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Justices Weigh States' Role in HMO Disputes

Law: Some on the U.S. high court signal they are rethinking previous ruling, based on the issue of insurance regulation.


WASHINGTON — Fifteen years ago, the Supreme Court closed the door to most Americans who wanted to sue their HMO or challenge its refusal to pay for medical treatment. In a unanimous ruling, the justices said the regulation of pensions and other employee benefits, including health care, was "exclusively" a federal matter, off-limits to the states.

But during an oral argument Wednesday, some of the justices sounded as though they were having second thoughts.

Justices John Paul Stevens and Sandra Day O'Connor said a new Illinois law allowing outside medical review of HMO disputes appears to be a type of insurance regulation--and states traditionally regulate insurance.

"They say this is insurance regulation. Why is that so totally wrong?" Stevens asked a lawyer representing a Chicago health maintenance organization that is challenging the Illinois law.

Congress did not take away the state's power to "regulate insurance," O'Connor commented. "You could view this that way," as insurance regulation, she said.

"If it's a conflict involving insurance, the state wins," interjected Justice Stephen G. Breyer.

The exchange may signal a new willingness on the court's part to allow some state regulation of HMOs.

In recent years, Congress has been debating a patients' bill of rights that would allow individuals to challenge managed care companies, but the Sept. 11 terrorist attacks pushed that effort aside.

Since then, attention has focused on the case that came before the high court Wednesday: Rush Prudential HMO vs. Debra Moran, 00-1021.

Besides Illinois, 40 other states, including California, have passed laws giving patients the right to an independent review if their HMO refuses to pay for a medical treatment. If the review finds that the care was medically necessary, the state can force the HMO to cover the cost. The fate of all those laws appears to hang on Moran's case.

Moran, a speech therapist from suburban Chicago, suffered intense pain in her shoulder in 1996. Her HMO offered physical therapy, but when her condition did not improve, Moran found a specialist who proposed a rare type of nerve surgery.

Although Rush Prudential refused coverage for the operation, Moran went ahead with the surgery and paid the $95,000 cost on her own. She then sought an independent review of her case under a rarely used Illinois law that regulates HMOs. A specialist at Johns Hopkins University in Baltimore agreed with Moran and said the surgery was medically necessary. The state ordered the HMO to reimburse her.

Washington attorney John G. Roberts, representing Rush Prudential, urged the justices to overturn the state's order and strike down the state law.

"It's a new remedy . . . and it changes what the plan provides," Roberts said. "It says if you don't like what your HMO did, you go to a state board and get it overturned."

Roberts argued that Congress and the Supreme Court had already foreclosed such a separate state remedy. "You decided that unanimously 15 years ago," he told the justices.

But a Bush administration lawyer joined Moran's Chicago lawyer in urging the court to uphold independent review of HMOs as a form of insurance regulation.

"This is a state insurance law, and it sets up a familiar mechanism: You get a second opinion from a physician," said Daniel P. Albers, Moran's lawyer.

The American Medical Assn. and California health care advocates filed briefs supporting Moran, while the Health Insurance Assn. of America and other medical insurers supported Rush Prudential.

The justices struggled with the issue during the argument, and most gave no hint of how they were leaning. The court will issue a ruling in several months.

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