The U.S. Supreme Court has agreed to decide whether a state's regulation of hospital costs may include charging different rates based on a patient's healthcare coverage.
The court agreed Nov. 4 to review rulings that struck down parts of New York's hospital reimbursement system.
Asked by the justices for its views, the Clinton administration sided with New York.
Justice Department lawyers said the lower court ruling "imposes unwarranted limits on the ability of the states to experiment with a variety of approaches to regulate the healthcare market in order to control costs and ensure that healthcare coverage is widely available."
New York officials told the justices that about half the states have similar systems, and that "the regulatory scheme in each of those states is threatened."
New York's imposition of rate surcharges for patients covered by employee health benefit plans was challenged by the private insurance companies that run such plans. Lower courts ruled that the New York surcharges were pre-empted by federal law.
Those rulings appear to conflict with other federal court rulings that upheld a New Jersey hospital rate regulation system that contained similar surcharges.
"This court should...resolve the uncertainty...created for hospital rate regulation," New York officials argued in one of three separate appeals filed with the justices.
Appeals also were filed by Blue Cross and Blue Shield plans and the Hospital Association of New York State.
Lawyers for private healthcare insurers urged the court to reject the appeals, arguing that the surcharges were an illegal attempt to force employee benefit plans to provide their members with coverage for inpatient hospital care through New York's publicly subsidized Blue Cross system, rather than through commercial or self-insurance.
Most Americans have healthcare insurance through their employee benefit plans, which are regulated by the federal Employee Retirement Income Security Act of 1974.
Since 1988, New York law required that providers of such employee benefit plans pay 13% more for patient bills than those charged for patients covered by Blue Cross and Blue Shield, an HMO or government insurance such as Medicaid.
The surcharge is pocketed by individual hospitals.
New York law also imposed two other surcharges-an additional 11% on employee benefit plans and up to 9% on HMOs that failed to enroll a certain number of Medicaid-eligible people.
U.S. District Judge Louis Freeh, now director of the FBI, ruled in early 1993 that all the surcharges are barred by ERISA.
The 2nd U.S. Circuit Court of Appeals upheld that ruling. It said the surcharges come under that part of ERISA pre-empting "any and all state laws insofar as they may now or hereafter relate to any employee benefit plan."