OCTOBER TERM, 1998
Syllabus
AMERICAN MANUFACTURERS MUTUAL INSURANCE CO. ET AL.
v.
SULLIVAN ET AL.
CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE THIRD
CIRCUIT
No. 97-2000. Argued January 19, 1999-Decided March 3,1999
Under Pennsylvania's Workers' Compensation Act, once an employer
becomes liable for an employee's work-related injury-because
liability either is not contested or is no longer at issue-the
employer or its insurer must pay for all "reasonable" and
"necessary" medical treatment. To assure that only medical expenses
meeting these criteria are paid, and in an attempt to control
costs, Pennsylvania has amended its workers' compensation system to
provide that a self-insured employer or private insurer
(collectively insurer) may withhold payment for disputed treatment
pending an independent "utilization review," as to which, among
other things, the insurer files a one-page request for review with
the State Workers' Compensation Bureau (Bureau), the Bureau
forwards the request to a "utilization review organization" (URO)
of private health care providers, and the URO determines whether
the treatment is reasonable or necessary. Respondents, employees
and employee representatives, filed this suit under 42 U. S. C. §
1983 against various Pennsylvania officials, a self-insured public
school district, and a number of private workers' compensation
insurers, alleging,
inter alia, that in withholding benefits
without pre deprivation notice and an opportunity to be heard, the
state and private defendants, acting "under color of state law,"
deprived respondents of property in violation of due process. The
District Court dismissed the private insurers from the suit on the
ground that they are not "state actors," and later dismissed the
state officials and school district on the ground that the Act does
not violate due process. The Third Circuit disagreed on both
issues, holding, among other rulings, that a private insurer's
decision to suspend payment under the Act constitutes state action.
The court also noted the parties' assumption that employees have a
protected property interest in workers' compensation medical
benefits, and held that due process requires that payment of
medical bills not be withheld until employees have had an
opportunity to submit their view in writing to the URO as to the
reasonableness and necessity of the disputed treatment.
41
Held:
1. A private insurer's decision to withhold payment and seek
utilization review of the reasonableness and necessity of
particular medical treatments is not fairly attributable to the
State so as to subject the insurer to the Fourteenth Amendment's
constraints. State action requires
both an alleged
constitutional deprivation caused by acts taken pursuant to state
law
and that the allegedly unconstitutional conduct be
fairly attributable to the State.
E. g., Lugar v.
Edmondson Oil Co., 457 U. S. 922, 937. Here,
while it may fairly be said that the first requirement is
satisfied, respondents have failed to satisfy the second. The mere
fact that a private business is subject to extensive state
regulation does not by itself convert its action into that of the
State. See,
e. g., Blum v.
Yaretsky, 457 U. S. 991, 1004. The
private insurers cannot be held to constitutional standards unless
there is a sufficiently close nexus between the State and the
challenged action so that the latter may be fairly treated as that
of the State itself.
Ibid. Whether such a nexus exists
depends on, among other things, whether the State has provided such
significant encouragement, either overt or covert, that the choice
must in law be deemed to be that of the State.
E. g., ibid.
That the statutory scheme previously prohibited insurers from
withholding payment for disputed medical services and no longer
does so merely shows that the State, in administering a
many-faceted remedial system, has shifted one facet from favoring
the employees to favoring the employer. This sort of decision
occurs regularly in the legislative process and cannot be said to
"encourage" or "authorize" the insurer's actions. Also rejected is
respondents' assertion that the challenged decisions are state
action because insurers must obtain "authorization" or "permission"
from the Bureau before withholding payment. The Bureau's
participation is limited to requiring submission of a form and
related functions, which cannot render it responsible for the
insurers' actions. See id., at 1007. Respondents' twofold argument
that state action is present because the State has delegated to
insurers powers traditionally reserved to itself also lacks merit.
First, the contention as to delegation of the provision of
state-mandated "public benefits" fails because nothing in
Pennsylvania's Constitution or statutory scheme obligates the State
to provide either medical treatment or workers' compensation
benefits to injured workers. See,
e. g., Jackson v.
Metropolitan Edison Co., 419 U. S. 345, 352;
West v.
Atkins, 487 U. S. 42, 54-56,
distinguished. Second, their argument as to delegation of the
governmental decision to suspend payment for disputed medical
treatment is supported by neither historical practice nor the state
statutory scheme. That Pennsylvania originally recognized an
insurer's traditionally pri-
42
vate prerogative to withhold payment, then restricted it, and
now (in one limited respect) has restored it, cannot constitute the
delegation of an exclusive public function. See
Flagg Bros.,
Inc. v.
Brooks, 436 U. S. 149, 162, n. 12. Finally,
respondents misplace their reliance on a "joint participation"
theory of state action. Privately owned enterprises providing
services that the State would not necessarily provide, even though
they are extensively regulated, do not fall within the ambit of
that theory.
E. g., Blum, supra, at 1011;
Burton v.
Wilmington Parking Authority, 365 U. S. 715, and
Lugar, supra, distinguished. Pp.49-58.
2. The Pennsylvania regime does not deprive disabled employees
of "property" within the meaning of the Due Process Clause of the
Fourteenth Amendment. Only after finding deprivation of a protected
property interest does this Court look to see if the State's
procedures comport with due process.
Mathews v.
Eldridge, 424
U. S. 319, 332. Here, respondents contend that state law
confers upon them such a protected interest in workers'
compensation medical benefits. However, under Pennsylvania law, an
employee is not entitled to payment for
all medical
treatment once the employer's initial liability is established, as
respondents' argument assumes. Instead, the law expressly limits an
employee's entitlement to "reasonable" and "necessary" medical
treatment, and requires that disputes over the reasonableness and
necessity of particular treatment be resolved
before an
employer's obligation to pay-and an employee's entitlement to
benefits-arise. Thus, for an employee's property interest in the
payment of medical benefits to attach under state law, the employee
must clear two hurdles: He must prove (1) that an employer is
liable for a work-related injury, and (2) that the particular
medical treatment at issue is reasonable and necessary. While
respondents have cleared the first hurdle, they have yet to satisfy
the second. Consequently, they do not have the property interest
they claim.
