Arizona’s High Court Says UR Denials Are Medical, Not Insurance, Decisions

Arizona’s highest court has ruled that utilization review decisions by health plan medical directors are medical–not insurance– decisions and are subject to sanctions by the Board of Medical Examiners.The state Supreme Court upheld without comment a ruling last July by the Arizona Court of Appeals. Writing for the court, Judge Michael D. Ryan said that while John Murphy, M.D., medical director of Blue Cross and Blue Shield of Arizona, wasn’t engaged in traditional medical practice, he still renders medical decisions. “Dr. Murphy is not a provider of insurance,” Ryan wrote.

“Instead, Dr. Murphy is an employee who makes medical decisions for his employer on whether surgeries or other nonexperimental procedures are medically necessary. Such decisions are not insurance decisions but rather medical decisions.”

The court decision is rooted in the care of an unnamed Arizona Blue Cross beneficiary in 1992. The patient asked Blue Cross to precertify gall bladder surgery her physician had requested. Murphy refused, saying the surgery wasn’t medically necessary. The patient’s surgeon, David C. Johnson, M.D., protested, and Murphy offered to forward the matter to a third party for review at Blue Cross’s expense.

However, Johnson and the patient refused and the operation was performed. Blue Cross eventually paid for the operation after post-surgical pathology reports indicated the gall bladder should have been removed. The patient complained to the Arizona Department of Insurance but was rebuffed because Murphy didn’t violate state insurance laws. Johnson then asked the Board of Medical Examiners to investigate what he called Murphy’s unprofessional conduct and medical incompetence, say court documents.

The medical board sent Murphy a “letter of concern” in 1994. Murphy sued the board, saying the medical examiners had no authority to punish him for insurance decisions. The appellate court ruled the director practiced medicine in denying the coverage, and became subject to the medical board’s jurisdiction when he substituted his medical judgment for the judgments of the patient’s physicians.

The American Association of Health Plans and the Health Insurance Association of America filed a joint friend-of-the-court brief with the Supreme Court in support of the Blues. The trade groups said that medical directors are “agents of the companies that hire them,” and suggested that if medical boards interfere in the precertification process, health plans will stop precertifying procedures, leaving patients in the dark about whether a procedure will be covered until after the fact.

While the decision does not bind courts outside of Arizona, it gives medical boards nationwide “greater comfort” in punishing health plan medical directors, said James R. Winn, M.D., executive vice president of the Federation of State Medical Boards of the United States Inc. in Euless, Texas.

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