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Essential Health Benefits: Balancing Coverage and Cost (2012)

Chapter: Appendix G: Medical Necessity

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Suggested Citation:"Appendix G: Medical Necessity." Institute of Medicine. 2012. Essential Health Benefits: Balancing Coverage and Cost. Washington, DC: The National Academies Press. doi: 10.17226/13234.
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Appendix G

Medical Necessity

The committee’s conclusion with respect to medical necessity guidance can be found in Chapter 5. As part of its task, the committee reviewed a variety of definitions of medical necessity identifying key elements, listed here first by individual components solely for comparison purposes, but meant to be combined with other elements. A sampling of complete definitions is given at the end of this appendix.

ELEMENTS OF DEFINITIONS

Significant elements identified in definitions include: who has the authority to decide, what the purpose of an intervention is, what the scope of services would entail, what constitutes acceptable evidence of efficacy, and whether the service has value for potential health gain, is not performed simply for convenience, and is applicable to the individual case.

Authority, Prudent Physician

• Health care services or products that a prudent physician would provide to a patient (AMA, 2005; Harmon, 2011; Maves, 2010)

• “Medically necessary” or “medical necessity” shall mean health care services that a physician, exercising prudent clinical judgment, would provide to a patient (Kaminiski, 2007)

• An intervention is medically necessary if, as recommended by the treating physician and determined by the health plan’s medical director or physician designee, it is … [meets certain criteria for purpose, scope, evidence, and value] (Singer et al., 1999)

Medical Purpose

• A health intervention for the purpose of treating a medical condition—a research project at Stanford further defined a health intervention as an item or service delivered or undertaken primarily to treat (i.e., prevent, diagnose, detect, treat, palliate) a medical condition (i.e., disease; illness; injury; genetic or congenital defect; pregnancy; biological or psychological condition that lies outside the range of normal, age-appropriate human variation) or to maintain or restore functional ability (Singer et al., 1999)

Suggested Citation:"Appendix G: Medical Necessity." Institute of Medicine. 2012. Essential Health Benefits: Balancing Coverage and Cost. Washington, DC: The National Academies Press. doi: 10.17226/13234.
×

• Health care services or products … for the purpose of preventing, diagnosing, or treating an illness, injury, disease, or its symptoms (AMA, 2005; Harmon, 2011; Maves, 2010)

• Health care … for the purpose of preventing, evaluating, diagnosing, or treating an illness, injury, disease, or its symptoms (Kaminiski, 2007)

• “Medically necessary” is a term for describing a requested service that is reasonably calculated to prevent, diagnose, correct, cure, alleviate, or prevent worsening of conditions in the client that endanger life, cause suffering or pain, result in an illness or infirmity, threaten to cause or aggravate a handicap, or cause physical deformity or malfunction. There is no other equally effective, more conservative, or substantially less costly course of treatment available or suitable for the client requesting the service. For the purpose of this section, “course of treatment” may include mere observation or, where appropriate, no treatment at all (Washington Administrative Code, 2011)

• To prevent the onset or worsening of an illness, condition, or disability; to establish a diagnosis; to provide palliative, curative, or restorative treatment for physical and/or mental health conditions; and/or to assist the individual to achieve or maintain maximum functional capacity in performing daily activities, taking into account both the functional capacity of the individual and those functional capacities that are appropriate for individuals of the same age (Dhillon, 2011; NHeLP, 2011)

• To acquire, retain, and improve the self-help, socialization, and adaptive skills necessary to reside successfully in home and community-based settings (Medicaid per [Ford, 2011])

• Screening and diagnostic services to determine physical or mental defects in recipients under age 21; and health care, treatment, and other measures to correct or ameliorate any defects and chronic conditions discovered1

• For the diagnosis, cure, mitigation, treatment, or prevention of disease or for the purpose of affecting any structure or function of the body2

• Health care provided to correct or diminish the adverse effects of a medical condition or mental illness; to assist an individual in attaining or maintaining an optimal level of health; to diagnose a condition, or prevent a medical condition from occurring3

• For the diagnosis or treatment of illness or injury or to improve the functioning of a malformed body member4

• Necessary to prevent, diagnose, correct, or cure conditions in the person that cause acute suffering, endanger life, result in illness or infirmity, interfere with such person’s capacity for normal activity, or threaten some significant handicap5

