In a decision some say could ultimately spell the death of traditional managed care, the U.S. Supreme Court ruled last week that states can force HMOs to open their networks to any healthcare provider wishing to join.
Authored by Justice Antonin Scalia, the high court's opinion upheld Kentucky's "any willing provider" laws, which require insurers to accept all out-of-network physicians, hospitals, pharmacists and other healthcare providers that agree to abide by the plans' contract terms. The unanimous ruling affirmed a decision issued in September 2000 by the 6th U.S. Circuit Court of Appeals in Cincinnati.
Some 25 states have passed any-willing-provider laws, but lower courts have issued mixed rulings on their legality and, in some cases, have struck down the statutes. Industry observers said last week's decision strengthens state regulators' ability to enforce those laws and likely will prompt several other states to adopt similar mandates.
The decision came as a further blow to the managed-care industry, which in recent years has faced a barrage of new state regulations. HMOs, which have long depended on restricted networks, contend the ruling severely hampers their ability to negotiate lower rates and will add to the already escalating price of healthcare.
"This decision will drive up costs ... and could diminish quality of care," said Donald Young, president of the Health Insurance Association of America. "It's further laying on of government rules that ultimately limits the availability of affordable healthcare options for consumers."
Providers and state regulators, however, celebrated the ruling as a resounding win for the states in their continued efforts to enforce HMO accountability and consumer access to care.
"This victory adds clarity to patient protections established by state lawmakers against the abuses of managed care," said Donald Palmisano, president-elect of the American Medical Association. "For the second time in 12 months, justices have asserted that (HMOs) cannot escape compliance with state laws regulating insurance."
Insurers traditionally have sought shelter from state laws under the Employee Retirement and Income Security Act of 1974, which grants the federal government exclusive power to regulate employee benefit plans. But the Supreme Court weakened that protection last June when it upheld an Illinois law allowing patients to seek an independent review, or unbiased second opinion, if their HMO denies a proposed treatment.
"This could prove to be a final nail in the coffin of managed care," Chip Kahn, president of the Federation of American Hospitals, said of the latest ruling.
In the case decided last week, the Kentucky Association of Health Plans had challenged the state's two any-willing-provider laws-the second of which calls specifically for the inclusion of all willing chiropractors-based on a confusing distinction between insurance and employee benefits: While state laws that relate to employee benefit plans are pre-empted by ERISA, those that pertain to the "business of insurance" are not.
The plaintiffs argued that the two Kentucky laws, passed in 1994 and 1998 as part of the state's Health Care Reform Act, pertain to employee benefits, not insurance, because they prevent providers from entering into limited network contracts just as much as they prevent insurers from creating limited networks in the first place.
This argument had split the lower courts. The 6th Circuit Court found the Kentucky law to be a state regulation of insurance and thus not pre-empted by federal law. The 4th U.S. Circuit Court of Appeals in Richmond, Va., ruled the same way in upholding Virginia's law. But two other federal circuits, the 8th and the 5th, had reached the opposite conclusion, striking down laws in Arkansas and Louisiana.
The Supreme Court put an end to the debate last week, with Scalia writing in his 12-page opinion, "We do not think ... Kentucky has failed to specifically direct its AWP laws at the insurance industry. Neither of Kentucky's AWP statutes, by its terms, imposes any prohibitions or requirements on healthcare providers."
Elizabeth Johnson, the counsel for the Kentucky Department of Insurance who defended the state in the case, said the justices' "broader" interpretation of ERISA exemptions opens the door for states to tackle key healthcare issues that have been debated for years by Congress but not resolved. "States have had to step up to the plate and say, `We've got to protect our citizens somehow,' " Johnson said. "While the court has consistently leaned toward giving states more power (to do that), this landmark ruling really drives that idea home."
Any-willing-provider laws, in particular, are important because they give consumers greater choice while strengthening the doctor-patient relationship, said Andrew Pulito, president-elect of the Kentucky Medical Association. "There are countless stories of how these laws have improved patients' continuity of care," he said.
For example, when an employer changes insurance plans, employees often find that their family physician is no longer covered under the new policy. "Under the old routine, the employee would either have to pay out of pocket to stay with their old physician or go to a new one," Pulito explained. "But now, the physician in question ... can join the new network, allowing employees to continue with the doctors they know and trust."
Any-willing-provider laws are especially helpful to patients in rural areas or small towns, where healthcare choices are limited, said Carol Ormay, vice president of member services for the Kentucky Hospital Association.
"Outside of Louisville and Lexington, we're pretty much a rural state," Ormay said. "Some people are having to travel an hour or two just to see an in-network provider. So if more providers in these areas want to offer their services, we think they ought to be able to."
Insurers, however, argue that their ability to limit network size is essential, and that costs will rise without it.
Traditionally, HMOs have been able to negotiate lower reimbursement rates by assuring providers that their direct competitors would be excluded from the network, thereby guaranteeing them a larger stream of patients. But because any-willing-provider laws effectively prevent HMOs from making these promises, providers have little incentive to accept substantially reduced rates.
"It essentially eliminates one of the easiest ways for insurers to secure volume discounts," said Shannon Turner, director of government affairs for Lexington, Ky.-based insurer Bluegrass Family Health.
The laws also could prevent health plans from rejecting doctors with checkered track records and may boost national insurers' administrative costs by forcing them to juggle a myriad of state mandates, HIAA's Young said.
Melodie Shrader, executive director of the Kentucky Association of Health Plans, said consumers and employers ultimately would bear the brunt as insurers pass these costs along in the form of higher premiums. "Government interferences masquerading as patient protections are actually having the opposite effect as healthcare costs increase and more Americans go uninsured," she said.
Although open networks are good for patients who want broad access, Shrader said, they could prove an obstacle for those in need of basic, affordable coverage. "The problem with our healthcare system is that we're told, `You have to buy a Cadillac or you can't drive,' " she said.
Others, however, downplayed the impact the Supreme Court ruling could have on insurers.
The decision "changes little in the current healthcare delivery system," said Karen Ignagni, president of the American Association of Health Plans. "In the nine years since Kentucky's any-willing-provider legislation was passed, insurers responded to consumer demands, offered more product choices and built a higher-quality healthcare system. ... We will continue to adapt to the interests of consumers and the demands of regulators."
Jack Reichman, a director and insurance analyst with Standard & Poor's, pointed out that the majority of health plans already have opened their networks to include 90% of providers. And most have found other ways to boost their bargaining clout, such as using tiered networks that rank providers based on quality and cost. The ruling "will probably cause a small deterioration in (profit) margins, but certainly nothing that would severely disrupt operations or throw insurers into insolvency," he said.
Indeed, the ruling stands to have the greatest effect on health plans operating in states that don't yet have any-willing-provider laws. In states that do, HMOs already have factored the cost impact into their operations, said Dick Brown, spokesman for Louisville, Ky.-based Humana. "We've been operating under Kentucky's any-willing-provider law for the last nine years, so this is not going to change anything for us," Brown said.
Some insurers, however, fear the ruling holds grave implications for the industry down the road.
Health plans already are straining under a slew of state mandates governing network structure, claims payment, external review and required benefits, Young said. And two other challenges to federal law-that could expose insurers to state lawsuits regarding "medical necessity"-are working their way through the courts.
"ERISA's protections are being quickly eroded," Young said.
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