Amicus Curiae Brief — American Mfrs. Mut. Ins. Co. v. Sullivan

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FILED

NOV 10 0

No. 97-2000

In the Supreme Court of th

OCTOBER TERM, 1998

AMERICAN MANUFACTURERS MUTUAL INSURANCE

COMPANY, ET AL., PETITIONERS

DELORES SCOTT SULLIVAN, ET AL.

ON WRIT OF CERTIORARI TO

THE UNITED STATES COURT OF APPEALS

FOR THE THIRD CIRCUIT

BRIEF FOR THE UNITED STATES

AS AMICUS CURIAE SUPPORTING PETITIONERS

SETH P. WAXMAN

Solicitor General

Counsel of Record

FRANK W. HUNGER

Assistant Attorney General

EDWIN S. KNEEDLER

Deputy Solicitor General

JEFFREY A. LAMKEN

Assistant to the Solicitor

General

BARBARA C. BIDDLE

JACOB M. LEWIS

Attorneys

Department of Justice

Washington, D.C. 20530-0001

(202) 514-2217 .

QUESTIONS PRESENTED

1. Whether a private insurer’s decision to defer payment

of medical bills pursuant to the utilization review provisions

of Pennsylvania’s Workers’ Compensation Act, Pa. Stat.

Ann. tit. 77, § 531(5), (6) (West Supp. 1998), constitutes

“state action” under the Fourteenth Amendment.

2. Whether the insurer’s decision to withhold payment of

medical bills without first providing the employee with an

opportunity to submit a written statement violates due

process.

TABLE OF CONTENTS

Page

Interest of the United States 1

Statement 2

Summary of argument 7

Argument 10

I. A decision by a private insurer to defer payment

pending utilization review is not state action 10

II. An insurer’s decision to defer payment of a dis-

puted claim pending utilization review com-

ports with due process 21

Conclusion 30

TABLE OF AUTHORITIES

Cases:

Armstrong v. Manzo, 380 U.S. 545 (1965) 24

Barnes v. Lehman, 861 F 2d 1388 (5th Cir. 1988 20

Blum v. Yaretsky, 457 U.S. 991 (1982) 8, 12, 18,

15, 17, 18, 19, 20

Burton v. Wilmington Parking Auth., 365 U.S. 715

(1961) 19

Cafeteria Workers v. McElroy, 367 U.S. 886

(1961) 24

Connecticut v. Doehr, 501 US. 1 (1991) 25, 30

Crowell V. Benson, 285 U.S. 22, 57 (1982) 18

Edmonson v. Leesville Concrete Co.,

500 U.S. 614 (1991) 11, 12, 13-14, 16, 19-20

First English Lutheran Evangelical Church v.

County of Los Angeles, 482 U.S. 304 (1987) 23

Flagg Brothers, Inc. v. Brooks, 486 U.S. 149

(1978) 15, 16

Gilbert v. Homar, 520 U.S. 924 (1997) 24

Grijalva v. Shalala, 152 F.3d 1115 (9th Cir.

1998) 2

(IID

Cases—Continued: Page

Henderson v. Workmen's Compensation Appeal 2

Bd., 452 A. 2d 277 (Pa. Commw. Ct. 1982) 14

Jackson v. Metropolitan Edison Co.,

419 U.S. 345 (1974) 10, 12, 18, 17, 20

Kreschollek v. Southern Stevedoring Co., No.

98-3908 (D. N. J. Sept. 30, 1997) 2

Lebron v. National R.R. Passenger Corp.,

519 U.S. 374 (1995) 12

Logan v. Zimmerman Brush Co., 455 U.S. 422

(1982) 22

Lugar v. Edmondson Oil Co., 457 U.S. 922

(1982) 10, 11

Marsh v. Alabama, 326 US. 501 (1946) 13

Mathews v. Eldridge, 424 U.S. 319 (1976) 5, 6, 10,

21, 24, 25, 26-27, 29, 30

Moats v. Workmen's Compensation Bd., 588 A.2d

116 (Pa. Commw. Ct. 1991) 27

Morrissey v. Brewer, 408 U.S. 471 (1972) 24

NCAA v. Tarkanian, 488 U.S. 179 (1988) 10

New York Cent. R.R. v. White, 248 U.S. 188

(1917) 2

O'Bannon v. Town Court Nursing Ctr., 447 US.

773 (1980) 26

Rendell-Baker v. Kohn, 457 U.S. 830 (1982) 12

Richardson v. Perales, 402 U.S. 389 (1971) 29

San Franciso Arts & Athletics v. United

States Olympic Comm., 483 U.S. 522 (1987. 12, 20

Schvartzman v. Apfel, 138 F.3d 1196 (7th Cir.

1998) 22

Shelley v. Kraemer, 884 U.S. 1 (1948) 16

Silas v. Smith, 361 F. Supp. 1187 E. D. Pa.

1973) 14

Smith v. Allwright, 321 U.S. 649 (1944) 13

Cases—Continued: Page

Walters v. National Ass'n of Radiation Survivors,

473 U.S. 305 (1985) 21

West v. Atkins, 487 U.S. 42 (1988) 11

Constitution, statutes and regulations:

US. Const.:

Amend. XIV 7-8, 9, 10, 12, 15, 18, 21, 28, 24

$1 21

Longshore and Harbor Workers’ Compensation Act,

83 U.S.C. 901-950 1

83 U.S.C. 914c) 1

42 U.S.C. 1395 et seq. 2

42 U.S.C. 1895cc 2

42 U.S.C. 1988 5, 10, 12

Pennsylvania Workers’ Compensation Act, Pa. Stat.

Ann. tit. 77, $$ 1 et seq. (West 1992) 1, 2, 8, 4,

5, 6, 8, 12, 14, 15, 22

§ 29 (Supp. 1998) 8, 28

§ 431 2

§ 481(a) (Supp. 1998) 2

§ 501(a) (Supp. 1998) 2-8

§ 581(1)i) (Supp. 1998) 8

§ 531(5) (Supp. 1998) 8, 11, 12-13, 20

58106) (Supp. 1998) 11, 18. 20

§ 531(6)(i) (Supp. 1998) 8, 28

§ 531(6)(ii) (Supp. 1998) 4, 23, 29

§ 531(6)(iii) (Supp. 1998) 4, 13,27

§ 531(6)(iv) (Supp. 1998) 4, 23

§ 711.1 (Supp. 1998) 23

§ 717.1(a) (Supp. 1998) 4, 18, 23, 28

$§ 801-836 29

§ 996 (Supp. 1998) 4-5, 13, 28

§ 999%(a) 4

§ 999(b) 4,27

§ 2604 (Supp. 1998) 11

34 Pa. Code (1998):

§ 127.208(e) 8

Statutes and regulations—Continued:

§ 127.210(d)

§ 127.404(b)

5 7

§ 127.404(c)

§ 127.405(a)

§ 127.406

§ 127.452

§ 127. 452(a)

§ 127.459

§ 127.460

§ 127.461

—

§ 127.466

§ 127.467

§ 127.469

§ 127.470

§ 127A70(a)

§ 127.470(b)

—

§ 127.479

§ 127.556

20 C. F. R. 702.234-702.235

BS SNN NN NS ce co co wo N

Miscellaneous:

1 A. Larson, Larson’s Workers’ Compensation

Law (1998)

In the Supreme Court of the United States

OCTOBER TERM, 1996

No. 97-2000

AMERICAN MANUFACTURERS MUTUAL INSURANCE

COMPANY, ET AL., PETITIONERS

DELORES SCOTT SULLIVAN, ET AL.

