United States: State Action, Due Process, and Regulated Health Care

State Action, Due Process, and Regulated Health Care:

The downstream effects of American Manufacturers Mutual Insurance Company v. Sullivan

On March 3, 1999, in American Manufacturers Mutual Insurance Co. v. Sullivan, the Supreme Court held that private insurers providing state-mandated workers’ compensation insurance to employers do not become "state actors" when they suspend payment, during review by an independent medical professional, for medical treatments they believe are "unreasonable" or "unnecessary." The decision to postpone payment while contesting a given treatment, although authorized by law, is not fairly attributable to the state. Even if it were, moreover, due process does not require such insurers to pay for disputed treatment prior to a determination that it is compensable. The reason, the Court explained, is that employees lack a constitutionally protected property interest in treatment not yet found "reasonable" and "necessary" under state law.

The Sullivan decision has important ramifications for a wide array of state and federal medical benefit programs. Most obviously, the law of virtually every State permits insurers to suspend payments for disputed workers’ compensation benefits in a range of circumstances — for example, when an employee is unwilling to submit to a medical examination, or to attend vocational counseling. But Sullivan has implications beyond the field of workers’ compensation. For instance, numerous other public health care programs — including Medicare — utilize peer review as a means of controlling costs and preventing fraud and abuse. Like the statute at issue in Sullivan, these statutes generally permit suspension of treatment (or of payment for treatment) prior to completion of a hearing at which the beneficiaries have notice and an opportunity to be heard. In addition, the courts are currently wrestling with the question whether health maintenance organizations ("HMOs") participating in Medicare are state actors, and therefore subject to constitutional limitations, when they make "organization determinations" — for example, that a treatment should be discontinued because they believe it is no longer "medically necessary." Sullivan speaks to the state action and due process issues raised in all of these areas of law. The purpose of this Article is to explore the effects of the Court’s decision.

A. Pennsylvania Workers’ Compensation Law

Sullivan involved a constitutional challenge to actions of private insurance companies taken pursuant to the Pennsylvania Workers’ Compensation Act (the "Act"). Like other states, Pennsylvania has dispensed with liability for workplace injuries under the common law of tort, replacing it with a no-fault system under which workers’ compensation is both mandatory and "exclusive . . . of any other liability." Employers may self-insure or obtain insurance from either a private carrier or the "State Workmen’s Compensation Fund," a state-run insurer. If an employer elects to purchase insurance, the insurer assumes its statutory liabilities. All of the various features of workers’ compensation insurance coverage that are not dictated by law are determined by contract. In addition, "no aspect of the workers’ compensation system is financed with public tax dollars."

Under Pennsylvania law, insurers and self-insured private employers who believe that an injured worker is receiving "unnecessary" or "unreasonable" medical care may obtain "utilization review" — an evaluation of the treatment by an independent medical professional in the same speciality — and withhold payment for the disputed care pending the outcome of the review. The utilization review organization ("URO") must provide the treating physician with an opportunity to discuss the treatment decisions and issue a report within thirty days of the request for review (in practice, such reports typically take 70 days). A provider, insurer, or employee who disagrees with a URO’s ruling may seek review by an administrative law judge ("ALJ").

Ordinarily, an insurer must pay all claims for medical care within thirty days of receipt. If an insurer seeks utilization review, however, it may withhold payment pending the outcome of that review. An insurer who pays disputed claims may not recoup payment from either the provider or the patient for any treatment ultimately deemed unreasonable or unnecessary. If the URO concludes that disputed treatment is reasonable and medically necessary, the insurer must pay for it immediately — even if it appeals the decision to an ALJ. However, if the URO finds the disputed treatment to be unreasonable or unnecessary, payment may be withheld unless and until that finding is overturned. The insurer pays the cost of utilization review, as well as 10% annual interest on the cost of any disputed treatment ultimately deemed compensable.

