Supreme Court approves state review of HMO decisions; Congress stalls.

Proposed national health care legislation has been stalled in Congress since last fall, but the U.S. Supreme Court has spoken in favor of patients' rights. In a 5-4 decision, the Court ruled that the Employee Retirement Income Security Act (ERISA) does not preempt an Illinois law requiring HMOs to provide independent review of disputed treatment decisions and cover the costs of care deemed necessary. (Rush Prudential HMO, Inc. v. Moran, 122 S. Ct. 2151 (2002).)

The June decision is "a wonderful thing," said Alice Weiss, director of health policy for the National Partnership for Women and Families, a Washington, D.C., advocacy group. But she--along with plaintiff attorneys and other consumer advocates--cautioned that it is far from a total victory for patients. Some states do not have review procedures, and many people have no access to such procedures even in states that have them. The right to review, advocates say, will not be secure until Congress passes a national patients' bill of rights.

The case that drew the Court's attention to the issue was brought by Deborah Moran, who began to feel pain and numbness in her shoulder in 1996. After several unsuccessful treatments, her doctor recommended an unconventional type of surgery, to be performed by a specialist who was not affiliated with her health plan. Moran requested the surgery, but Rush Prudential, her HMO, decided that it was not medically necessary and denied her request.

Moran made a written demand for independent review of the denial under state law. Rush refused the demand, and Moran sued the HMO in state court to force it to comply with the law.

The state court ordered the review, and the reviewer found the surgery necessary, but Rush again denied Moran's request. While the suit was pending, Moran had the surgery and changed her state claim to one for reimbursement. Rush removed the case to federal court on grounds that Moran was seeking benefits under ERISA and thus her suit was preempted. The district court agreed, but the Seventh Circuit reversed.

ERISA broadly preempts all state laws that "relate to any employee benefit plan," but it contains an exception for laws that regulate insurance, banking, or securities--traditionally areas of state concern. Rush argued that HMOs are health care providers, not insurers, but Justice David Souter wrote for the majority that under a "commonsense approach," an HMO is both. Because the Illinois law "regulates insurance," Souter wrote, it is not preempted.

Linda Peeno, a practicing physician in Louisville, Kentucky, called this the most significant part of the decision: "Justice Souter recognized that HMOs call themselves providers or insurers, as it suits them." This mixed identity, said Peeno, a former reviewer for a managed care company, has led to the major problem with managed care--that "medical decisions are based on business considerations." (See Linda Peeno, Managed Care and the Corporate Practice of Medicine, TRIAL, Feb. 2000, at 18.)

No conflict with ERISA

Rush also argued that even if the Illinois law fell under the exception, it was preempted because its review procedure created a form of binding arbitration that conflicted with ERISA's civil remedy provisions--a claim that failed to persuade the Court majority. The Illinois review procedure, Sourer wrote, is "similar to ... the practice of obtaining a second opinion" and is "far removed from any notion of an enforcement scheme."

The American Association of Health Plans (AAHP), which filed an amicus brief in support of Rush, argued that state independent review laws defeat ERISA's goal of bringing uniformity to administration of health plans.

Justice Clarence Thomas agreed. He wrote in dissent that the majority's ruling "eviscerated the uniformity of ERISA remedies" and that the Illinois law "cannot be characterized as anything other than an alternative state law remedy or vehicle for seeking benefits." Moran had the right to bring a civil suit under ERISA to recover benefits, but instead she chose the Illinois law's "arbitral-like mechanism," he wrote.

The managed care industry says it has nothing against review boards--"health plans have been at the forefront in supporting external review," wrote AAHP president Karen Ignani in a published statement--but it maintains that review processes should be governed by federal law to create uniformity.

This position is "duplicitous," said Ron Pollack, executive director of FamiliesUSA, a nonprofit health care advocacy group based in Washington, D.C. The only way to establish a federal review right, he said, is through federal legislation, and "the managed care industry has consistently opposed passage of a national patients' bill of rights."

Plaintiff attorney Joshua Spielberg of Cherry Hill, New Jersey, agreed. "HMOs dress up their opposition to health care legislation in an argument that ERISA should preempt state laws for the sake of uniformity," he said. "But what they really want is total control."

An incomplete victory

Peeno cautioned that while state review procedures are helpful to patients, they are no cure-all: "Review procedures are like a Band-Aid--they stop the bleeding, but an infection can continue below the surface."

HMOs are getting around review processes, she said, by avoiding overt denials. For example, in a capitated health plan--one that pays a provider a set amount per patient--an HMO might urge physicians to avoid making referrals to specialists or ordering tests, to save money. That amounts to a de facto denial of care, she said, but nothing for the patient to appeal.

Pollack called the Rush decision an "important but incomplete victory for patients." Forty-two states have independent review laws, he said, so the ruling provides no relief for people in the other eight states. And state review boards handle appeals only from people whose employers contract to provide health insurance, because ERISA precludes states from regulating self-insured plans. Pollack estimated that more than 60 million people have no access to independent review of treatment decisions.

Where review boards exist, their effectiveness is mixed, he added: "Many people are not aware of their right to appeal treatment decisions, and even when they know their rights, they are often too sick or frail to face the daunting prospect of fighting an HMO."

All of this means that "passage of a national patients' bill of rights is critical," said Pollack. "We need to create a federal right to review of HMO treatment decisions that applies to everyone, irrespective of where they live."

Both houses of Congress have tackled the issue, but the effort has stalled. The McCain-Edwards-Kennedy bill (S. 1052), passed in the Senate in June 2001, would create a right to review of HMO care decisions that would act as a federal "floor"; it would leave intact state programs that met or exceeded that standard. The House-passed version (H.R. 2563) contains an amendment by Rep. Charlie Norwood (R-Ga.) that would preempt state review procedures and replace them with a federal standard.

A conference committee was to be appointed to reconcile the bills, but after last year's September 11 attacks, congressional attention shifted to security issues, and no committee was assembled.

Weiss said there have been significant negotiations among the principal sponsors of the bills and the White House, but they are not likely to produce legislation that can pass both houses of Congress this year. This means that the Moran decision is particularly important, she said, because "it clearly empowers states to give at least some of their citizens the security of knowing that they can appeal health care decisions" until Congress acts.

Once a federal right of review is created, Pollack said, patients could be adequately protected by procedures governed by either federal or state law.

Weiss said state laws should govern review procedures because "there is a much greater opportunity for meaningful oversight." While the Senate bill would allow states to keep or enact review procedures that are more protective than the proposed federal standard, the House version would "impose a strict and narrow review," she said, and "federal agencies do not have the resources to enforce review procedures."

Meaningful change in managed care is still several years away, Peeno said. But she added that public outrage over corporate misconduct in connection with the Enron and WorldCom debacles could spill over to managed care. "The public's demand for accountability and transparency in corporate dealings is just what managed care needs," she said.