Whether a denial is characterized as a medical-necessity call or as an eligibility call determines whether this route is open. The rule adds that whether a determination involves medical judgment is "as determined by the external reviewer" — meaning the reviewer, not the plan, resolves the characterization question.

Two processes exist, and which one applies depends on the plan and the state

Paragraph (c) of the regulation governs state external review processes, and paragraph (d) governs the federal one. They are alternatives, not stages. If a state process applies to and binds an insurer and includes at a minimum the consumer protections in the NAIC Uniform Model Act, the insurer must comply with the state process and is not required to comply with the federal process. Where benefits under a group health plan are provided through insurance in that situation, the plan itself is not required to comply with either.

Self-insured plans sit differently. Where a group health plan provides benefits other than through insurance and is subject to a binding state external review process that is not preempted, it must comply with that state process. Where a self-insured plan is not subject to a state process but the state has chosen to expand access to its process for such plans, the rule says the plan "may choose to comply with either" the state process or the federal one. A plan or issuer not required to use a state process must use the federal one.

The minimum state standards in paragraph (c)(2) are specific enough to compare against. A state process must allow at least four months after receipt of the notice to file. It must provide that IROs are assigned on a random basis or another method assuring independence and impartiality — "and in no event selected by the issuer, plan, or the individual." It must require that the issuer or plan pay the cost of the IRO, though a state process that expressly authorized a nominal filing fee as of November 18, 2015 may continue to permit one; to be nominal the fee must not exceed $25, must be refunded if the determination is reversed, must be waived where payment would impose an undue financial hardship, and the annual limit on filing fees for any claimant within a single plan year must not exceed $75. It may not impose a minimum dollar threshold — the rule says the process "may not impose, for example, a $500 minimum claims threshold."

The federal process runs on a published clock

The federal standard-review timeline in paragraph (d)(2) is a sequence of short, stated intervals. A claimant must be allowed to file a request within four months after the date of receipt of the notice of adverse benefit determination or final internal adverse benefit determination. The rule handles the calendar edge case explicitly: if there is no corresponding date four months out, the request is due by the first day of the fifth month, and if the last filing date falls on a Saturday, Sunday or federal holiday it extends to the next day that is not one of those.

Within five business days of receiving the request, the plan or issuer must complete a preliminary review checking four things: that the claimant was covered at the relevant time, that the determination does not relate to failure to meet eligibility requirements, that the internal appeal process has been exhausted unless exhaustion is not required, and that all information and forms required to process the review have been provided. Within one business day after that review, written notification must go to the claimant. If the request is incomplete, the notice must describe what is needed, and the claimant must be allowed to perfect the request within the four-month filing period or within 48 hours following receipt of the notification, whichever is later.

After assignment, the plan or issuer has five business days to give the IRO the documents and information it considered. The rule states that failure to do so "must not delay the conduct of the external review," and that if the plan or issuer fails to provide them the IRO "may terminate the external review and make a decision to reverse" the determination. The claimant gets at least ten business days from receipt of the IRO's eligibility notice to submit additional information the IRO must consider, and anything submitted must be forwarded to the plan or issuer within one business day. The IRO must provide written notice of the final decision within 45 days after it receives the request.

An expedited track exists for stated circumstances — including where the timeframe for a standard external review would seriously jeopardize the claimant's life or health or jeopardize the ability to regain maximum function, or where the determination concerns an admission, availability of care, continued stay, or item or service for which the claimant received emergency services but has not been discharged. On that track the IRO must give notice "as expeditiously as the claimant's medical condition or circumstances require, but in no event more than 72 hours" after receiving the request, with written confirmation within 48 hours if the notice was not in writing.

What the reviewer must look at, and what the decision does

The rule lists what the IRO considers in reaching a decision, to the extent the material is available and the IRO considers it appropriate: the claimant's medical records; the attending health care professional's recommendation; reports from appropriate health care professionals and other documents submitted by any party; the terms of the plan or coverage, to ensure the decision is not contrary to those terms unless they are inconsistent with applicable law; appropriate practice guidelines, which must include applicable evidence-based standards; and any applicable clinical review criteria developed and used by the plan or issuer, unless inconsistent with the plan terms or with law.

The written decision has a required content list. It must include a general description of the reason for the request, information sufficient to identify the claim, the date the IRO received the assignment and the date of its decision, references to the evidence and documentation considered including specific coverage provisions and evidence-based standards, a discussion of the principal reasons and the rationale, a statement that the determination is binding subject to other available remedies, a statement that judicial review may be available, and contact information for any applicable consumer assistance office or ombudsman. The IRO must keep records of the claims and notices for six years.

On a reversal, the rule is unconditional about what happens next: upon receipt of a final external review decision reversing the determination, "the plan or issuer immediately must provide coverage or payment (including immediately authorizing care or immediately paying benefits) for the claim." The state-standard equivalent adds that benefits must be provided without delay regardless of whether the plan or issuer intends to seek judicial review, unless and until a court decides otherwise. None of this says a reversal will happen. It says what a reversal obliges.

Two provisions that decide cases quietly

The first is deemed exhaustion. External review normally comes after the internal appeal is finished. But the rule states that where a plan or issuer "fails to strictly adhere to all the requirements" of the internal appeals paragraph with respect to a claim, subject to a narrow exception, the claimant is deemed to have exhausted the internal process and may initiate external review — and is also entitled to pursue available remedies under section 502(a) of ERISA or under state law on the basis that a reasonable internal process was not provided. Procedural failures by the plan are not neutral events.

The second is the evidence rule inside the internal appeal, which shapes what the external reviewer eventually sees. Before a plan can issue a final internal adverse determination, it must provide the claimant, free of charge, with any new or additional evidence considered, relied upon or generated in connection with the claim, and with the rationale for any new or additional basis for denial — each far enough in advance that the claimant has a reasonable opportunity to respond. Where evidence arrives too late for that, the period for issuing the final notice is tolled until the claimant has had a reasonable opportunity to respond.

There is also a limit worth stating plainly, because it changes who these paragraphs reach. The section states that its provisions generally do not apply to grandfathered health plans, with the external review requirements applying to grandfathered coverage only for a narrow set of out-of-network emergency, nonparticipating-provider and air ambulance determinations. Whether a specific plan is grandfathered is a fact about that plan, published in its own documents, not something this or any other article can establish.