ERISA DOES NOT PREEMPT THE MEDICAL NECESSITY REVIEW PROVISION OF THE ILLINOIS HMO ACT

In Rush Prudential HMO, Inc. v. Moran (No. 00-1021, June 20, 2002), the United States Supreme Court recently held that the Employee Retirement Income Security Act (“ERISA”) does not pre-empt the provision of the Illinois Health Maintenance Organization (“HMO”) Act (“Act”) which requires HMOs to provide an independent medical necessity review when it denies a treatment that an enrollee’s primary care physician deems necessary.

Ms. Moran, an enrollee of Rush Prudential HMO (“Rush”), was denied coverage for her surgery because the HMO determined it was not medically necessary. Moran made a written demand to Rush to comply with the Act which requires HMOs to provide a mechanism for review by an independent physician when the patient’s primary care physician and the HMO disagree about the medical necessity of a treatment proposed by the primary care physician. If the reviewing physician determines that the proposed care is medically necessary, the HMO must provide the treatment. [215 ILCS 125/4-10]. Rush failed to provide the independent medical review and Moran sued. The District court held that the provisions of the Act were preempted by ERISA. The Court of Appeals reversed and Rush appealed to the Supreme Court of the United States. The Supreme Court held that the medical necessity review provision of the Act is not preempted by ERISA

ERISA generally preempts any state laws relating to employee benefit plans. [29 U.S.C. 1144(a)]. However, ERISA does not preempt state laws that regulate insurance unless the law creates additional remedies for ERISA plan participants. [29 U.S.C. 1144(b)(2)(A)].

In this case, it was not disputed that the external review provision of the Act relates to employee benefit plans within the meaning of ERISA. However, the Court held the Act regulates insurance therefore, it fell outside the scope of ERISA’s preemption provision. As a result, the medical necessity independent review requirement stays in effect. For providers this means that there is still an opportunity for a patient to get a second opinion if coverage is denied based on medical necessity.

This decision may also affect the Patients’ Bill of Rights debates in Congress which have been stalled for quite some time now. Had the Court decided in favor of Rush, the external appeals procedures in Illinois, as well as in many other states, would have been invalidated. Such a holding would invariably have increased public pressure to pass a federal Patient’s Bill of Rights. In spite of this holding, most supporters of patients’ rights feel that a strong federal enactment of managed care reform is still the most effective way to protect patients from misconduct by insurers. And while this decision upheld a state law giving patients a right to seek an independent review, it did nothing to increase uniformity among state laws. Such uniformity can only be instituted by a federal Patients’ Bill of Rights. Both the Senate and House versions of the Patients’ Bill of Rights would create a uniform national standard for review of medical necessity decisions.

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