Goldberg v.
Kelly, 397 U. S. 254, 261-263,
and
Mathews, supra, at 332, distinguished. Pp. 58-61.
139 F.3d
158, reversed.
REHNQUIST, C. J., delivered the opinion of the Court, Parts I
and II of which were joined by O'CONNOR, SCALIA, KENNEDY, SOUTER,
THOMAS, and BREYER, JJ., and Part III of which was joined by
O'CONNOR, KENNEDY, THOMAS, and GINSBURG, JJ. GINSBURG, J., filed an
opinion concurring in part and concurring in the judgment,
post, p. 61. BREYER, J., filed an opinion concurring in part
and concurring in the judgment, in which SOUTER, J., joined,
post, p. 62. STEVENS, J., filed an opinion concurring in
part and dissenting in part,
post, p. 63.
43
Michael W McConnell argued the cause for petitioners.
With him on the briefs were Alan E. Untereiner, Robert McL.
Boote, Burt M. Rublin, and Robert E. Kelly, Jr.
Malcolm L. Stewart argued the cause for the United States as
amicus curiae urging reversal. On the brief were Solicitor General
Waxman, Assistant Attorney General Hunger, Deputy Solicitor General
Kneedler, Jeffrey A. Lamken, Barbara C. Biddle, and Jacob M.
Lewis.
Loralyn McKinley argued the cause for respondents.
With her on the brief for respondents Sullivan et al. were
Alan B. Epstein and
Thomas J.
O'Brien. Jan M.
Ritchie, Patricia Farrell Kerelo, Joseph W Cunningham, and
Mark Pfeiffer filed a brief for respondent School District
of Philadelphia. *
CHIEF JUSTICE REHNQUIST delivered the opinion of the Court.t
Pennsylvania provides in its workers' compensation regime that
an employer or insurer may withhold payment for disputed medical
treatment pending an independent review to determine whether the
treatment is reasonable and necessary. We hold that the insurers
are not "state actors" under the Fourteenth Amendment, and that the
Pennsylvania re-
*Briefs of
amici curiae urging reversal were filed for
the American Insurance Association et al. by
Mark F.
Horning; for the National Association of Waterfront
Employers et al. by F.
Edwin Froelich and
Charles T.
Carroll; and for the Washington Legal Foundation by
Ronald
D. Maines, Daniel J.
Popeo, and
Paul D.
Kamenar.
Briefs of
amici curiae urging affirmance were filed for
the American Association of Retired Persons et al. by
Gil
Deford, Sarah Lenz Lock, Michael Schuster, Jeanne Finberg, Vicki
Gottlich, and
Judith L. Lichtman; for the Pennsylvania
Federation of Injured Workers by
Roderick M. Hills, Jr., and
Richard W McHugh; for the Pennsylvania Trial Lawyers
Association et al. by
Michael J.
Foley, Mark S.
Mandell, Jeffrey White, and
Richard A. Kimnach; and
for Carl Kreschollek by
David M. Linker.
tJU8TICE SCALIA joins Parts I and II of this opinion.
44
gime does not deprive disabled employees of property within the
meaning of that Amendment.
I
Before the enactment of workers' compensation laws, employees
who suffered a work-related injury or occupational disease could
recover compensation from their employers only by resort to
traditional tort remedies available at common law. In the early
20th century, States began to replace the common-law system, which
often saddled employees with the difficulty and expense of
establishing negligence or proving damages, with a compulsory
insurance system requiring employers to compensate employees for
work-related injuries without regard to fault. See generally 1 A.
Larson & L. Larson, Larson's Workers' Compensation Law §§
5.20-5.30, pp. 2-15 to 2-25 (1996).
Following this model, Pennsylvania's Workers' Compensation Act,
Pa. Stat. Ann., Tit. 77, § 1
et seq. (Purdon 1992 and Supp.
1998) (Act or 77 Pa. Stat. Ann.), first enacted in 1915, creates a
system of no-fault liability for work-related injuries and makes
employers' liability under this system "exclusive ... of any and
all other liability." § 481(a). All employers subject to the Act
must (1) obtain workers' compensation insurance from a private
insurer, (2) obtain such insurance through the State Workmen's
Insurance Fund (SWIF), or (3) seek permission from the State to
self-insure. § 501(a). Once an employer becomes liable for an
employee's work-related injury-because liability either is not
contested or is no longer at issue-the employer or its insurer 1
must pay for all "reasonable" and "necessary" medical treatment,
and must do so within 30 days of receiving a bill. §§ 531(1)(i),
(5).
1 Self-insured employers and private insurers face identical
obligations under Pennsylvania's workers' compensation system, and
we therefore refer to them collectively as "insurers" or "private
insurers."
45
To assure that insurers pay only for medical care that meets
these criteria, and in an attempt to control costs, Pennsylvania
amended its workers' compensation system in 1993. 1993 Pa. Laws,
No. 44, p. 190. Most important for our purposes, the 1993
amendments created a "utilization review" procedure under which the
reasonableness and necessity of an employee's past, ongoing, or
prospective medical treatment could be reviewed before a medical
bill must be paid. 77 Pa. Stat. Ann. § 531(6) (Purdon Supp. 1998).2
Under this system, if an insurer "disputes the reasonableness or
necessity of the treatment provided," § 531(5), it may request
utilization review (within the same 30-day period) by filing a
one-page form with the Workers' Compensation Bureau of the
Pennsylvania Department of Labor and Industry (Bureau). §
531(6)(i); 34 Pa. Code §§ 127.404(b), 127.452(a) (1998). The form
identifies (among other things) the employee, the medical provider,
the date of the employee's injury, and the medical treatment to be
reviewed.