In Sullivan, various employees sued the state officials who administer the Act, the State Workmen’s Compensation Fund, and eight private insurers who offer workers’ compensation coverage. They claimed that suspending payment for treatment during utilization review — without providing the affected worker pre-suspension notice and an opportunity to be heard — deprived them of property without due process of law, in violation of the Fourteenth Amendment. As a predicate to that claim, they had to show that private insurance companies providing coverage to private employers are "state actors," since by the very language of the Constitution the requirements of due process attach only to "the State."

The Third Circuit agreed with the plaintiffs’ claims. On the state action issue, the court stressed that the workers’ compensation system is mandatory in nature, abolishes the common law rights of employees, and provides "the exclusive remedy available to an injured worker" in Pennsylvania. "In creating and executing this system of entitlements," the court emphasized, "the Commonwealth has enacted a complex and interwoven regulatory web enlisting the Bureau, the employers, and the insurance companies." By "providing public benefits which honor State entitlements," the court continued, private insurers "become an arm of the State, fulfilling a uniquely governmental obligation under an entirely state-created, self-contained public benefit system" — "a system which the government alone administers." Moreover, because the insurer must file a form notifying the Bureau of any decision to seek utilization review, the court held that Pennsylvania is "intimately involved" in the decision to suspend payment — even though the Bureau conducts no substantive review of the form.

The Third Circuit also sided with the employees on the due process question. According to the court, failing to pay the provider within thirty days was tantamount to "terminating the medical benefits of a workers’ compensation employee." Citing Mathews v. Eldridge, it reasoned that the employee (in addition to the provider) must be afforded an opportunity "to submit a personal statement in writing" before even a temporary suspension of payments. The court acknowledged that its ruling would hinder the government’s interests in "containing the rising costs of medical care and insurance payments," minimizing administrative costs, and ensuring that employees receive only "reasonable and necessary" medical care. Nevertheless, it held that such interests were outweighed by the interest of the employee. The court thus struck down the provision in the Act allowing insurers to withhold payment pending utilization review.

C. The Supreme Court’s Decision

The Supreme Court reversed on both the state action and due process issues in an opinion by Chief Justice Rehnquist. Regarding state action, the Court rejected virtually every conclusion of the Third Circuit. For example, the employees argued, and the Third Circuit held, that a finding of state action was warranted because Pennsylvania "extensively regulates and controls the Workers’ Compensation system." The Supreme Court, in contrast, explained that "‘[t]he mere fact that a business is subject to state regulation does not by itself convert its action into that of the State.’" "[W]orkers compensation insurers are at least as extensively regulated as the private nursing facilities in Blum [v. Yaretsky] and the private utility in Jackson [v. Metropolitan Edison Co.]," the Court stated. "Like those cases, though, the state statutory and regulatory scheme leaves the challenged decisions to the judgment of insurers." Treating such decisions as state action would transfer "the prerogative of regulating private business" from "the representative branches[] [to] the courts."

The Court also rejected the view that the State’s decision to permit insurers to withhold payments pending review amounted to "such significant encouragement, either overt or covert, that the choice [to do so] must in law be deemed to be that of the State." "We have never held that the mere availability of a remedy for wrongful conduct, even when the private use of that remedy serves important public interests, so significantly encourages the private activity as to make the State responsible for it," the Court stated. "The State’s decision to allow insurers to withhold payments pending review can just as easily be seen as state inaction, or more accurately, a legislative decision not to intervene in a dispute between an insurer and an employee over whether a particular treatment is reasonable and necessary."

The Court also declined to find state action merely because Pennsylvania law requires insurers to obtain "permission" from the State, by filing a form, before postponing payments. "[T]he [State’s] participation is limited to requiring insurers to file a form prescribed by the Bureau, processing the request for technical compliance, and then forwarding the matter to a URO and informing the parties that utilization review has been requested," the Court noted. Such "paper shuffling" does not make the State "responsible for the private party’s decision."

