Tucson Judge Orders Medicare to Improve HMO Notices


As the federal government increasingly turns to “managed care” programs to hold down the cost of Medicare and Medicaid, patients’ rights become a more important issue. Market forces in Health Maintenance Organizations (the principal managed care alternative) regularly place the patient and the health care provider in conflict; while HMOs always have systems to resolve those conflicts, consumer organizations fear that they may not be utilized frequently enough, and that the HMOs may not be required to give patients enough information to be their own advocates for good health care.

A recent case decided in Tucson’s Federal District Court illustrates this inherent conflict. The case involves only Medicare HMOs, so its holding will not directly affect providers under AHCCCS, Arizona’s Medicaid alternative, but the principles may be similar. It may also have a long-term effect on private HMO practices, since most of the Medicare HMOs are also in the business of providing health services through employers and private insurance companies.

Plaintiffs in the Tucson litigation sought a court order requiring Medicare HMOs to change their way of communicating with patients. According to the plaintiffs, when the HMOs denied or terminated coverage for a particular procedure, the notices were illegible, non-specific and inadequate. After reviewing a sampling of the notices, Tucson’s Judge Alfredo Marquez agreed that notices mailed to participants:

  • Were unreadable. Most notices were in tiny type, particularly difficult for elderly clients to read.
  • Were too vague. Almost two-thirds of denial notices failed to describe the reason for denial, instead listing non-specific reasons like “beneficiary no longer receiving ‘skilled nursing care,'” which failed to give patients any real notice of what they would have to prove in order to continue to receive coverage.
  • Failed to tell patients how they could appeal. Medicare law provides for an appeal process, and HMOs must provide information on the process. While the vast majority of denials did describe appeal rights, fewer than 10% provided information about Peer Review Organizations (PROs), one of the mechanisms available for review of HMO decisions.
  • Failed to tell patients they would be personally liable. After the Medicare HMO’s denial, patients are personally liable for care they continue to receive. Fewer than half of the notices explained that fact to patients.

Medicare’s principal defense against the allegations: since HMOs are private entities, they can not be compelled to provide the same kinds of notices required by law for government-run health programs. Judge Marquez dismissed this argument summarily, noting that HMOs perform the role of both health care provider and insurance company; while the former may not be subject to Federal Court review, the latter certainly would be.

Because of the notice shortcomings, Judge Marquez has ordered that notices from Medicare HMOs must:

  • Be timely
  • Be readable (in at least 12-point type)
  • Be written in language understandable enough to permit the recipient to “argue his or her case”
  • Include a description of appeal rights, including information about PROs
  • Inform the patient of the right to a hearing and explain how to secure an informal hearing
  • Provide information to the patient about how to obtain medical records, affidavits from physicians, and other evidence.

Judge Marquez has retained jurisdiction to make sure that the changes he has ordered are implemented. Grijalva, et al., v. Shalala, October 17, 1996.

©2021 Fleming & Curti, PLC