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When an HMO denial is practicing medicine


A health plan medical director's treatment decisions are subject to review by the state medical board, says Missouri's Supreme Court.


When an HMO denial is practicing medicine

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Choose article section... The case starts with a dentist's diagnosis The state's high court rejects Prudential's arguments A victory for the medical board, and for doctors and patients

A health plan medical director's treatment decisions are subject to review by the state medical board, says Missouri's Supreme Court.

By Berkeley Rice
Senior Editor

Can an HMO medical director be disciplined by a state medical board for denying treatment proposed by a physician? Health plans typically argue that utilization review involves coverage issues, and isn't the same as practicing medicine. After all, the medical director never sees the patient.

But a Missouri court held recently that such UR decisions do constitute the practice of medicine—meaning that HMO medical directors may have to answer to state boards for their actions. The court's ruling could have a big impact on how treatment authorizations or denials are made.

The case starts with a dentist's diagnosis

When St. Louis dentist Duane Keller diagnosed TMJ in one of his patients in 1998, he recommended oral surgery to correct it. After consulting with her primary care physician and an oral surgeon, the patient requested approval for the procedure from her HMO, Prudential HealthCare. Her request, with supporting documents from Keller, was reviewed by Prudential's oral surgery consultant, who found the documentation insufficient to justify the TMJ diagnosis. Based on that consultant's report, Prudential's medical director Richard Fallon, a general surgeon, denied authorization for the surgery on the grounds that it wasn't medically necessary. After the patient appealed the denial and submitted more supporting information, Prudential reversed its decision and approved the surgery.

In January 1999, however—before Prudential's reversal—Keller filed a complaint against Fallon with Missouri's State Board of Registration for the Healing Arts. His charge: medical negligence.

As part of its investigation of Keller's complaint, the board issued a subpoena to Fallon in November 1999, ordering him to explain his treatment denial. Fallon refused, arguing that his decisions as medical director didn't constitute the practice of medicine and therefore weren't subject to the board's authority. The board petitioned the state court to force Fallon to appear, and in June 2000 the judge ordered him to do so. Prudential filed an appeal—on Fallon's behalf—with the Missouri Supreme Court.

Prudential based its appeal on three grounds:

• The state board had no authority to investigate cases involving utilization review decisions because that power is vested with the state's Department of Insurance.

• Fallon's decisions on medical necessity weren't subject to the board's authority because they didn't constitute the practice of medicine.

• Such disputes involve a "determination of benefits," and are therefore pre-empted by ERISA—the federal Employee Retirement Income Security Act of 1974—which governs the administration of company-sponsored health plans.

The state's high court rejects Prudential's arguments

In a unanimous decision, the state Supreme Court upheld the circuit court's order commanding Fallon to appear before the medical board. The high court cited Murphy v. Board of Medical Examiners, a similar case in which an Arizona appellate court found that that state's medical board had authority to take disciplinary action against an HMO's medical director. (See "A treatment denial backfires—with a bang," July 27, 1998.)

Regarding Prudential's claim of ERISA protection, Chief Justice William Ray Price Jr. wrote: "Whether ERISA pre-empts the Board's action in this case turns on whether the Board's investigation relates to the [administration of the] employee benefit plan. . . . The determinations at issue in this case fall outside the scope of plan administration. Dr. Fallon did not simply look to a predetermined list of covered procedures to arrive at his conclusions. He used medical training and judgment to make a decision about the 'medical necessity' of surgical treatment for a particular patient. . . .

"Though the choice to cover a patient's expenses is an administrative choice, a physician's finding of 'medical necessity' is a purely medical decision. The Missouri legislature has charged the Board of Registration for the Healing Arts with reviewing the medical judgments of state licensees. Whether such medical judgment is exercised by a physician providing direct treatment or by a physician during a utilization review is merely coincidental to the Board's review power."

As for Prudential's claim that the state medical board has no authority over HMO utilization review decisions, Price recognized that Missouri law gives the state's Department of Insurance supervisory power over utilization review. That law, however, does not grant the DOI "authority to review the medical judgments of licensed physicians who serve as medical directors. . . . The review authorized by the Board is not concerned with 'utilization review'. . . . It is simply a review of the exercise of licensed medical judgment. . . . The Department of Insurance has no authority to conduct such a review. The Board is charged with overseeing Dr. Fallon's medical judgment, while the Department of Insurance regulates his administrative insurance determinations."

Finally, the court considered Prudential's argument that Fallon's decision on the medical necessity of the requested treatment didn't constitute the practice of medicine, and was therefore not subject to investigation by the Board. "Dr. Fallon's argument ignores the distinct nature of the two determinations in this case," Chief Justice Price contended. "Prudential made an administrative decision when it determined that the plan would not extend benefits to cover this type of elective surgery unless the medical director found it to be [necessary and appropriate]. Dr. Fallon then made a purely medical decision when he determined that the procedure was 'not medically necessary.' Though his decision naturally led to a denial of coverage, the decision embodied the medical judgment of a licensed professional who determined whether a certain procedure was medically necessary for a specific patient."

A victory for the medical board, and for doctors and patients

Missouri's Attorney General Jay Nixon hailed the court's decision as an important victory for consumers. "Doctors who make decisions for HMOs must comply with the standards of medical practice," he said. "They are not exempt from state laws just because they work for an insurance company. Now the Board of Healing Arts can investigate this decision and others made by HMO medical directors, to determine whether they are based on sound medical decision-making or on the bottom line."

In an editorial about the case, the St. Louis Post-Dispatch described the ruling as "a big victory for physicians who have complained for years about HMO medical directors second-guessing their judgments. The decision puts managed care companies on notice that, in Missouri at least, they can be held accountable."

Prudential (whose HMOs have since been acquired by Aetna ) petitioned the US Supreme Court to review the case, but the petition was denied. That means that the Missouri Supreme Court's decision stands, and the state board's authority over HMO medical directors is confirmed. Since Fallon retired soon after the lower court's ruling, however, and hasn't renewed his license, it's not clear whether the Missouri board will pursue its investigation of his decision in the Keller case, or take any disciplinary action against him.


Berkeley Rice. When an HMO denial is practicing medicine. Medical Economics 2002;11:100.

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