Ibid.; App. 5. The Bureau makes no attempt, as the
Court of Appeals stated, to "address the legitimacy or lack thereof
of the request," but merely determines whether the form is
"properly completed-i.e., that all information required by the form
is provided."
Sullivan v.
Barnett, 139 F.3d
158, 163
(CA3 1998); see 34 Pa. Code § 127.452(a). Upon
the proper filing
2 Before Pennsylvania enacted the "utilization review"
procedure, an insurer had no effective means of recouping payments
for medical treatment that was later determined to be unreasonable
or unnecessary. State law bars insurers from seeking reimbursement
of excessive payments from health care providers, see
Moats
v.
Workmen's Compensation Appeal Bd. (Emerald Mines Corp.),
588 A. 2d 116, 118 (Pa. Commw. 1991), and, although insurers are
entitled to reimbursement from the Workmen's Compensation
Supersedeas Fund for treatment later deemed to be unreasonable or
unnecessary, 34 Pa. Code § 127.208(g) (1998), the fund is financed
entirely from assessments levied on insurers and self-insured
employers themselves. 77 Pa. Stat. Ann. § 999(b) (Purdon 1992). See
generally D. Ballantyne, Workers Compensation Research Institute,
Revisiting Workers' Compensation in Pennsylvania 36-37 (1997).
46
of a request, an insurer may withhold payment to health care
providers for the particular services being challenged. 77 Pa.
Stat. Ann. § 531(5) (Purdon Supp. 1998); 34 Pa. Code § 208(f).
The Bureau then notifies the parties that utilization review has
been requested and forwards the request to a randomly selected
"utilization review organization" (URO). § 127.453. URO's are
private organizations consisting of health care providers who are
"licensed in the same profession and hav[e] the same or similar
specialty as that of the provider of the treatment under review,"
77 Pa. Stat. Ann. § 531(6)(i) (Purdon Supp. 1998); 34 Pa. Code §
127.466. The purpose of utilization review, and the sole authority
conferred upon a URO, is to determine "whether the treatment under
review is reasonable or necessary for the medical condition of the
employee" in light of "generally accepted treatment protocols." §§
127.470(a), 127.467. Reviewers must examine the treating provider's
medical records, §§ 127.459, 127.460, and must give the provider an
opportunity to discuss the treatment under review, § 127.469.3 Any
doubt as to the reasonableness and necessity of a given procedure
must be resolved in favor of the employee. § 127.471(b).
3 Although URO's may not request, and the parties may not
submit, any "reports of independent medical examinations," 34 Pa.
Code § 127.461, employees are allowed to submit a "written personal
statement" to the URO regarding their view of the "reasonableness
and/or necessity" of the disputed treatment, App. 50. This latter
aspect of the process differs from the system in place at the time
of the Court of Appeals' decision. Under the law at that time,
employees received notice that utilization review had been
requested, but were not informed that their medical benefits could
be suspended and were not permitted to submit materials to the URO.
The Bureau modified its procedures in response to the Court of
Appeals' decision, and now provides for more extensive notice and
an opportunity for employees to provide at least some input into
the URO's decision. Petitioners have not challenged the Court of
Appeals' holding with respect to these additional procedures.
47
URO's are instructed to complete their review and render a
determination within 30 days of a completed request. 77 Pa. Stat.
Ann. § 531(6)(ii) (Purdon Supp. 1998); 34 Pa. Code § 127.465. If
the URO finds in favor of the insurer, the employee may appeal the
determination to a workers' compensation judge for a de novo
review, but the insurer need not pay for the disputed services
unless the URO's determination is overturned by the judge, or later
by the courts. 77 Pa. Stat. Ann. § 531(6)(iv) (Purdon Supp. 1998);
34 Pa. Code § 127.556. If the URO finds in favor of the employee,
the insurer must pay the disputed bill immediately, with 10 percent
annual interest, as well as the cost of the utilization review.4 34
Pa. Code § 127.208(e); 77 Pa. Stat. Ann. § 531(6)(iii) (Purdon
Supp. 1998).
Respondents are 10 individual employees and 2 organizations
representing employees who received medical benefits under the
Act.5 They claimed to have had payment of particular benefits
withheld pursuant to the utilization review procedure set forth in
the Act. They sued under Rev. Stat. § 1979, 42 U. S. C. § 1983,
acting individually and on behalf of a class of similarly situated
employees.6 Named as defendants were various Pennsylvania officials
who administer the Act, the director of the SWIF, the School
District of Philadel-
4 If the URO's determination is overturned on appeal, the
insurer may recover excess payments from the Workmen's Compensation
Supersedeas Fund. See n. 2,
supra.
5 In addition to the 10 named employees, the 2 named
organizations are the Philadelphia Area Project on Occupational
Safety and Health, a nonprofit group composed of over 2,000 unions
and their members, Amended Complaint ~ 15, App. 12, and the
Philadelphia Federation of Teachers, a labor organization
representing approximately 20,000 employees of the School District
of Philadelphia, id., ~ 16, App. 12.
6 The class was defined to include "all persons who have been,
or will be in the future, receiving medical benefits pursuant to
the Pennsylvania Workers' Compensation [Act], and who have had or
will have their medical benefits" suspended without prior notice
and an opportunity to be heard.
Id., ~ 17, App. 12-13.
48
phia (which self-insures), and a number of private insurance
companies who provide workers' compensation coverage in
Pennsylvania. Respondents alleged that in withholding workers'
compensation benefits without pre deprivation notice and an
opportunity to be heard, the state and private defendants, acting
"under color of state law," deprived them of property in violation
of due process. Amended Complaint ~~ 265-271, App. 43-44. They
sought declaratory and injunctive relief, as well as damages.
The District Court dismissed the private insurers from the
lawsuit on the ground that they are not "state actors,"
Sullivan v.
Barnett, 913 F. Supp. 895, 905 (ED Pa.
