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The Prudent Lay Person Standard

Reducing costs in healthcare is a hot topic, and some insurance companies have taken action in a manner that appears to violate the “Prudent Layperson” standard. But what exactly is it and why is it so important?

The legal basis for the prudent lay person standard was established in 1994. It was a revision to the 1984 EMTALA legislation and aimed to set a standard for how we define an emergency medical condition. In 1997 federal legislation adopted the standard for Medicaid and in 1998 it became the standard for Medicare. In 1999 it was also adopted by the VA system making it a universal definition for payment of services provided in emergency care.

The standard definition was necessary in order to provide a basis for payment when patients presented to an emergency department. The current CMS language can be found here : CMS Guide . In short, the definition centers around the patient’s understanding of their condition. As a prudent lay person, with an average understanding of medicine, any condition which leads one to believe they have a medical or behavioral emergency meets the standard.

So why the debate recently? In an attempt to reduce costs, insurers search for high cost items, which turned attention to hospital admissions. If you work in the inpatient realm, you are hampered by denials of service and observation coding rules in order to justify admissions and length of stay. Recently, attention has turned to emergency department visits. Although the number of ED visits over the past 10 years has declined slightly (CDC data), these visits are viewed as expensive compared with urgent care visits. Insurers seek to divert patients to less expensive alternatives.

Although the attempts are not new, recently large healthcare insurance companies have begun rejecting payment for services provided based on final diagnosis. The assertion here is that the given diagnosis is not an emergency AND that it could not have led a prudent lay person to believe they were having an emergency. Of course the problem is immediately obvious: Billing codes are based upon final diagnosis, taking into account an examination by a trained medical professional and all testing conducted. Billing codes do not represent the “possible” illness the patient may have had based on the symptom. For example: Arm Pain. It is a benign diagnosis which might lead you to ask “what is the emergency here?” However, a heart attack may present as simple arm pain or neck pain. The initial complaint is the same, but the final diagnosis is quite different. Both patients undergo the same examination and may undergo the same testing in the ED, but the reimbursement for each is drastically different based solely on final diagnosis code. Is it appropriate to reject such a claim based on the final code?

There are other repercussions to such a policy of payment rejection based on diagnosis. When payment is denied, hospitals and practices bill patients instead. The message to the patient is clear: “You had a symptom you thought was an emergency, but it was not. You are now responsible for this bill and your insurance is not going to pay.” The patient’s conclusion: “The next time I have an emergency, I am not going to the ER. I am going to wait and go see my doctor or call my insurance because I can’t’ afford to pay a bill this big.” Organizations like the American College of Emergency Physicians and the American Academy of Emergency Medicine understand the problem such a policy poses. Patients will delay seeking care in true emergencies. Patients will make decisions based on the fear of being charged for a visit despite the fact that they are adequately insured. We essentially force our patients to value their pocketbook over their own health. This is clearly the wrong approach. Patients will wait when they should seek care immediately. Medical conditions will be treated at more advanced stages when it is more difficult and expensive, when early treatment would have resulted in a cure. Patients will suffer poor outcomes from diseases which should have been caught earlier and treated without sequelae.

The analogy:

My car breaks down. I have a warranty but it stipulates I must take the vehicle to a specific local repair shop first, and if it is determined the there is an engine problem then the vehicle must be taken to the dealer for repair. If the vehicle is taken to the dealer first without determining the problem at a local repair shop, then I am responsible for all charges except those specifically related to engine problems. So, it is 2am, my check engine light is on, the car is spouting fumes, and I am stranded. I have it towed to my driveway until the local shop is open, then have it towed again where it is determined that there is an engine problem. Then it is towed yet again, to the dealership for repair. This is not efficient, but it is the screening process designed by my warranty company.

Health insurers are instituting a similar system: It is 2 am on Saturday and you are having severe left arm pain. You are sweating and nauseated. There is no chest pain or shortness of breath. You would call 911 and go to the ER, but if this isn’t coded as an approved emergency at the end of the visit, then you will be responsible for the bill, which you can’t afford. So, you wait. The pain worsens until finally at 8 am, the local urgent care center opens. When you are seen it is determined that you might be having a heart attack. You are transported by ambulance to the local ER where further tests reveal this is definitely a heart attack. You relax because the visit will be covered by your insurance, but the cardiologist tells you that you have lost 50% of your heart function due to the delay in care. If only you had come to the ER at 2am, they would have treated the blockage immediately and you would have recovered fully. Due to the damage, you will require a temporary life vest, followed by a permanent implantable pacemaker defibrillator. One year later, you have had 3 hospitalizations for congestive heart failure, one for pacer placement, and a series of clinic visits with your cardiologist. Is this really better?

The example may seem extreme, but it is a common scenario. Patients cannot determine their diagnosis based on their symptoms. Physicians order diagnostic tests to make decisions and we have the benefit of medical training. If after all that testing, a benign condition is found, that is not the fault of the patient. Denying payment based on the final diagnosis is misguided and WILL result in harm to patients.

So what is the solution? It is not denial of payment. Instead, it is a far more difficult solution that requires the cooperation of three parties: the insurer, the medical provider, and the government. A patient should be allowed to present to the ER when they meet the prudent lay person standard. Based on an initial examination in the ER, they should be allowed to be directed to an urgent care or other outpatient setting if that is more appropriate, and the legal system should support that decision-making. Anything else results in competing forces: insurers attempting to divert patients based on the threat of no coverage and  emergency physicians hesitant to screen and refer elsewhere without treatment due to EMTALA obligations. This is not easy, but the alternatives given today are not the solution.

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