The Patient Protection and Affordable Care Act[1] made a number of significant changes to health insurance coverage in the U.S. One of the most important provisions of the law, which is also known as Obamacare, was a requirement that patients whose benefits are denied are entitled to independent external review.

The implementing regulation[2] requires that such reviews be granted on request for health insurance denials involving medical judgment, determinations that the requested service is experimental or investigational, or involving cancellation of coverage based on allegations that the insured gave false information in the application for benefits.[3] The outcome of the review is binding on the insurer, although the insured remains free to challenge a denial in court.[4]

While in theory, external reviews protect patients against arbitrary claim denials, in practice, there is growing reason to suspect that the independent review organizations have become the victim of regulatory capture.[5]

A recent opinion issued by the U.S. District Court for the Northern District of California in the case of Andrew C. v. Oracle America Inc. Flexible Benefit Plan,[6] is illustrative. In that ruling, the court entered judgment in favor of the plaintiff and against United Healthcare Insurance Co. — the health insurer for the Oracle health benefit plan — in relation to a claim for residential behavioral health treatment at Change Academy Lake of the Ozarks. UnitedHealth denied all but the first 30 days of treatment, which lasted a little over one year.

The case involved an adolescent adoptee who had severe psychiatric and developmental problems dating back to early childhood. Angry and violent outbursts worsened after Andrew entered adolescence; and following a physical altercation with his father that left Andrew with a broken hand and his father with a broken nose and eye socket, Andrew was placed in juvenile detention until he was remanded to Change Academy as a term of his probation.

On admission to the academy, Andrew was diagnosed with oppositional defiant disorder, reactive attachment disorder, attention deficit hyperactivity disorder, dyslexia and dysgraphia. A detailed treatment plan was developed; and the records from Change Academy showed that Andrew gradually improved despite being initially resistant to participating in treatment.

UnitedHealth applied its internally developed Optum Level of Care Guidelines and the Optum Coverage Determination Guideline for Treatment of Oppositional Defiant Disorder as the basis for denying coverage. After undergoing an unsuccessful internal review with United, Andrew’s parents sought independent external review.

However, the reviewer applied UnitedHealth’s guidelines and upheld the determination, finding that 24-hour care was not medically necessary. Due to a procedural error, a second review was conducted, but that reviewer also concurred with UnitedHealth’s determination.

The plaintiff challenged the propriety of the insurer’s use of the Optum guidelines, citing several rulings that found the guidelines inconsistent with generally accepted standards of care.[7] UnitedHealth objected; however, the court determined that it did not have to assess whether the guidelines represented the consensus of medical opinion.

Instead, the court ruled the guidelines were misapplied. The court specifically pointed out that the guideline specific to oppositional defiant disorder approves residential treatment for patients “who do not require 24-hour nursing care and monitoring offered in an acute inpatient setting but who do require 24-hour structure.”

The court determined the preponderance of the evidence established

that Andrew experienced a disturbance in his mood, affect, or cognition which resulted in aggressive, impulsive behavior that could not be managed safely at home, and that he required the structure of a residential treatment center to engage in therapeutic interventions to treat this disturbance.

The evidence showed that Andrew’s uncontrollable behavior “made the dynamic at home unsafe” and also established that Andrew needed residential care in order to gain self-control so that he could safely return home. The court ultimately found that residential treatment was medically necessary in order for Andrew “to reduce his reactivity and develop the tools to manage his rage in a healthier way.”

In addition to sharply criticizing UnitedHealth’s in-house medical directors’ opinions, the court found that both external reviewers “quite obviously ignored or disregarded parts of the [Change Academy] records.” The court was critical of the first reviewer because he “equated a ‘safe, structured environment for treatment’ with custodial care, although that description applies precisely to residential treatment as defined in the [oppositional defiant disorder] Guideline.”

The second external reviewer was faulted due to his failure to explain, in view of Andrew’s history, how “a less structured program would provide treatment that was at least as safe and effective as a residential treatment program.”

The court’s findings with respect to the independent reviewers were not unique to this case.

For example, in Dominic W. v. Northern Trust Company Employee Welfare Benefit Plan,[8] which addressed circumstances very similar to the Andrew C. case, the U.S. District Court for the Northern District of Illinois observed in 2019 that the independent external reviewer who was retained through an outside vendor, MCMC LLC, first concluded that residential treatment was excluded by the plan, which the defendant acknowledged was erroneous. The reviewer then submitted a second report, which the court rejected as perfunctory and conclusory.

In another case from 2018, Wiwel v. IBM Medical & Dental Benefit Plans for Regular Full-Time & Part-Time Employees,[9] the U.S. District Court for the Eastern District of North Carolina said the following about the report from an independent reviewer in 2018:

The [independent peer review organization] report does not set forth reasons to conclude that [the plaintiff’s] improved behavior would persist should she be discharged from La Europa, nor does the report explain what medical evidence was found determinative or why.

And another MCMC reviewer’s opinion was rejected by the U.S. District Court for the Western District of Washington in 2019 in a different case, Todd R. v. Premera Blue Cross Blue Shield of Alaska,[10] because it failed to address why the reviewer reached a conclusion different from the treating doctor’s opinion and because references to gains made in treatment were deemed inadequate since the patient had not yet achieved sufficient stability to be discharged without concern about an immediate relapse if treatment were terminated prematurely.

Other courts have expressed the same concerns. For example, earlier this year, in Michael P. v. Blue Cross & Blue Shield of Texas,[11] an external reviewer’s opinion that a patient’s active suicidal ideation was under control was rejected by the U.S. District Court for the Western District of Louisiana because the evidence pointed to the opposite conclusion. The court also determined that the reviewer’s allowance of an additional five days of coverage was inadequate because “neither he nor the record provides adequate justification for cutting off coverage so far short of the recommended treatment.”

