Justices Consider Case on State HMO Reforms

A lawyer for the managed care industry ran into skeptical questioning from the Supreme Court justices Tuesday in a key test case for state-led health-care reforms.

Kentucky and 24 other states require health maintenance organizations to open their networks to outside doctors, hospitals and pharmacists as long as these “service providers” agree to abide by the rules of the network.

These laws were passed as part of a “patients’ bill of rights” in several states. They give patients a way to keep seeing a favorite family doctor or specialist.

The legal dispute turns on a confusing distinction between insurance and employee benefits. States may regulate insurance but not employee benefits, which are governed by federal law.

In Tuesday’s oral argument, Robert N. Eccles, a lawyer for managed care firms, argued that Kentucky’s law is not a regulation of insurance. But the justices were quick to disagree.

“It seems to me this is a regulation of insurance,” Justice Anthony M. Kennedy said, because it changes the rules for health insurers.

“In practical terms, it gives patients a breadth of options they otherwise wouldn’t have,” Justice David H. Souter added.

Lawyers for the state and the Bush administration argued that Kentucky’s law should be upheld.

“As a matter of common sense, Kentucky’s law regulates insurance. It applies only to insurers in Kentucky who are regulated by the state insurance commissioner,” Elizabeth A. Johnson, the state’s lawyer, told the court.

Health-care experts have been watching the Kentucky case as an important test of whether states can impose pro-consumer regulations on HMOs. Since Congress has been unable to pass a national patients’ bill of rights, reformers have focused their efforts on the states.

California does not have a similar law, but a defeat for the Kentucky law could undercut other state reforms in California, reform advocates say.

For their part, health insurers say the so-called any willing provider laws will increase their costs. Doctors will not offer low rates if they are not guaranteed the high volume of business in a closed network, their lawyers argue.

A ruling can be expected in several months in the case of Kentucky Assn. of Health Plans vs. Janie Miller, Kentucky insurance commissioner.