The Court next repudiated the claim that state action was present because Pennsylvania had "delegated to insurers ‘powers traditionally exclusively reserved to the State.’" In West v. Atkins, upon which the respondents and Third Circuit relied to support their "exclusive state function" claim, "the State was constitutionally obligated to provide medical treatment to injured inmates, and the delegation of that traditionally exclusive public function to a private physician gave rise to a finding of state action." In the workers’ compensation arena, however, "nothing . . . obligates the State to provide either medical treatment or workers’ compensation benefits to injured workers." Although state law "imposes that obligation on employers," the Court explained, "it imposes no such obligation on the State." Thus, there could be no claim that Pennsylvania was attempting to evade the Constitution’s requirements by "delegating" its own constitutional responsibilities to a private party.

Finally, the Court refused to find state action on the theory that private insurers were "joint participants" with the State in the administration of its workers’ compensation benefits. Although the Third Circuit "seems to have figuratively thrown up its hands and fallen back on language in Burton v. Wilmington Parking Authority," the Court observed, "later cases have refined the ‘joint participation’ test embodied in that case." The Court’s decisions in Blum and Jackson "have established that ‘privately owned enterprises providing services that the State would not necessarily provide, even though they are extensively regulated, do not fall within the ambit of Burton." Where "the statutory and regulatory scheme leaves the challenged decisions to the judgment of insurers," there is insufficient participation by the State to support a finding of state action under a "joint participation" theory.

Turning to the due process question, the Court began its substantive analysis with the observation that "[t]he first inquiry in every due process challenge is whether the plaintiff has been deprived of a protected interest in ‘property’ or ‘liberty.’" In cases such as Goldberg v. Kelly and Mathews v. Eldridge, the Court explained, "an individual’s entitlement to benefits had been established, and the question presented was whether predeprivation notice and a hearing were required before the individual’s interest in continued payment of benefits could be terminated." Pennsylvania workers’ compensation law, in contrast, "expressly limits an employee’s entitlement to ‘reasonable’ and ‘necessary’ medical treatment, and requires that disputes over the reasonableness and necessity of particular treatment must be resolved before an employer’s obligation to pay — and an employee’s entitlement to benefits — arise." In order to demonstrate that they had a property interest in the disputed treatments, the respondents were required not only to "prove that an employer is liable for a work-related injury," but "that the particular medical treatment at issue is reasonable and necessary." Because the respondents "ha[d] yet to make good on their claim that the particular medical treatment they received was reasonable and necessary," they "d[id] not have a property interest — under the logic of their own argument — in having their providers paid for treatment that has yet to be found reasonable and necessary." The Court thus concluded that "what respondents ask in this case is that insurers be required to pay for patently unreasonable, unnecessary, and even fraudulent medical care without any right, under state law, to seek reimbursement from providers. Unsurprisingly, the Due Process Clause does not require such a result."

A. Workers’ Compensation Schemes

The Supreme Court’s decision in Sullivan has important ramifications for a wide array of state and federal medical benefit programs. In the field of workers’ compensation alone, state laws typically permit insurers unilaterally to suspend payments for disputed benefits in a variety of circumstances. For example, some States permit withholding payments where an employee returns to regular employment or his attending physician releases him to do so. Many States permit suspending payments when an employee is unwilling to submit to reasonable medical examinations. And still other States authorize withholding payment where an employee refuses to attend either vocational rehabilitation or counseling, or to accept employment. In addition, of the 41 States (and the District of Columbia) whose laws address the subject, at least 39 permit insurers to withhold disputed portions of claims pending the outcome of utilization review or other disputes regarding the scope of treatment or amount of compensation. Courts in at least five of the remaining ten States, moreover, have held that insurers may withhold payment whenever there exists a good faith belief that no payment is due.

At the federal level, the Longshore and Harbor Workers’ Compensation Act permits an insurer that has voluntarily initiated benefits to an injured worker subsequently to challenge the reasonableness or necessity of medical care. Federal regulations authorize the insurer to suspend payment and request government review of the controverted treatment, and the insurer is not required to give the worker an opportunity to be heard before doing so. In sum, federal law and the law of at least 45 states and the District of Columbia permit withholding payments in circumstances analogous to those involved in Sullivan. The Court’s decision demonstrates that state cost-containment policies such as these will remain a matter of legislative balancing, not constitutional law.

