Supreme Court Hears Arguments in Illinois HMO Case

The Supreme Court on Jan. 16 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). The court will consider 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).

Case Background
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 (Kaiser Daily Health Policy Report, 1/11).

Oral Arguments
In oral arguments on Jan. 16, 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). However, Daniel Albers, Moran's attorney, and Edwin Kneedler, a U.S. deputy solicitor general, 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). The Los Angeles Times reports that the justices "struggled with the issue" and "gave no hint of how they were leaning" in the case. The court will issue a decision in several months (Los Angeles Times, 1/17).

'Major Implications'
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 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).

On the Air
PBS' "NewsHour" on Jan. 16 reviewed the case and discussed the implications of the court's decision. An audio file of the "NewsHour" report is available online. Note: You must have RealPlayer Audio to listen to the report.