Rush Prudential HMO, Inc. v. Moran, Debra, et al.

Questions presented: Is the independent review provision of Illinois' HMO Act, which requires HMOs to submit disputes with a patient's primary care doctor over the "medical necessity" of a proposed treatment to independent physician review and to cover the treatment if the outside reviewer finds it necessary, preempted by ERISA (the federal Employee Retirement Income Security Act)?

BY NICOLE PEARL AND ALYSSA KOLSKY, MEDILL NEWS SERVICE

When Illinois resident Debra Moran's HMO refused to cover a surgery doctors deemed "medically necessary," she became the first person to use a powerful state law, one that few people know about, to defend her right to fair coverage.

Her difficulties began in January 1995, when the then 25-year-old Moran was diagnosed with Carpal Tunnel Syndrome. Recently married, Moran was covered by a medical benefits plan through her husband's employer, CCC Information Services.

Using doctors who were affiliated with the insurer, Rush Prudential HMO, Inc., Moran had the basic surgery a year later, but her pain remained even after her recovery.

The continued pain, numbness, loss of function, and decreased mobility in her right shoulder led Moran to undergo another nerve conduction test, which showed she that she had brachial plexopathy.

Like many people who are not initially aware of what their medical condition is, Moran researched.

"On my own, I found a doctor in Virginia who dealt with this," the speech therapist said. Because Dr. Julia Terzis was "out-of-network," Rush required Moran to pay her own way to visit the doctor.

"She was the first doctor to give me a diagnosis of TOS," Moran said. TOS (thoracic outlet syndrome) is a disorder caused by the compression of nerves in the brachial plexus. Dr. Terzis told Moran she needed surgery.

After reporting the news to her primary physician, Moran was sent to two other Rush-affiliated thoracic surgeons in Chicago to confirm the TOS diagnosis, to determine if surgery was necessary, and if so, to perform it.

The doctors affirmed the diagnosis and recommended surgery. However, in Moran's opinion, "The first guy's diagnosis was ridiculous," she said. "The first doctor told me that the surgery he would perform on me would leave me with a one-third chance of being better, a one-third chance of being paralyzed or a one-third chance that I'd be exactly the same," she said.

As for the second in-network doctor, "He didn't want to remedy the problem entirely, but he said he would just relieve the pressure. He didn't want to repair the nerves but said he'd close me up and hope I get better," Moran explained. "It had been over two years of pain, I had diagnostic tests showing that my nerves were damaged, and this doctor said he doesn't deal with nerves," she added.

The surgeries the Rush-affiliated doctors offered Moran were less than satisfactory, in her opinion. So Moran had surgery in February of 1998 under the care of Dr. Terzis. The complete microneurolysis surgery removed the compression as well as stimulated nerve endings, which showed the nerve damage, and then the nerves were repaired.

The 14-hour procedure and post-operative care cost $94,841.27.

However, right before the surgery, Moran received a glimpse of hope. "I found a lawyer who said that I was entitled to an independent review, by state law," she said.

Attorney Daniel Albers found that under Illinois's HMO law, if the HMO insurer disagrees with the HMO-affiliated primary care physician's recommendation that a treatment out-of-network is "medically necessary," then an independent physician needs to decide if treatment is "medically necessary."

Moran went ahead with her surgery before getting a judge to order an independent review because it took almost a year before the judge actually entitled Moran to an independent review.

Both the HMO and Moran agreed that Dr. A. Lee Dellon, an expert in plastic and reconstructive surgery at Johns Hopkins Medical Center, would perform the review.

His opinion: the surgery that Dr. Terzis performed was "medically necessary."

With the result of the independent review, Moran asked the state court to require Rush to reimburse her for the surgery. Rush removed the suit to federal court, claiming that the Employee Retirement Income Security Act (ERISA), which is a federal employee benefits law, preempts the state law.

"ERISA appeared in the early 1970s in response to employee funds and benefits being invaded," Albers said. "It is a federal law that was passed to protect employee benefits plans."

On the removal issue, the district court reasoned that because the claim was in effect a claim for ERISA benefits, it fell within ERISA's civil enforcement provision and was appropriately in federal court.

On the merits, the district court also ruled in favor of Rush, stating that "it had not abused its discretion or acted arbitrarily in denying Ms. Moran's claim for benefits."

Moran, along with the state of Illinois, which intervened to defend Illinois' HMO Act, appealed to the 7th Circuit Court of Appeals.

On Oct. 19, 2000, a 7th Circuit panel unanimously reversed, holding for Moran that the independent review scheme in Illinois' HMO Act was incorporated into Moran's insurance contract with the HMO and "cannot be characterized as creating an alternative remedy scheme" that conflicts with ERISA.

In his opinion, Judge Kenneth Ripple noted that the 5th Circuit Court of Appeals only months before in Corporate Health Insurance, Inc. v. Texas Department of Insurance ruled that a similar Texas law is preempted by ERISA, quoting from the 5th Circuit that "the law is clear that Texas cannot provide a supplementary claims process by binding the HMO to pay for a treatment that is simply a second opinion on medical necessity about which reasonable doctors might reach differing conclusions."