B. Federal Health Care Programs

The effect of Sullivan, however, will be felt far beyond the workers’ compensation field. Medicare, for example, requires federal officials to "contrac[t] with utilization and quality control peer review organizations" to "promot[e] the effective, efficient, and economical delivery of health care services." These peer review organizations ("PROs") must determine whether health care services are "reasonable and medically necessary," whether they meet "professionally recognized standards of health care," and whether inpatient care should have been provided on an outpatient basis or in another type of facility. Like the Pennsylvania law challenged in Sullivan, federal law does not generally provide patients with an opportunity to be heard during PRO review. In addition, if the PRO ultimately finds that medical services are unreasonable or unnecessary, no payment is made — unless and until that decision is reversed on appeal. Had the Third Circuit’s reasoning prevailed, this system likely would have been held unconstitutional, too. Under the Sullivan decision, however, one may argue that due process is not even implicated by these provisions, insofar as Medicare beneficiaries may have a property interest only in payment for services that are "reasonable and medically necessary." The answer to the due process question, of course, will likely turn on whether the Court understands Medicare benefit determinations to be more analogous to adjudications on an initial application for benefits than to adjudications terminating eligibility for benefits.

Sullivan also has implications for federal provisions governing the terms under which health maintenance organizations ("HMOs") participate in Medicare. Under current law, HMOs may contract with the government to provide Medicare services, in exchange for a flat monthly fee. To qualify, HMOs must be willing to provide "meaningful procedures for hearing and resolving grievances between the [HMO] . . . and the members enrolled." These procedures are triggered whenever a Medicare beneficiary contests an HMO’s "organization determination" — for example, that a medical service is not covered by Medicare or should be discontinued because it "is no longer medically necessary." If HMOs are state actors for purposes of these provisions, and if beneficiaries have a protected property interest in receipt of such Medicare benefits, it follows that these procedures may be subject to challenge on due process grounds. Sullivan, however, casts doubt on both of these assumptions.

The question of whether HMOs participating in Medicare are state actors was squarely presented in Grijalva v. Shalala, a Ninth Circuit decision handed down last year. In that case, the court ruled both that HMOs are state actors when denying Medicare services, and that due process requires extensive notice to Medicare beneficiaries — in the form of timely notifications that not only explain why care was denied, but note the availability of both an "informal, in-person communication with the decisionmaker" and an appeal. Noting that the Secretary "extensively regulates the provision of Medicare services by HMOs" — by paying for their service, requiring meaningful notice and appeals, and overturning HMO decisions where necessary — the court reasoned "that HMOs and the federal government are essentially engaged as joint participants to provide Medicare services such that the actions of HMOs in denying medical services to Medicare beneficiaries and in failing to provide adequate notice may fairly be attributed to the federal government." "The federal government has created the legal framework — the standards and enforcement mechanisms — within which HMOs make adverse determinations, issue notices, and guarantee appeal rights," the court continued. While "[e]ach of these factors alone might not be sufficient to establish federal action," "[t]ogether they show federal action."

Like the Third Circuit in Sullivan, the Grijalva court rejected arguments that Blum v. Yaretsky mandated a finding of no state action. "Unlike the nursing home doctors . . . in Blum," the court explained, "the HMOs in this case are not making decisions to which the government merely responds. HMOs are following congressional and regulatory orders and are making decisions as a governmental proxy — they are deciding that Medicare does not cover certain medical services." The court acknowledged that, just as Blum involved private judgments "that certain medical services were no longer medically necessary," "such an inquiry may occur in HMO service denials." Nonetheless, the court was of the view that "the decisions in the case at hand are more accurately described as coverage decisions — interpretations of the Medicare statute — rather than merely medical judgments." It thus concluded that "the government cannot avoid the due process requirements of the Constitution merely by delegating its duty to determine Medicare coverage to private entities."

Turning to the due process issue, the Ninth Circuit ruled that a Mathews balancing of the various interests at stake in HMO coverage determinations warranted imposition of "additional procedural protections for Medicare beneficiaries enrolled in HMOs." Specifically, the court held, HMOs must provide "adequate notice of service denials, including the specific reason for the denial and an explanation of appeal rights, and expedited review for critical care denials."