ON WRIT OF CERTIORARI TO

THE UNITED STATES COURT OF APPEALS

FOR THE THIRD CIRCUIT

BRIEF FOR THE UNITED STATES

AS AMICUS CURIAE SUPPORTING PETITIONERS

INTEREST OF THE UNITED STATES

The court of appeals held that (1) private workers’ com-

pensation insurers are state actors insofar as they choose to

defer the payment of medical bills pursuant to the utilization

review provisions of the Pennsylvania Workers’ Compensa-

tion Act, and (2) such decisions violate due process if made

without first obtaining a written statement from the affected

employee.

The Un“ed States administers a number of programs in

which the aecisions of private participants affect payments

and services to individuals, and is generally interested in the

faithful application of the state action requirement and due

process principles. The Department of Labor administers

the Longshore and Harbor Workers’ Compensation Act

(LHWCA), 33 U.S.C. 901-950, which establishes a system of

workers’ compensation for those engaged in maritime em-

ployment. Under Section 14(c) of that Act, 33 U.S.C. 914(c),

an employer that voluntarily pays LHWCA compensation to

an employee in the absence of a formal compensation award

is permitted to suspend or terminate those payments with-

(1)

out a prior hearing; the employer need only file a timely

notice of that action with the Department. 20 C. F. R.

702.234-702.235. That provision is currently the subject of a

constitutional challenge similar to the one at issue here. See

Kreschollek v. Southern Stevedoring Co., No. 93-3903

(D.NJ. Sept. 30, 1997). In addition, utilization review with

regard to medical determinations has historically been part

of the Medicare Program. See, eg., 42 U.S.C. 1395 ee.

Similar state action and due process questions have arisen in

connection with health maintenance organization decisions

respecting the provision of medical services to individuals

covered by the Medicare Program, 42 U.S.C. 1395 et seq.

See, e.g., Grijalva v. Shalala, 152 F.3d 1115 (9th Cir. 1998).

STATEMENT

1. Beginning in the early twentieth century, numerous

state legislatures concluded that the common law was inade-

quate to address liability and compensation issues arising

from the increasingly frequent and severe work-related in-

juries that accompanied industrialization. See New York

Cent. R.R. v. White, 243 U.S. 188, 197 (1917) (discussing per-

ceived faults in common-law system); 1 A. Larson, Larson’s

Workers’ Compensation Law §§ 5.20-5.30, at 2-15 to 2-25

(1998). As a result, by 1920 most States had enacted

workers’ compensation laws—laws that require employers

to compensate their employees for work-related injuries

without regard to fault and without regard to the common-

law doctrines that previously barred liability. See generally

1 A. Larson, supra, § 5.30, at 2-25.

Pennsylvania’s Workers’ Compensation Act, Pa. Stat.

Ann. tit. 77, §§ 1 et seg. (Act or Pa. Scat.), first enacted in

1915, follows that model, replacing traditional tort remedies

with an exclusive system of no-fault liability for work-re-

lated injuries. 77 Pa. Stat. §§ 431, 481(a) (Supp. 1998). All

employers subject to the Act must purchase workers’ com-

pensation insurance—from a private insurer or from the

State Workers’ Insurance Fund (SWIF)—or obtain permis-

sion from the State to self-insure. 77 Pa. Stat. § 501(a)

(Supp. 1998).

When an employee is disabled by a work-related injury—

and liability under the Act is not contested or no longer at

issue, Pa. Code §§ 127.404(b), (c), 127.405(a) (1998)—the em-

ployer or its insurer must pay “for reasonable surgical and

medical services,” and do so “within thirty (30) days of

receipt of [the] bills.” 77 Pa. Stat. § 531(1)(i), (5) (Supp.

1998). If the “employer or insurer disputes the reasonable-

ness or necessity of the treatment provided” for a covered

injury, however, it may defer payment and file a request for

“utilization review” with the Workers’ Compensation Bu-

reau of the Pennsylvania Department of Labor and Industry

(Bureau). Jd. §§ 531(5), (6)(i) (Supp. 1998); 34 Pa. Code

§ 127.208(e).

When such a request is filed, utilization review is con-

ducted by authorized “utilization review organizations”

(UROs), private organizations consisting of “impartial”

healthcare providers, 77 Pa. Stat. § 29 (Supp. 1998), who are

“licensed in the same profession and havle] the same or

similar specialty as that of the provider of the treatment

under review,” id. § 531(6)(i) (Supp. 1998); 34 Pa. Code

§ 127.466. The only issue addressed in utilization review is

“whether the treatment under review is reasonable or

necessary for the medical condition of the employee” in light

of “generally accepted treatment protocols.” 34 Pa. Code

§§ 127.470(a), 127.467. Reviewers must “assume the exis-

tence of a causal relationship between the treatment under

review and the employe(e]’s work-related injury,” and “may

not consider or decide issues such as whether the employele]

is still disabled, whether maximum medical improvement has

been obtained, quality of care or the reasonableness of fees.”

Id. §§ 127.470(b), 127.406.

Reviewers must examine the treating provider’s medical

records, 34 Pa. Code §§ 127.459, 127.460, and are required to

give the treating provider an opportunity to discuss the

treatment under review, id. § 127.469. The URO may not

request (and the insurer, employer, employee, and physician

alike are all forbidden from supplying) any “reports of

independent medical examinations.” Jd. § 127.461. If the

URO determines that the treatment is reasonable or neces-

sary, the employer or insurer must pay the disputed bill,

with interest computed at an annual rate of ten percent,

even if the insurer or employer seeks further review. 77 Pa.

Stat. § 717.1(a) (Supp. 1998); 34 Pa. Code §§ 127.208(f),

127.210(d), 127.479. In addition, the employer or insurer is

required to pay the cost of utilization review, whether or not

its position is sustained. 77 Pa. Stat. § 531(6)(iii) (Supp.

1998). UROs are required to issue a written report of their

findings within 30 days of a request, id. § 531(6)(ii) (Supp.

1998), and usually do so within 70 days, Pet. 5.

Any party that disagrees with the URO’s determination

may seek a determination from the Bureau within 30 days.’

The matter is then assigned to a workers’ compensation

judge, who may hold a hearing, for a de novo determination

of reasonableness or necessity. 77 Pa. Stat. § 531(6)(iv)

(Supp. 1998); 34 Pa. Code § 127.556. If payment is required

following utilization review but the judge later rules in favor

of the employer or insurer, the employer or insurer may re-

cover the excess payments from the Workmen’s Compensa-

tion Supersedeas Fund, which is financed by annual assess-

ments on insurers and self-insurers subject to the Act. 34

Pa. Code § 127.208(f); see 77 Pa. Stat. § 999(a), (b). An em-

ployee who prevails before a workers’ compensation judge is

entitled to costs and attorney’s fees if the employer or

1 Previously, Pennsylvania law permitted a party dissatisfied with a

URO determination to file for reconsideration by another URO before

seeking a determination by a workers’ compensation judge. That addi-

tional layer of review was eliminated in 1996. See Pet. App. 8a-9a, 64a-

65a.

insurer fails to demonstrate a reasonable basis for contesting

the bill. 77 Pa. Stat. § 996 (Supp. 1998).

2. Respondents are ten individual employees and two

organizations representing employees who have been found

to be disabled under the Pennsylvania Workers’ Compensa-

tion Act, and who claim that payment of particular medical

bills was deferred under the Act in violation of their due

process rights. See J.A. 25-42 (Complaint). They filed suit in

federal district court under 42 U.S.C. 1983 against a number

of private insurance companies who provide workers’ com-

pensation insurance in Pennsylvania, as well as the School

District of Philadelphia (which self-insures), various Penn-

Sylvania officials who administer the Act, and the director of

the SWIF.

