NU Online News Service, June 20, 3:10 p.m. – Washington
In a decision that could have major implications in the debate over patient protection legislation, the U.S. Supreme Court has ruled that states can require managed care plans to accept independent review determinations regarding medically necessary treatments.
In a 5-4 decision, the court upheld a 7th Circuit Court of Appeals determination that the Employee Retirement Income Security Act of 1974 does not preempt state laws mandating independent review.
ERISA tries to iron out differences between state benefits laws and cut employers’ benefit costs by prohibiting states from regulating employee benefit plans. But a “saving clause” in ERISA does give states the ability to regulate insurance policies used in benefit plans.
In the case of Rush Prudential HMO Inc. vs. Moran et al., an employer-sponsored managed care plan challenged the independent review provision of the Illinois HMO Act, arguing that it is preempted by ERISA.
The 7th Circuit rejected the challenge, stating that while ERISA preempts most state laws affecting employer-sponsored plans, state laws that regulate the business of insurance are saved from preemption.
Applying the definition of the “business of insurance” from a series of Supreme Court cases, the 7th Circuit said that the independent review mandate in Illinois is a specific statutory provision aimed at the business of insurance which provides additional safeguards to preserve the integrity of the decision-making process.
Thus, the 7th Circuit said, the Illinois law is saved from preemption. The Supreme Court upheld this reasoning.
Nearly 40 jurisdictions in the U.S. have similar laws.
Mandatory independent review is one of the primary features of patient protection legislation now pending before Congress.
Justice David Souter argues in an opinion for the majority that the Illinois HMO Act can survive ERISA preemption because the act regulates insurance.
“Although an HMO provides healthcare in addition to insurance, nothing in the saving clause requires an either-or choice between healthcare and insurance,” Souter writes in the majority opinion. “Congress recognized, the year before passing ERISA, that HMOs are risk-bearing organizations subject to state insurance regulation?. The argument of Rush and its amici that [the Illinois act] sweeps beyond the insurance industry, capturing organizations that provide no insurance and regulating noninsurance activities of HMOs, is based on unsound assumptions.”
Moreover, Souter writes, the Illinois law meets standards for insurance laws spelled out in an earlier Supreme Court ruling, on Metropolitan Life Insurance Company vs. Massachusetts.
The Illinois law “regulates application of HMO contracts and provides for review of claim denials,” Souter writes. “Once it is established that HMO contracts are contracts for insurance, it is clear that [the Illinois law] does not apply to entities outside the insurance industry.”
Finally, Souter writes, the Illinois law focuses narrowly on interpretation of the phrase “medically necessary,” closely resembles a requirement that patients have access to second opinions, and appears to be significantly different from common arbitration.
Justices John Paul Stevens, Sandra Day O’Connor, Ruther Bader Ginsburg and Stephen Breyer joined Souter in the majority.
Justice Clarence Thomas wrote a dissenting opinion representing his views and those of Justices Antonin Scalia and Anthony Kennedy, and of Chief Justice William Rehnquist.
“Allowing disparate state laws that provide inconsistent external review requirements to govern a participant’s or beneficiary’s claim to benefits under an employee benefit plan is wholly destructive of Congress’ expressly stated goal of uniformity in this area,” Thomas writes. “The Court would do well to remember that no employer is required to provide any health benefit plan under ERISA, and that the entire advent of managed care, and the genesis of HMOs, stemmed from spiraling health costs.”
If the Illinois act and other state laws resembling it increase the likelihood that HMOs will have to subsidize beneficiaries’ treatment of choice, “they undermine the ability of HMOs to control costs, which, in turn, undermines the ability of employers to provide health care coverage for employees,” Thomas concludes.
A link to the majority opinion and the dissenting opinion is available on the Web at http://www.supremecourtus.gov/opinions/01slipopinion.html