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by Joe Sullivan

In deciding whether any given treatment is covered by a health-care plan, determinations in both the public and private sectors are uniformly based on two key words: medical necessity.

The trouble is that there’s not anything approaching a uniform definition of that term. Indeed, the federal statutes governing Medicare and Medicaid don’t even define it. Private health insurance plans mostly do, but given the multiplicity of patient conditions and treatment options involved, coverage determinations almost inevitably remain judgmental. In reaction against denials of coverage, some 40 states have weighed in with statutory definitions, but these too have considerable variations.

When they deal with cost, however, those definitions also take effectiveness into account. A common standard of cost-effectiveness stipulates provision of medical services that are “not more costly than an alternative service or sequence of services at least as likely to produce equivalent therapeutic or diagnostic results....”

The sole exception to that rule appears to be the definition of medical necessity that Gov. Phil Bredesen pushed through the Tennessee Legislature earlier this year as part of his TennCare cost containment plan. It stipulates that any services provided “must be the least costly alternative course of diagnosis or treatment that is adequate for the medical condition of the enrollee.” There’s a further proviso that “it must be safe and effective” but no provision for comparing its effectiveness to alternatives.

An evaluation of that definition by the Kaiser Commission on Medicaid and the Uninsured concludes that “on paper, the new Tennessee standard appears to be substantially more restrictive than standards used by other states, by Medicare, and by commercial carriers....” It goes on to say that “if applied as written, the standard has the potential to bar payment for many physician, hospital, and other services that currently are within the scope of benefits covered under Tennessee’s Medicaid program.”

Those concerns are shared by a TennCare Pharmacy Advisory Committee that Bredesen appointed to help construct a preferred drug list (PDL) of medications eligible for TennCare that took effect a year ago. In a comment letter on the proposed limitations of TennCare benefits that the Bredesen administration has submitted to the federal Center for Medicare and Medicaid Services (CMS) for approval, the Pharmacy Advisory Committee states that “the definition fails to take into account the reality that more expensive interventions, including medications, can frequently produce better outcomes at lower overall cost. Such a definition will prevent doctors from providing care that meets the standards of good medical practice. Healthcare providers cannot operate properly under this standard.”

The committee’s chairman is Dr. James Powers, an internal medicine specialist at Vanderbilt University Medical Center. As one of many examples, he cites the need, in case of congestive heart failure, to use a newer class of beta blockers such as Coreg that have proven far more effective than the older generic atenolol that would meet the statutory standard of least costly and adequate.

The PDL that’s now in effect has been acclaimed on many counts. TennCare officials have claimed resultant savings in drug costs of $200 million. At the same time, the leading advocate for TennCare enrollees, Gordon Bonnyman of the Tennessee Justice Center, praises it as, “a good example of balancing cost and effectiveness.”

Without consulting the Pharmacy Advisory Committee, however, the Bredesen administration is proposing a revamping of the PDL that would make it more difficult to obtain many of the drugs now on the list. Through categorization, doctors would only be free to prescribe mostly generic drugs that fall into Category A. Most branded drugs would fall into Category B. Their use would require the prior approval of the firm that manages TennCare’s pharmacy benefits—approvals that may be very hard to come by.

All of this is not intended to deprecate Bredesen’s commendable commitment to containing the escalation of the TennCare outlays that have been consuming an inordinate share of the state’s revenue growth over the past several years. The most publicized of his proposals, for which CMS approval is being sought, would impose limitations on the number of prescriptions and doctor’s visits and the length of hospital stays that would be covered. But those would apply only to about 300,000 of TennCare’s 1.3 million enrollees—specifically those who are not eligible for Medicaid.

By contrast, the less publicized definition of medical necessity would apply to all 1.3 million, and that’s where the major savings lie. A federal court order sought by Bonnyman has at least temporarily barred application of this standard to the 600,000 children on the TennCare rolls. Instead, U.S. District Judge John Nixon has called for an interim standard under which a child’s coverage “shall be based solely on the clinical recommendations of the child’s treating, consulting or referring health professional, and without further review of the necessity of treatment by the TennCare program or its agents.”

Bredesen is rightfully insistent that this standard would undermine his cost-containment efforts. But he’s wrongfully overreacting to threaten elimination of TennCare coverage for non-Medicaid enrollees as a result. Instead of throwing out the baby with the bath water, he should be seeking a more balanced medical-necessity standard as contemplated by Judge Nixon.

November 11, 2004 • Vol. 14, No. 46 © 2004 Metro Pulse