After limited discovery, Pet. App. 47a-48a n.1, the district

court dismissed the private insurance company defendants

from the case on the ground that they are not state actors.

Id. at 59a. The court explained that “the decision to cease

paying medical benefits” under the Act “is entirely up to the

insurer acting independent of any state involvement what-

soever.” Ibid. Moreover, the court emphasized, “(t]he state

takes no substantive step to promote, support or encourage”

the insurer’s decision, and “after the decision is made, the

state takes no action which influences the ultimate substan-

tive determination as to whether benefits are payable or

not.” Ibid.

The district court later dismissed the claims against the

state defendants on the ground that the Act does not violate

respondents’ due process rights. The court held that respon-

dents have a constitutionally protected property interest in

their workers’ compensation medical benefits, Pet. App. 68a,

but, applying the three-part test set forth in Mathews v.

Eldridge, 424 U.S. 319, 335 (1976), concluded that the Act

provides adequate process. Pet. App. 69a-75a. The court

observed that, while respondents’ interest in avoiding inter-

ruption of their medical benefits is “without a doubt signifi-

cant,” id. at 70a, that interest is “adequately protected by

the procedures in place,” id. at 7la. The risk of erroneous

decisions, the court found, is “minimal” because the Act re-

quires utilization review to be “based on a medical deter-

mination” grounded in the treating physician’s testimony

and medical records. Jd. at 72a. The court also emphasized

the government’s interest in controlling the “high costs of

medical treatment” and “the corresponding high cost of

insurance” under the Act. Id. at 75a.

3. The court of appeals reversed both rulings. Pet. App.

la-37a. The court acknowledged that “insurance companies

are private entities,” but it held that “when they act under

the construct of the Workers’ Compensation system, they

are providing public benefits which honor State entitle-

ments.” Id. at 14a-l5a. “In effect,” the court stated, the

insurers “become an arm of the State, fulfilling a uniquely

governmental obligation under an entirely state-created,

self-contained public benefit system.” Jd. at 15a. In the

court’s view, Pennsylvania “is intimately involved in any

decision by an insurer to terminate an employee’s constitu-

tionally protected benefits because an insurer cannot sus-

pend medical payments without first obtaining authorization

from the Bureau.” Ibid. Because t he Act mandates com-

pliance by employers, employees, and insurance companies

and inextricably entangles the insurance companies in a

partnership with the Commonwealth such that they become

an integral part of the state in administering the statutory

scheme,” the court concluded that “the private insurers are

state actors.” Id. at 19a.

Addressing the due process issue under Mathews v.

Eldridge, the court of appeals found “the employees’ private

interest in receiving uninterrupted medical benefits” to be “a

weighty and significant factor in the pretermination cal-

culus.” Pet. App. 28a. The court acknowledged that “the

Act does not proscribe a medical provider from continuing to

treat an employee during the utilization review process,” but

assumed that “medical benefits are typically terminated

upon invocation of utilization review.” Id. at 27a. “Although

a monetary award may compensate an individual for

financial losses,” the court observed, “a monetary award can-

not be deemed an adequate * * * substitute for relieving

an employee’s disability or pain,” or for “necessary medical

care.” Id. at 28a.

The court of appeals also found the risk of erroneous dep-

rivation to be “significant.” Pet. App. 29a. Recognizing that

the utilization review process affords the employee’s physi-

cian an opportunity to discuss the employee’s treatment, the

court nonetheless found itself “hard-pressed to believe that

the portrait of the employee’s illness and treatment is

complete without a statement or other input from the

employee himself.” Ibid. The court acknowledged that the

government has legitimate interests in ensuring that only

“reasonable and necessary medical treatment(s]” are reim-

bursed and “in containing the rising costs of medical care and

insurance payments,” id. at 29a-30a, but it was “not con-

vinced that any governmental interest outweighs the private

interest” in favor of further process. Jd. at 30a. The court

therefore concluded that, before payments are “suspended”

pending or through utilization review, a disabled employee

must be given “an opportunity and time to submit a personal

statement in writing regarding the employee’s view of the

reasonableness and/or necessity of the disputed medical

treatments.” Id. at 33a.”

SUMMARY OF ARGUMENT

1. The actions of private parties will ordinarily be attri-

buted to the State for purposes of the Fourteenth Amend-

2 The court of appeals also identified a number of deficiencies in the

notice provided to employees. Pet. App. 2la-25a, 33a. Following its deci-

sion, the State modified the notice provided to employees, and petitioners

do not challenge the court of appeals’ holding regarding notice. Pet. 22

n.12.

ment only when the parties have wielded uniquely govern-

mental authority delegated to them by the State, or the

State “has provided such significant encouragement” that

the private decision “must in law be deemed to be that of the

State.” See, e. g., Blum v. Yaretsky, 457 U.S. 991, 1004-1005

(1982). In this case, the Pennsylvania Workers’ Compensa-

tion Act requires private insurers to pay the medical bills of

a disabled employee within 30 days of receipt, unless the

insurer challenges the reasonableness and necessity of the

treatment by filing a request for utilization review. The Act

does not, however, confer upon insurers a power tradi-

tionally entrusted to government; on the contrary, it limits

an insurer’s power, which pre-dated the Act, to suspend

payment pending resolution of a contractual dispute. Nor

does the Act, by requiring prompt utilization review, so

significantly encourage insurers to suspend payments that

their decision to do so must be attributed to the State. State

law does not require insurers to challenge the reasonable-

ness or necessity of any medical treatment, or to suspend

payments when they do so. Indeed, there are distinct

disincentives to seeking utilization review. The insurer must

pay the costs of the review, pay any bills that are found to be

reasonable or necessary in review (plus interest at an annual

rate of ten percent), and subjects itself to potential liability

for a prevailing employee’s litigation costs (including attor-

ney’s fees) if a workers’ compensation judge ultimately rules

in favor of the employee. The most that can be said is that

deferring payment of medical bills is an option for insurers

that Pennsylvania law does not prohibit. But “[mljere ap-

proval of or acquiescence in” private initiatives “is not suffi-

cient to justify holding the State responsible for those

initiatives under the terms of the Fourteenth Amendment.”

Blum, 457 U.S. at 1004-1005.

2. The Pennsylvania workers’ compensation scheme pro-

vides constitutionally sufficient process. As an initial mat-

ter, respondents do not have a “property” interest in the

payment of bills before the propriety of those bills has been

resolved. Respondents are mere applicants for payment,

and lack an established entitlement to the funds they seek.

Respondents may have a property interest in their claims

for payment. But deferring payment pending utilization

review does not deprive respondents of their claims. After

review is conducted, respondents may still assert their

claims for payment by presenting them to the Bureau for

adjudication before a workers’ compensation judge. Because

deferring payment for a reasonable period thus does not

deprive respondents of property in which they have a

cognizable interest, it is not inconsistent with the Four-

teenth Amendment.

In any event, Pennsylvania law accommodates both the

employee’s interest in payment for reasonable and necessary

medical expenses, and the insurer’s interest (as well the

State’s) in ensuring that unreasonable and unnecessary

treatment is not reimbursed. Pennsylvania limits the in-

surer’s ability to withhold payment to those situations in

which it challenges the reasonableness and necessity of

medical treatment, and provides prompt review of insurer

decisions by impartial heaithcare providers of an appropriate

specialty. That review includes examination of the treating

provider’s records and discussions with the provider. It is

difficult to see how that prompt review—which by law must

take place within 30 days and in practice takes about 70 days

—is insufficient for due process purposes when the em-

ployee, if dissatisfied with the decision, may then seek

review by the Bureau and demand a de novo hearing before

a workers’ compensation judge.