It is difficult to distinguish Grijalva from Sullivan and Blum. To be sure, certain factors distinguish the cases. For example, HMOs participating in Medicare receive public funds (a flat monthly fee), whereas workers’ compensation is generally funded privately. However, Blum involved publicly funded Medicare benefits, and that did not deter the Court from finding that private doctors determining whether to transfer patients to a lower level of care were not state actors.

One could also attempt to distinguish Sullivan by arguing that, while HMOs participating in Medicare have broad authority to make coverage decisions, workers’ compensation insurers play a more limited role — they decide only whether to postpone payment pending a coverage determination. Here again, however, one must wrestle with the Court’s holding in Blum, where private doctors were charged with applying statutory criteria to determine whether to transfer patients to different levels of care. That is essentially a coverage determination, and the difference between Blum and Grijalva is more a matter of degree than of kind. The common sense underlying Blum seems to be that when the government pays for insurance for individuals who cannot afford it, their rights are similar — but not necessarily superior — to those who purchase insurance from their own resources. Given that HMO patients who purchase their own insurance are entitled only to the procedural protections specified in contract, statute, and regulation, there is no common sense reason why patients whose insurance is paid for by the government should be constitutionally entitled to more.

One easy means of differentiating between Sullivan and Grijalva may simply be to note that the Sullivan Court expressly distinguished the role of private insurers from that of those who conduct the utilization review, stating in dictum that "the decision of a URO, like that of any judicial official, may properly be considered state action." But when the URO is part of the HMO organization, rather than an independent organization designated and selected by the state, the situation still closely resembles Blum. That case involved utilization review committees comprised of private doctors selected by participating nursing homes. The nursing home’s doctors were charged with deciding whether services were "medically necessary" and "‘mak[ing] all efforts possible to transfer patients to the appropriate level of care or home as indicated by the patient’s medical condition or needs." Because their decisions "ultimately turn[ed] on medical judgments made . . . according to professional standards that are not established by the State," the Court declined to find state action. Inasmuch as this was also true in Sullivan, one may query whether the Court’s dictum can be reconciled with Blum. But in any event, any further litigation in Grijalva will have to wrestle with both decisions.

Sullivan also speaks to the due process questions raised in Grijalva. Perhaps most importantly, the Grijalva court expressly concluded that "[a]n HMO’s denial of coverage is an initial refusal to provide any medical services." If that proves true, then Sullivan would seem to suggest that Medicare HMO beneficiaries, at least in certain circumstances, lack any property interest in federal health care benefits. As one might expect, the government filed a petition for certiorari in the Grijalva case, arguing primarily that the case should be considered in light of Sullivan. Just a few weeks before this article went to press, the Supreme Court granted the government’s request, vacating the Ninth Circuit’s decision, and remanding the case for further consideration in light of Sullivan.

As explained above, Sullivan speaks to many of the state action and due process questions arising in a wide range of state and federal health care benefit programs. Both state and federal workers’ compensation laws permit insurers to postpone payment of disputed benefits for numerous reasons; federal health care programs rely heavily on peer and utilization review, without permitting program beneficiaries an opportunity to be heard prior to the conclusion of the review; and Medicare permits private HMOs to make "organization determinations" regarding the scope of program coverage.

Whatever its precise effect on future cases, however, the Sullivan decision is a substantial victory for legislatures attempting to balance public health care needs with the need for prudent means of controlling health care fraud, abuse, and costs. Demographic changes — including an aging population and an expected decrease in the ratio of active workers to retirees — portend significant increases in the cost of these programs, and federal and state governments alike are laboring to preserve them while ensuring their long-term fiscal solvency. Left undisturbed, the Third Circuit’s ruling would have placed a roadblock in the path of rational cost-cutting measures, such as peer and utilization review, aimed at curbing the overuse of medical services. The government would have been required to continue paying for treatment unless, and until, patients received an opportunity to comment — notwithstanding that a patient’s arguments about the reasonableness or necessity of medical care are unlikely to shed much light on questions best handled by independent medical experts. In these respects, Sullivan serves the greater public interest in balancing health care needs with prudent fiscal management.

