Supreme Court Upholds State Laws Allowing Independent Reviews of HMO Decisions
A divided Supreme Court yesterday upheld state laws giving patients the right to seek an independent review of denials of care issued by their managed care companies, the New York Times reports (Greenhouse, New York Times, 6/21). Under these laws, on the books in 42 states and in the District of Columbia but not widely used by consumers, states "typically force HMOs to submit to what is essentially a second-opinion process," giving "patients who prevail a major advantage in federal court" if the health plan continues to deny coverage, according to the Wall Street Journal (Lueck et al., Wall Street Journal, 6/21). In a 5-4 vote, the court ruled that the HMOs regulated by the state laws -- which do not apply to employees in self-insured plans -- "are a form of insurance as well as an employee benefit," and thus the states' authority to regulate them is not "preempted" by the 1974 Employee Retirement Income Security Act (Lane, Washington Post, 6/21). That law, established to provide national uniformity in employee benefits, overrides any state statute dealing with employee benefit plans except for the regulation of insurance (New York Times, 6/21). "HMOs have taken over much business formerly performed by traditional indemnity insurers," Justice David Souter wrote for the majority, adding that "requiring a second opinion was part of regulating medical practice -- also a traditional state function -- and did not interfere with the workings or the terms of benefits plans" (Egelko, San Francisco Chronicle, 6/21). The decision is available online.
The case centers around Debra Moran, an Illinois woman who in 1995 went to see a doctor within the network of her HMO, Rush Prudential, for severe arm and shoulder pain. While the Rush Prudential doctors recommended surgery, a second opinion from a Virginia doctor not in the network recommended a more extensive surgery costing $95,000, for which the health plan refused to pay. Moran appealed under Illinois' 1987 review law, and an independent specialist sided with her and ordered Rush Prudential to cover the surgery, which Moran had already undergone and paid for with her own money (Ritter, Chicago Sun-Times, 6/21). Rush Prudential continued to refuse to pay, leading to Moran's suit. A lower federal court ruled for the HMO, but the 7th U.S. Circuit Court of Appeals upheld the state law (Greenburg, Chicago Tribune, 6/21). That ruling contradicted a decision by the 5th U.S. Circuit Court of Appeals, which struck down Texas' independent review statute in 2000. The Supreme Court then agreed to settle the issue (Washington Post, 6/21).
The court's decision "[m]aintains the status quo" for the states' laws (Appleby/Biskupic, USA Today, 6/21). The ruling protects the right to seek an independent review for the 73 million Americans whose employers contract with an outside health plan to provide medical benefits. The state laws do not apply to the 56 million workers whose employers are self-insured (New York Times, 6/21). The decision also does nothing to increase uniformity among the state laws, the lack of which was the main argument advanced by health insurers against the independent review statutes. "The issue of how far states can go (in regulating health plans) is still left open" by the decision, Mary Ellen Signorille, an employee benefits lawyer at AARP Foundation Litigation, said (MacDonald, Hartford Courant, 6/21). In the dissent, Justice Clarence Thomas said that "[a]llowing disparate state laws that provide inconsistent external review requirements" goes against Congress' intent in enacting ERISA. He predicted that upholding the state laws will "undermine the ability of HMOs to control costs, which, in turn, undermines the ability of employers to provide health coverage for employees" (New York Times, 6/21).
The case had been "closely watched" because of its possible impact on the patients' rights debate in Congress, which, for the moment, is stalled. If the court had struck down the state laws, "pressure could well have grown for Congress to fill the gap," the Washington Post reports (Washington Post, 6/21). Patients' rights advocates praised the decision, but said it doesn't eliminate the need for a national patient protection law (Savage/Kemper, Los Angeles Times, 6/21). Sen. Edward Kennedy (D-Mass.) said that the state laws are "no substitute for strong federal action. Enactment of [a] patients' bill of rights ... is the only effective way to protect patients from HMO misconduct" (Hartford Courant, 6/21). Since the first independent review law was passed by Michigan in 1978, only 3,957 cases have worked their way through the process, with about 50% resulting in a "reversal or modification" of a health plan decision, according to a Kaiser Family Foundation study. Patients' rights proponents said the court's decision might spur renewed efforts to reconcile the differing Senate- and House-passed bills, both of which would institute a national independent review process, thereby creating uniformity (Washington Post, 6/20). "I think the prospects of a statute being enacted are higher because of this decision," Rep. Robert Andrews (D-N.J.) said, adding, "Groups concerned about patients' rights will find [the status quo] inadequate, but industry will find it frightening because now they are exposed to a patchwork of state laws" (Rovner, CongressDaily, 6/20).
- NPR's "All Things Considered" yesterday reported on the ruling. The full segment is available in RealPlayer Audio online (Bradley, "All Things Considered," NPR, 6/20).
- PBS' "NewsHour with Jim Lehrer" yesterday also reported on the ruling. The full segment is available in RealPlayer Audio online (Dentzer, "Online NewsHour with Jim Lehrer," PBS, 6/20).
- NPR's "Morning Edition" interviewed American Association of Health Plans President and CEO Karen Ignagni; Sarah Rosenbaum, professor of health law and policy at George Washington University's School of Public Health and Health Services; Rep. Robert Andrews (D-N.J.); and Sens. Bill Frist (R-Tenn.) and John McCain (R-Ariz.) about the decision. The full segment will be available in RealPlayer Audio online after noon ET (Rovner, "Morning Edition," NPR, 6/21).
- A second NPR "Morning Edition" segment today discussed the legal aspects of the ruling. The full segment will be available in RealPlayer Audio online after noon ET (Totenberg, "Morning Edition," NPR, 6/21).