The principal requirement added by the court of appeals

—that payments not be deferred until the employee is heard

in the utilization review process—would not enhance the

system’s accuracy. Because utilization review is based on

medical judgments, it is unclear what the employee, who has

no medical training, might add that his treatment provider

cannot. Requiring employee participation, moreover, would

threaten the streamlined nature of utilization review, and

prohibiting the deferral of payments until after utilization

review would virtually destroy the system’s cost-contain-

ment purpose. As this Court has recognized, see Mathews v.

Eldridge, 424 U.S. 319, 347 (1976), there are substantial real-

world difficulties associated with the recovery of excess

payments from individual claimants. Without a means for

postponing payment pending at least initial review, bills for

unreasonable and unnecessary treatment would irretrieva-

bly be paid. Pennsylvania has determined that so doing im-

poses unacceptable costs on the workers’ compensation sys-

tem and on employers and insurers generally. It was not for

the court of appeals to second-guess that reasonable legisla-

tive determination.

ARGUMENT

I. A DECISION BY A PRIVATE INSURER TO DEFER

PAYMENT PENDING UTILIZATION REVIEW IS

NOT STATE ACTION

The Fourteenth Amendment’s prohibition against depri-

vations of property without due process applies only to

actions that are properly attributable to the State. See, e. g.,

NCAA v. Tarkanian, 488 U.S. 179, 191 (1988); Jackson v.

Metropolitan Edison Co., 419 U.S. 345, 349 (1974).* This

Court has repeatedly acknowledged the importance of this

state action requirement, because it both “preserves an area

of individual freedom by limiting the reach of federal law and

federal judicial power” and “avoids imposing on the State,

In addition, 42 U.S.C. 1988, under which respondents brought suit, is

limited to deprivations of constitutional rights “under color of” state law.

Where deprivations of rights under the Fourteenth Amendment are

concerned, however, “the under-color-of-state-law requirement does not

add anything not already included within the state-action requirement of

the Fourteenth Amendment.” Lugar v. Edmondson Oil Co., 457 U.S. 922,

935 n.18 (1982).

its agencies or officials responsibility for conduct for which

they cannot fairly be blamed.” Lugar v. Edmondson Oil Co.,

457 U.S. 922, 936 (1982).

In recent cases, the Court has articulated two pre-

requisites to a finding of “fair attribution.” Lugar, 457 U.S.

at 937. First, the challenged deprivation must “be caused by

the exercise of some right or privilege created by the State

or by a rule of conduct imposed by the State or by a person

for whom the State is responsible.” Jbid. Second, “the party

charged with the deprivation must be a person who may

fairly be said to be a state actor.” Jbid. Accord Edmonson

v. Leesville Concrete Co., 500 U.S. 614, 620 (1991); West v.

Atkins, 487 U.S. 42, 49 (1988).

In this case, Pennsylvania limits the ability of a private

workers’ compensation insurer to defer payment of a medical

bill by compelling payment within 30 days unless the insurer

files a request for utilization review, and by compelling pay-

ment thereafter if the insurer’s position is not sustained in

utilization review. 77 Pa. Stat. § 531(5), (6) (Supp. 1998). But

the statute’s restrictions on the ability of private insurers to

defer payment pending a challenge to the reasonableness or

necessity of treatment is not challenged in this case. No

party contends that Pennsylvania lacks the power to impose

those restrictions on insurers. Instead, respondents’ conten-

tions center on the decisions of insurers, within those restric-

tions, to defer the payment of medical bills pending utiliza-

tion review, an action that the State neither prohibits nor

requires. The question before the Court is whether that

decision to withhold payments—made by concededly pri-

vately owned and controlled institutions, Pet. App. 15a; see

Pet. ii-· i can be fairly attributed to the State. In our view,

the answer is “no.”

4 By contrast, the State Workers’ Insurance Fund (SWIF) is estab-

lished and administered by the State. See 77 Pa. Stat. § 2604 (Supp. 1998).

The court of appeals assumed (Pet. App. 12a) that SWIF is a state actor

A. Although this Court has not followed an unwavering

line in its state-action determinations, “certain principles of

general application” emerge. Edmonson, 500 U.S. at 621.

Thus, for example, the State “normally can be held responsi-

ble for a private decision only when it has exercised coercive

power or has provided such significant encouragement,

either overt or covert, that the choice must in law be deemed

to be that of the State.” Blum v. Yaretsky, 457 U.S. 991,

1004 (1982); accord San Francisco Arts & Athletics v. United

States Olympic Comm., 483 U.S. 522, 546 (1987); Rendell-

Baker v. Kohn, 457 U.S. 830, 840 (1982). Similarly, state

action may be found where a private entity exercises func-

tions that are “traditionally the exclusive prerogative of the

State.” Jackson, 419 U.S. at 353; accord San Francisco Arts

& Athletics, 483 U.S. at 544. As this Court summarized in

Edmonson, the Court normally looks to “the extent to which

the actor relies on governmental assistance” in effectuating

its will, “whether the actor is performing a traditional gov-

ernmental function,” and “whether the injury caused is

aggravated in a unique way by the incidents of govern-

mental authority.” Edmonson, 500 U.S. at 622. None of

those factors suggests that insurer decisions to defer pay-

ment of medical bills, pending further review, constitute

state action here.

1. Respondents do not assert that the State exereisels

coercive power” or “significant(ly] encourage(s]” private in-

surers to withhold payment of bills pending further review.

Blum, 457 U.S. at 1004. Nor could they. As the court of

appeals recognized (Pet. App. 5a), the Act permits but does

not require an insurer to defer payment pending resolution

of a request for utilization review. See 77 Pa. Stat. § 531(5)

for purposes of the Fourteenth Amendment and that SWIF acts under

color of state law within the meaning of 42 U.S.C. 1983. See Lebron v.

National R.R. Passenger Corp., 513 U.S. 374, 400 (1995). Because SWIF

is not a petitioner in this Court, its status is not at issue here.

(Supp. 1998). Indeed, far from providing “significant encour-

agement” to withhold bills, Blum, 457 U.S. at 1004, the State

restricts the ability of insurers to do so, and provides distinct

disincentives as well.

Thus, insurers are required to pay medical bills within 30

days, except when they dispute the reasonableness or neces-

sity of the treatments. 77 Pa. Stat. § 531(6) (Supp. 1998); 34

Pa. Code § 127.452. An insurer may not defer payment

based on challenges to the employee’s disability, belated con-

cerns about the cause of the injury, or disputes over the size

of the fee. Moreover, if an insurer does withhold payment

based on a challenge to reasonableness or necessity, that

decision is promptly subjected to utilization review, and the

insurer must bear the cost of the review, regardless of the

outcome. 77 Pa. Stat. § 531(6)(iii) (Supp. 1998). In the event

the URO determines that the medical treatment was reason-

able or necessary, the insurer must pay the bill immediately,

plus interest at an annual rate of ten percent. 77 Pa. Stat.

§ 717.1(a) (Supp. 1998); 34 Pa. Code § 127.210(d). And, if the

matter comes before a workers’ compensation judge, the

insurer may ultimately be liable not only for interest, but for

attorney’s fees and costs as well. 77 Pa. Stat. § 996 (Supp.

1998). Given those distinct restrictions and disincentives, it

cannot be said that the State compels, or even encourages,

an insurer to defer payment of a particular claim pending

utilization review.

