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When the HMO says No


Can states force HMOs to listen to independent physician reviewers? The US Supreme Court will soon decide.


When the HMO says No

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Choose article section...A difference of medical opinion results in denial of coverage The patient demands an independent review An ERISA battle brings the case to appellate court At the Supreme Court, the case gets national attention

Can states force HMOs to listen to independent physician reviewers? The US Supreme Court will soon decide.

By Berkeley Rice
Senior Editor

This legal dispute may not have the hostage-taking drama of the HMO-bashing film John Q., but the US Supreme Court is expected to reach a decision this summer in what could be one of the most significant health law cases in years.

Rush Prudential HMO v. Moran presents a test of an Illinois law that calls for an independent review when an HMO won't pay for treatment recommended by the patient's physician. Since most states now have patients' rights laws or regulations containing such provisions, the case is being watched closely by medical, legal, and health industry officials nationwide.

In 1995, when Debra Moran was 25, she developed carpal tunnel syndrome in her right shoulder. Under the supervision of Arthur LaMarre, her HMO internist in Naperville, IL, Moran tried physical therapy and underwent routine surgery. But neither approach relieved her pain or improved her mobility. In fact, the pain gradually increased to the point that she could no longer use her right arm and had to curtail her speech therapy practice.

Through her own research, Moran learned of Julia Terzis, a plastic surgeon in Virginia who specializes in microreconstructive surgery. Moran asked her health plan, Rush Prudential HMO, to authorize a referral, but Rush denied the request because Terzis wasn't part of its network. Moran arranged a consultation with Terzis anyway, at her own expense. In June 1997, the surgeon diagnosed nerve compression in the brachial plexus known as thoracic outlet syndrome, or TOS. To relieve the pressure, she recommended a complex procedure that included microneurolysis of the lower roots of the brachial plexus, and removal of the scar tissue surrounding the injured nerve.

When Moran relayed Terzis' proposal to LaMarre, he referred her to two Rush network thoracic surgeons for second opinions. Both confirmed Terzis' diagnosis, but recommended the less complex standard TOS surgery instead, involving decompression by means of a first rib resection.

A difference of medical opinion results in denial of coverage

In October 1997, at Moran's urging, LaMarre requested authorization from Rush for the surgery proposed by Terzis. Rush denied the request. Moran appealed the HMO's decision. In response, Rush consulted with the two network surgeons Moran had seen, and both claimed that Terzis' approach was not called for in Moran's case.

Based on those reports and a review of medical literature, the HMO decided that microneurolysis wasn't "medically necessary." Instead, Rush offered to cover standard TOS surgery by a network surgeon. Moran made a final appeal to Rush's membership advisory committee, but that group upheld the HMO's ruling.

Undeterred, Moran had Terzis do the procedure—at her own expense—in February 1998. The surgery was successful, and Moran recovered completely. The total cost was close to $95,000, which Moran raised by borrowing from relatives, drawing against her husband's 401(k), and maxing out her credit cards. After Terzis submitted a copy of the bill plus supporting documents to Rush, Moran requested reimbursement. Rush sent Moran's medical records to three additional experts. All three questioned the need for microneurolysis, although two admitted they lacked sufficient expertise for a conclusive opinion. Based on their reports, Rush denied Moran's appeal.

The patient demands an independent review

About a month before her surgery, Moran had demanded a review of her case by an independent (outside the Rush network) physician, as provided for by Illinois' HMO Act. According to that law, an HMO must offer an outside review when it questions the medical necessity of a treatment proposed by a patient's primary care physician. If the independent reviewer determines that the treatment is appropriate, the law says the HMO must cover it. Since Rush refused her demand, Moran filed suit in state court in January 1998, seeking a court order requiring the HMO to appoint an independent reviewer.

After some dispute over jurisdiction, the judge granted Moran's request and ordered Rush to submit her claim to an outside expert, which it did—nearly a year after she originally asked for it. The expert, a specialist in plastic and reconstructive surgery, reviewed the case and concluded that the procedure performed by Terzis was medically necessary, and said he would have essentially done the "same type" of surgery himself in Moran's case. Rush wouldn't budge, however. After considering this expert's review, plus the reports from its three consulting surgeons, the insurer again concluded that Moran's surgery hadn't been medically necessary, and denied her claim.

