Am. Manufacturers Mut. Ins. Co. v. Sullivan
In Am. Manufacturers Mut. Ins. Co. v. Sullivan, 526 U.S. 40, 50, 119 S.Ct. 977, 143 L.Ed.2d 130 (1999), the Supreme Court rejected the argument that a legislature's express permission of a practice is sufficient to make the act of engaging in that practice state action.
The Pennsylvania law at issue in Sullivan permitted an insurer providing workers' compensation insurance to a private employer to withhold payments of medical expenses to an employee of the insured, pending the completion of a "utilization review" assessing the reasonableness of the employee's claim. To obtain permission to withhold benefits during utilization review, an insurer was required to file a form with a state agency "detailing the employee's injury, and the medical treatment to be reviewed." Sullivan, 526 U.S. at 45, 119 S.Ct. 977.
The plaintiffs claimed that the defendant insurers' act of withholding payment of their medical expenses pending utilization review violated their constitutional right to due process. The plaintiffs predicated their argument for state action on the state legislature's express permission to engage in the utilization review procedure.
The Supreme Court rejected this argument. The Court did "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." Id. at 53, 119 S.Ct. 977.
However, the Court viewed "this kind of subtle encouragement" as "no more significant than that which inheres in the State's creation or modification of any legal remedy." Id.