2. Nor can it be said that insurers, in withholding pay-

ments pending utilization review, exercise a delegated

“power|] traditionally exclusively reserved to the State.”

Jackson, 419 U.S. at 352. This case does not involve the run-

ning of an election. Contrast Smith v. Allwright, 321 U.S.

649, 663 (1944). It does not involve the governance of a city

or town. Contrast Marsh v. Alabama, 326 U.S. 501 (1946).

Nor does it involve the selection of jurors who serve the gov-

ernmental function of conclusively resolving legal disputes.

See Edmonson, 500 U.S. at 624 (selection of jury, “a quin-

tessential governmental body, having no attributes of a

private actor,” is state action, where a state actor (the judge)

impanels and dismisses the jurors). Rather, it involves the

sort of uniquely private decision that insurers of all varieties

—and members of the public generally—must make on a

regular basis: whether to pay a bill submitted for payment,

or instead to withhold payment and dispute the bill.

Under our system of ordered liberty, it is normally the in-

dividual seeking to obtain property from another who bears

the burden of invoking the State’s adjudicatory machinery

and coercive powers to compel transfer; rare is the system

that compels private individuals to transfer property to an-

other first, and litigate the propriety of transfer later. Thus,

if an employer had entered into a contract to insure against

claims for reasonable or necessary medical expenses by in-

jured employees before Pennsylvania enacted its workers’

compensation statute, the insurer could have refused to pay

a bill (based on a disagreement as to its reasonableness or

necessity) without calling upon the State’s authority to do

80. Under that scenario, it would be clear that the private

insurer has not engaged in state action, because the State

would have no involvement whatsoever in the insurer’s deci-

sion to withhold payment of the disputed bill. For the same

reason, an insurer’s decision to defer payment in conformity

with the Pennsylvania Workers’ Compensation Act—which

merely preserves (in part) the pre-existing power of insurers

to defer payment—is not state action either.

5 See Silas v. Smith, 361 F. Supp. 1187, 1194 (KE. D. Pa. 1973) (“Absent

a statute, the party required by the terms of the agreement to make the

payments had the power to stop making those payments whenever it felt

they were no longer required under the terms of the agreement.”);

Henderson v. Workmen's Compensation Appeal Bd., 452 A.2d 277, 279

(Pa. Commw. Ct. 1982) (Uf the Act did not exist, the employer would be

free to stop payments if it determined that the employee's disability had

ended.”).

Of course, Pennsylvania has departed somewhat from the

usual model by limiting the right of insurers to defer pay-

ment of disputed bills, and by adding strong incentives

against so doing. See p. 13, supra. Respondents’ complaint,

however, is not that the Commonwealth has restricted the

insurers’ ability to defer payment, but rather that it has not

restricted that ability enough, because it does not require

insurers to pay bills pending utilization review and the

employee’s participation therein. Consequently, as in Flagg

Brothers, Inc. v. Brooks, 486 U.S. 149, 166 (1978), “the crux

of [the] complaint” here “is not that the State has acted, but

that it has refused to act.” A State’s refusal to act. how-

ever—and its refusal to compel the payment of disputed bills

in advance of their resolution—does not constitute “state

action” under the Fourteenth Amendment, even if the State

announces in advance “the circumstances under which” it

“will not interfere with private” decisions. Ibid.; see also

Blum, 457 U.S. at 1004-1005 (mere “approval of or acquies-

cence in the initiatives of a private party” is insufficient).

This Court’s decision in Flagg Brothers is thus highly

instructive. There, the plaintiff argued that a warehouse-

man’s proposed sale of stored goods pursuant to New York’s

commercial code could be properly attributed to the State.

But, as the Court explained, the New York statute did

“nothing more than authorize (and indeed limit)—without

participation by any public official—what Flagg Brothers

would tend to do, even in the absence of such authorization,

i.e., dispose of respondents’ property in order to free up its

valuable storage space.” 436 U.S. at 162. The Court

observed that the State’s provision of a “system of rights

and remedies, recognizing the traditional place of private ar-

rangements in ordering relationships in the commercial

world,” did not “delegate[] to Flagg Brothers an exclusive

prerogative of the sovereign.” Jd. at 160. In similar fashion,

the Pennsylvania Workers’ Compensation Act merely fails to

eliminate the ability of private insurers to act as they “would

tend to do,” i.e. defer payment of disputed bills, “even in the

absence of” its provisions. Id. at 162. As a result, it does not

constitute a delegation of traditionally exclusive state powers.

3. Finally, it cannot be said that the injury asserted by

respondents “is aggravated in a unique way by the incidents

of governmental authority.” Edmonson, 500 U.S. at 622.

This is not a case involving the sort of dignitary harm—such

as that caused by racial discrimination—that can be exacer-

bated by an appearance of governmental endorsement. See

id. at 628 (injury from racially-discriminatory conduct is ag-

gravated where it is effectuated by public officials in a public

building that constitutes a “real expression of the constitu-

tional authority of the government”); see also Shelley v.

Kraemer, 334 U.S. 1, 19-22 (1948). Instead, this is a case

about a commercial] dispute—a contest between a private in-

surer, which has temporarily withheld payment, and an

injured employee, who demands immediate payment—in

which the government has initia!ly declined to take part. In

such a case, there can be no “unique” aggravation of the

injury from the “incidents of governmental authority,” be-

cause the injury is not dignitary and because there is no

outward sign of governmental authority to aggravate it.

B. The court of appeals’ contrary conclusion does not

withstand scrutiny. Asserting that private insurance com-

panies “become an arm of the State” when they “act under

the construct of the Workers’ Compensation system,” the

court characterized workers’ compensation as a system “of

public benefits which honor State entitlements,” and likened

private insurers to administrators of that system. Pet. App.

14a-15a. In particular, the court of appeals reasoned that the

power to terminate the payment of public benefns is a

“power * * * traditionally” held by the State, and one an

insurer could not exercise “without the permission and par-

ticipation of the Commonwealth.” Jd. at 15a That analysis is

incorrect, for several reasons.

1. State workers’ compensation statutes do not create

public benefits; instead, they regulate obligations arising out

of private employment relationships, just as tort law did

before workers’ compensation statutes were enacted. Of

course, Pennsylvania’s workers’ compensation statute, like

most others, substitutes a system of no-fault liability, backed

by mandatory insurance, for the previous system of tort

liability in the context of work-related injuries. But nothing

about that substitution converts private insurance com-

panies into state actors. To the contrary, time and again this

Court has held that “(t]he mere fact that a business is

subject to state regulation”—even extensive regulation—

“does not by itself convert its action into that of the State for

purposes of the Fourteenth Amendment.” Blum, 457 U.S. at

1004 (quoting Jackson, 419 U.S. at 350).

For example, if a State makes automobile insurance man-

datory—and regulates the industry heavily, specifying the

terms of coverage—insurer decisions regarding the payment

of accident claims based on coverage or liability concerns

remain private rather than state action. The same is true of

the decisions of workers’ compensation insurers. Although

the purchase of insurance is mandatory, and the terms of

coverage are regulated, the decision to withhold payment

pending resolution of a disputed claim remains the insurer’s

and the insurer’s alone.

In fact, the “mandatory” and “exclusive” nature of work-

ers’ compensation (Pet. App. 14a) seems particularly irrele-

vant, as there is no suggestion that those attributes of the

system had any affect on the decisions by insurers to sus-

pend payment for particular bills. Cf. Jackson, 419 U.S. at

351-352 (finding an “insufficient relationship between the

challenged actions of the entities involved and their monop-

oly status”). Besides, obligations arising in tort are, as a

general matter, mandatory rather than voluntary. Yet a

private party’s decision to defer payment of a potential debt

arising from tort law has never, to our knowledge, been con-

sidered “state action” under the Fourteenth Amendment.