Based on the independent reviewer's report, Moran amended her suit, asking the state court to force Rush to cover the cost of her surgery. Rush filed a motion to have the suit moved to federal court on the ground that Moran's claim was pre-empted by ERISA, the federal Employee Retirement Income Security Act of 1974.

An ERISA battle brings the case to appellate court

Enacted before the growth of managed care, ERISA governs company-sponsored health plans that now cover nearly 130 million employees. Under ERISA, patients can sue health plans for denial of benefits, but recovery is limited to the cost of the benefits denied, not damages. Critics contend that ERISA blocks state efforts to regulate managed care plans, unfairly limits injured patients' chances for recovery, and enables HMOs to deny legitimate requests for treatment without the risk of a lawsuit.

To sidestep the ERISA issue, Moran amended her suit in April 1999, charging Rush with breach of contract and breach of fiduciary duty, rather than denial of benefits. But the judge dismissed her suit, ruling that it was still essentially a claim for benefits, and therefore pre-empted by ERISA. The judge also ruled that Rush hadn't acted arbitrarily in denying the claim.

Moran then took the case to the US Court of Appeals. In October 2000, the appellate court reversed the trial judge's decision, ruling that Moran's claim was legitimate under the state's HMO Act, and wasn't pre-empted by ERISA. Since the independent review—to which Moran was legally entitled by state law—concluded that her surgery had been medically necessary, the appellate court issued a summary judgment in her favor. Rush had to pay the $95,000, plus interest. (Moran still has a pending suit against Rush for her legal bills, which amount to more than $125,000.) In a dissenting opinion, Justice Richard Posner argued that the Illinois HMO law's provision for an outside review "adds heavy new procedural burdens to ERISA plans." To support his dissent, Posner cited a recent decision in a similar case by a Texas appellate court, which ruled that ERISA did pre-empt such state laws.

At the Supreme Court, the case gets national attention

Rush appealed the case to the US Supreme Court, which accepted it in part, apparently, because of the conflicting appellate decisions in Illinois and Texas. The high-profile case drew the attention of medical and industry groups on both sides of the issue. The AMA, Illinois State Medical Society, the US solicitor general, and attorneys general from 32 states filed amicus briefs in support of Moran; the American Association of Health Plans and the Health Insurance Association of America filed a brief supporting Rush Prudential HMO.

AMA Secretary-treasurer Donald Palmisano, speaking for the organization, commented, "America's patients need independent-review laws to protect them from potential managed care abuses. Medical treatment decisions should be made by the patient's physician, not by a managed care administrator who might deny or delay proper patient care because of cost considerations."

At a hearing before the Supreme Court last January, defense attorney John Roberts, representing Rush, argued that the Illinois law's provision for an outside review undermines ERISA's intent by allowing any patient who's dissatisfied with an HMO's denial of coverage to "go and get it overturned." Attorney Daniel Albers, speaking for Moran and the state of Illinois, argued that such medical decisions should be left to doctors, and that allowing the ERISA pre-emption to block a patient's right to outside reviews would "change medical practice across the country."

In addition to settling the question of whether Rush should reimburse Moran for the cost of her surgery, the high court's ruling may affect similar cases currently pending before appellate courts in New York and other states. It could bring some order to a patchwork of HMO patients' rights laws or regulations—already in place in 42 states—that provide for outside reviews in such disputes. It could also affect the prospects of a proposed national patients' rights act. Although both the Senate and House have approved bills containing independent review provisions, it's not clear yet whether one will become law. If it does, HMOs that deny treatment might lose some of the protection that ERISA has afforded them.

Assuming that popular films mirror public sentiment, tolerance for that protection may be wearing thin. Audiences applauded when Helen Hunt—as a cash-strapped waitress—expressed anti-HMO sentiments in the 1997 movie As Good As It Gets. And in John Q., Denzel Washington plays a distraught father who takes over an emergency room when the hospital refuses to arrange for a heart transplant for his son because his health plan won't cover the surgery.

The high court is expected to decide Rush Prudential HMO v. Moran early this summer. Regardless of the outcome, Moran feels that her four-year legal battle was worthwhile. "This was never just about money," she insists. "It's about the principle of a patient's right to have an independent review when the HMO says No, and the right to get the treatment your doctor says is medically necessary. Nobody else should have to go through what I went through just to get the care they need."


Berkeley Rice. When the HMO says No. Medical Economics 2002;9:43.

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