                                                                                                                           Opinions of the United
1998 Decisions                                                                                                             States Court of Appeals
                                                                                                                              for the Third Circuit


3-13-1998

Sullivan v. Barnett
Precedential or Non-Precedential:

Docket 96-2140




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Recommended Citation
"Sullivan v. Barnett" (1998). 1998 Decisions. Paper 46.
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Filed March 13, 1998

UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT

No. 96-2140

DELORES SCOTT SULLIVAN; WILLIAM BATTLE;
ANTHONY CANCILA; CHARLES MATTHEWS;
CHRISTOPHER COSTELLO; LISA LEX; SUSAN HANSEN,
On Their Own Behalf and on Behalf of All Similarly
Situated Class Plaintiffs; PHILADELPHIA AREA PROJECT
ON OCCUPATIONAL SAFETY AND HEALTH; THE
PHILADELPHIA FEDERATION OF TEACHERS, Local 3,
AFL-CIO

v.

ROBERT BARNETT, Secretary of Labor and Industry for
the Commonwealth of Pennsylvania; FRANK BEAL,
Director of the Pennsylvania Bureau of Workers
Compensation; CONSTANCE B. FOSTER, Insurance
Commissioner for the Commonwealth of Pennsylvania;
CATHERINE BAKER KNOLL, Treasurer, Commonwealth of
Pennsylvania; JOHN P. O'MALLEY, Director, State
Workers' Insurance Fund; AMERICAN MANUFACTURERS
MUTUAL INSURANCE COMPANY; CIGNA CORPORATION;
CONTINENTAL CASUALTY COMPANY; USF&G
INSURANCE COMPANY; ZURICH AMERICAN INSURANCE
COMPANY; SCHOOL DISTRICT OF PHILADELPHIA;
JOHNNY J. BUTLER, Secretary of Labor and Industry of
the Commonwealth of Pennsylvania; RICHARD A.
HIMLER, Director of the Pennsylvania Bureau of Workers
Compensation; COMMERCIAL UNION INSURANCE
COMPANY; DONEGAL MUTUAL INSURANCE COMPANY;
HARTFORD INSURANCE COMPANY
       Delores Scott Sullivan, William Battle, Louis
       Baumgartner,* Anthony Cancila, William C.
       Dillon,* Terrence Ervine,* Charles Matthews,
       Christopher Costello, Lisa Lex, Susan Hansen,
       Philadelphia Area Project on Occupational Safety
       and Health and Philadelphia Federation of
       Teachers,

       Appellants

*pursuant to Rule 12(a) FRAP

On Appeal from the United States District Court
for the Eastern District of Pennsylvania
(D.C. No. 95-cv-00201)

Argued Thursday, September 11, 1997

BEFORE: MANSMANN, NYGAARD and GARTH, Circuit Judges

(Opinion filed March 13, 1998)

       Lorrie McKinley (Argued)
       McKinley & Vonier
       1333 Race Street
       Philadelphia, PA 19107

       Attorney for Appellants Delores Scott
       Sullivan, William Battle, Anthony
       Cancila, Louis Baumgartner and
       Class Plaintiffs

                                  2
Alan B. Epstein
Jablon, Epstein, Wolf & Drucker
The Bellevue, Ninth Floor
Broad Street at Walnut
Philadelphia, PA 19102

Attorneys for Appellants
Charles Matthews, Christopher
Costello, Lisa Lex, Terrence Ervine,
William C. Dillon, Susan Hansen,
and Class Plaintiffs

Thomas J. O'Brien
Galfand, Berger, Lurie, Brigham,
 Jacobs, Swan & Jurewicz
1818 Market Street, Suite 2300
Philadelphia, PA 19103

Attorneys for Appellant
Philadelphia Area Project on
Occupational Safety and Health

Linda M. Martin
Ralph Teti
Willig, Williams & Davidson
1845 Walnut Street, 24th Floor
Philadelphia, PA 19103

Attorneys for Appellant/Intervenor
The Philadelphia Federation of
Teachers Local 3, AFL-CIO