Scope

• Clinically appropriate in terms of type, frequency, extent, site, and duration (AMA, 2005)

• Clinically appropriate, in terms of type, frequency, extent, site, and duration, and considered effective for the patient’s illness, injury, or disease (Kaminiski, 2007)

• The most appropriate supply or level of service, considering potential benefits and harms to the patient (Singer et al., 1999)

Evidence

• In accordance with generally accepted standards of medical practice (AMA, 2005; Harmon, 2011)

• In accordance with generally accepted standards of medical practice; this means standards that are based on credible scientific evidence published in peer-reviewed medical literature, generally recognized by the

1 Code of Federal Regulations, Title 42, Chapter IV, § 440.40(current as of August 3, 2011).

2 Internal Revenue Tax Code, Title 26, Subtitle A, Chapter 1 § 213(d)(1)(A).

3 Connecticut Agency Regulations, § 17b-134d-63, et seq.

4 Social Security Act, 42 U.S.C. Title XVIII, Section 1862(a)(1)(a).

5 New York State Social Services Law, Title 1, Article 5, § 365 (a).

Suggested Citation:"Appendix G: Medical Necessity." Institute of Medicine. 2012. Essential Health Benefits: Balancing Coverage and Cost. Washington, DC: The National Academies Press. doi: 10.17226/13234.
×

relevant medical community, or otherwise consistent with the standards set forth in policy issues involving clinical judgment (Kaminiski, 2007)

• Generally accepted standards of medical practice—standards that are based on credible scientific evidence published in peer-reviewed medical literature generally recognized by the relevant medical community, physician specialty society recommendations, and the views of physicians practicing in relevant clinical areas and any other relevant factors (Kaminiski, 2007)

• In accordance with standards of medical practice that are based on credible scientific evidence published in peer-reviewed medical literature generally recognized by the relevant medical community, physician specialty society recommendations, and the views of physicians practicing in relevant clinical areas and any other relevant factors (Bocchino, 2010)

• Known to be effective in improving health outcomes. For new interventions, effectiveness is determined by scientific evidence. For existing interventions, effectiveness is determined first by scientific evidence, then by professional standards, then by expert opinion (Singer et al., 1999)

Value

• Not more costly than an alternative service or sequence of services at least as likely to produce equivalent therapeutic or diagnostic results as to the diagnosis or treatment of that patient’s illness, injury, or disease (Kaminiski, 2007)

• Cost-effective for this condition compared to alternative interventions, including no intervention; “cost-effective” does not necessarily mean lowest price (Singer et al., 1999)

• That the item or service be the “least costly” alternative course of diagnosis or treatment for which there is adequate “clinical scientific evidence” of its safety and effectiveness6

• There is no other equally effective, more conservative, or substantially less costly course of treatment available or suitable for the client requesting the service; for the purpose of this section, “course of treatment” may include mere observation or, where appropriate, no treatment at all7

• The least costly among similarly effective alternatives, where adequate scientific evidence exists; and efficient in regard to the avoidance of waste and refraining from provision of services that, on the basis of the best available scientific evidence, are not likely to produce benefit8

Not Primarily for Convenience

• Not primarily for the convenience of the patient, treating physician, or other health care provider (AMA, 2005)

• Not primarily for the convenience of the patient, physician, or other health care provider (Kaminiski, 2007)

• Not primarily for the convenience of the patient, physician, or other health care provider (Bocchino, 2011)

• Not primarily for the economic benefit of the health plans and purchasers (AMA, 2005)

Individuality of Application

• Unless the contrary is specified, the term “medical necessity” must refer to what is medically necessary for a particular patient, and hence entails an individual assessment rather than a general determination of what works in the ordinary case. But where, as here, the plan administrator presents sufficient evidence to show that a treatment is not medically necessary in the usual case, it is up to the patient and his or her physician to show that this individual patient is different from the usual in ways that make the treatment medically necessary for him or her (Kaminiski, 2007)

6 Tennessee Code Annotated, § 71-5-144.

7 Washington Administrative Code, § 388-500-0005.

8 Connecticut Agency Regulations, § 17b-192-2(14).

Suggested Citation:"Appendix G: Medical Necessity." Institute of Medicine. 2012. Essential Health Benefits: Balancing Coverage and Cost. Washington, DC: The National Academies Press. doi: 10.17226/13234.
×

