Supreme Court Hears Case on Independent Review of HMOs
The Supreme Court yesterday heard arguments in a case that may determine whether states can require an independent review of health plan coverage decisions, USA Today reports (Biskupic, USA Today, 1/17). Attorneys yesterday argued over whether the 1974 Employee Retirement Income Security Act, which regulates employee benefit plans, overrides a 1987 Illinois law. Under the law, Illinois requires an independent review in disputes between a patient's primary care physician and an HMO over "whether a procedure is medically necessary." The law requires HMOs to provide coverage "if the outside reviewer determines that [a treatment] is medically necessary." Although ERISA says it "shall supersede any and all state laws" that "relate to any employee benefit plan," the federal law exempts from this provision state laws that "regulat[e] insurance." The Supreme Court must therefore decide whether state laws that require an independent review represent "valid regulation of health insurance or a pre-empted effort to regulate an employee benefit" (Greenhouse, New York Times, 1/17).
In the case, Rush Prudential HMO Inc. v. Moran, Illinois resident Debra Moran demanded an independent review in a dispute with Rush over a denial of care. In 1998, a Virginia surgeon diagnosed Moran with thoracic outlet syndrome, a compression of nerves in the neck, and her primary care physician recommended surgery performed by a doctor outside the HMO's network. Rush refused to cover the $95,000 operation and offered a different treatment performed by a specialist within the network. Moran demanded an independent review of the decision, and an outside medical expert agreed that the "surgery was necessary." However, Rush still refused to cover the cost of the surgery, claiming that "its benefit offerings were protected by ERISA." Moran paid for the surgery herself and sued Rush for the cost under the Illinois law. A federal court ruled in favor of Rush, but the 7th U.S. Court of Appeals in Chicago in October 2000 overturned the decision, ruling that the health plan "agreed to state insurance regulations and therefore had to abide" by the Illinois law. Rush appealed the case to the Supreme Court (California Healthline, 7/2/2001).
In oral arguments yesterday, John Roberts, who represents Rush, said that the Illinois law serves as a "state-mandated remedy for a medical coverage dispute" that "changes dramatically what the plan actually provides," not a regulation of insurance (New York Times, 1/17). He added that the law provides a "new remedy not permitted" under ERISA (USA Today, 1/17). "Illinois law seeks to impose a different remedy. The Illinois law is thus pre-empted" by ERISA, he said (Murray, Washington Times, 1/17). Justices Souter, Stevens, and O'Connor questioned Roberts but "didn't really give him much resistance," PBS health reporter Susan Dentzer said on NewsHour (NewsHour, 1/16). The Washington Post reports that O'Connor "pepper[ed]" Roberts with questions "about the status of a patients' bill of rights in Congress and about comparisons of the Illinois law with other state laws" (Washington Post, 11/17). Questioning Roberts' argument that Rush does not fall under a provision of ERISA that permits states to regulate insurance, O'Connor asked, "What is insurance?" Roberts answered, "Rush provides coverage, not care. But that is not insurance." Daniel Albers, Moran's attorney, and Edwin Kneedler, a U.S. deputy solicitor general acting on behalf of the Bush administration, argued that the Illinois law "did not conflict with ERISA" (New York Times, 1/17). They said state laws that require independent review "fall squarely into a category involving insurance that is exempt" from ERISA (USA Today, 1/17). "The processing of claims is an essential part of an insurance policy," Kneedler said (New York Times, 1/17). Albers added, "This is a state insurance law, and it sets up a familiar mechanism: You get a second opinion from a physician" (Savage, Los Angeles Times, 1/17).
Albers also said that independent review "is needed because insurers have an inherent self-interest in denying special coverage because of the costs" (USA Today, 1/17). Dentzer reported on NewsHour that Justices Scalia, Kennedy "and even the chief justice to some degree" offered "some resistance" to Moran's attorneys and "seemed to suggest that they were not willing to embrace the Illinois law, or by extention maybe some of the other 39, 40 [state] laws" (NewsHour, 1/16.) Justice Breyer, who the Washington Times reports had "extensive insurance investments before coming to the high court," asked "Why is this insurance? Every company that sells a product with a warranty is, to that extent, an insurer." Scalia asked what the difference is between HMOs and law firms that provide prepaid benefits. He asked Albers if law firms were also insurance companies. According to the Times, Scalia also asked "why a state that cannot require lawsuits may dictate an arbitration system" (Murray, Washington Times, 1/17). USA Today reports that the justices' questions "did little to reveal how the majority might rule in the case" (USA Today, 1/17).
The AP/Philadelphia Inquirer reports that the case, which "highlights the tension" between HMOs and patients over medical decisions, will likely "set the ground rules for patients who disagree with the decisions of doctors affiliated with their insurance companies but who still want their insurers to cover their medical expenses." The court's decision will affect about 119 million members of employer-sponsored health plans (Gearan, AP/Philadelphia Inquirer, 1/17). According to the Washington Post, the case could have "major implications for health care coverage in America," and a victory for Rush "could mean the end of all state independent review laws" (Lane, Washington Post, 1/17). Forty states have laws similar to the Illinois law (New York Times, 1/17). The Los Angeles Times reports that the "fate of all those laws appears to hang" on the decision (Los Angeles Times, 1/17). Thirty-two states and the American Medical Association have filed a brief in support of Illinois with the Supreme Court (New York Times, 1/17). In addition, the case may "awaken demands" for patients' rights legislation and place "pressure on Congress to act" (Lane, Washington Post, 1/17). The House and Senate each passed a patients' rights bill last year that would have required independent reviews to resolve patient disputes with HMOs and would have "made the Supreme Court case moot," but the legislation has stalled (New York Times, 1/17). As a result, the Supreme Court case has become "more vital," USA Today reports (USA Today, 1/17).
An audio file of PBS' "NewsHour" report about the case is available at
http://audio.pbs.org:8080/ramgen/newshour/expansion/2002/01/16/hmo.rm?altplay=hmo.rm. Note: You must have RealPlayer Audio to listen to the report.