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Ethics Program

Meeting Minutes

The Ethics of Benefit Design, with Reference to Physical Therapy: Trying to do the Right Thing in an Imperfect Health System (and world)

March 14, 2002


The EAG meeting on March 14 focused on the physical therapy (PT) benefit. PT raises the question of how value-laden managerial issues like a) the financial risk posed by "adverse selection" and b) predictability for HPHC's constituents interact with c) HPHC's mission "to improve the health of the people we serve." At the most general level, the ethical challenge raised by the PT benefit is how an organization can do what it sees as the right thing to do in inevitably complex and imperfect circumstances.

Physical therapists formed their first professional association - called the American Women's Physical Therapeutic Association - in 1921. It had 274 members. (It began to admit men as members in the 1930s.) With the polio epidemic and World War II injuries the demand for physical therapists increased, and in 1950 there were 8,000 members. Today there are 66,000. Nationally, 180 institutions offer physical therapy education programs. The professional organization, now called the American Physical Therapy Association (http://www.apta.org), defines its vision as follows:

By 2020, physical therapy will be provided by physical therapists who are doctors of physical therapy, recognized by consumers and other health care professionals as practitioners of choice to whom consumers have direct access for the diagnosis of, interventions for, and prevention of impairments, functional limitations, and disabilities related to movement, function, and health.

Section 42 of the Federal HMO Act of 1973, the Nixon era legislation that encouraged development of HMOs as a new national strategy, contained an important sentence about physical therapy. To be federally qualified, HMOs had to meet this requirement:

Outpatient services and inpatient hospital services must include short term rehabilitation services and physical therapy, the provision of which the HMO determines can be expected to result in the significant improvement of an enrollee's condition within a period of two months. (emphasis added)

Within the insurance world, this language has been interpreted as mandating a time-limited benefit of no less than two months, leading to a typical benefit of 60 consecutive days per condition. The American Physical Therapy Association, however, has challenged this interpretation in court, based on its reading of the language as mandating a rolling benefit with no limits as long as significant improvement is attainable in two months.

Physical therapy is part of a group of "functional therapies." HPHC's Massachusetts HMO policy definition for outpatient functional therapies is as follows:

Short-term outpatient functional therapies (including physical therapy, occupational therapy, pulmonary rehabilitation, and cardiac rehabilitation) are covered within benefit limits when the PCP or participating specialist determines that:

  • Services are medically necessary to treat a Member's limited/impaired functional ability to perform activities of daily living, and
  • The Member's condition/limitation is treatable, and secondary to a physically identifiable cause.

As of now the standard HPHC PT benefit is for 60 consecutive days of treatment per condition. This is the same benefit offered by HPHC's major competitors. Prior to 4/1/01 HPHC's standard benefit was 90 consecutive days per condition, which - when compared to its competitors' 60 day benefit - placed HPHC at a competitive disadvantage in terms of the potential for a) higher physical therapy costs than its competitors and b) "adverse selection" in terms of making HPHC the insurer of choice for patients with conditions that require PT. Under a Massachusetts mandate, HPHC provides unlimited coverage for children under three (the age at which school system-based interventions can begin), and the 60-day limit does not apply. Similarly, there is no limit under First Seniority, as determined by Medicare requirements.

When primary care physicians or specialists determine that a member may need physical therapy they send the member to a physical therapy provider for evaluation. HPHC must be notified after the evaluation. A contracted provider would be familiar with the following process. The physical therapist would perform the evaluation and fax it to HPHC's Functional Therapies Team (FTT). Once the fax is received by the FTT, an intake coordinator screens for past utilization. When members have had previous physical therapy under their HPHC insurance, the FTT determines by clinical review of the documentation whether the current condition is new. If the condition is deemed new, authorization is granted in accord with the FTT's protocol for the particular diagnosis. If after clinical review it is determined that the condition is not new and has been the focus of care under HPHC insurance in the past, the clinical information is assessed for extenuating circumstances, such as safety issues. A final determination is then made as to whether the member's benefits are exhausted or if a "benefit exception" should be made.

Physical therapy is a widely used service. In 2000 36,000 members received PT. Slightly more than 10% received "benefit exceptions" and had treatment beyond the benefit limit (at that time, 90 consecutive days per condition). Physical therapy is also a common source of appeals. In 2001 functional therapy appeals represented 20% of all the appeals made to HPHC.

