High court - States can force HMOs to open more doctor networks

WASHINGTON -- The Supreme Court ruled Wednesday that states can pass laws forcing HMOs to open their networks to more health care providers, giving patients broader choices of doctors and hospitals but potentially boosting costs.

The unanimous ruling was a setback for the managed care industry, which argued that closed networks lower health care costs because providers agree to accept lower fees in return for a guaranteed stream of patients.

The decision also gives states more freedom to regulate insurance companies, another in a line of decisions from the court expanding states' rights.

About half the states have passed "any willing provider" laws in the past decade in response to complaints that HMOs and insurance companies sometimes block people from seeing the doctors of their choice.

The laws require managed care networks or insurance companies to accept out-of-network health care providers -- physicians, pharmacists, nurse practitioners or specialists. In return, the providers must agree to the insurer's reimbursement rates and contract terms.

The court ruled on a challenge to Kentucky's laws, considered the broadest in the country. The Bush administration had sided with Kentucky.

"It's a message to states that you can have consumer protection laws," Kentucky Insurance Commissioner Janie Miller said.

Donald Young, president of the Health Insurance Association of America, said the laws "are one more instance of government unnecessarily interfering in private relationships between doctors and health plans."

Increasing costs

Industry lawyers had told the court that the laws increase administrative costs, make it harder for HMOs to monitor quality and jeopardize deals that health plans have made with providers.

Karen Ignagni, president of the American Association of Health Plans, which represents more than 1,000 health maintenance organizations and other plans, said the Kentucky laws drove up patients' health care expenses. In court filings, justices were told that in states with willing provider laws, studies found 15 percent increases.

It's been nearly a decade since the Kentucky laws were passed, she noted. "Now the discussions in states are different. It's about costs and access and balancing the two," Ignagni said.

The Kentucky statutes were challenged by a group of HMOs and an industry trade association. The case turned on whether the laws regulate insurance, which states are allowed to police, or regulate employee benefits, an area reserved for Congress.

Justice Antonin Scalia wrote in the ruling that Kentucky residents may no longer "seek insurance from a closed network of health-care providers in exchange for a lower premium."

The justices said nothing about any willing provider laws' potential benefits to patients, or whether they believe the statutes work as intended.

"The jury's still out as to whether the laws are good, bad or indifferent," said Steven Goldblatt, a Georgetown University professor. "That will continue to play out in the states. They will continue to make the determination of how it works."

Timothy Jost, a health law professor at Washington and Lee University, said he does not expect a rush of states to copy Kentucky's laws.

"The states have been losing their momentum in the past few years. All of these things cost money, and it depends on how much you want to pay," Jost said.

Richard Shaw, with the insurance rating agency A.M. Best Co., said he does not expect the ruling to financially hurt HMOs. He said most have expanded their provider networks anyway, in response to consumer demand.

The Kentucky challenge is one of two major health care cases at the court this year. The justices will rule soon on the other, from Maine, that asks whether states can force drug companies to lower prices for the working poor, retirees and others who do not receive health coverage or drug benefits through their jobs.

Wednesday's case is Kentucky Association of Health Plans v. Miller, 00-1471.