1996), and later dismissed the state officials who remained as
defendants, as well as the school district, on the ground that the
Act does not violate due process, App. to Pet. for Cert. 71a.
The Court of Appeals for the Third Circuit disagreed on both
issues.
139 F.3d
158 (1998). It held that a private insurer's decision to
suspend payment under the Act-what the court called a
"supersedeas"-constitutes state action. The court reasoned:
"In creating and executing this system of entitlements, the
[State] has enacted a complex and interwoven regulatory web
enlisting the Bureau, the employers, and the insurance companies.
The [State] extensively regulates and controls the Workers'
Compensation system. Although the insurance companies are private
entities, when they act under the construct of the Workers'
Compensation system, they are providing public benefits which honor
[s]tate entitlements. In effect, they become an arm of the State,
fulfilling a uniquely governmental obligation under an entirely
state-created, self-contained public benefit system ....
"The right to invoke the supersedeas, or to stop payments, is a
power that traditionally was held in the hands of the State. When
insurance companies invoke the supersedeas (i. e., suspension) of
an employee's medi-
49
cal benefits, they compromise an employee's [s]tatecreated
entitlements. The insurers have no power to deprive or terminate
such benefits without the permission and participation of the
[State]. More importantly, however, the [State] is intimately
involved in any decision by an insurer to terminate an employee's
constitutionally protected benefits because an insurer cannot
suspend medical payments without first obtaining authorization from
the Bureau. However this authorization may be characterized, any
deprivation that occurs is predicated upon the State's
involvement." Id., at 168.
On the due process issue, the Court of Appeals did not address
whether respondents have a protected property interest in workers'
compensation medical benefits, stating that "[n]either party
disputes" this point.
Id., at 171, n. 23. Thus focusing on
what process is "due," the court held that payment of bills may not
be withheld until employees have had an opportunity to submit their
view in writing as to the reasonableness and necessity of the
disputed treatment to the URO. The court then determined that the
relevant statutory language permitting the suspension of payment
during utilization review was severable and struck it from the
statute.
I d., at 173-174.
We granted certiorari, 524 U. S. 981 (1998), to resolve a
conflict on the status of private insurers providing workers'
compensation coverage under state laws,7 and to review the Court of
Appeals' holding that due process prohibits insurers from
withholding payment for disputed medical treatment pending
review.
II
To state a claim for relief in an action brought under § 1983,
respondents must establish that they were deprived of a right
secured by the Constitution or laws of the United States, and that
the alleged deprivation was committed
7 Cf. Barnes v. Lehman,
861 F.2d
1383 (CA5 1988).
50
under color of state law. Like the state-action requirement of
the Fourteenth Amendment, the under-color-of-state-Iaw element of §
1983 excludes from its reach "'merely private conduct, no matter
how discriminatory or wrongful,'"
Blum v.
Yaretsky,
457 U. S. 991,
1002 (1982) (quoting
Shelley v.
Kraemer, 334 U. S. 1, 13
(1948)).8
Perhaps hoping to avoid the traditional application of our
state-action cases, respondents attempt to characterize their claim
as a "facial" or "direct" challenge to the utilization review
procedures contained in the Act, in which case, the argument goes,
we need not concern ourselves with the "identity of the defendant"
or the "act or decision by a private actor or entity who is relying
on the challenged law." Brief for Respondents 16. This argument,
however, ignores our repeated insistence that state action requires
both an alleged constitutional deprivation "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,"
and that "the party charged with the
deprivation must be a person who may fairly be said to be a state
actor."
Lugar v.
Edmondson Oil Co., 457 U. S. 922, 937
(1982); see
Flagg Bros., Inc. v.
Brooks, 436 U. S. 149, 156
(1978). In this case, while it may fairly be said that private
insurers act "'with the knowledge of and pursuant to'" the state
statute,
ibid. (quoting
Adickes v. S.
H. Kress
&
Co., 398 U. S. 144, 162, n. 23 (1970)), thus
satisfying the first requirement, respondents still must satisfy
the second, whether the allegedly unconstitutional conduct is
fairly attributable to the State.9
8 Where, as here, deprivations of rights under the Fourteenth
Amendment are alleged, these two requirements converge. See
Lugar v.
Edmondson Oil Co., 457 U. S. 922, 935, n. 18
(1982).
9 Respondents' reliance on
Tulsa Professional Collection
Services, Inc. v.
Pope, 485 U. S. 478 (1988), as
support for their position is misplaced. Nowhere in
Tulsa
did we characterize petitioner's claim as a "facial" or "direct"
challenge to the Oklahoma "nonclaim" statute at issue there.
Instead, we analyzed petitioner's challenge under our traditional
two-step approach, requiring both action taken pursuant to state
law and significant
51
Our approach to this latter question begins by identifying "the
specific conduct of which the plaintiff complains."
Blum v.
Yaretsky, 457 U. S., at 1004; see
id., at 1003
("Faithful adherence to the 'state action' requirement ... requires
careful attention to the gravamen of the plaintiff's complaint").
Here, respondents named as defendants both public officials and a
class of private insurers and self-insured employers. Also named is
the director of the SWIF and the School District of Philadelphia, a
municipal corporation. The complaint alleged that the state and
private defendants, acting under color of state law and pursuant to
the Act, deprived them of property in violation of due process by
withholding payment for medical treatment without prior notice and
an opportunity to be heard. All agree that the
public
officials responsible for administering the workers'
compensation system and the director of SWIF are state actors. See
139 F. 3d, at 167.10 Thus, the issue we address, in accordance with
our cases, is whether a
private insurer's decision to
withhold payment for disputed medical treatment may be fairly
attributable to the State so as to subject insurers to the
constraints of the Fourteenth Amendment. Our answer to that
question is "no."
state involvement. See id., at 486-487. While it may be true, as
respondents argue, that the utilization review procedure here, like
the nonclaim statute in
Tulsa, is not "self-executing," that
fact does not relieve respondents of establishing both requisites
of state action.