On October 24, 2001 the EAG discussed "Ethical Issues in the Appeal Process." The case included three examples (highly disguised) of appeals involving physical therapy (which I referred to in the narrative as "the benefit from h**l" because of the challenges it poses). The EAG did not spend much time on the physical therapy cases, which is why we are returning to it on March 14. Here are the three disguised vignettes:

Katie Smith sustained a severe wrist fracture six months ago. While she had improved at the end of 90 days of PT, the range of motion was still restricted. She applied for an extension of coverage and received a denial notice. She continued the treatment anyway, and made a second level appeal for coverage of the additional PT sessions, which were helping. When asked about her understanding of the benefit Ms. Smith clearly understood the 90 day limit, but said: "As a consumer I expect to be taken care of. As I see it, 90 days of physical therapy is ample for the ordinary situation. As my doctor's letter clearly shows, my situation is very severe. I didn't want to go to PT but I needed it and I think it should be covered."

Larry Smith is a very active college student. Larry first experienced knee pain when he started rock climbing last year. His physician suggested PT, but after a few sessions the physical therapist suggested that Larry stop treatment as the PT was actually making the pain worse. After a period of some months his physician suggested another course of PT, as she believed that the process was less acute and that Larry could now tolerate PT and benefit from it. It is well beyond the 90th day after the initial authorization. Larry, who is a pre-law student, appeals for coverage on the basis that he had not been able to use the authorized treatment and that the clock should begin again, even if it is for the same condition.

Mary Smith sustained a severe shoulder injury. Her orthopedist, a well-known expert on shoulder problems, told her that there are two main alternatives. He could do a complex operation now, with an approximately 75% likelihood of achieving a good outcome. It would also be possible for Mary to pursue an extended course of physical therapy, involving specialized techniques. He estimates 30-50% likelihood that the physical therapy would give the same outcome as the surgery. A year of physical therapy will cost approximately $5,000. The surgery (including post-surgical care) would cost approximately $30,000. Mary strongly prefers the physical therapy alternative. In making her appeal she comments - "by giving me the treatment I prefer you are potentially saving HPHC $25,000. That sounds like a win/win choice."

Customer for the Ethics Advisory Group

There were two customers for the March 14th meeting: the Benefits Administration group, represented by Renae Anderson; and, the Functional Therapy Team, represented by Lisa Adams and Anne Goroshko. Renae and her colleagues in Benefits Administration are responsible for administration the HPHC benefit packages and the overall HPHC approach to managing benefits. The Functional Therapy Team is responsible for clinical management oversight of how the HPHC functional therapy benefits are applied at the front line.

Questions for the Ethics Advisory Group

In terms of the HPHC mission - "to improve the health of the people we serve, and the health of society" - a limited PT benefit can seem contrary to the mission when a member might achieve important health improvements from more physical therapy. But in terms of the HPHC vision - "to be the most trusted and respected name in health care" - ensuring financial strength is a must. A benefit significantly more generous and costly than HPHC's competition provides could run contrary to the vision by putting HPHC at a financial disadvantage. In addition, HPHC's value proposition commits HPHC to providing "reliable, predictable experiences for our constituents," and a benefit like PT for which there are substantial numbers of exceptions and appeals could mean diminished predictability and increased administrative complexity.

Extensive exceptions to the PT benefit (or a more generous benefit package) can improve the health of individual members. However, large-scale benefit exceptions (or a more generous benefit package) could reduce the funds available for meeting other health needs and increase premium costs, thereby making HPHC less trustworthy to the membership as a whole and to purchasers. Benefit exceptions respond to individual needs but make for less predictability. Given the way these key values come into conflict with regard to physical therapy, the EAG is being asked its views on how - from the perspective of ethics - HPHC can optimize the outcomes it achieves. The EAG is not being asked to redesign the physical therapy benefit, but rather to suggest a values framework HPHC can apply to achieve the best outcomes for the members, purchasers and concerned others. Several important values are at stake with regard to the PT benefit. The responsible managers are interested in how the EAG weighs the competing values.

