Aphysician whose decisions as a health plan’s medical director were found subject to review by a state medical board has asked the U.S. Supreme Court to consider the case.1 If the Supreme Court agrees to hear this case, it could resolve the question of whether state licensing boards may review "medical-necessity" determinations by doctors working for insurers or health plans—or whether state statutes permitting such reviews are pre-empted by the federal Employee Retirement Income Security Act, or ERISA.
The Missouri Supreme Court decided last spring that a state board could review the medical-necessity determinations made by a medical director for an insurance company.
In the case at issue, the Missouri Supreme Court decided last spring that a state board could review the medical-necessity determinations made by a medical director for an insurance company, and that the state law permitting this review was not pre-empted by ERISA.
The physician in this case, Dr. Richard Fallon, is licensed in Missouri and previously was a medical director for Prudential Health Care. In that capacity, Dr. Fallon made decisions concerning the medical necessity of certain treatments. Based on his decisions, Prudential approved or denied coverage for participants in employee benefit plans.
During the time that Dr. Fallon was a medical director for Prudential, the Missouri State Board of Registration for the Healing Arts received a complaint from an oral surgeon regarding a deter mination by Dr. Fallon that a requested procedure was not medically necessary. The Board subpoenaed Dr. Fallon for an interview, but the physician failed to appear. A trial court ordered him to comply with the subpoena, and Dr. Fallon appealed.
On appeal, Dr. Fallon argued that ERISA preempted Missouri laws authorizing the board to investigate matters related to an employee benefit plan. The court noted that, according to case law from the U.S. Supreme Court, the question of whether ERISA preempts a state law depends on whether the law relates to, has a connection with or refers to an employee benefit plan.
The Missouri court found that the statute at issue did not refer to any employee benefit plan, but merely authorized the board to subpoena witnesses and documents when investigating the conduct of state licensees. The court next considered whether the statute had a connection with an employee benefit plan. As the Missouri court observed, the U.S. Supreme Court has held that a state law might be pre-empted by ERISA if its effect was to force an ERISA plan to adopt a certain scheme of substantive coverage or restrict its choice of insurers. However, the determinations in this case did not involve plan administration, the court concluded. The court noted that Dr. Fallon did not merely review a predetermined list of covered procedures, but used his medical training and judgment to make a decision about medical necessity. Such a determination was a purely medical decision, as opposed to an administrative choice to cover certain procedures, the court concluded.
The court found that the board was authorized by Missouri statute to review the medical judgments of physicians licensed in Missouri. The board may review any such judgments, whether they were made by a physician providing direct treatment or by a physician conducting utilization review, the court decided.
Furthermore, the court held that the board’s review of Dr. Fallon’s decisions would not mandate any particular benefits structure, nor would it provide an alternative mechanism for a plan beneficiary to enforce any particular claim. Thus, the court concluded that while ERISA may pre-empt state laws interfering with coverage decisions, it did not prohibit a state from exercising its traditional power to review the medical judgment of a physician licensed in that state.
The court also declined to accept an argument that the Missouri legislature had not authorized the board to investigate utilization review cases. Dr. Fallon contended that only the Missouri Department of Insurance was authorized to conduct such an investigation. The court concluded that while state statutes empowered the department of insurance to review the administrative decisions of utilization review agents, they did not authorize the department to review the medical judgments of licensed physicians who serve as medical directors.
Finally, the court rejected Dr. Fallon’s contention that his conduct could not be disciplined by the board because his decision was only an initial determination that an employee benefit plan would not precertify benefits for a surgical procedure. The court found there were two distinct determinations in this case. First, Prudential made an administrative decision when it determined that the plan would not cover the proposed elective surgery unless the medical director found it to be "needed and appropriately provided." Then, Dr. Fallon made a medical decision when he determined that the procedure was "not medically necessary."
Various state attorneys general have reached different conclusions about the applicability of state licensing requirements to employees of health insurers.
In its opinion, the court cited a similar ruling from the Arizona Court of Appeals, which held in 1997 that the Arizona Board of Medical Examiners could discipline a physician whose position as medical director for Blue Cross Blue Shield of Arizona required him to make medical-necessity decisions that could affect patient care.2 The Arizona court held that the physician was substituting his judgment for that of a treating physician in determining that a proposed surgical procedure was not medically necessary. The question of ERISA pre-emption was not raised in this case, so the Arizona court did not address the issue.
In another 1997 court decision, an appellate court in the District of Columbia reviewed the denial of a license application from the medical director of Blue Cross Blue Shield of the National Capital Area.3 The D.C. board of medicine maintained that the medical director, who was licensed to practice medicine in other jurisdictions, had practiced medicine in the district without a license. However, the appellate court found there was no substantial evidence that the medical director had practiced medicine in the district. The court considered the medical director’s duties for Blue Cross Blue Shield and found that his responsibilities were solely administrative.
Various state attorneys general also have reached different conclusions about the applicability of state licensing requirements to employees of health insurers, although none has addressed the issue of whether such statutes are pre-empted by ERISA. In Louisiana, the attorney general found that the state board of medical examiners was authorized by state law to order that a person making a determination of medical necessity, which affects diagnosis or treatment of a patient, must hold a Louisiana medical license.4
However, in Ohio, the state attorney general concluded that the rendering of an opinion as to medical necessity for purposes of utilization review or an insurer’s appeals process did not constitute the practice of medicine under Ohio law.5 In the opinion, the Ohio attorney general noted that attorneys general in other states had reached similar conclusions. For example, North Carolina’s attorney general found that pre-certification and utilization review activities did not constitute the practice of medicine. Additionally, the Arkansas attorney general stated that out-of-state review of claims for chiropractic services did not constitute the practice of chiropractic in Arkansas, and the Mississippi attorney general concluded that out-of-state utilization review did not constitute the practice of medicine in Mississippi.
Thus, it is clear that the question of whether a state licensing board may review medical- or dental-necessity decisions made by a doctor working for a health plan or insurer will depend on the interpretation of applicable state laws. If state laws appear to permit a state board to review the medical- or dental-necessity decisions, then an argument still could be made that the state law was pre-empted by ERISA. The validity of such an argument could be determined if the U.S. Supreme Court agrees to hear the Missouri case discussed in this article.
Dentists may recall that the Supreme Court already has agreed to review a decision from the U.S. Circuit Court of Appeals for the 7th Circuit, which held that an Illinois law requiring health maintenance organizations to comply with the findings of external reviewers was not pre-empted by ERISA.6 It will be interesting to see whether the Supreme Court will be willing to take on another ERISA pre-emption case relating to health professionals in this term. However, in any event, the court may not take this case, since the ERISA preemption argument in the Fallon case does not appear to be especially persuasive.
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