American Mfrs. Mut. Ins. Co. v. Sullivan, 526 U.S. 40 (1999)

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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 predeprivation 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.

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