Relevant precedents

At its meetings on January 26 and February 10, 2000, the EAG developed a "values inventory" for use in the financial crisis. The EAG stressed that in its view the first nine words of the HPHC mission - "to improve the health of the people we serve" is and should be HPHC's top priority. The EAG felt that even in the "life or death" financial circumstances of the receivership, "HPHC leadership should continue to consider a broad range of values in its decision-making and to share its deliberations publicly."

At its meeting on the ethics of the appeals process (October 24, 2001) the EAG was told that managed care circa 2001-2002 seeks to "manage" care as much as possible through the insurance contract rather than by having the insurer second guess the provider's assessment of "medical necessity." The minutes state -- "Purchasers expect HPHC to deliver on its commitments and not to drive up costs by providing services that are not part of the contract. Adhering to the contract is an ethical as well as legal commitment." The EAG added that "sometimes the right outcome is to make a benefit exception," but it did not expand on its views of the values it thought should inform the benefit exception process.

EAG Discussion/ Recommendations

The EAG discussion was greatly helped by excellent teaching from Lisa Adams, Renae Anderson and Anne Goroshko. With their guidance about how the physical therapy benefit works in practice the EAG was better able to concentrate on questions about a values framework for managing the benefit. The discussion fell into two broad segments:

1. The importance of physical therapy for the HPHC mission. Several EAG members commented that physical therapy promotes fundamental health care values through its very practical focus on improvement of physical function and alleviation of pain. In a national health care system that is often seen as providing too much "tech" and too little "touch," physical therapy is highly attentive to the individual and literally hands on. Over time, with an aging population and increased prevalence of chronic illnesses that often restrict physical function, physical therapy is likely to be a progressively more important tool for support of HPHC's mission of improving the health of the people it serves.

From the perspective of health insurance, however, physical therapy shares a common problem with mental health. For both there is a continuum from services that are unambiguously "medically necessary" and properly covered by health insurance to services that are clearly optional and properly left to individuals to pay for themselves. In between these extremes there is an extended gray zone of services which a) patients value, b) appear to provide health benefits but c) about which people of good will may disagree with regard to whether they should be seen as "medically necessary."

Deciding whether a service is "medically necessary" involves many value-laden questions. How much benefit is enough to warrant insurance coverage? What kinds of benefit should be considered? What level of certainty about the evidence is required? How do we draw the line between treatment of pathology and enhancement of well being?

In the original conception of managed care, embodied in the early not for profit prepaid group practices like Kaiser Permanente and Group Health Cooperative, clinicians had substantial latitude to answer these value-laden questions flexibly in accord with their clinical judgment and within the financial limits set by the capitation. But as managed care shifted from prepaid integrated group practices to insurance-based utilization management, and as physicians increasingly complained about loss of authority, public confidence in the decision making process waned. Opinion polls show that the public does not trust insurance companies to make gray zone decisions about "medical necessity."

Given the absence of public trust in a more flexible process, the clearest, least ambiguous way to set limits for services with a broad gray zone like physical therapy is through a quantitative cap. "Sixty days" is unambiguous - black and white, not gray. It is easy to define and administer.

From the perspective of ethics, physical therapy is important for the HPHC mission and valued by HPHC members, as reflected in wide use (36,000 recipients in 2000). Within a broad gray zone, however, physical therapy poses difficult, value-laden questions about "medical necessity." The public does not trust insurers to answer these questions in a way that recognizes patients' needs, and insurers do not trust physicians to answer them in a way that recognizes limited resources, given how difficult it is for physicians to say "no" if their patients request more physical therapy. The result is the common insurance practice of setting a quantitative cap on PT.

2. A framework of values for the physical therapy benefit. The EAG saw HPHC's effort to contain health care costs as an ethical requirement, and no EAG members felt that HPHC should risk its own financial stability by offering a significantly more costly physical therapy benefit than its competitors. Within those limits the group made several recommendations for a framework of values to apply to physical therapy:

a) Insofar as possible, benefits should correlate with clinical needs. The group understood the marketplace forces that drive towards maintaining a quantitatively defined benefit, and that the needs of most patients can be met within the 60 day limit. It also understood that the contract between HPHC and purchasers is a major legal and ethical commitment by both parties. It is inevitable, however, that some patients will require more PT for optimal recovery. As one participant commented, "we need to make sure we aren't losing sight of members who are really sick." Several EAG members cited patients who had experienced strokes or other forms of serious brain injury as examples of members who were sometimes poorly served under a 60-day limit. The EAG members who raised this issue were torn by the conflict between respecting the contract (an ethical responsibility) and helping members improve their health (an ethical responsibility).