Finally, in Bain v. Oxford Health Insurance Inc.,[12] a so-called independent review was rejected by the U.S. District Court for the Northern District of California earlier this year because it appeared to be reviewing the insurer’s decision for reasonableness rather than performing a de novo assessment. The court also found the review unpersuasive.

Obviously, this small sample is anecdotal and is likely unrepresentative of the vast number of claims that undergo independent external review. Nonetheless, the repetition of the same line of criticism of external reviewers is disturbing and raises questions about reviewer independence.

So what is the solution? For starters, the physicians who perform independent external review should be barred from also performing reviews for insurance companies.

When the same reviewer is conducting an internal review for an insurance company on one day and performing an external review the next, that physician’s independence is called into question. As the U.S. District Court for the Northern District of Indiana noted in Maiden v. Aetna Life Insurance Co. in 2016, regarding two physicians who were frequently retained to perform independent reviews for a disability insurer:

Aetna provided Maiden’s file to two “independent” consultants. I put quotations marks around the word “independent” because one might reasonably wonder just how independent the reviewers — Dr. Malcolm McPhee and Dr. Leonard Schnur — really are. Their bread has been buttered by Aetna before; each of them has been hired by Aetna multiple times to conduct these kinds of disability reviews.[13]

Second, it would also be helpful to blind the reviewers so that the names of the patients, the treating doctors, treatment facilities and the insurance companies or benefit plan administrators are not disclosed. Giving reviewers access to such information inherently allows bias to creep into the review.

Independent review of health insurance claims is both advantageous and desirable — when life or death decisions about health care are being made, often at tremendous cost to insurers, being certain that the right decision has been made is of critical importance.

The question of who will guard the guardians,[14] though, has been troubling society since the advent of government and the appointment of judges who are expected to perform their duties without bias or prejudice. Independent reviews of insurance claims are no different and deserve close scrutiny when bias appears to infect health insurance reimbursement.

Mark DeBofsky is a shareholder at DeBofsky Law.

This article was originally published in Law 360, August 14, 2020.

Disclosure: DeBofsky Sherman represented the plaintiff in Dominic W. v. Northern Trust Company.

The opinions expressed are those of the author(s) and do not necessarily reflect the views of the firm, its clients, or Portfolio Media Inc., or any of its or their respective affiliates. This article is for general information purposes and is not intended to be and should not be taken as legal advice.

[1] Public Law 111-148, 124 Stat. 119 (2010).

[2] 45 C.F.R. § 147.136.

[3] See, “External Review” at

[4] Id.

[5] See, “regulatory capture” at

[6] 2020 U.S. Dist. LEXIS 132720, 2020 WL 4284839 (N.D. Cal. July 27, 2020).

[7] Wit v. United Behavioral Health , No. 14- CV-02346-JCS, 2019 U.S. Dist. LEXIS 35205, 2019 WL 1033730 (N.D. Cal. Mar. 5, 2019); see also S.B. v. Oxford Health Ins., Inc. , 419 F.Supp.3d 344 (D. Conn. 2019); Bain v. Oxford Health Ins. Inc. , No. 15-CV-03305-EMC, 2020 U.S. Dist. LEXIS 51567, 2020 WL 808236, at *10 (N.D. Cal. Feb. 14, 2020); L.B. ex rel. Brock v. United Behavioral Health Wells Fargo & Co. Health Plan , 47 F.Supp.3d 349, 360 (W.D.N.C. 2014) (court found denial of benefits unreasonable, noting “unprincipled and unreasonable claims review by UBH in applying these [Optum] Guidelines does not appear to be isolated,” citing Pacific Shores Hosp. v. United Behavioral Health , 764 F.3d 1030 (9th Cir.2014)).

[8] 392 F.Supp.3d 907 (N.D. Ill. 2019).

[9] No. 5:15-CV-504-FL, 2018 U.S. Dist. LEXIS 526988, 2018 WL 526988, at *2 (E.D.N.C. Jan. 18, 2018).

[10] No. C17-1041JLR, 2019 U.S. Dist. LEXIS 14914, 2019 WL 366225, at *16 (W.D. Wash. Jan. 30, 2019), reconsideration denied, No. C17-1041JLR, 2019 WL 1923034 (W.D. Wash. Apr. 30, 2019).

[11] No. 2:17-CV-00764, 2020 U.S. Dist. LEXIS 81809, 2020 WL 2309584, at *9 (W.D. La. May 8, 2020).

[12] No. 15-CV-03305-EMC, 2020 U.S. Dist. LEXIS 51567, 2020 WL 808236, at *11 (N.D. Cal. Feb. 14, 2020).

[13] Maiden v. Aetna Life Ins. Co. , No. 3:14-cv-901, 2016 U.S. Dist. LEXIS 1428, at *5-6, 2016 WL 81489 (N.D. Ind. Jan. 6, 2016).

[14] Quis custodiet ipsos custodes? Juvenal, Satires (Satire VI, lines 347–348).

Related Articles

Understanding Government and Church Plan Exceptions to ERISA

Understanding Government and Church Plan Exceptions to ERISA

The Employee Retirement Income Security Act (ERISA) is a landmark piece of legislation enacted in 1974 to safeguard the interests of employees who participate in retirement and health benefit plans offered by their employers. ERISA sets standards for these plans, ensuring transparency, fiduciary responsibility, and fairness in their administration. […]

ERISA 2023 Year in Review

ERISA 2023 Year in Review

Introduction The Employee Retirement Income Security Act of 1974 (ERISA) [1] directly impacts the lives of most Americans, yet few are familiar with ERISA despite its governance of pensions and retirement plans, along with other employer provided fringe benefits such...