Regulating Healthcare Coverage Algorithms

Abstract

Healthcare insurers utilize algorithms to generate treatment coverage determinations. Insurers use such algorithms to decide whether a particular health intervention is “medically necessary” and, therefore, covered by the plan. Assuming that criteria is satisfied, insurers further deploy these algorithms to determine the breadth and scope of covered services (e.g., the number of days that a patient is entitled to hospital-level care after a “medically necessary” surgery). Unlike clinical algorithms used by healthcare institutions and providers to diagnose and treat patients, coverage algorithms are unregulated, and, therefore, not evaluated for safety and effectiveness by the FDA before they go to market. In addition, coverage algorithm manufacturers—many of whom are the very health insurance companies that use them to make coverage decisions—take the view that their products are “proprietary” and not subject to public disclosure.Consequently, coverage algorithms are immunized from external validation for safety and effectiveness by peer review. 

Like clinical algorithms, coverage algorithms hold promise for more cost-effective and improved healthcare delivery and outcomes. Unfortunately, health insurers often rely on them to generate ever-higher profits by improperly denying patient claims and delaying patient care. Insurance plan reliance on coverage algorithms designed to maximize profits by denying or delaying medically necessary treatment at the expense of patient health and well-being is unlawful.It is also a lucrative strategy. Such use of coverage algorithms (1) saves the insurance plan money up front by relieving its medical staff from having to engage in the time and resource-intensive, patient-specific claims evaluation process and (2) is likely to save the plan money over the longer run when used strategically because the claims denial appeals process generally takes several years. Simply stated, when a patient is projected to die within a few years, the insurer is motivated to rely on the algorithm to deny that patient medically necessary care, force the patient to appeal that decision, and anticipate that the patient will die before the conclusion of the appeals process so that the claim is never paid. As this scenario makes obvious, health plan reliance on profit-driven coverage algorithms to deny and delay treatment disparately impacts the health of patients who have medically complex needs and, therefore, tend to utilize high-cost health care resources at high rates, such as Medicare and Medicaid beneficiaries and individuals with chronic or terminal conditions and other debilitating disabilities. As one investigative reporter put it, “[o]lder patients who spent their lives paying into Medicare, and are now facing amputation, fast-spreading cancers, and other devastating diagnoses, are left to pay for their care themselves or get by without it.”

Keywords: healthcare, health insurance, coverage algorithms, algorithms, AI, utilization management, prior authorization, FDA, health insurance regulation, software as a medical device