Tulsa does not suggest otherwise.
10 At the same time the District Court dismissed the private
insurers, it refused to grant the school district's motion to
dismiss for lack of state action (the school district argued that
because it contracted out its responsibilities as a self-insurer to
a private company, it was not a state actor), leaving the question
of the school district's status unresolved pending further
discovery.
Sullivan v.
Barnett, 913 F. Supp. 895, 905
(ED Pa. 1996). The District Court's later ruling on the due process
question obviated any need to decide whether the school district
acted under color of state law, nor did the Court of Appeals rule
on that question. See 139 F. 3d, at 167, and n. 16.
52
In cases involving extensive state regulation of private
activity, we have consistently held that "[t]he mere fact that a
business is subject to state regulation does not by itself convert
its action into that of the State for purposes of the Fourteenth
Amendment."
Jackson v.
Metropolitan Edison Co.,
419 U. S. 345,
350 (1974); see
Blum, 457 U. S., at 1004. Faithful
application of the state-action requirement in these cases ensures
that the prerogative of regulating private business remains with
the States and the representative branches, not the courts. Thus,
the private insurers in this case will not be held to
constitutional standards unless "there is a sufficiently close
nexus between the State and the challenged action of the regulated
entity so that the action of the latter may be fairly treated as
that of the State itself."
Ibid. (internal quotation marks
omitted). Whether such a "close nexus" exists, our cases state,
depends on whether the State "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."
Ibid.; see
Flagg Bros., supra, at 166;
Jackson,
supra, at 357;
Moose Lodge No. 107 v.
Irvis,
407 U. S. 163,
173 (1972);
Adickes v. S.
H. Kress &
Co.,
supra, at 170. Action taken by private entities with the mere
approval or acquiescence of the State is not state action.
Blum,
supra, at 1004-1005;
Flagg Bros., supra, at 154-165;
Jackson, supra, at 357.
Here, respondents do not assert that the decision to invoke
utilization review should be attributed to the State because the
State compels or is directly involved in that decision. Obviously
the State is not so involved. It authorizes, but does not require,
insurers to withhold payments for disputed medical treatment. The
decision to withhold payment, like the decision to transfer
Medicaid patients to a lower level of care in
Blum, is made
by concededly private parties, and
1008.
53
Respondents do assert, however, that the decision to withhold
payment to providers may be fairly attributable to the State
because the State has "authorized" and "encouraged" it.
Respondents' primary argument in this regard is that, in amending
the Act to provide for utilization review and to grant insurers an
option they previously did not have, the State purposely
"encouraged" insurers to withhold payments for disputed medical
treatment. This argument reads too much into the State's reform,
and in any event cannot be squared with our cases.
We do not doubt that the State's decision to provide insurers
the option of deferring payment for unnecessary and unreasonable
treatment pending review can in some sense be seen as encouraging
them to do just that. But, as petitioners note, this kind of subtle
encouragement is no more significant than that which inheres in the
State's creation or modification of any legal remedy. We have never
held that the mere availability of a remedy for wrongful conduct,
even when the private use of that remedy serves important public
interests, so significantly encourages the private activity as to
make the State responsible for it. See
Tulsa Professional
Collection Services, Inc. v.
Pope, 485 U. S. 478, 485 (1988)
("Private use of state-sanctioned private remedies or procedures
does not rise to the level of state action"); see also
Lugar, 457 U. S., at 937;
Flagg Bros., 436 U. S., at
165166. It bears repeating that a finding of state action on this
basis would be contrary to the "essential dichotomy,"
Jackson,
supra, at 349, between public and private acts that our cases
have consistently recognized.
The State's decision to allow insurers to withhold payments
pending review can just as easily be seen as state inaction, or
more accurately, a legislative decision not to intervene in a
dispute between an insurer and an employee over whether a
particular treatment is reasonable and necessary. See
Flagg
Bros., 436 U. S., at 164-165. Before the 1993 amendments,
Pennsylvania restricted the ability of an
54
insurer (after liability had been established, of course) to
defer workers' compensation medical benefits, including payment for
unreasonable and unnecessary treatment, beyond 30 days of receipt
of the bill. The 1993 amendments, in effect, restored to insurers
the narrow option, historically exercised by employers and insurers
before the adoption of Pennsylvania's workers' compensation law, to
defer payment of a bill until it is substantiated. The most that
can be said of the statutory scheme, therefore, is that whereas it
previously prohibited insurers from withholding payment for
disputed medical services, it no longer does so. Such permission of
a private choice cannot support a finding of state action. As we
have said before, our cases will not tolerate "the imposition of
Fourteenth Amendment restraints on private action by the simple
device of characterizing the State's inaction as 'authorization' or
'encouragement.'"
Ibid.
Nor does the State's role in creating, supervising, and setting
standards for the URO process differ in any meaningful sense from
the creation and administration of any forum for resolving
disputes. While the decision of a URO, like that of any judicial
official, may properly be considered state action, a private
party's mere use of the State's dispute resolution machinery,
without the "overt, significant assistance of state officials,"
Tulsa, supra, at 486, cannot.
The State, in the course of administering a many-faceted
remedial system, has shifted one facet from favoring the employees
to favoring the employer. This sort of decision occurs regularly in
legislative review of such systems. But it cannot be said that such
a change "encourages" or "authorizes" the insurer's actions as
those terms are used in our state-action jurisprudence.
We also reject the notion, relied upon by the Court of Appeals,
that the challenged decisions are state action because insurers
must first obtain "authorization" or "permission" from the Bureau
before withholding payment. See 139 F. 3d, at 168. As described in
our earlier summary of the
55
statute and regulations, the Bureau's participation is limited
to requiring insurers to file "a form prescribed by the Bureau," 34
Pa. Code § 127.452, processing the request for technical
compliance, and then forwarding the matter to a URO and informing
the parties that utilization review has been requested. In
Blum, we rejected the notion that the State, "by requiring
completion of a form," 457 U. S., at 1007, is responsible for the
private party's decision. The additional "paper shuffling"
performed by the Bureau here in response to an insurers' request
does not alter that conclusion.
