A U.S appeals court may have taken a small bite out of a federal law health maintenance organizations have used as a major weapon against patients’ lawsuits.
The U.S. 7th Circuit Court of Appeals in Chicago last week ruled Rush-Prudential HMO had to abide by and pay for the recommendations of an independent physician. The Winfield woman consulted the outside physician after the Chicago-based HMO and the woman’s primary-care physician disagreed on whether a treatment was “medically necessary.”
The case only applied to so-called “insured” HMOs, in which the HMO covers the cost of claims, and not to self-insured employers. The ruling is important given current political debate about whether the Employee Retirement Income Security Act should protect health plans from legal action, including self-insured plans used by the majority of corporate employers.
The case involved Debra Moran, whose primary-care doctor in 1998 approved nerve surgery by a Virginia specialist outside Rush-Prudential’s network. Rush-Prudential denied the treatment and offered alternative treatment within its network of doctors.
A lower court eventually ordered the HMO and Moran before an outside independent medical consultant, to review whether Moran’s treatment was medically necessary. The outside arbitrator ruled her treatment was indeed needed.
Even after the review resulted in a victory for Moran, Rush-Prudential fought paying for the surgery, saying its benefit offerings were protected by ERISA.
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Such a defense has been used by HMOs across the country as a protection against malpractice actions because ERISA prohibits patients from suing health insurers in state courts and limits damages in federal lawsuits to the cost of treatment that was denied.
Moran paid for the $95,000 surgery and decided to fight for reimbursement from Rush-Prudential under the Illinois HMO Act, which mandates a mechanism for review by an independent physician when the patient’s primary-care doctor and the HMO disagree about what is medically necessary.
Although a lower federal court agreed that ERISA protected Rush-Prudential, the appeals court last week said the plan agreed to state insurance regulations and therefore had to abide by the HMO Act.
“Patients can resort to an outside reviewer when an HMO denies whether the particular procedure is medically necessary, which is the basis for 99 percent of everything an insurance company pays for,” said Moran’s attorney, Mark Rust of Barnes & Thornburg, a Chicago-based law firm.
Rush-Prudential’s parent, Wellpoint Health Networks Inc., said it may appeal, noting “strong dissension from respected judges.” Wellpoint inherited the suit when the California insurer bought Rush-Prudential earlier this year and subsequently changed the HMO’s name to Unicare.
Indeed, judges who dissented said such outside arbitration could equal the expense of Moran’s medical treatment as well as “deter some employers from offering health insurance at all.”
Still, because the appeals court didn’t address self-insured plans that cover the cost of their company’s claims, this victory against managed care is not yet a concern for the business community.
But Rust and his partner Daniel Albers, who argued the case, don’t think the crack they found in ERISA will go unnoticed by politicians as they debate whether the 26-year-old law should hold for all health plans.
“There is previously no case that made it clear that HMOs who had insured employer plans, which is a big number, had to follow this sort of outside review,” Rust said. “It’s now the law in 27 states. It’s also the most central issue to the public policy fight going on in Washington over the patients bill of rights.”
Recovery critical: Holy Cross Hospital has little room for error during its turn-around plan, according to a report from New York-based Moody’s Investors Service.
Despite efforts to reduce employees and negotiate better contracts with health insurers who pay the hospital, the South Side hospital is projecting a $7.5 million operating loss for 2001. “Financial recovery is at least two years out,” said Moody’s, which rates not-for-profit hospitals’ debt and financial performance.
Mike Peterson, Holy Cross transition CEO, said the hospital is confident about its plan. “We have been proactive in seeking meetings with the rating agencies and our bondholders,” he added.
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