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Life Health > Health Insurance

High Court To Rule On HMO Independent Review Case

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The United States Supreme Court last week heard oral arguments in a closely watched case that could determine whether states can require health maintenance organizations to accept independent review determinations regarding medically necessary treatments.

In the case of Rush Prudential HMO v. Moran, the high court will rule on whether state laws requiring HMOs to cover treatments deemed medically necessary by independent reviewers are preempted by the Employee Retirement Income Security Act.

The case has drawn sharply different reactions among health care reform advocates and HMO groups. Ron Pollack, executive director of Families USA, a Washington-based reform advocate, says the facts of the case demonstrate “the incredible contradictions of the managed care industry when it comes to patients rights.”

Pollack argues that HMOs are trying to block federal legislation that would give patients the right to sue managed care plans. The HMOs say, according to Pollack, that consumers should instead register complaints with independent review boards.

But now, he says, HMOs are challenging the validity of the state laws that created these review boards.

“In so doing, the managed care industry gives duplicity a bad name,” Pollack says.

“In effect,” he adds, “the managed care industry wants consumer disputes to be handled in such a way that the HMO is the judge, prosecutor and jury.”

But in a statement, the American Association of Health Plans says that independent review is not the issue. (AAHP filed an amicus brief in the case along with the Health Insurance Association of America and the American Benefits Council.)

“The court is being asked to review whether ERISA applies in the case or the state law applies,” AAHP says. “ERISA is a critical protection for employee benefits, which become less affordable if employers are asked to devote resources to comply with different sets of state rules about them.”

The real issue, AAHP says, is fairness.

“AAHP believes that patients should be equally protected regardless of where their companies are based or where they work,” the association says.

Specifically, the plaintiff in the case, Debra Moran, was covered by an employer-sponsored health plan, Rush Prudential. Moran contracted a nerve ailment and was initially treated by a Rush-affiliated physician.

When she did not respond to the treatment, Moran consulted a non-network specialist who recommended what is called microreconstructive surgery. Moran asked Rush to approve the surgery but, citing contrary opinions from other physicians, Rush declined.

Moran then demanded an independent review, which HMOs are required to provide under the state law of Illinois, which was the site of the controversy.

After various court proceedings, Rush and Moran agreed to have an expert from Johns Hopkins Medical Center perform an independent review. The reviewer determined that the surgery was indeed medically necessary, although the reviewer suggested a different surgical technique than that recommended by the non-network specialist Moran consulted.

Nonetheless, Rush again denied Morans claim, concluding that surgery was not medically necessary.

Moran sued Rush seeking to force coverage of the surgery, but a United States District Court held that the Illinois HMO law mandating independent review is preempted by ERISA.

Later, a three-judge panel from the Seventh Circuit Court of Appeals reversed the District Court.

The Seventh Circuit noted that while ERISA preempts most state laws, state laws that regulate insurance are saved from preemption.

The question, the court said, is whether the independent review provision of the HMO law regulates the “business of insurance.”

Applying the definition of the “business of insurance” from a series of Supreme Court cases, the Seventh Circuit determined that the Illinois law is not preempted.

Rather, the court said, it is a specific statutory provision aimed at the regulation of the insurance industry, in that it requires entities in the business of insurance to provide additional safeguards to preserve the integrity of the decision-making process.

Thus, the court said, Moran is entitled to independent review and Rush is required to honor the determination that the surgery is medically necessary.

After the three-judge panel ruled in favor of Moran, Rush asked for a rehearing en banc, which means by all the judges on the Seventh Circuit.

The court refused, but four of the judges criticized the refusal, citing the importance of the issues involved.

“The expense of an arbitration by the independent physician could easily equal the expense of the medical treatment that the HMO had refused to authorize,” the judges said.

“Piling on costs in the administration of ERISA plans will shrink benefits and deter some employers from offering health insurance at all,” they added.

Families USAs Pollack says 37 states and the District of Columbia have established independent administrative review boards.

Reproduced from National Underwriter Life & Health/Financial Services Edition, January 21, 2002. Copyright 2002 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.

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