When an insurance company denies pre-authorization for a treatment a North Carolina doctor recommends, is the company practicing medicine without a license?

Plain-English summary

The early 1990s saw rapid expansion of managed-care techniques like pre-certification (an insurance company has to approve a treatment before it will pay) and utilization review (an insurance company looks at ongoing care and decides whether to keep paying). Doctors who felt overruled by an out-of-state reviewer with no medical license in North Carolina pushed back. The Board of Medical Examiners asked the Attorney General whether these review activities crossed the line into the unauthorized practice of medicine under N.C.G.S. § 90-18.

Assistant Attorney General Mabel Y. Bullock answered no. Section 90-18 defines practicing medicine as diagnosing or attempting to diagnose, treating or attempting to treat, operating or attempting to operate on, prescribing for, administering to, or professing to treat any human ailment, physical or mental injury, or deformity. The AG read each verb literally and asked what utilization review does in the workflow. A reviewer reads a chart and a treatment request, applies the payor's clinical criteria, and decides whether the payor will pay. The patient still has their condition. The physician still has the same diagnosis and the same treatment recommendation. Nothing about the reviewer's "no" changes what the disease is or what care the physician thinks the patient needs. What the "no" changes is whether the bill goes to the insurer or to the patient.

The AG acknowledged the obvious practical consequence: when the insurer refuses to pay, many patients will not have the care, or will have less of it. But the patient's economic constraint is not the same as the reviewer making the medical decision. The patient remains free to pay out of pocket. The physician remains free to deliver the care. The decision to forgo or continue treatment without insurance benefits sits with the patient and physician together, not with the reviewer.

That distinction (decisional authority over coverage versus decisional authority over treatment) is the spine of the opinion. The Board's concern was that an out-of-state reviewer who effectively forced a different course of care was making a medical decision. The AG's answer was that the reviewer makes a payment decision, and the payment decision and the treatment decision are legally distinct even when they have similar real-world effects.

Currency note

This opinion was issued in 1992. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here. The federal Affordable Care Act, state insurance regulation of utilization review, ERISA preemption doctrine, and dedicated NC statutes on managed-care review have all reshaped this landscape since 1992. The narrow question the AG answered (whether the act of pre-certification denial is itself the unauthorized practice of medicine) has not been the focus of recent law; the focus has shifted to procedural protections, external review, and bad-faith liability for coverage denials.

Background and statutory framework

Section 90-18 is the statute that defines what a North Carolina medical license is required for. It is enforced primarily through criminal prosecution and Medical Board injunctions against unlicensed persons holding themselves out as practitioners or actually performing clinical acts on patients. The Board's interest in this opinion was institutional: if utilization review counted as the practice of medicine, the Board could begin regulating out-of-state reviewers, requiring them to hold North Carolina licenses, and disciplining licensed reviewers who issued questionable denials.

The opinion did not address related questions that arose in the same period: whether utilization review companies needed to be licensed under insurance law (a separate framework), whether physicians who reviewed for payors could be disciplined by the Board for negligent reviews, or whether health insurance contracts could be enforced as practical-effect medical decisions (the line of analysis that fed into the bad-faith denial cases in the 1990s and 2000s). Those questions were eventually answered by separate statutes, including specific NC laws on utilization review organizations and external review rights.

The AG's narrow reasoning has the virtue of clarity. The statute defines a class of acts that require a medical license. Utilization review is not one of those acts. End of analysis. Whether utilization review should be regulated, and how, was a different question for the General Assembly to address, which it ultimately did through separate legislation.

Common questions

Did this opinion mean utilization review was unregulated in North Carolina?

No. The opinion answered only the narrow question of whether utilization review was the unauthorized practice of medicine. North Carolina subsequently enacted specific licensing and procedural requirements for utilization review organizations through the Department of Insurance, separate from Medical Board jurisdiction.

Could a doctor who issued a pre-certification denial be disciplined by the Board of Medical Examiners?

The opinion did not directly address this. A licensed physician acting as a reviewer is still subject to Board discipline as a license-holder for unprofessional conduct, but whether a specific review constituted unprofessional conduct was a separate fact-specific question.

What if the reviewer's denial caused the patient to forgo necessary care and suffer harm?

The opinion did not address tort liability of reviewers. By the late 1990s, federal and state courts had developed a body of law on whether utilization review decisions can be the basis of medical malpractice or bad-faith tort claims. ERISA preemption complicates that analysis for employer-sponsored insurance plans.

Did the AG's reasoning apply to government payors as well as private insurers?

Yes. The opinion referred broadly to "insurance companies, medical assistance programs or other third-party payors," which would include Medicare, Medicaid, and other government programs. The act of paying or not paying is what the AG analyzed, not the identity of the payor.

Could a hospital's internal utilization review committee count as practicing medicine?

The opinion focused on third-party payors. Internal hospital quality and utilization committees, often staffed by licensed physicians acting within their existing license, raise different issues that the opinion did not address.

Citations

• N.C.G.S. § 90-18 (definition of practice of medicine or surgery)

Source

• Landing page: https://ncdoj.gov/opinions/medical-pre-certification-and-utilization-review-activities/

Original opinion text

Subject: Medical Pre-Certification and Utilization Review Activities

Request By: Bryant D. Paris, Jr., Executive Secretary, Board of Medical Examiners

Question: Do medical pre-certification and utilization review activities constitute the practice of medicine under North Carolina law?

Conclusion: No.

For purposes of this question, medical pre-certification and utilization review activities are reviews of the need for either the initiation of medical treatment for a patient or for the continuation of such treatment which are conducted by insurance companies, medical assistance programs or other third-party payors after an initial determination has been made that treatment should be initiated. When a determination is made that the treatment is not appropriate or not necessary, third-party payment is denied.

G.S. 90-18 provides, in part, that "[a]ny person shall be regarded as practicing medicine or surgery within the meaning of this Article who shall diagnose or attempt to diagnose, treat or attempt to treat, operate or attempt to operate on or prescribe for or administer to, or profess to treat any human ailment, physical or mental, or any physical injury to or deformity of another person . . ."

As a practical matter, a denial of third-party payment may have a direct impact upon the patient's decision of whether to undergo the treatment. However, such denial does not prohibit the patient from seeking other funding sources or from seeking treatment without third-party benefits, and it does not prohibit the attending physician from providing the treatment. The decision to forego or to continue medical treatment without third party reimbursement is made by the patient in consultation with his or her physician. Thus, the person performing the utilization review is not diagnosing, operating on, prescribing for, administering to or treating any ailment, injury or deformity, but is merely deciding whether or not third-party payment is available.

LACY H. THORNBURG, Attorney General
Mabel Y. Bullock, Assistant Attorney General