But as to Illinois' law, Rippled wrote: "Rather than providing an alternative remedy for Ms. Moran to recover benefits, sec. 4-10 of the HMO Act simply establishes an additional internal mechanism for making decisions about medical necessity and identifies who will make that decision in those instances when the HMO and the patient's primary care physician cannot agree on the medical necessity of a course of treatment."

The 7th Circuit concluded: "In sum, sec. 4-10 of the HMO Act requires entities in the business of insurance to provide additional safeguards to preserve the integrity of the decision-making process."

What saved Moran apparently was that her husband's company happened to choose an insurance plan that was fully insured rather than a self-insured plan, under ERISA, entitling her to the provisions of Illinois' HMO law.

"I am saved from the federal preemption of state law because there is a savings clause in ERISA that says if you have a fully insured health care insurance plan through your employer, then you are saved from the federal preemption of the state law," she said. "This should be in the idiots' guide to law," she added.

When the entire 7th Circuit declined to re-hear the case, Judge Richard Posner penned a dissent for himself and three other judges, calling the panel's opinion "a startling decision" and saying that the 7th Circuit has rarely had such a good candidate for en banc review in that the panel's decision "creates a square conflict with another circuit, is very probably unsound, and will affect an enormous number of cases."

On June 29, 2001, one day after the U.S. Supreme Court issued the final opinions of its 2000-01 term, the Court granted certiorari in this case, and allowed the National Association of Insurance Commissioners to file an amicus brief.

Thirty-seven states have laws similar to Illinois', which require independent review if treatment is "medically necessary," and the impact of the Supreme Court's decision could ultimately affect the balance of power between HMOs and physicians, said Albers, Moran's attorney.

"Most people would like an independent doctor to make the decision rather than an HMO," Albers said. "The states said that the doctors should make the decisions and the (appeals) court agrees," he added.

For Moran, who has put aside the $94,841.27 in an account until the Supreme Court decides the case, the case has ceased being about her, she said.

"There needs to be accountability for HMOs, and insurance companies need to provide coverage easily," she said. Moran hopes her case will result in more people in Illinois becoming aware that there is a state law out there that they can use.

On June 20, 2002, the Court, divided 5-4 along ideological lines, sided with Moran and held that states do not violate federal law by enabling patients to get second opinions when their HMOs deny coverage

In the majority opinion, written by Justice David Souter, the Court rejected Rush's claim that it was not a true insurer. Rush had tried to assert that it was a health care provider and thus was not to be held to applicable regulations.

"The answer to Rush is, of course, that an HMO is both: it provides health care, and it does so as an insurer." Because there did not have to be an "either-or choice between health care and insurance in deciding a preemption question," the Court found that the regulation did apply to the Rush case. In addition, the Court stated that Congress had defined HMOs as "risk-bearing organizations subject to state insurance regulation" even before the passing of ERISA. "Thus, the Illinois HMO Act is a law 'directed toward' the insurance industry, and an 'insurance regulation' under a 'commonsense' view."

The Court then examined Rush's claim that, under Union Labor Life Ins. Co. v. Pireno (1982), external reviews of coverage decisions were "outside the 'policy relationship.'" The court disagreed, stating that "Rush misreads Pireno" and finding that Section 4-10 was different, "providing as it does a legal right to the insured, enforceable against the HMO, to obtain an authoritative determination of the HMO's medical obligations."

Justice Clarence Thomas wrote the dissent and was joined by Chief Justice William Rehnquist and Justices Antonin Scalia and Anthony Kennedy. His words were strong, calling the Court's decision an "unprecedented step" in allowing Moran to "short circuit" ERISA and finding that "[s]ection 4-10 cannot be characterized as anything other than an alternative state-law remedy or vehicle for seeking benefits."

He criticized the majority for eviscerating ERISA's comprehensive and exclusive remedial scheme by such "formalistic tricks" as allowing states to put their own particular remedial devices in contract terms. "[W]e should not interpret ERISA in such a way as to destroy it," he emphasized.

At the heart of the dissent sat the idea that these state laws conflicted with congressional jurisdiction. Wrote Thomas: "Allowing disparate state laws that provide inconsistent external review requirements to govern a participant's or beneficiary's claim to benefits under an employee benefit plan is wholly destructive of Congress' expressly stated goal of uniformity in this area."

Finally, Thomas acknowledged that while state law provisions for an independent review "may sound very appealing" because they increase treatment options for patients, he noted that HMOs were originally created to keep health care costs down. For this reason, he wrote that provisions like "4-10 may prohibit HMOs from effectively controlling costs and allowing employers to provide health care benefits for their employees. He then took it a step further, stating that these provisions could potentially "create a disincentive to the formation of employee health benefit plans." He acknowledged that allowing state independent review provisions had its advantages but concluded by stating that allowing these reviews was ultimately a decision to be made by Congress.