Respondents next contend that state action is present because
the State has delegated to insurers "powers traditionally
exclusively reserved to the State."
Jackson, 419 U. S., at
352. Their argument here is twofold. Relying on
West v.
Atkins, 487 U.
S. 42 (1988), respondents first argue that workers'
compensation benefits are state-mandated "public benefits," and
that the State has delegated the provision of these "public
benefits" to private insurers. They also contend that the State has
delegated to insurers the traditionally exclusive government
function of determining whether and under what circumstances an
injured worker's medical benefits may be suspended. The Court of
Appeals apparently agreed on both points, stating that insurers
"providing public benefits which honor State entitlements ...
become an arm of the State, fulfilling a uniquely governmental
obligation," 139 F. 3d, at 168, and that "[t]he right to invoke the
supersedeas, or to stop payments, is a power that traditionally was
held in the hands of the State," ibid.
We think neither argument has merit.
West is readily
distinguishable: There the State was constitutionally obligated to
provide medical treatment to injured inmates, and the delegation of
that traditionally exclusive public function to a private physician
gave rise to a finding of state action. See 487 U. S., at 54-56.
Here, on the other hand, nothing in Pennsylvania's Constitution or
statutory scheme obligates the State to provide either medical
treatment or work-
56
ers' compensation benefits to injured workers. See
Blum,
supra, at 1011. Instead, the State's workers' compensation law
imposes that obligation on employers. This case is therefore not
unlike
Jackson, supra, where we noted that "while the
Pennsylvania statute imposes an obligation to furnish service on
regulated utilities, it imposes no such obligation on the State."
Id., at 353; see also
San Francisco Arts &
Athletics, Inc. v.
United States Olympic Comm., 483
U. S. 522, 544 (1987) ("The fact '[t]hat a private entity performs
a function which serves the public does not make its acts
[governmental] action''') (quoting
Rendell-Baker v.
Kohn, 457 U.
S. 830, 842 (1982)).11
Nor is there any merit in respondents' argument that the State
has delegated to insurers the traditionally exclusive governmental
function of deciding whether to suspend payment for disputed
medical treatment. Historical practice, as well as the state
statutory scheme, does not support respondents' characterization.
It is no doubt true that before the 1993 amendments an insurer who
sought to withhold payment for disputed medical treatment was
required to petition the Bureau, and could withhold payment only
upon a favorable ruling by a workers' compensation judge, and then
only for prospective treatment.
But before Pennsylvania ever adopted its workers' compensation
law, an insurer under contract with an employer to pay for its
workers' reasonable and necessary medical expenses could withhold
payment, for any reason or no reason, without any authorization or
involvement of the State. The
11 The fact that the State has established a Workers'
Compensation Security Fund to guarantee the payment of medical
benefits in the event an insurer becomes insolvent, see 77 Pa.
Stat. Ann. § 1053 (Purdon 1992), does not mean, as respondents
suggest, that the State has created a selfimposed obligation to
provide benefits. The security fund is financed entirely through
assessments on insurers and receives no financial assistance from
the State. § 1055; see D. Ballantyne & C. Telles, Workers
Compensation Research Institute, Workers' Compensation in
Pennsylvania 15 (1991).
57
insurer, of course, might become liable to the employer (or its
workers) if the refusal to pay breached the contract or constituted
"bad faith," but the obligation to pay would only arise after the
employer had initiated a claim and reduced it to a judgment. That
Pennsylvania first recognized an insurer's traditionally private
prerogative to withhold payment, then restricted it, and now (in
one limited respect) has restored it, cannot constitute the
delegation of a traditionally exclusive public function. Like New
York in
Flagg Bros., Pennsylvania "has done nothing more
than authorize (and indeed limit)-without participation by any
public officialwhat [private insurers] would tend to do, even in
the absence of such authorization," i.
e., withhold payment
for disputed medical treatment pending a determination that the
treatment is, in fact, reasonable and necessary. 436 U. S., at 162,
n. 12.
The Court of Appeals, in response to the various arguments
advanced by respondents, seems to have figuratively thrown up its
hands and fallen back on language in our decision in
Burton
v.
Wilmington Parking Authority, 365 U. S. 715 (1961). The
Pennsylvania system, that court said, "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." 139 F. 3d, at 170. Relying on
Burton,
respondents urge us to affirm the Court of Appeals' holding under a
"joint participation" theory of state action.
Burton was one of our early cases dealing with "state
action" under the Fourteenth Amendment, and later cases have
refined the vague "joint participation" test embodied in that case.
Blum and
Jackson, in particular, have established
that "privately owned enterprises providing services that the State
would not necessarily provide, even though they are extensively
regulated, do not fall within the ambit of
Burton." Blum,
457 U. S., at 1011; see
Jackson, supra, at 357-358. Here,
workers' compensation insurers are at least
58
as extensively regulated as the private nursing facilities in
Blum and the private utility in
Jackson. Like those
cases, though, the state statutory and regulatory scheme leaves the
challenged decisions to the judgment of insurers.
Respondents also rely on
Lugar v.
Edmondson Oil
Co., 457 U. S.
922 (1982), which contains general language about "joint
participation" as a test for state action. But, as the
Lugar
opinion itself makes clear, its language must not be torn from the
context out of which it arose:
"The Court of Appeals erred in holding that in this context
'joint participation' required something more than invoking the aid
of state officials to take advantage of state-created attachment
procedures .... Whatever may be true in other contexts, this is
sufficient when the State has created a system whereby state
officials will attach property on the ex parte application
of one party to a private dispute." Id., at 942.