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1. 119 S. Ct. 977 (1999).
2. 77 Pa. Stat. Ann. § 481(a); see also Blake v. Wilson, 112 A. 126, 128 (Pa. 1920).
3. 77 Pa. Stat. Ann. § 501.
4. Id. §§ 501, 701.
5. D. Ballantyne & C. Telles, Workers’ Compensation in Pennsylvania 15 (1991).
6. 77 Pa. Cons. Stat. Ann. § 531(6)(i); 34 Pa. Code §§ 127.452(a) & (b).
7. 34 Pa. Code § 127.469.
8. 77 Pa. Cons. St. Ann. § 531(6)(ii).
9. 77 Pa. Cons. Stat. Ann. § 531(6)(iv).
10. Id. § 531(5).
11. 34 Pa. Code § 127.208(e).
12. Moats v. Workmen’s Compensation Appeal Bd., 588 A.2d 116, 118 (Pa. Commw. Ct. 1991). Under Pennsylvania law, insurers are entitled to reimbursement from the Workmen’s Compensation Supersedeas Fund, but this Fund is financed entirely from assessments levied on the insurers themselves. 77 Pa. Cons. St. Ann. § 999. As a result, insurers ultimately bear the full cost of unnecessary or unreasonable medical treatment.
13. 34 Pa. Code § 127.208(e).
14. 77 Pa. Cons. St. Ann. § 531(6)(iii).
15. See 77 Pa. Cons. St. Ann. § 717.1(a).
16. 139 F.3d 158, 168 (3d Cir. 1998).
17. Ibid.
18. Ibid. (internal quotation marks and citation omitted).
19. Ibid.
20. Id. at 172.
21. 424 U.S. 319 (1976). Mathews held that in determining whether procedures are constitutional, courts must consider the private interests that will be affected; the risk of an erroneous deprivation of property and the probable value, if any, of additional procedural safeguards; and the government’s interest. Id. at 335. In Connecticut v. Doehr, 501 U.S. 1, 10-11 (1991), the Court clarified that an analysis of the private interests affected by the procedures must include consideration of both the party subject to the official action and the party seeking the action. Post-Mathews decisions have also clarified that the brief duration of any deprivation weighs in favor of constitutionality. E.g., Gilbert v. Homar, 520 U.S. 924, 932 (1997) ("account must be taken of ‘the length’ and ‘finality of the deprivation’" in determining what process is due) (quoting Logan v. Zimmerman Brush Co., 455 U.S. 422, 434 (1982)).
22. 139 F.3d at 172-73, 178-79.
23. Id. at 176.
24. Id. at 176.
25. Id. at 173-74.
26. Id. at 168.
27. 119 S. Ct. at 986 (quoting Jackson v. Metropolitan Edison Co., 419 U.S. 345, 350 (1974)).
28. 457 U.S. 991 (1982).
29. 419 U.S. 345 (1974).
30. 119 S. Ct. at 989.
31. Id. at 986.
32. Ibid. (quoting Jackson, 419 U.S. at 350).
33. Ibid.
34. Id. at 987.
35. Id. at 987 (citations and quotation marks omitted).
36. Ibid.
37. Ibid. (quoting Jackson, 419 U.S. at 352).
38. 487 U.S. 42 (1988).
39. 119 S. Ct. at 987-88 (emphasis added).
40. Ibid.
41. Ibid. (emphasis added).
42. 365 U.S. 715 (1961).
43. 119 S. Ct. at 988 (citation omitted).
44. Id. at 988-89.