b) Especially for a service like physical therapy, for which the benefit is defined differently than for most other services, and where Medicare, Medicaid and groups like children under 3 all have different kinds of coverage, clear and consistent communication is a key value. Informed consent at the time of purchase (employer) and enrollment (member) is only possible if purchasers and enrollees understand the benefit. However, since members typically inform themselves about the PT benefit only when they first use it, prompt educative communication is crucial to facilitate patient participation in co-managing use of the benefit. When members and providers understand the benefit from the beginning of the treatment process they are more able to collaborate in planning for a transition to self-care within the limits of the benefit period or in seeking alternative funding sources if long term physical therapy will be needed.

c) The EAG placed a high value on consistency in administration of the benefit. Given the inevitable conflicts between patient needs and a benefit defined by the calendar, however, most EAG members favored flexible application of the benefit, as long as that flexibility is guided by clear and consistent criteria. The Alternative Benefit Equivalent, in which children with scoliosis or members with other conditions that require intermittent PT assessments and "boosters" are given something like 12 benefits to use once monthly for a year, exemplified the kind of clinically driven, clear and consistent, fiscally responsible flexibility the EAG supported. Other examples of clear, consistent and prudent bases for making benefit exceptions included patient safety, allowing for adequate rehabilitation after surgery, and clear "cost offset" situations where additional physical therapy would eliminate the need for surgery.

d) For gray zone services like physical therapy, the EAG placed a high value on involving members, providers and purchasers in co-managing care to the greatest possible extent. In principle the co-management process begins at the point of purchase, but the EAG was told that in practice few corporate purchasers deliberate over the PT benefit and few members consider the PT benefit in choosing among their coverage options. A clinician participant in the meeting cited the three-tier pharmacy benefit as an approach that supports co-management by facilitating patient-provider discussion of values and trade offs without posing severe financial barriers to care. Whether or not tiered payments or some form of escalating copayment are practical for physical therapy, the EAG strongly endorsed the value of educating members, providers and purchasers about the trade offs that must be made in areas like physical therapy and enlisting their participation in making those trade offs. Incentives like the three-tier pharmacy program that promote member participation in co-managing the benefit without overly impeding access support the framework of values that the EAG recommended.

e) Finally, the EAG cited administrative simplicity as a value to be promoted because it supports clarity of communication, consistency in benefit administration and cost containment. Administrative simplicity "helps make great health care easier."


1. In an ideal world physical therapy would be provided in accord with clinical need. Overall limits would be set collaboratively by patients and providers within the resource pool that was available for care.

2. A quantitatively defined benefit unrelated to clinical need - like 60 days per condition - is driven by the dynamics of the health care system, not by a clinical or ethical vision of the best possible design.

3. In these circumstances, physical therapy poses a zone of potential ethical conflict, in which an "irresistible force" (patient desire for a beneficial service) meets an "immovable object" (a benefit defined by the calendar).

4. The EAG recommended a framework of values - particularly educative communication, consistent benefit administration, administrative simplicity, and enlisting members and providers in co-management of the benefit - that it believed could reduce ethical conflict about PT.

5. The EAG commended the Functional Therapy team for the ways it encourages members and their physical therapy providers to plan for a transition to self care whenever possible or to seek alternative funding sources when extended physical therapy will be beneficial.

6. Given the inevitable complexities in provision of a service used by so many members, the EAG supported the possibility of making benefit exceptions. It recommended three key values for any benefit exception process: exceptions should be a) important for the HPHC mission of "improving the health of the people we serve," b) guided by explicit clinical criteria, and, c) consistent with prudent management of HPHC's financial resources. When the clinical criteria are clear enough, as occurs with the Alternative Benefit Equivalent (see 2C on page 7), "exceptions" can be transformed into explicit policy about how the benefit is applied, which enhances predictability and understandability.

Action steps

Jim Sabin will meet with members of the Benefits Administration, Functional Therapy and Member Services areas to work on making the framework of values maximally useful to and integrated with HPHC operations.

Jim Sabin