Rush Prudential HMO, Inc. v. Moran
2002 U.S. LEXIS 4644, 536 U.S. 355, 153 L. Ed. 2d 375 (2002)
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Rule of Law:
A state law requiring Health Maintenance Organizations (HMOs) to provide an independent medical review of disputes over the medical necessity of a service is a law that "regulates insurance" under ERISA's saving clause. Such a law is not preempted because it does not create a new cause of action or provide a new remedy that conflicts with ERISA's exclusive civil enforcement scheme.
Facts:
- Debra Moran was a beneficiary of an employee welfare benefit plan for which Rush Prudential HMO, Inc. provided medical services.
- The plan covered services deemed "medically necessary," and the contract gave Rush broad discretion to make this determination.
- After conservative treatments failed for pain in her shoulder, Moran's primary care physician, Dr. LaMarre, recommended an unconventional surgery by an unaffiliated specialist, Dr. Terzis, in October 1997.
- Rush denied coverage for the surgery, determining it was not medically necessary, and instead offered to cover a standard surgical procedure with an affiliated physician.
- In January 1998, Moran made a written demand for an independent medical review of Rush's denial, pursuant to § 4-10 of the Illinois HMO Act.
- While the dispute was ongoing, Moran underwent the surgery with Dr. Terzis at her own expense, incurring a cost of $94,841.27.
- Rush subsequently treated Moran's request for reimbursement as a renewed claim and again denied it after its own consultants concluded the surgery had been medically unnecessary.
Procedural Posture:
- Debra Moran sued Rush Prudential HMO, Inc. in Illinois state court to compel compliance with the state's independent review statute.
- Rush, as defendant, removed the case to the U.S. District Court for the Northern District of Illinois, arguing the claim was completely preempted by ERISA.
- The District Court remanded the case to state court.
- The state court ordered Rush to comply with the independent review process.
- After the reviewer found the surgery medically necessary and Rush refused reimbursement, Moran amended her state court complaint to seek payment.
- Rush again removed the case to federal district court.
- The District Court treated the claim as an ERISA action but granted summary judgment to Rush, holding that the Illinois statute was preempted by ERISA.
- Moran, as appellant, appealed to the U.S. Court of Appeals for the Seventh Circuit, and Rush was the appellee.
- The Seventh Circuit reversed the district court, holding that the Illinois law was saved from ERISA preemption as a regulation of insurance.
- The U.S. Supreme Court granted certiorari to resolve a conflict among the circuit courts.
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Issue:
Does the Employee Retirement Income Security Act of 1974 (ERISA) preempt an Illinois state law that requires Health Maintenance Organizations (HMOs) to provide an independent medical review of a dispute concerning the medical necessity of a covered service?
Opinions:
Majority - Justice Souter
No, ERISA does not preempt the Illinois law requiring independent medical review. The state law is saved from preemption because it regulates insurance and does not create a prohibited alternative remedy. First, the Illinois HMO Act qualifies for ERISA's saving clause because, under a common-sense view, it is directed at the insurance industry; HMOs are risk-bearing entities that function as insurers. The law also satisfies the McCarran-Ferguson factors, as it regulates an integral part of the policy relationship between the insurer and the insured and is limited to entities within the insurance industry. Second, the law does not conflict with ERISA's exclusive civil enforcement scheme under § 1132(a). Unlike the laws struck down in prior cases like Pilot Life, the Illinois statute provides no new cause of action under state law and authorizes no new form of ultimate relief. The independent review process is akin to a mandated second-opinion requirement, which is a permissible form of substantive insurance regulation, rather than an alternative adjudicatory scheme that supplants the judicial remedies available under ERISA.
Dissenting - Justice Thomas
Yes, ERISA preempts the Illinois law because it creates an alternative remedial scheme that conflicts with the exclusive enforcement provisions of ERISA. Congress intended ERISA's civil enforcement mechanism in § 502(a) to be the sole vehicle for asserting a claim for benefits, thereby ensuring a uniform, national body of law. The Illinois statute provides an arbitral-like mechanism that conclusively determines a beneficiary's right to benefits, supplanting the role of federal courts and undermining the uniformity Congress sought to achieve. This state-mandated procedure stands as an obstacle to the full purposes and objectives of Congress by allowing state laws to supplement the carefully balanced and exclusive remedies provided by ERISA. The majority's distinction that the law does not create a new 'cause of action' or 'ultimate relief' is unpersuasive, as the law establishes a separate vehicle for resolving the ultimate question of benefit entitlement.
Analysis:
This decision significantly clarifies the scope of ERISA's saving clause, empowering states to enact 'patients' bill of rights' legislation that imposes procedural and substantive mandates on HMOs and other insurers. The Court narrowed the preemptive reach of ERISA's remedial provisions as established in Pilot Life, suggesting that state insurance laws will only be preempted if they create new judicial causes of action or forms of ultimate relief, like punitive damages. By characterizing independent medical review as a permissible, substantive claims-processing rule rather than a prohibited alternative remedy, the ruling upholds a key state mechanism for consumer protection in managed care and confirms that states retain substantial authority to regulate the terms of insurance contracts provided to ERISA plans.
