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Health Law & Life Sciences
Alert - July 23, 2002
 
U.S. Supreme Court Permits States to Review HMO Decisions
 
 July 23, 2002
 

In Rush Prudential HMO v. Moran, 122 S.Ct. 2151 (2002), the United States Supreme Court held that the Employee Retirement Income Security Act (ERISA) does not preempt state independent review laws.  According to the opinion, more than 40 states have laws similar to the Illinois HMO Act that requires HMOs to provide independent review of disputes between primary care physicians and HMOs over whether a treatment is medically necessary. 

Debra Moran sued Rush Prudential under the Illinois HMO Act when Rush refused to provide coverage for an out-of-network shoulder surgery her primary care physician recommended.  The state court enforced the HMO Act and required Rush to submit to an independent review.  Meanwhile, Moran had the surgery at her own expense.  After the independent reviewing physician determined that the procedure was medically necessary, Rush refused to reimburse Moran for the $95,000 surgery.  Because Moran's insurance contract guaranteed coverage of medically necessary treatments, Moran sued for reimbursement under the HMO Act. 

After Rush removed the suit to federal court, the District Court held that ERISA preempted the Illinois independent review statute.  On appeal, the Seventh Circuit reversed, holding that the Illinois HMO Act escaped ERISA preemption because it fell within ERISA's "savings clause" and did not conflict with ERISA's exclusive civil enforcement scheme.  Because the Fifth Circuit reached the opposite conclusion concerning Texas' independent review statute, the U.S. Supreme Court granted certiorari to resolve the issue. 

In a 5-4 opinion written by Justice Souter, the Supreme Court affirmed the Seventh Circuit and held that ERISA does not preempt the independent review provision of the Illinois HMO Act.  Initially, the Court determined that the HMO Act is subject to ERISA preemption because it "relates to" an employee benefit plan.  However, the Court reasoned that because the HMO Act regulates insurance, it avoids preemption under ERISA's "savings clause." 

A state law that falls within the savings clause may still be preempted if it creates an alternative remedy that allows plan members to circumvent ERISA's six exclusive civil enforcement remedies.  Rush argued that the HMO Act authorizes a new form of relief that violates both ERISA's policy and Congress' intent to provide a uniform, federal, employee benefits law.  On the other hand, Moran argued that her suit was in accordance with ERISA's civil enforcement scheme because the independent review provision was incorporated into the terms of her insurance contract. 

The Supreme Court sided with Moran and held that the Illinois HMO Act survives ERISA preemption because it does not create a new cause of action or provide an alternative form of relief.  The Court concluded that if an independent reviewer deems a treatment medically necessary, the relief sought would fall within ERISA's exclusive remedies as a claim for benefits under the insurance policy. 

Potential Implications of the Decision

The effect of the Moran decision on HMO enrollees is not clear.  Healthcare providers and patients' rights groups applaud the ruling, labeling it a major victory for patients and a significant consumer protection device.  Advocates emphasize that independent review laws will enable patients to seek mandatory second opinions by out-of-network physicians and will increase their access and rights to health care. 

On the other hand, insurers and employers side with Justice Thomas' dissent and argue that the Moran decision will result in increased cost and reduced efficiency because HMO administrators will have to design coverage around differing state regulations.  Justice Thomas predicts that the Court's decision will force large employers offering health insurance to workers in many different states to tailor plans to each state's independent review statute, resulting in skyrocketing insurance premiums.

If you have any questions about the issues raised in this article or any other managed care law questions, please contact one of the managed care law lawyers listed below at 888-688-8500, or the Holland & Knight lawyer who normally assists you:

  • Boston, MA:  James Jacobson/ Michael Manthei
  • Washington, D.C.: Michael Gaba
  • St Petersburg, FL: Michael Geldart/Cole Turner
  • Tallahassee, FL: Shannon Hartsfield
  • New York, NY: Michael Ziegler

Click here for a more in-depth discussion of this case.

We would like to thank Lindsey Churchill, Summer Associate in Holland & Knight's Atlanta office, for her substantial work on this article, which grew out of a law review article she is preparing at Georgia State University College of Law.

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