In a case that is likely to have a significant impact on patient bill of rights legislation now pending in Congress, the U.S. Supreme Court has ruled that the Employee Retirement Income Security Act of 1974 ("ERISA") does not preempt a state law action to compel a health maintenance organization ("HMO") to provide a medical service.
The court’s 5-to-4 decision in Rush Prudential HMO, Inc. v. Moran (2002) is significant because the holding suggests that existing state laws may provide an effective remedy for disgruntled health plan participants and, therefore, make the need for a new federally-mandated cause of action unnecessary.
Rush Prudential HMO, Inc. ("Rush HMO") had denied a request by Debra C. Moran for an independent medical review of her claim, as guaranteed by the Illinois HMO Act ("Act"). The Act provides that if a reviewing physician determines that a covered service is medically necessary, the HMO "shall provide" the service. Rush HMO had refused Moran’s demand for treatment and she sued in state court to compel compliance with the Act. The state court ordered an independent medical review, but Rush HMO resisted. While the suit was pending, Moran had surgery and amended her complaint to seek reimbursement.
The case was removed from state court to federal court. The federal District Court found that Moran’s claim for reimbursement under state law created a new state law claim that is not allowed by ERISA. On appeal, the U.S. Court of Appeals for the Seventh Circuit disagreed. The case then went to the U.S. Supreme Court.
The big question before the Supreme Court was whether ERISA’s civil enforcement provisions displaced the attempt by Illinois to create an additional remedy. This concept is known as preemption. The court, through Justice David Souter, answered by holding that the Illinois remedy was an attempt to regulate insurance and "ERISA’s mandate that ‘nothing in this subchapter shall be construed to exempt or relieve any person from any law of any State which regulates insurance’ ostensibly forecloses preemption."
The Supreme Court also rejected Rush HMO’s argument that preemption was appropriate because ERISA manifests a congressional intent for an exclusive federal remedy. Instead, the Court emphasized that prior rulings had recognized a limited exception to preemption for alternative remedies at the state level.
In dissent, Justice Anthony Kennedy wrote that ERISA provided for an exclusive federal remedy for health plan participants and stated:
...independent review provisions could create a disincentive to the formation of employee health plans, a problem Congress addressed by making ERISA’s remedial scheme exclusive and uniform. While it may well be the case that the advantages of allowing states to implement independent review requirements as a supplement to the remedies currently provided under ERISA outweigh this drawback, this is a judgment that, pursuant to ERISA, must be made by Congress.
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