Facts
- Pennsylvania’s Workers’ Compensation Act requires employers to secure coverage through private insurance, a state fund, or approved self-insurance.
- Once liability for a work-related injury is established or uncontested, the employer/insurer must pay for medical treatment that is “reasonable” and “necessary,” generally within 30 days of receiving a bill.
- Pennsylvania adopted a utilization review procedure to assess whether disputed treatment is reasonable and necessary.
- Under the procedure, a private insurer or self-insured employer may withhold payment for disputed treatment while requesting utilization review.
- The insurer submits a brief request to a state bureau, which forwards it to a private utilization review organization staffed by health-care providers to determine reasonableness and necessity.
- Injured workers and employee groups sued under 42 U.S.C. § 1983, alleging that withholding payment without pre-deprivation notice or hearing violated due process and that insurers acted under color of state law.
Issues
- Whether a private insurer’s decision to withhold payment and seek utilization review is fairly attributable to the State (state action) for Fourteenth Amendment and § 1983 purposes.
- Whether the utilization review regime, on its face, deprives injured workers of a constitutionally protected property interest without due process.
Decision
- The Supreme Court reversed the Third Circuit.
- The Court held that private insurers are not state actors when they withhold payment pending utilization review because the withholding decision is not fairly attributable to Pennsylvania.
- The Court rejected the view that extensive regulation, the bureau’s administrative role, or authorization of utilization review converts insurers’ payment decisions into state action.
- The Court held the regime does not, on its face, deprive workers of property within the meaning of the Fourteenth Amendment, because payment is owed only for treatment found reasonable and necessary.
- A concurrence agreed with the result but noted that in particular circumstances prior payments might create a reasonable expectation of continued payments that could qualify as a property interest.
Legal Principles
- State action requires (1) a deprivation caused by exercise of a state-created right or rule and (2) conduct by a party fairly considered a state actor.
- Mere state approval or acquiescence in private conduct does not constitute state action; coercion or significant encouragement is required.
- Private entities do not become state actors merely by operating within a detailed regulatory scheme or by using a state-authorized procedure.
- A due process property interest depends on a legitimate entitlement; a contingent claim to payment (e.g., dependent on a reasonableness/necessity determination) is not necessarily an entitlement to immediate payment for facial-challenge purposes.
Conclusion
The Court held that insurers’ temporary nonpayment decisions under Pennsylvania’s utilization review process were private conduct not attributable to the State and that the statutory scheme, on its face, did not deprive injured workers of a protected property interest requiring pre-deprivation procedures.