SAMPLE COMPLETE DEFINITIONS

Stanford: Model Contractual Language for Medical Necessity

In the late 1990s, a research team at Stanford developed model contract language, as follows: For contractual purposes, an intervention will be covered if it is an otherwise covered category of service, not specifically excluded, and medically necessary. An intervention may be medically indicated yet not be a covered benefit or meet this contractual definition of medical necessity. A health plan may choose to cover interventions that do not meet this contractual definition of medical necessity (as presented in Table G-1) (Singer et al., 1999).

National Settlement Language

A class action court case clarified that medical necessity decisions must be individualized, also affirming that consideration of cost or comparative effectiveness was acceptable. The associated definition agreed to by more than 900,000 physicians and major insurance companies resulted in a definition in widespread practice in the private market (Kaminiski, 2007):

“Medically Necessary” or “Medical Necessity” shall mean health care services that a physician, exercising prudent clinical judgment, would provide to a patient for the purpose of preventing, evaluating, diagnosing or treating an illness, injury, disease or its symptoms, and that are: a) in accordance with generally accepted standards of medical practice; b) clinically appropriate, in terms of type, frequency, extent, site and duration, and considered effective for the patient’s illness, injury or disease; and c) not primarily for the convenience of the patient, physician or other health care provider, and not more costly than an alternative service or sequence of services at least as likely to produce equivalent therapeutic or diagnostic results as to the diagnosis or treatment of that patient’s illness, injury or disease. For these purposes, “generally accepted standards of medical practice” means standards that are based on credible scientific evidence published in peer-reviewed medical literature generally recognized by the relevant medical community or otherwise consistent with the standards set forth in policy issues involving clinical judgment.

Selected Medical Definitions

American Medical Association

The AMA defines “medical necessity” as (AMA, 2005):

Health care services or products that a prudent physician would provide to a patient for the purpose of preventing, diagnosing or treating an illness, injury, disease or its symptoms in a manner that is (a) in accordance with generally accepted standards of medical practice; (b) clinically appropriate in terms of type, frequency, extent, site, and duration; and (c) not primarily for the economic benefit of the health plans and purchasers or for the convenience of the patient, treating physician, or other health care provider.

Medicare

For Medicare, its authorizing legislation defines “medically necessary” rather than “medical necessity”:

Notwithstanding any other provisions of this file, no payment may be made under Part A or Part B for any expenses incurred for items or services, which are not reasonable and necessary for the diagnosis or treatment of illness or injury or to improve the functioning of a malformed body member.9

As presented on the Medicare website glossary for patients, “medically necessary” means:

Services or supplies that are needed for the diagnosis or treatment of your medical condition, meet the standards of good medical practice in the local area, and aren’t mainly for the convenience of you or your doctor (CMS, 2011).

9 Social Security Act § 1862 [42 U.S.C. 1395y].

Suggested Citation:"Appendix G: Medical Necessity." Institute of Medicine. 2012. Essential Health Benefits: Balancing Coverage and Cost. Washington, DC: The National Academies Press. doi: 10.17226/13234.
×

TABLE G-1 Model Contractual Language for Medical Necessity


Authority    Purpose    Scope    Evidence    Value

An intervention is medically necessary if, as recommended by the treating physiciana and determined by the health plan’s medical director or physician designee,b it is (all of the following):    A health interventionc for the purpose of treating a medical condition    The most appropriate supply or level of service, considering potential benefits and harms to the patient    Known to be effectived in improving health outcomes.e For new interventions,f effectiveness is determined by scientific evidence.g,h For existing interventions, effectiveness is determined first by scientific evidence, then by professional standards, then by expert opinioni and    Cost-effective for this condition compared to alternative interventions, including no interventionj “Cost-effective” does not necessarily mean lowest price

a Treating physician means a physician who has personally evaluated the patient.

b Physician designee means a physician designated to assist in the decision-making process.