 

45. Id. at 989.
46. Id. at 989. The Court first noted that although it had denied the petitions for certiorari filed by the public school district and the various state defendants in the case, the due process issue was properly before the Court because the public defendants remained parties and because the private insurers raised the due process issue in their petition. Ibid.
47. 397 U.S. 254 (1970).
48. 119 S. Ct. at 990.
49. Ibid.
50. Ibid.
51. Ibid.
52. Ibid. In a footnote, the Court explained that the injured employees did not claim "a property interest in their claims for payment, as distinct from the payments themselves, such that the State, the argument goes, could not finally reject their claims without affording them appropriate procedural protections." Id. at 990 n.13 (citing Logan v. Zimmerman Brush Co., 455 U.S. 522 (1982)). In her opinion concurring in the due process portion of the majority opinion, Justice Ginsburg emphasized that she joined that part of the opinion "on the understanding that the Court rejects specifically, and only, respondents’ demands for constant payment of each medical bill, within 30 days of receipt, pending determination of the necessity or reasonableness of the medical treatment." Id. at 991 (Ginsburg, J., concurring in part and in judgment). Justice Ginsburg went on to say that she had "no[] doubt[] . . . that due process requires fair procedures for the adjudication of respondents’ claims for workers’ compensation benefits, including medical care." Ibid. Justice Breyer, joined by Justice Souter, concurred in the state action holding and in the due process holding "insofar as it rejects respondents’ facial attack on the statute and also points out that respondents ‘do not contend that they have a property interest in their claims for payment, as distinct from the payments themselves.’" Ibid. (Breyer, J., concurring in part and in judgment) (citation omitted). Justice Breyer also noted the possibility of "individual circumstances in which the receipt of earlier payments leads an injured person reasonably to expect their continuation, in which case that person may well possess a constitutionally protected ‘property’ interest." Ibid. Justice Stevens agreed with the Third Circuit’s determination that additional notice was necessary — a point not raised in the petition for certiorari — but concluded the procedures as modified were constitutional. Id. at 992 (Stevens, J., concurring in part and dissenting in part) ("It is not unfair, in and of itself, for a State to allow either a private or a publicly owned party to withhold payment of a state-created entitlement pending resolution of a dispute over its amount.").
53. See, e.g., Colo. Rev. Stat. § 8-42-105(3); Mont. Code Ann. §§ 39-71-701, 39-71-712; Or. Rev. Stat. § 656.268(3).
54. See, e.g., Ariz. Rev. Stat. § 23-1026C; Colo. Rev. Stat. § 8-43-404(3); Conn. Gen. Stat. § 31-294f(a); Iowa Code § 85.39; Kan. Stat. Ann. §§ 44-518, 45; N.H. Rev. Stat. Ann. § 281-A:39; R.I. Gen. Laws § 28-33-38; Wyo. Stat. Ann. § 27-14-609(c).
55. See, e.g., Colo. Rev. Stat. § 8-43-404(3); Mass. Gen. Laws ch. 152 § 45.
56. See, e.g., Ga. Code Ann. § 34-9-240(b)(2); Iowa Code § 85.33; N.C. Gen. Stat. § 97-32.
57. See S. Eccleston & C. Yeager, Workers Compensation Research Institute, Managed Care and Medical Cost Containment in Workers’ Compensation, A National Inventory, 1997-1998, at 18-19 (1997). The exceptions are North Carolina, where bills over $2,000 need not be paid until approved by its Industrial Commission, and Oklahoma, where the Oklahoma Workers’ Compensation Court makes case-by-case determinations on payment of disputed bills. Id. at 219, 232.
58. See, e.g., Holmes v. Alachua County Adult Correctional Inst., 404 So. 2d 198 (Fla. Dist. Ct. App. 1981); Martin v. H.B. Zachry Co., 424 So. 2d 1002 (La. 1982); Cruz v. Liberty Mut. Ins. Co., 889 P.2d 1223 (N.M. 1995); Mayes v. Genesco, Inc., 510 S.W.2d 882 (Tenn. 1974); Norfolk Dep’t of Fire v. Lassiter, 324 S.E.2d 656 (Va. 1985); see also A. Larson, Workers’ Compensation Law § 83.41 (b)(2) (1997) ("Generally a failure to pay because of a good faith belief that no payment is due will not warrant a penalty.").