In the present case, of course, there is no effort by
petitioners to seize the property of respondents by an
ex
parte application to a state official.
We conclude that an insurer's decision to withhold payment and
seek utilization review of the reasonableness and necessity of
particular medical treatment is not fairly attributable to the
State. Respondents have therefore failed to satisfy an essential
element of their § 1983 claim.
III
Though our resolution of the state-action issue would be
sufficient by itself to reverse the judgment of the Court of
Appeals, we believe the court fundamentally misapprehended the
nature of respondents' property interest at stake in this case,
with ramifications not only for the state officials who are
concededly state actors, but also for the private insurers who
(under our holding in Part II) are not. If the Court of Appeals'
ruling is left undisturbed, SWIF, which
59
insures both public and private employers, will be required to
pay for all medical treatment (reasonable and necessary or not)
within 30 days, while private insurers will be able to defer
payment for disputed treatment pending utilization review. 12
Although we denied the petitions for certiorari filed by the school
district, 525 U. S. 824 (1998), and the various state officials,
525 U. S. 824 (1998), we granted both questions presented in the
petition filed by the private insurance companies. The second
question therein states:
"Whether the Due Process Clause requires workers' compensation
insurers to pay disputed medical bills prior to a determination
that the medical treatment was reasonable and necessary." Pet. for
Cert. (i).
This question has been briefed and argued, it is an important
one, and it is squarely presented for review. We thus proceed to
address it.
The first inquiry in every due process challenge is whether the
plaintiff has been deprived of a protected interest in "property"
or "liberty." See U. S. Const., Arndt. 14 ("nor shall any State
deprive any person of life, liberty, or property, without due
process of law");
Mathews v.
Eldridge, 424 U. S. 319, 332
(1976). Only after finding the deprivation of a protected interest
do we look to see if the State's procedures comport with due
process.
Ibid.
Here, respondents contend that Pennsylvania's workers'
compensation law confers upon them a protected property interest in
workers' compensation medical benefits. Under state law,
respondents assert, once an employer's liability is established for
a particular work-related injury, the em-
12 SWIF, like all insurers and self-insured employers, is
entitled to reimbursement from the state supersedeas fund for
treatment later determined to be unreasonable or unnecessary. See
n. 2,
supra. Because this fund is maintained through
assessments on all insurers, the Court of Appeals' ruling, if left
undisturbed, would likely cause distinct injury to private
insurers.
60
ployer is obligated to pay for certain benefits, including
partial wage replacement, compensation for permanent injury or
disability, and medical care. See 77 Pa. Stat. Ann. §§ 431, 531
(Purdon Supp. 1998). It follows from this, the argument goes, that
medical benefits are a state-created entitlement, and thus an
insurer cannot withhold payment of medical benefits without
affording an injured worker due process.
In
Goldberg v.
Kelly, 397 U. S. 254 (1970), we
held that an individual receiving federal welfare assistance has a
statutorily created property interest in the continued receipt of
those benefits. Likewise, in
Mathews, supra, we recognized
that the same was true for an individual receiving Social Security
disability benefits. In both cases, an individual's entitlement to
benefits had been established, and the question presented was
whether predeprivation notice and a hearing were required before
the individual's interest in
continued payment of benefits
could be terminated. See
Goldberg, supra, at 261-263;
Mathews, supra, at 332.
Respondents' property interest in this case, however, is
fundamentally different. Under Pennsylvania law, an employee is not
entitled to payment for
all medical treatment once the
employer's initial liability is established, as respondents'
argument assumes. Instead, the law expressly limits an employee's
entitlement to "reasonable" and "necessary" medical treatment, and
requires that disputes over the reasonableness and necessity of
particular treatment must be resolved
before an employer's
obligation to payand an employee's entitlement to benefits-arise.
See 77 Pa. Stat. Ann. § 531(1)(i) (Purdon Supp. 1998) ("The
employer shall provide payment ... for
reasonable surgical
and medical services" (emphasis added)); § 531(5) ("All payments to
providers for treatment ... shall be made within thirty (30) days
of receipt of such bills and records
unless the employer or
insurer disputes the reasonableness or necessity of the
treatment" (emphasis added)). Thus, for an employee's property
interest in the payment of medical benefits to attach under state
law, the employee must clear two
61
hurdles: First, he must prove that an employer is liable for a
work-related injury, and second, he must establish that the
particular medical treatment at issue is reasonable and necessary.
Only then does the employee's interest parallel that of the
beneficiary of welfare assistance in
Goldberg and the
recipient of disability benefits in
Mathews.
Respondents obviously have not cleared both of these hurdles.
While they indeed have established their initial
eligibility
for medical treatment, they have yet to make good on their claim
that the particular medical treatment they received was reasonable
and necessary. Consequently, they do not have a property
interest-under the logic of their own argument-in having their
providers paid for treatment that has yet to be found reasonable
and necessary. To state the argument is to refute it, for what
respondents ask in this case is that insurers be required to pay
for patently unreasonable, unnecessary, and even fraudulent medical
care without any right, under state law, to seek reimbursement from
providers. Unsurprisingly, the Due Process Clause does not require
such a result.
Having concluded that respondents' due process claim falters for
lack of a property interest in the payment of benefits, we need go
no further.13 The judgment of the Court
of Appeals is
Reversed.
JUSTICE GINSBURG, concurring in part and concurring in the
judgment.
I join Part III of the Court's opinion on the understanding that
the Court rejects specifically, and only, respondents' de-
13 Respondents do not contend that they have a property interest
in their claims for payment, as distinct from the payments
themselves, such that the State, the argument goes, could not
finally reject their claims without affording them appropriate
procedural protections. Cf.
Logan v.
Zimmerman Brush
Co., 455 U. S.
422,430-431 (1982). We therefore need not address this issue.
See
Lyng v.
Payne, 476 U. S. 926, 942 (1986)
(reserving question);
Walters v.