c A health intervention is an item or service delivered or undertaken primarily to treat (i.e., prevent, diagnose, detect, treat, palliate) a medical condition (i.e., disease; illness; injury; genetic or congenital defect; pregnancy; or a biological or psychological condition that lies outside the range of normal, age-appropriate human variation) or to maintain or restore functional ability. For the contractual definition of medical necessity, a health intervention is defined not only by the intervention itself, but also by the medical condition and patient indications for which it is being applied.

d Effective means that the intervention can reasonably be expected to produce the intended results and to have expected benefits that outweigh potential harmful effects.

e Health outcomes are outcomes that affect health status as measured by the length or quality (primarily as perceived by the patient) of a person’s life.

f An intervention is considered to be new if it is not yet in widespread use for the medical condition and patient indications being considered.

g Scientific evidence consists primarily of controlled clinical trials that either directly or indirectly demonstrate the effect of the intervention on health outcomes. If controlled clinical trials are not available, observational studies that demonstrate a causal relationship between the intervention and health outcomes can be used. Partially controlled observational studies and uncontrolled clinical series may be suggestive, but do not by themselves demonstrate a causal relationship unless the magnitude of the effect observed exceeds anything that could be explained either by the natural history of the medical condition or potential experimental biases.

h New interventions for which clinical trials have not been conducted because of epidemiological reasons (i.e., rare or new diseases or orphan populations) shall be evaluated on the basis of professional standards of care or expert opinion (as described in footnote a).

i For existing interventions, the scientific evidence should be considered first and, to the greatest extent possible, should be the basis for determinations of medical necessity. If no scientific evidence is available, professional standards of care should be considered. If professional standards of care do not exist, or are outdated or contradictory, decisions about existing interventions should be based on expert opinion. Giving priority to scientific evidence does not mean that coverage of existing interventions should be denied in the absence of conclusive scientific evidence. Existing interventions can meet the contractual definition of medical necessity in the absence of scientific evidence if there is a strong conviction of effectiveness and benefit expressed through up-to-date and consistent professional standards of care or, in the absence of such standards, convincing expert opinion.

j An intervention is considered cost-effective if the benefits and harms relative to costs represent an economically efficient use of resources for patients with this condition. In the application of this criterion to an individual case, the characteristics of the individual patient shall be determinative.

SOURCE: Singer et al., 1999.

Medicaid

The Medicaid statute does not define “medically necessary” or “medical necessity,” and each state is allowed to develop its own definition (Sindelar, 2002). However, the Early and Periodic Screening, Diagnosis, and Treatment (EPSDT) program’s coverage rules, providing guidance for definitions in pediatric cases, are more inclusive of concepts applicable to the Affordable Care Act (ACA) category of habilitation (O’Connell and Watson, 2001):

Under EPSDT, state Medicaid programs must cover “necessary health care, diagnostic services, treatment and other measures … to correct or ameliorate defects and physical and mental illnesses and conditions.” Services must be covered if they correct, compensate for, or improve a condition, or prevent a condition from worsening—even if the condition cannot be prevented or cured.

Suggested Citation:"Appendix G: Medical Necessity." Institute of Medicine. 2012. Essential Health Benefits: Balancing Coverage and Cost. Washington, DC: The National Academies Press. doi: 10.17226/13234.
×

TennCare adopted, what was controversial at the time, for its Medicaid definition—“including a requirement that the item or service be the ‘least costly’ alternative course of diagnosis or treatment for which there is adequate ‘clinical scientific evidence’ of its safety and effectiveness” (Blumstein and Sloan, 2000). Such wording is also now seen in other Medicaid-related programs (e.g., see SAGA below).

A recent examination of Medicaid definitions used by Medicaid programs in Connecticut, Massachusetts, New York, and Rhode Island illustrates the diversity of approaches to definition, with variation even within a single state depending on the applicable population (Cohen, 2010).

For Connecticut Medicaid, as administered through its Department of Social Services (DSS)10 (State of Connecticut Department of Social Services):

Health care provided to correct or diminish the adverse effects of a medical condition or mental illness; to assist an individual in attaining or maintaining an optimal level of health; to diagnose a condition or prevent a medical condition or prevent a medical condition from occurring.

