Supreme Court Upholds State Laws Giving Patients Right to Independent Review of HMO Decisions

A divided Supreme Court on June 20 upheld state laws giving patients the right to seek an independent review of denials of care issued by their managed care company, 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 a 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, over-rides 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. Note: You must have Adobe Acrobat Reader to view the decision.

The Background
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).

No Uniformity
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 a 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).

Giving Momentum to Patients' Rights?
The case had been "closely watched" because of its possible impact on the patients' right 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). But James Klein of the American Benefits Council, which represents large businesses, said, "If proponents of an expansive patients' bill of rights think that [yesterday's] decision will induce employers to seek enactment of a federal patients' rights bill, they are sorely mistaken" (Rovner, CongressDaily/AM, 6/21).

Media Coverage

• NPR's "All Things Considered" on June 20 reported on the ruling. The full segment is available online in RealPlayer Audio (Bradley, "All Things Considered," NPR, 6/20).
• PBS' "NewsHour with Jim Lehrer" on June 20 also reported on the ruling. The full segment is available online in RealPlayer Audio (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," 6/21).
• A second NPR "Morning Edition" segment on June 21 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).

Reaction
The following is a summary of editorials and organizations' reaction.
Editorials

• Philadelphia Inquirer: Although the court's decision is "reason to cheer," Congress "needs to act" on federal patients' rights legislation, the editorial states. However, the Inquirer concludes, "[W]ithout the immediate prospect of a federal patient law, the Supreme Court has done well in backing states' efforts to heal patient-HMO rifts" (Philadelphia Inquirer, 6/21).
• San Francisco Chronicle: The Supreme Court's decision is "welcome," the editorial says. The second opinion process is an "essential element of sound medicine," according to the Chronicle. Still, the editorial concludes that the ruling "is no substitute for a national standard set by Congress" (San Francisco Chronicle, 6/21).
• USA Today: The ruling is a "modest victory" for patients, but it exposes the "lack of progress" by lawmakers in crafting federal patients' rights legislation. The editorial concludes, "The Supreme Court did its job on behalf of HMO patients this week. Now it is the lawmakers' turn" (USA Today, 6/21).

• AARP: CEO Bill Novelli said, "AARP is pleased that the court has held that states can require an independent review of HMO decisions to deny health benefits. ... But these state protections do not cover everything. Every managed care enrollee deserves the right to independent review. In order to guarantee fairness, patients need access to objective and independent review of an HMO's decision" (AARP release, 6/20).
• Families USA: Executive Director Ron Pollack said, "The Supreme Court's decision is a victory for families confronting unjust denials and delays of health care form their HMOs. ... For two reasons, however, this decision underscores the need for a national patients' bill of rights. This is because today's decision provides no relief for people in the eight states that have not created impartial hearing rights. More importantly, even in the 42 states that have established review panels, federal law prevents those panels from handling appeals for people who receive their health coverage from an employer who self insures ... and their access to an impartial appeal will only occur if the national patients' bill of rights becomes law" (Families USA release, 6/20).
• Foundation for Taxpayer and Consumer Rights: Executive Director Jamie Court said, "This case had the potential to und[o] all the hard-earned gains of the HMO patients' rights movement. ... Today's decision protects the status quo of the states' medical review process, but a federal patients' bill of rights is needed to establish a judicial review process that punishes HMOs in the same way other corporations must pay when they are reckless or malicious" (Foundation for Taxpayer and Consumer Rights release, 6/20).
• Health Insurance Association of America: Dr. Donald Young, president of HIAA, said, "The Supreme Court's decision today will add greater cost and complexity to health insurance coverage. ... [H]aving 50 different state standards governing how external review is practiced will mean people covered under a multistate plan will not have the same benefits. The great danger is that with costs already skyrocketing, employers navigating varying state laws may be forced to reconsider whether they will offer health insurance for their employees" (HIAA release, 6/20).
• Healthcare Leadership Council: President Mary Grealy said, "This Supreme Court decision increases the urgency for Congress to act to make health care more, not less, affordable and accessible. The last thing working families needed was a court decision that will undoubtedly raise health care costs through increased regulation. What they need now is a Congress intent on accessible coverage rather than on generating more costly mandates and litigation" (Healthcare Leadership Council release, 6/20).
• National Association of Manufactures: NAM criticized the court's ruling, saying it is "fundamentally inconsistent" with ERISA. NAM Director of Employment Policy Neil Trautwein said, "The ... decision cuts a hole into ERISA uniformity and creates the potential for a crazy quilt of state regulation that will increase the cost and complexity of benefit administration. ... [The decision is] certainly not going to improve the quality of anybody's health care" (National Association of Manufacturers release, 6/20).