The court of appeals’ conclusion that the workers’ compen-

sation system allocates “public benefits” also flies in the face

of the system’s structure. See also Crowell v. Benson, 285

U.S. 22, 51 (1932). Respondents do not assert a right to

public funds located in the state treasury. Nor will their

claims be paid from the public fisc. Instead, they assert a

right to private funds that are held by private insurers and

that will remain the private insurers’ unless respondents’

claims are sustained. Because a private insurer’s satisfaction

of a claim with its own funds is not the payment of a “public

benefit,” its decision to defer payment pending review of a

disputed claim is not properly attributed to the State. That

is true even if the State pays for the underlying insurance

policy, because individual payment determinations are made

by, and the financial consequences of those decisions are

borne by, the private insurer and not the State. See Blum,

457 U.S. at 1011 (rejecting contention that decisions made by

physicians and nursing homes are attributable to the State,

despite state “subsidization of the operating and capital costs

of the facilities” and coverage for “the medical expenses of

more than 90% of the patients”).

2. Even if payments by private insurers could properly

be characterized as public benefits, it would not follow that a

private decision resulting in a deferral of payment consti-

tutes “state action.” In Blum, for example, this Court held

that medical necessity decisions made by a physician— deci-

sions that caused the State to adjust the patient’s Medicaid

benefits—were not properly attributed to the State. 457

U.S. at 1006-1007. The medical necessity determinations,

the Court explained, were not made by state officials. Nor

were they made based on criteria established by the State.

Instead, they were “made by physicians and nursing home

administrators, all of whom are concededly private parties”

and who were not “influenced in any degree by the State’s

obligations.” Jd. at 1005. Because such determinations re-

garding medical necessity “ultimately turn on medical judg-

ments made by private parties according to professional

standards that are not established by the State,” id. at 1008,

the Court held that those decisions could not be attributed to

the State, id. at 1009; see also id. at 1009 n.19 ([The judg-

ment, made by concededly private parties, that [the indivi-

dual] is receiving expensive care that he does not need” is “a

medical one.”).

The same analysis forecloses respondents’ contentions

here. As in Blum, the initial determination whether a cer-

tain treatment is reasonable and necessary—and thus should

be paid immediately—is made not by state officials but by a

private insurer. Here, as in Blum, that decision is made

based not on state criteria but rather “on medical judgments

* * * according to professional standards that are not

established by the State,” 457 U.S. at 1008. See 34 Pa. Code

$§ 127.470(a), 127.467 (reasonableness and necessity deter-

minations to be based on “generally accepted treatment pro-

tocols”). In Blum, those factors led the Court to determine

that the privately-made medical necessity decisions were not

state action. Those same factors compel a like result here.

3. Alternatively, the court of appeals relied on the

“rather vague generalization,” Blum, 457 U.S. at 1010, that

the Pennsylvania statute “inextricably entangles the insur-

ance companies in a partnership with the Commonwealth

such that they become an integral part of the state in admin-

istering the statutory scheme.” Pet. App. 19a. In Burton v.

Wilmington Parking Authority, 365 U.S. 715, 725 (1961),

this Court stated that where “[t]he State has so far insinu-

ated itself into a position of interdependence with” a private

actor, the State may be held to be “a joint participant in the

challenged activity” of racial discrimination. The facts in this

case do not support a like conclusion. Unlike Burton, this

case does not involve the dignitary injury that flows from

racial discrimination, which can be “uniquely aggravated” by

governmental involvement or endorsement. Edmonson, 500

U.S. at 622. Nor does this case involve interdependent joint

activity. Pennsylvania merely oversees a workers’ compen-

sation system that allows a private insurer to postpone pay-

ment pending review of the reasonableness or necessity of

the treatment involved. Because the applicable statutes and

regulations leave payment-withholding decisions to the in-

surer’s judgment, it cannot fairly be said that the State

jointly participates in those decisions. See San Francisco

Arts & Athletics, 483 U.S. at 547 n.29; Jackson, 419 U.S. at

357-358.

4. Finally, it makes no difference that Pennsylvania re-

quires insurers to file requests for utilization review on “a

form prescribed by the [state workers’ compensation] Bu-

reau.” 34 Pa. Code § 127.452(a); see 77 Pa. Stat. § 531(5), (6)

(Supp. 1998). As this Court held in Blum, the State is not

rendered responsible for private action “by requiring com-

pletion of a form.” 457 U.S. at 1006-1007, 1010. See also

Barnes v. Lehman, 861 F.2d 1383, 1387 (5th Cir. 1988)

(“Regulations that dictate procedures, forms, or even penal-

ties without dictating the challenged action do not convert

private action into state action.” (emphasis added)). Under

the Pennsylvania statute, the Bureau reviews the form sim-

ply “to ensure that it is properly completed,” and not to “ad-

dress the legitimacy or lack thereof of the request for utiliza-

tion review.” Pet. App. 5a; see also id. at 58a (“the Bureau

makes no determination as to whether the medical costs are

reasonable or necessary”). In short, in temporarily with-

holding payment, a private insurer exercises a “choice al-

lowed by state law.” Jackson, 419 U.S. at 357. Because the

“initiative comes from it and not from the State,” its action is

not “‘state action’ for purposes of the Fourteenth Amend-

ment.” Ibid.

II. AN INSURER’S DECISION TO DEFER PAYMENT

OF A DISPUTED CLAIM PENDING UTILIZATION

REVIEW COMPORTS WITH DUE PROCESS

Even if the decisions of private insurers at issue here

were determined to be state action under the Fourteenth

Amendment, deferring payment of disputed claims pending

further review does not violate respondents’ due process

rights.

A. Although the court of appeals analyzed the degree of

process “due” by balancing the parties’ interests under Mat-

hews v. Eldridge, 424 U.S. 319 (1976), such a test—and the

due process inquiry generally—normally applies only when a

state actor seeks to “deprive” an individual of a “property

interest.” See U.S. Const. Amend. XIV, § 1 (“nor shall any

State deprive any person of life, liberty, or property, without

due process of law”); Mathews, 424 U.S. at 332 (“Procedural

due process imposes constraints on governmental decisions

which deprive individuals of ‘liberty’ or ‘property’ inter-

ests.”). Although this Court has determined that the right to

continued payment of an existing stream of benefits

becomes a “property interest” once the claimant establishes

entitlement, it has not held that the mere anticipation of

receiving such benefits, before an application or request for

them has been approved, gives the applicant a property

interest in the payments requested. See Walters v. National

Ass'n of Radiation Survivors, 473 U.S. 305, 320 n.8 (1985)

(reserving the issue). Indeed, to say that the mere sub-

mission of a claim for payment is sufficient to give the

applicant a “property” right in the requested payment itself,

before the insurer, the State, or any decision-making body

has passed on the propriety of payment, would in our view

expand the notion of “property” beyond reasonable bounds.

That does not mean, of course, that the State could reject

applications for benefits randomly or with no process at all.