Connecticut’s State-Administered General Assistance (SAGA) program (State of Connecticut Department of Social Services, 2009), a cash assistance program for adults without children who are unable to work, uses11:

Health services required to prevent, identify, diagnose, treat, rehabilitate, or ameliorate a health problem or its effects, or to maintain health and functioning, provided such services are:

1. Consistent with generally accepted standards of medical practice;

2. Clinically appropriate in terms of type, frequency, timing, site, and duration;

3. Demonstrated through scientific evidence to be safe and effective and the least costly among similarly effective alternatives, where adequate scientific evidence exists; and

4. Efficient in regard to the avoidance of waste and refraining from provision of services that, on the basis of the best available scientific evidence, are not likely to produce benefit.

For MassHealth, a service, regardless of whether in fee-for-service or managed care arrangements, is considered “medically necessary” if12:

1. It is reasonably calculated to prevent, diagnose, prevent the worsening of, alleviate, correct, or cure conditions in the MassHealth member that endanger life, cause suffering or pain, cause physical deformity or malfunction, threaten to cause or to aggravate a handicap, or result in illness of infirmity; and

2. There is no other comparable, available, and suitable medical service or site of service that is more conservative or less costly to the MassHealth agency. Services that are less costly to the MassHealth agency including health care reasonably known by the provider or identified by the MassHealth agency pursuant to a prior authorization request to be available to the member through a third party.

It is notable that the Medicaid agency is able to impose sanctions on providers, who (1) provide or prescribe a service or (2) admit a member to an inpatient facility when the services or admission are not medically necessary (Kaminiski, 2007), and Massachusetts publishes on its website specific guidelines for medical necessity for 16 services (e.g., bariatric surgery, organ transplant, physical therapy) (Massachusetts Department of Health, 2011).

Fee-for-service and managed care arrangements through Medicaid in New York define medically necessary as13:

Necessary to prevent, diagnose, correct, or cure conditions in the person that cause acute suffering, endanger life, result in illness or infirmity, interfere with such person’s capacity for normal activity, or threaten some significant handicap and which are furnished an eligible person in accordance with state law.

RIte Care, Rhode Island’s Medicaid managed health care program uses the national settlement language referenced above (Kaminiski, 2007).

10 Connecticut Agency Regulations, § 17b-134d-63, et seq.

11 Connecticut Agency Regulations, § 17b-192-2(14).

12 130 Massachusetts Code Regulations, § 450.204 (2009).

13 New York State Social Services Law, § 365-a.

Suggested Citation:"Appendix G: Medical Necessity." Institute of Medicine. 2012. Essential Health Benefits: Balancing Coverage and Cost. Washington, DC: The National Academies Press. doi: 10.17226/13234.
×

REFERENCES

AMA (American Medical Association). 2005. Model managed care contract. http://www.ama-assn.org/ama1/pub/upload/mm/368/mmcc_4th_ed.pdf (accessed August 5, 2011).

Blumstein, J. F., and F. Sloan. 2000. Health care reform through Medicaid managed care: Tennessee (TennCare) as a case study and paradigm. Vanderbilt Law Review 53(1):125-270.

Bocchino, C. 2010. Online questionnaire responses submitted by Carmella Bocchino, Executive Vice President, America’s Health Insurance Plans to the IOM Committee on the Determination of Essential Health Benefits, December 6.

______. 2011. Statement to the IOM Committee on the Determination of Essential Health Benefits by Carmella Bocchino, Executive Vice President, Clinical Affairs and Strategic Planning, America’s Health Insurance Plans, Washington, DC, January 13.

CMS (Centers for Medicare & Medicaid Services). 2011. Medicare glossary. http://www.medicare.gov/Glossary/a.html?SelectAlphabet=M&Language=English#Content (accessed August 5, 2011).

Cohen, R. K. 2010. Medical necessity definitions in surrounding states. http://www.cga.ct.gov/2010/rpt/2010-R-0010.htm (accessed August 1, 2011).

Dhillon, J. 2011. Testimony to the IOM Committee on the Determination of Essential Health Benefits by Jina Dhillon, Staff Attorney, National Health Law Program, Washington, DC, January 14.

Ford, M. 2011. Testimony to the IOM Committee on the Determination of Essential Health Benefits by Marty Ford, Director of Legal Advocacy, The Arc and United Cerebral Palsy Disability Policy Collaboration, Washington, DC, January 13.