National Assn. of
Radiation Survivors, 473 U. S. 305, 320, n. 8 (1985)
(same).
62
mands for constant payment of each medical bill, within 30 days
of receipt, pending determination of the necessity or
reasonableness of the medical treatment. See
ante, at 61, n.
13. I do not doubt, however, that due process requires fair
procedures for the adjudication of respondents' claims for workers'
compensation benefits, including medical care. See
Logan v.
Zimmerman Brush Co., 455 U. S. 422, 428-431
(1982); Tulsa Professional Collection Services, Inc. v.
Pope, 485 U.
S. 478, 485 (1988); Brief for United States as
Amicus Curiae
21-22.*
Part III disposes of the instant controversy with respect to all
insurers, the State Workmen's Insurance Fund as well as the private
insurers. I therefore do not join the Court's extended endeavor, in
Part II, to clean up and rein in our "state action" precedent. "It
is a fundamental rule of judicial restraint ... that this Court
will not reach constitutional questions in advance of the necessity
of deciding them."
Three Affiliated Tribes of Fort Berthold
Reservation v.
Wold Engineering, P. c.,
467 U. S. 138, 157
(1984); see also
Ashwander v.
TVA, 297 U. S. 288, 347 (1936)
(Brandeis, J., concurring). While this rule is ordinarily invoked
to avoid deciding a constitutional question in lieu of a less tall
ground for decision, its counsel of restraint is soundly applied to
the instant situation: When a case presents two constitutional
questions, one of which disposes of the entire case and the other
of which does not, resolution of the case-dispositive question
should suffice.
JUSTICE BREYER, with whom JUSTICE SOUTER joins, concurring in
part and concurring in the judgment.
I join Parts I and II of the Court's opinion and its judgment. I
agree with Part III insofar as it rejects respond-
*1 agree with JUSTICE STEVENS that, although Pennsylvania's
original procedure was deficient, the dispute resolution process
now in place meets the constitutional requirement. See
post,
at 64 (opinion concurring in part and dissenting in part).
63
ents' facial attack on the statute and also points out that
respondents "do not contend that they have a property interest in
their claims for payment, as distinct from the payments
themselves."
Ante, at 61, n. 13. I would add, however, that
there may be individual circumstances in which the receipt of
earlier payments leads an injured person reasonably to expect their
continuation, in which case that person may well possess a
constitutionally protected "property" interest. See,
e. g.,
Board of Regents of State Colleges v.
Roth, 408 U. S. 564, 577 (1972)
("It is a purpose of the ancient institution of property to protect
those claims upon which people rely in their daily lives, reliance
that must not be arbitrarily undermined");
Perry v.
Sindermann, 408 U. S. 593, 601
(1972);
Goldberg v.
Kelly, 397 U. S. 254, 262, and
n. 8 (1970);
Mathews v.
Eldridge, 424 U. S. 319, 332
(1976).
JUSTICE STEVENS, concurring in part and dissenting in part.
Because the individual respondents suffered work-related
injuries, they are entitled to have their employers, or the
employers' insurers, pay for whatever "reasonable" and "necessary"
treatment they may need. Pa. Stat. Ann., Tit. 77, §§ 531(1)(i), (5)
(Purdon Supp. 1998). That right-whether described as a "claim" for
payment or a "cause of action"is unquestionably a species of
property protected by the Due Process Clause of the Fourteenth
Amendment. See,
e. g.,
Tulsa Professional Collection
Services, Inc. v.
Pope, 485 U. S. 478, 485 (1988).
Disputes over the reasonableness or necessity of particular
treatments are resolved by decisionmakers who are state actors and
who must follow procedures established by Pennsylvania law. Because
the resolution of such disputes determines the scope of the
claimants' property interests, the Constitution requires that the
procedure be fair.
Logan v.
Zimmerman Brush Co., 455
U. S. 422
64
(1982). * That is true whether the claim is asserted against a
private insurance carrier or against a public entity that
self-insures. It is equally clear that the State's duty to
establish and administer a fair procedure for resolving the dispute
obtains whether the dispute is initiated by the filing of a claim
or by an insurer's decision to withhold payment until the
reasonableness issue is resolved.
In my judgment, the significant questions raised by this case
are: (1) as in any case alleging that state statutory processes
violate the Fourteenth Amendment, whether Pennsylvania's procedure
was fair when the case was commenced, and (2), if not, whether it
was fair after the State modified its rules in response to the
Court of Appeals' decision. See
ante, at 46, n. 3. In my
opinion, the Court of Appeals correctly concluded that the original
procedure was deficient because it did not give employees either
notice that a request for utilization review would automatically
suspend their benefits or an opportunity to provide relevant
evidence and argument to the state actor vested with initial
decisional authority. I would therefore affirm the judgment of the
Court of Appeals insofar as it mandated the change described in the
Court's n. 3,
ante, at 46. I do not, however, find any
constitutional defect in the procedures that are now in place, and
therefore agree that the judgment should be reversed to the extent
that it requires any additional modifications. It is not unfair, in
and of itself, for a State to allow either a private or a publicly
owned party to withhold payment of a state-created entitlement
pending resolution of a dispute over its amount.
Thus, although I agree with much of what the Court has written,
I do not join its opinion for two reasons. First, I think it
incorrectly assumes that the question whether the
* As the Court correctly notes, "the State's role in creating,
supervising, and setting standards for the URO process [do not]
differ in any meaningful sense from the creation and administration
of any forum for resolving disputes."
Ante, at 54.
65
insurance company is a state actor is relevant to the
controlling question whether the state procedures are fair. The
relevant state actors, rather than the particular parties to the
payment disputes, are the state-appointed decisionmakers who
implement the exclusive procedure that the State has created to
protect respondents' rights. These state actors are defendants in
this suit. See
ante, at 51. Second, the Court fails to
answer either the question whether the State's procedures were fair
when the case was filed or the question whether they are fair
now.
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