Even if an applicant for payment does not have a property

interest in the payment as such, the applicant does have a

property interest in the claim for payment, i.e., in the

pending application that represents the possibility of, or

demand for, payment. Such a claim for payment is akin to a

legal claim or “chose in action,” which may constitute a pro-

perty interest. See, e.g., Logan v. Zimmerman Brush Co.,

455 U.S. 422, 431 (1982); see Schvartzman v. Apfel, 138 F.3d

1196, 1199 (7th Cir. 1998) (discussing Zimmerman). A final

decision rejecting a claim for payment, without further

review, has the effect of terminating that claim or chose in

action, and thus terminates the individual’s “property right”

therein. Consequently, we may assume that where a State

finally rejects a claim for new benefits under a statutory

scheme, it must comply with minimum procedural due pro-

cess requirements. Logan, 455 U.S. at 431. But interme-

diate steps, which do no more than give rise to reasonable

delays in the final adjudication of the claim for payment, do

not destroy the claim (or chose in action) itself, and thus do

not deprive the individual of “property” for purposes of due

process. To the contrary, they merely deprive the applicant

of immediate payment, something in which the applicant

does not have a distinct property interest, and to which the

Due Process Clause therefore does not, without more, apply.

Under that analysis, it is evident that the procedure to

which respondents object—the temporary withholding of

payment pending utilization review—does not raise due pro-

cess concerns. Respondents have no property interest in

immediate payment of individual medical bills, because

nothing in the Act promises them a stream of payments for

all medical treatments. Instead, the Act promises payment

only if the treatment is reasonable or necessary, and respon-

dents have yet to establish those pre-requisites to entitle-

ment. Thus, unlike the recipients of fixed, monthly benefits

such as social security, who obtain an unconditional right to

receive payments once their entitlement status is estab-

lished (subject to defeasance only if proper procedures are

employed), respondents’ entitlement to payment for indivi-

dual medical treatments arises only once those treatments

are determined to be necessary or reasonable on a bill-by-bill

basis. Since deferring payment for a reasonable interval to

determine reasonableness and necessity does not deprive

respondents of anything in which they have a distinct pro-

perty right, doing so is consistent with the Fourteenth

Amendment.

Finally, it cannot be argued that deferring payment for a

reasonable time pending utilization review destroys respon-

dents’ claims for payment, in which they do have a propos ty

interest. Even after the insurer withholds payment, and if

the URO upholds that decision, respondents’ claims for pay-

ment remain viable, and respondents may still present them

to a workers’ compensation judge, who will hold a hearing

and determine the matter de novo. 77 Pa. Stat. §§ 531(6)(iv),

711.1(a) (Supp. 1998); 34 Pa. Code § 127.556. Moreover, be-

cause the delays resulting from utilization review are quite

modest, it cannot be argued that the delays have the effect of

destroying or substantially diminishing the value of respon-

dents’ property interests in their claims for benefits. Cf.

First English Lutheran Evangelical Church v. County of

Los Angeles, 482 U.S. 304, 321 (1987) (normal regulatory de-

lays do not effect a “taking” of property). Protracted delays

that prevent claims from ever ripening into payment, of

course, might be said to destroy the individual’s interest in

the claim itself, for a claim to payment is valueless if, because

of such delays, payment effectively cannot be received.

Here, however, the law requires utilization review to be

completed within 30 days, 77 Pa. Stat. § 531(6)(ii) (Supp.

1998), and in practice review is usually completed within 70

days, see Pet. 5. Moreover, Pennsylvania law compensates

for delay, offering interest at a generous rate. Pa. Stat.

§ 717.1(a) (Supp. 1998); 34 Pa. Code §§ 127.208(f), 127.210(d),

127.479. Because Pennsylvania’s system merely defers pay-

ment for a reasonable interval pending further review, and

compensates for delay, it does not deprive respondents of

any property in which they have a right.

That conclusion becomes especially apparent upon consi-

deration of what the result would be if Pennsylvania, rather

than employing its elaborately protective procedures, simply

required insurers to make an initial determination regarding

payment within 120 days, and permitted employees to seek

review of adverse decisions before an administrative law

judge after expiration of the 120-day period. In such a case,

it would be apparent that the 120-day processing time, dur-

ing which payment was not made, did not deprive re-

spondents of “property” without “due process.” It is there-

fore difficult to understand how the more protective system

the Commonwealth established here—which offers the pos-

sibility of payment much earlier (within 30 or 70 days), af-

fords prompter recourse to a workers’ compensation judge,

and compensates for delays—deprives respondents of “pro-

perty” without “due process” in violation of the Fourteenth

Amendment. Compare Mathews, 424 U.S. at 341-342 (delays

of 10 to 11 months between request for ALJ hearing and

decision).

B. Even if we assume, arguendo, that respondents have

been deprived of a “property” interest in some measure,

Pennsylvania’s workers’ compensation system affords re-

spondents all the process that is due. Due process “is not a

technical conception with a fixed content unrelated to time,

place and circumstances,” Cafeteria Workers v. McElroy,

367 U.S. 886, 895 (1961), but rather “is flexible and calls for

such procedural protections as the particular situation de-

mands,” Morrissey v. Brewer, 408 U.S. 471, 481 (1972). See

Gilbert v. Homar, 117 S. Ct. 1807, 1812 (1997). The “funda-

mental requirement” of due process “is the opportunity to be

heard ‘at a meaningful time and in a meaningful manner,

Mathews, 424 U.S. at 333 (quoting Armstrong v. Manzo, 380

U.S. 545, 552 (1965)).

In determining whether the requirements of due process

have been met, this Court has typically looked to three

factors:

First, the private interest that will be affected by the

official action; second, the risk of an erroneous depri-

vation of such interest through the procedures used, and

the probable value, if any, of additional or substitute pro-

cedural safeguards; and finally, the Government’s inte-

rest, including the function involved and the fiscal and

administrative burdens that the additional or substitute

procedural requirement would entail.

424 U.S. at 385. Where, as here, the dispute is over the suffi-

ciency of the procedures applicable to disputes between pri-

vate parties, application of the third Mathews factor requires

“principal attention” to the interest of the party desiring to

utilize the challenged procedures, “with * * * due regard

for any ancillary interest the government may have in pro-

viding the procedure or forgoing the added burden of pro-

viding greater protections.” Connecticut v. Doehr, 501 U.S.

1, 11 (1991).

1. The Employee's Interest. The court of appeals, in our

view, accorded greater weight to the employee’s interest

than is warranted. The insurer’s temporary withholding of

payment for a particular treatment does not affect the em-

ployee’s disability status, or, therefore, the employee’s

entitlement to be reimbursed for other services that are

found to be reasonable and necessary. Mathews, by contrast,

involvec a complete termination of disability benefits. 424

U.S. at 432, 340. Moreover here, as in Mathews, 424 U.S. at

840-341, eligibility for benefits is not based on need.

Although the employee’s interest in payment for a par-

ticular treatment is (like the insurer’s) partially financial, a

deferral of payment may to some degree affect the em-

ployee’s receipt of further treatment while utilization review

is pending“ See Pet. App. 27a-28a (deferral of payment

might sometimes affect continuation of medical treatment).

Pennsylvania, however, does not require providers to termi-

nate treatment when bill payments have been deferred

pending review, and some respondents acknowledge that

they continued to receive treatment even though payment of

their bills had been delayed. See id. at 27a; J.A. 29, 27, 36,

42." The period of deferral is, a. i all, relatively brief. And

it is of some significance that, gere is on occasion some

delay in receiving further treatment while utilization review

is under way, the result for the employee is the same as if

the provider had itself chosen to consult with peers, or

outside experts, before continuing treatment.

For present purposes, however, we may assume that an

employee’s interest in prompt payment may sometimes be

substantial. That interest, however, is not so weighty as to

support the finding of a due process violation, especially

when the remaining two factors are considered.