Harmon, G. 2011. Statement to the IOM Committee on the Determination of Essential Health Benefits by Gerald Harmon, Retired Major General U.S. Air Force and Member, Council on Medical Service, American Medical Association, Washington, DC, January 14.

Kaminiski, J. L. 2007. Defining medical necessity. http://www.cga.ct.gov/2007/rpt/2007-r-0055.htm (accessed April 20, 2011).

Massachusetts Department of Health. 2011. Guidelines for medical necessity determination. http://www.mass.gov/?pageID=eohhs2subtopic&L=6&L0=Home&L1=Provider&L2=Insurance+%28including+MassHealth%29&L3=MassHealth&L4=Guidelines+for+Clinical+Treatment&L5=Guidelines+for+Medical+Necessity+Determination&sid=Eeohhs2 (accessed August 5, 2011).

Maves, M. 2010. Online questionnaire responses submitted by Michael Maves, Chief Executive Officer and Executive Vice President, American Medical Association to the IOM Committee on the Determination of Essential Health Benefits, December 20.

NHeLP (National Health Law Program). 2011. Medical necessity definition: Model Medicaid managed care contract provisions. http://www.healthlaw.org/index.php?option=com_content&view=article&id=281:medical-necessity-definition-model-medicaid-managed-care-contract-provisions&catid=42:medicaid (accessed August 5, 2011).

O’Connell, M., and S. Watson. 2001. Medicaid and EPSDT. http://www.nls.org/conf/epsdt.htm (accessed July 29, 2011).

Sindelar, T. 2002. The “medical necessity requirement” in Medicaid. Boston, MA: The Disability Law Center.

Singer, S., L. Bergthold, C. Vorhaus, S. Olson, I. Mutchnick, Y. Y. Goh, S. Zimmerman, and A. Enthoven. 1999. Decreasing variation in medical necessity decision making. Appendix B. Model language developed at the “Decreasing Variation in Medical Necessity Decision Making” Decision Maker Workshop in Sacramento, CA, March 11-13, 1999.

State of Connecticut Department of Social Services. Connecticut Medicaid: Summary of services. http://www.ct.gov/dss/lib/dss/pdfs/medicaidservicesv3kk.pdf (accessed September 28, 2011).

______. 2009. State Administered General Assistance (SAGA): Cash and medical assistance programs. http://www.ct.gov/dss/lib/dss/pdfs/sagacashandmedical.pdf (accessed September 28, 2011).

Washington Administrative Code. 2011. WAC388-500-0005 medical definitions. http://www.mrsc.org/mc/wac/WAC%20388%20%20TITLE/WAC%20388%20-500%20%20CHAPTER/WAC%20388%20-500%20-0005.HTM (accessed September 19, 2011).

Suggested Citation:"Appendix G: Medical Necessity." Institute of Medicine. 2012. Essential Health Benefits: Balancing Coverage and Cost. Washington, DC: The National Academies Press. doi: 10.17226/13234.
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Suggested Citation:"Appendix G: Medical Necessity." Institute of Medicine. 2012. Essential Health Benefits: Balancing Coverage and Cost. Washington, DC: The National Academies Press. doi: 10.17226/13234.
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In 2010, an estimated 50 million people were uninsured in the United States. A portion of the uninsured reflects unemployment rates; however, this rate is primarily a reflection of the fact that when most health plans meet an individual's needs, most times, those health plans are not affordable. Research shows that people without health insurance are more likely to experience financial burdens associated with the utilization of health care services. But even among the insured, underinsurance has emerged as a barrier to care.

The Patient Protection and Affordable Care Act (ACA) has made the most comprehensive changes to the provision of health insurance since the development of Medicare and Medicaid by requiring all Americans to have health insurance by 2016. An estimated 30 million individuals who would otherwise be uninsured are expected to obtain insurance through the private health insurance market or state expansion of Medicaid programs. The success of the ACA depends on the design of the essential health benefits (EHB) package and its affordability.

Essential Health Benefits recommends a process for defining, monitoring, and updating the EHB package. The book is of value to Assistant Secretary for Planning and Evaluation (ASPE) and other U.S. Department of Health and Human Services agencies, state insurance agencies, Congress, state governors, health care providers, and consumer advocates.

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