April 2002 Bulletin

Patients’ rights decision

Spotlight is on U.S. Supreme Court

By Elaine Rappaport Lev, Esq.

The U. S. Supreme Court has taken up a key patients’ rights issue in Rush Prudential HMO v. Moran which was argued before the Court on January 16, 2002. The decision in the case will determine whether doctors or insurance administrators decide the "medical necessity" of particular procedures when the HMO insures an ERISA plan.

The day after the argument, The Bureau of National Affairs’ Health Care Daily Report (Jan.17, 2002, Vol.7, No.12) stated, "The ability of managed care organizations to decide whether certain services are medically necessary is a fundamental feature of managed care, and the extent to which the states can tinker with that right makes the case the most significant health law dispute before the high court this term."

Surgeons will be particularly impacted by this case because they are the specialists that receive referrals from the primary care physicians who have determined that given procedures are medically necessary.

Recognizing the importance of this case, the American Medical Association, the Illinois State Medical Association, the American Psychiatric Association, the Association for the Advancement of Retired People and the United States government, as well as 32 other states with similar laws, have supported Debra Moran and the Illinois insurance law covering the case.

Medical recommendation refused

In the underlying case, Ms. Moran suffered from both radial brachial plexopathy and thoracic outlet syndrome in her right shoulder. When conservative therapy did not improve her condition she sought specialized treatment in the form of an extensive microneurolysis surgery. Her primary care physician recommended the treatment even though it was out of network because the traditional in-network surgery offered by the HMO posed a one-third risk of paralysis or loss of limb.

The HMO refused to approve the doctor’s recommendation. Illinois insurance law requires an independent review of the medical necessity of the proposed procedure in this circumstance; but the HMO also refused to such a review claiming that because the employer, which purchased its HMO insurance, was covered by ERISA, that federal law preempted the state independent review law.

A state court in Illinois ordered the independent review and a surgeon at Johns Hopkins found the proposed surgery was medically necessary. Still the HMO refused to pay. The federal appeals court ruled the Illinois law was not preempted by ERISA and ordered the HMO to pay. The HMO appealed to the Supreme Court.

Decision ramifications

For years, health plans have argued that anything relating to a health benefit in their plans is pre-empted by federal law. As such, they have argued that state laws do not apply to them even if the state law is intended to protect patients and the physicians entrusted with the decision-making responsibilities for their patients’ medical care.

The ramifications of the Court’s decision will be significant. For example, many states have prompt pay statutes which include language requiring HMOs or other health plans to reimburse providers within a specific period of time in order to insure payment.

Under the historical arguments made by HMOs, including those in Moran, an HMO could argue that state law prompt payment statutes are inapplicable to them and can arguably refuse payment claiming that the provision of payment to physicians under state law really relates to a health benefit under their plan, and is therefore pre-empted by ERISA. It is not difficult to begin creating scenarios where HMOs could essentially try to refute any state statutes that arguably relate to a health benefit under their plans.

Exception clause

ERISA has an exception clause, or "saving" clause, which states that there is no pre-emption from state law if the state law "regulates insurance" as opposed to somehow impinging upon the actual benefits of the plan. As the Moran case argues, and as the many states that have weighed in agree, HMOs are insurers, and states do have a genuine interest in regulating them. The state interest is particularly acute in determining the question of medical necessity.

The recent discussions on the Patient Bill of Rights have put the medical profession in the spotlight. ERISA is a key element in those discussions. The Moran case gives the Supreme Court the opportunity to clarify prior law and support the rights of patients and physicians.

Elaine Rappaport Lev Esq., is a partner at Barnes & Thornburg in Chicago.

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