2. The Interests of Insurers and the Government. In-

surers and the Commonwealth alike have a direct and sub-

stantial interest in avoiding payment of bills for medical

treatments that are not reasonable or necessary. That

interest cannot be fully protected without some sort of defer-

ral mechanism: If the bills are paid before utilization review

is completed, the money is unlikely to be recovered even if

the insurer later prevails on its claim. See Mathews, 424

® This assumes that an employee has an interest in the payment of his

provider’s bills, even if the employee has no direct liability, because future

treatments may be disrupted us a result. But cf. O'Bannon v. Town Court

Nursing Ctr., 447 U.S. 778 (1980) (patients in nursing home lack due

process rights with respect to decertification of nursing home, even if

decertification may affect them indirectly by requiring them to move).

7 It is possible, of course, that a provider will withhold further treat-

ment only for those patients about whom it is most uncertain of having its

bills approved, and that treatment will continue to be provided when the

provider is more confident that the treatment is reasonable and necessary.

U.S. at 347. Indeed, in apparent recognition of that problem,

Pennsylvania forbids the collection of excess workers’ com-

pensation payments from individual employees, and requires

insurers to recover from the state Supersedeas Fund in-

stead. See Moats v. Workmen's Compensation Bd., 588 A.2d

116, 118 (Pa. Commw. Ct. 1991); 77 Pa. Stat. § 999. When in-

surers are forced to pay for unnecessary medical treatments,

everyone suffers. The insurers’ costs are passed along to

employers in their workers’ compensation premiums, and

the employers in turn pass those costs on either to workers

generally through decreased wages or to society through

increased prices.

3. The Risk of Erroneous Deprivation. There is no sig-

nificant risk that legitimate payments will be improperly

delayed or denied with much frequency under Pennsyl-

vania's statutory scheme.

a. The Pennsylvania utilization review process is struc-

tured to obtain an objective determination on a narrowly

focused issue: the reasonableness or necessity of the em-

ployee’s medical treatment. 34 Pa. Code § 127.470. Because

the process relies upon the written records of the employee’s

own healthcare provider, id. §§ 127.459, 127.461, and re-

viewers are required to discuss treatment with the provider,

id. § 127.469, insurers are unlikely to seek utilization review

(and thereby to defer payment) unless they have fair

grounds for dis}-uting the bills. Indeed, the statute imposes

significant costs on an insurer that requests utilization re-

view. The insurer not only has to bear the costs of review,

77 Pa. Stat. § 531(6)iii) (Supp. 1998), but risks eventual re-

That remains true even when the cost of unnecessary medical pro-

cedures is covered by the Supersedeas Fund. Because that fund is fi-

nanced “by annual assessments on insurers and self-insurers” subject to

the Act, 77 Pa. Stat. § 999(b), the costs are passed back to employers in

the price of insurance, and thus eventually to employees and society at

large.

payment of the bills with interest, id. § 717.1(a) (Supp. 1998);

34 Pa. Code § 127.210(d). And, if the matter goes before a

workers’ compensation judge and the employee prevails, the

insurer risks having to pay the employee’s litigation costs,

including attorney’s fees, if it cannot show that it had a

reasonable basis for contesting payment. 77 Pa. Stat. § 996

(Supp. 1998).

Moreover, the utilization review process is designed to

identify promptly any errors in the insurer’s initial judg-

ment. Utilization reviewers must be “impartial,” 77 Pa. Stat.

§ 29 (Supp. 1998), and “licensed in the same profession and

havſe] the same or similar specialty as that of the provider of

the treatment under review,” id. § 531(6)(i) (Supp. 1998); 34

Pa. Code § 127.466. They must justify their decisions based

on “generally accepted treatment protocols.” 34 Pa. Code §§

127.470(a), 127.467. And they must review the employee’s

medical records, 34 Pa. Code §§ 127.459, 127.460, and discuss

the matter with the treating physician, id. § 127.469. Given

the incentives that treatment providers have to justify their

medical judgments—and thus their fees as well—it seems

unlikely that sound justifications for treatment will be

overlooked.

b. Despite those protections, the court of appeals con-

cluded that due process prohibits the withholding of pay-

ments unless the employee has been permitted to participate

in utilization review. Pet. App. 29a, 32a. “Without some sort

of indication from the very individual who is receiving the

questioned medical treatment as to its success,” the court

concluded, “the risk of erroneously terminating an em-

ployee’s medical benefits is too high.” Id. at 31a.

The court of appeals’ rationale for that conclusion is little

more than conjecture. The court suggested that the

employee’s input might be critical where the treatment is

only marginally effective but is the sole possible treatment,

or that it might prove critical where the URO does not

understand how the treatment fits in with the overall

medical care related to the disability. Pet. App. 3la-32a. It

is reasonable to expect, however, that concerns regarding

effectiveness of a treatment and available alternatives, as

well as how the treatment fits in with the overall medical

care of the employee, would appear in the employee’s

medical records or in general treatment protocols the re-

viewers must consult. And even if they did not, the treating

provider, with whom utilization reviewers must consult,

would surely discuss those matters.

Nor is it likely that the employee’s participation would

appreciably reduce the risk of error. Utilization review

determinations are concerned with objective medical judg-

ments, not questions of credibility. See Pet. App. 31a; see

also Mathews, 424 U.S. at 344; Richardson v. Perales, 402

U.S. 389, 407 (1971). The statement of an employee, who is

not schooled in medicine, is unlikely to add anything signifi-

cant to the input of his provider. The employee, in any

event, is given a full opportunity to be heard when the

matter comes before a workers’ compensation judge, after

the expedited utilization review procedures are completed.

See 77 Pa. Stat. §§ 801-836.

Finally, while permitting an employee to submit a per-

sonal statement would not necessarily be “unduly onerous or

administratively burdensome to implement,” it would frus-

trate prompt utilization review. See 77 Pa. Stat. § 531(6) (ii)

(Supp. 1998) (time limit of 30 days for decision). If the

employee were permitted to submit a statement or other

additional evidence to the URO, fairness might suggest that

the insurer should be permitted to do so as well. The pur-

pose of utilization review, however, is to provide an initial

and streamlined check on insurer withholding decisions,

using objective and available medical evidence, not to con-

duct a mini-trial. To the extent adversarial presentations by

the interested parties (the employee and the insurer) may

eventually be required, Pennsylvania has reasonably deter-

mined that they should be reserved for a hearing before the

workers’ compensation judge, after the initial utilization re-

view procedures have been completed. The court of appeals’

requirement that insurers pay for medical treatment until

utilization review is completed and the employee’s perspec-

tive is heard would undercut the very reason for permitting

insurers to withhold payment pending review—to enable

them to avoid paying for medical treatments that in fact are

neither medically necessary nor reasonable.

e. If there is any remaining doubt regarding the require-

ments of due process in this setting, “substantial weight”

should be given to Pennsylvania’s determination “that the

procedures [it has] provided assure fair consideration of the

entitlement claims of individuals.” Mathews, 424 U.S. at 349.

That is especially so considering the widespread use of utili-

zation review procedures and the nearly uniform state prac-

tice of permitting insurers to withhold payment pending re-

view. See Pet. 24 (39 of 41 surveyed jurisdictions permit

pre-review deferral of payment); compare Doehr, 501 U.S. at

17-18. While the concerns identified by the court of appeals

are appropriate for the Pennsylvania Legislature to con-

sider, they are an insufficient basis on which to overturn that

body’s judgment regarding the most appropriate procedures

to employ.

CONCLUSION

The judgment of the court of appeals should be reversed.

NOVEMBER 1998