External Review of Coverage Denials by Managed Care Organizations in California

External review programs have been adopted in nearly every state to give managed care enrollees the opportunity to have certain denials of health insurance coverage reviewed by physicians who are unaffiliated with their health plan. This study explores in depth a sample of cases adjudicated in California's external review program. We abstracted information from hardcopy files of several hundred cases adjudicated during 2001–2002. We describe the specific services involved in external review and the outcomes of review, analyzing the roots of disagreement in cases in which the health plan's coverage denial was overturned. We find that a subset of overturns illuminate tension in the relationship between the external review program's adjudication rules and the terms of the health insurance agreements that exist between plans and enrollees. Two critical questions face designers of external review programs: (1) What deference will be paid to specific coverage exclusions in the insurance contract between plans and enrollees? and (2) How should external review handle cases that blend medical necessity and contractual issues?