High Court to Examine HMO Dispute Reviews

The Supreme Court on Wednesday will take up the health insurance industry’s challenge to what many experts laud as the most promising legal reform in health care: independent medical review of HMO disputes.

In recent years, California and 41 other states have adopted laws that give patients a right to a second opinion if their HMO refuses to pay for a medical treatment.

These measures grew out of complaints from angry consumers and doctors, who alleged that medical decisions were being made by managed care firms that were determined to save money, even at the cost of their patients’ health.

Under these laws, an outside medical expert, or a panel of doctors, can review the patient’s case and the HMO’s decision. If it’s concluded that the desired medical treatment was needed, the state can force the HMO to pay for it.

If the high court strikes down state-mandated independent medical reviews, “it’s like taking the metal detectors out of an airport on Sept. 12,” said Daniel Zingale, director of the California Department of Managed Health Care.

California would lose the power to require HMOs to provide such reviews to patients in employer-sponsored health plans. “It would cut the heart out of California’s patients’ bill of rights,” Zingale said.

Because the laws are new, experts say it is too early to evaluate their true effect. But researchers who have studied them are convinced they are a step in the right direction.

“This responds directly to the backlash over managed care,” said Karen Pollitz, a health policy researcher at Georgetown University who led a study of the independent review laws for the Kaiser Family Foundation. “If you are a consumer, you get to take your claim before an expert. . . . And you can get a fast answer to your question: ‘If you were my doctor, would you have ordered this treatment for me?’

“We found that about half the time, the independent review overturns the HMO’s decision,” she said.

In California, HMOs have fared slightly better.

Since last January, when independent reviews began in California, HMO regulators have handled 651 patient appeals. Of those completed, experts have upheld HMO decisions in 58% of cases and overturned 34%. In the other cases, health plans reversed themselves during the course of the appeal.

Insurance Industry Fights 2nd Opinions

During the 2000 presidential campaign, George W. Bush said independent review was the right solution to the managed care dilemma, saying it avoided costly and drawn-out lawsuits.

Most in Congress agreed in the early debates over the proposed patients’ bill of rights. While the legislation foundered over whether patients should be allowed to sue their HMOs for damages in state court, all sides portrayed independent review as a reasonable reform.

Meanwhile, the health insurance industry began challenging state independent review laws in federal court, and its lawyers have won some key victories. Shortly after Bush praised the Texas system of independent review, the U.S. Court of Appeals struck it down as conflicting with federal law.

The judges pointed to the Employee Retirement Income Security Act of 1974, which Congress passed to secure the pensions of American workers. The law set rules for retirement funds and other “employee benefits,” national standards that would “supersede any and all state laws.” This rule was intended to shield large national corporations, such as AT&T; and IBM, from different state rules.

By the mid-1990s, most American workers and their families were receiving health care as an “employee benefit.” Typically, insured people sue for damages in state courts. But when disgruntled patients tried to sue their HMOs, the Supreme Court said these “employee benefit plans” were governed “exclusively” by ERISA and, therefore, were off limits to suits brought under state law.

These decisions shielded HMOs from being sued over their benefit decisions.

In the Texas case, the appeals court extended that shield to protect an HMO from the state’s independent review law. If a state seeks to force an employee benefit plan to pay for an extra medical treatment, that demand “conflicts with ERISA’s exclusive [federal] remedy,” wrote Judge Patrick Higginbotham of the U.S. 5th Circuit Court of Appeals.

Last year, lawyers for Texas and 24 other states, along with the Bush administration and the American Medical Assn., urged the Supreme Court to reconsider that ruling.

Instead, the justices voted to hear an Illinois case in which independent review had been upheld.

It began when Debra Moran, a suburban Chicago woman, complained about recurrent nerve pain in her right shoulder. She was offered physical therapy by the HMO used by her husband’s employer. When the pain and numbness worsened, Moran sought out a specialist who recommended a type of nerve surgery.

While her primary care doctor approved, Rush Prudential HMO said the surgery was not “medically necessary” and refused to pay for it.

Moran had the operation, paid $95,000 and later sought an independent review of her claim. A specialist from Johns Hopkins Medical Center in Baltimore concluded the surgery was medically necessary.

Undaunted, the HMO went to federal court, arguing that the Illinois independent review law conflicted with ERISA. A divided U.S. Court of Appeals sided with Moran and upheld the state law. Its judges pointed to a little-noticed clause in ERISA that preserved standard state laws that “regulate insurance.”

Because the Illinois system of independent review was a means to regulate health insurers, it did not conflict with the federal pension law, said the U.S. 7th Circuit Court of Appeals.

But the Supreme Court voted in June to hear the insurance industry’s appeal in Rush Prudential HMO vs. Moran, 00-1021.

In their legal briefs, the competing lawyers argue over whether independent review laws regulate “employee benefit plans” or insurance companies. The fate of all state independent review laws might turn on the answer to that question.

Regardless of how the high court rules, Congress could impose such a system by passing a federal patients’ bill of rights law.

HMO industry representatives say they fully support the concept of independent review. Nearly all health plans offer the option, even for members in states without such laws.

But the American Assn. of Health Plans objects to different state laws, which could pose uneven requirements for a company that has employees in many states.

Only some states require medical reviewers to use nationally accepted scientific standards, for example. States also have different licensing requirements for reviewers, timelines for reviews and rules on who pays the cost of appeals.

“We can be for the concept of external review but also feel very strongly that there is a value of uniformity across the states,” said Karen Ignagni, the HMO group’s president.

Treatments OK’d After Independent Reviews

But some Californians say the new system has proved its worth.

Angie Birdwell, 41, used the state’s external review process last year after her physician group and then her HMO denied her 17-year-old son a referral to a specialist who could treat his heart condition.

“I had been frustrated for so long and felt that I had no options,” said Birdwell, director of marketing for Wells Fargo bank in the Bay Area.

The review process overruled the HMO, and on Friday her son will undergo a procedure to correct his rapid and painful heartbeat. It will be covered by the HMO.

Sheila Ghen, 36, of Oxnard, credits independent medical review for saving the life of her 2-year-old son, Caden. She won a referral to take her son to a pediatric surgeon to repair a life-threatening hernia in his abdominal wall. Her HMO wanted to send the boy to a general surgeon who did not treat patients younger than 12.

“My only choice would have been to take my son to a doctor that doesn’t treat children under 12 or pay thousands and thousands of dollars for this myself,” Ghen said. “It’s unfortunate that the health plan could not have figured it out for themselves, and it took the state to intervene to get it resolved.”

Patients requesting information on California’s independent medical review can call (888) HMO-2219.