59. 33 U.S.C. § 901 et seq.
60. 20 C.F.R. § 702.233. The constitutionality of these procedures is being challenged in a case currently pending before the U.S. District Court for the District of New Jersey. See Kreschollek v. Southern Stevedoring Co., No. 93-3903 (D.N.J. Sept. 30, 1997).
61. 42 U.S.C. § 1395y(g); see also S. Rep. No. 494, 97th Cong., 2d Sess. 41, reprinted in 1992 U.S.C.C.A.N. 781, 817 (noting that PRO review is aimed at "widespread inappropriate usage of costly health care services").
62. See 42 U.S.C. §§ 1320c-2(b)(1), 1320c-3(a)(1).
63. Also like the Pennsylvania law, however, if a PRO believes that medical services are unreasonable or unnecessary, only the treating physician is provided with an opportunity for comment before rendering a final determination. 42 C.F.R. § 466.93.
64. 42 C.F.R. §§ 411.2, 466.71(b).
65. Medicare provides for limited administrative and judicial review. See 42 C.F.R. §§ 473.10 et seq.
66. Congress has also ratified the use of utilization control and peer review in federal health care programs other than Medicare, including health care for members of the armed forces and their families, see 10 U.S.C. § 1079(n)-(o), and care provided under the United Mine Workers of America 1992 Benefit Plan, see 26 U.S.C. § 9712(c)(3)(d)-(e). Given the substantial increases in the costs of health care in recent years, it seems likely that use of PROs will continue. Between 1980 and 1995, national health care expenditures rose from $247.2 billion to $988.5 billion — an increase of 400%. See U.S. Dept. of Commerce, Statistical Abstract of the United States: 1997, at 112. Expenditures by the federal government for health care rose even faster during this period, increasing 411% from $80 billion in 1980 to $328.6 billion in 1995. Ibid. Utilization review by PROs offers one effective means of slowing this rate of growth.
67. See 42 U.S.C. §§ 1320c-2(b)(1), 1320c-3(a)(1).
68. Cf. Sullivan, 119 S. Ct. at 991 (Breyer, J., concurring in part and in judgment) (noting the possibility of "individual circumstances in which the receipt of earlier payments leads an injured person reasonably to expect their continuation, in which case that person may well possess a constitutionally protected ‘property’ interest").
69. 42 U.S.C. § 1395mm.
70. Id. § 1395mm(c)(5)(A).
71. See 42 C.F.R. § 417.606.
72. 152 F.3d 1115 (9th Cir. 1998), vacated, 67 U.S.L.W. 3604 (U.S. May 3, 1999) (No. 98-1284).
73. Id. at 1119, 1123-24.
74. Id. at 1120.
75. Ibid.
76. Ibid.
77. Ibid.
78. Ibid.
79. Ibid.
80. Id. at 1121.
81. Id. at 1123.
82. Ibid.
83. The doctors in Blum had substantial discretion regarding coverage determinations. See 457 U.S. at 1007-08.
84. 119 S. Ct. at 987. The status of the URO was not directly at issue in Sullivan, and was neither briefed nor argued.
85. 457 U.S. at 994.
86. 457 U.S. at 1006, 1007-08 (citation omitted).
87. Id. at 1008. Current regulations impose similar duties on peer review organizations ("PROs"), discussed above. See 42 C.F.R. § 466.72(a)(1) (requiring PROs to "determine whether the quality of services (including both inpatient and outpatient services) provided by an HMO or CMP meets professionally recognized standards of health care, including whether appropriate health care services have not been provided or have been provided in inappropriate settings"); id. § 466.1 (defining "peer review" as "review by health care practitioners of services ordered or furnished by other practitioners in the same professional field").
88. 152 F.3d at 1121.
89. See 67 U.S.L.W. 3604 (U.S. May 3, 1999) (No. 98-1284).
90. See Ken Fireman, Budget Time Bombs Tick Away, Newsday, Nov. 11, 1996, at A42.
91. See U.S. Department of Commerce, Statistical Abstract of the United States: 1997, at 112 (noting that between 1980 and 1995, national health care expenditures rose from $247.2 billion to $988.5 billion, an increase of 400%); ibid. (noting that expenditures by the federal government for health care rose even faster during this period, increasing 411% from $80 billion in 1980 to $328.6 billion in 1995).

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