                        3
D. Michael Fisher
Attorney General
Susan J. Forney (Argued)
Senior Deputy Attorney General
Calvin R. Koons
Senior Deputy Attorney General
John G. Knorr, III
Chief Deputy Attorney General
Chief, Litigation Section
Office of the Attorney General
 of Pennsylvania
Department of Justice
Strawberry Square, 15th Floor
Harrisburg, PA 17120

Attorneys for Appellees
Robert Barnett, Secretary of Labor
and Industry for the Commonwealth
of Pennsylvania; Frank Beal, Director
of the Pennsylvania Bureau of
Workers Compensation; Constance B.
Foster, Insurance Commissioner for
the Commonwealth of Pennsylvania;
Catherine Baker Knoll, Treasurer,
Commonwealth of Pennsylvania;
John P. O'Malley, Director, State
Workers' Insurance Fund; Johnny
Butler, Secretary of Labor and
Industry of the Commonwealth of
Pennsylvania; Richard A. Himler,
Director of the Pennsylvania Bureau
of Workers Compensation

                        4
Arthur Makadon
Robert McL. Boote (Argued)
Burt M. Rublin
Cecelia E. Henry
Ballard, Spahr, Andrews & Ingersoll
1735 Market Street, 51st Floor
Philadelphia, PA 19103-7599

Attorneys for Appellees
American Manufacturers Mutual
Insurance Company, CIGNA
Corporation, Continental Casualty
Company, USF&G Insurance
Company, Zurich American Insurance
Company, Commonwealth Union
Insurance Company

Patricia F. Kerelo
Jan M. Ritchie
Schubert, Bellwoar, Cahill & Quinn
1400 Two Penn Center Plaza
Philadelphia, PA 19102-1890

Stephen J. Springer
Jeffrey D. Hutton
Rawle & Henderson
One South Penn Square
The Widener Building
Philadelphia, PA 19107

Pamela Tobin
Labrum and Doak
1818 Market Street, Suite 2900
Philadelphia, PA 19103

Attorneys for Appellee,
School District of Philadelphia

Robert E. Kelly, Jr.
Duane, Morris & Heckscher
305 North Front Street
P.O. Box 1003
Harrisburg, PA 17108-1003

Attorneys for Appellee Donegal
Mutual Insurance Company

                         5
       Mark F. Horning
       Shannen W. Coffin
       Steptoe & Johnson, LLP
       1330 Connecticut Avenue, N.W.
       Washington, D.C. 20036

       Craig A. Berrington
       Bruce C. Wood
       American Insurance Association
       1130 Connecticut Avenue, N.W.
       Washington, D.C. 20036

       Attorneys for Amicus Curiae
       American Insurance Association

       Michael W. Jones, Esq.
       Michael I. Levin & Associates
       1800 Byberry Road
       1402 Masons Mill Business Park
       Huntingdon Valley, PA 19006

       Attorneys for Amici Curiae School
       Boards Association Insurance Trust
       and Pennsylvania Pooled Risk
       Insurance for Municipal Entities
       Workers' Compensation Trust

OPINION OF THE COURT

GARTH, Circuit Judge:

The issue we must address on this appeal is whether
Pennsylvania's Workers' Compensation Act, 77 Pa. Const.
Stat. Ann. S 531(5) and (6) (West Supp. 1997), which
provides for the supersedeas of an employee's medical
benefits without prior notice or an opportunity to be heard,
violates the requisites of procedural due process. We hold
that it does. Accordingly, we reverse.

I.

The Pennsylvania Workmen's Compensation Act ("the
Act"), 77 Pa. Const. Stat. Ann. S 1 et seq., establishes a

                                6
compulsory insurance system for employers that provides
compensation to employees who sustain work-related
injuries and occupational diseases without regard to an
employee's negligence. See 77 Pa. Const. Stat. Ann. S 431.
To guarantee the payment of an employee's claims, the Act
requires employers to obtain insurance -- either through a
private insurance carrier or through the State Workmen's
Insurance Fund ("SWIF ") -- or to self-insure. See id. S 501.
When an employer purchases insurance, the insurance
company assumes the employer's statutory liabilities. See
id. SS 501, 701.

On July 2, 1993, the Pennsylvania legislature amended
the Act by enacting Act 44. The purpose of Act 44 was to
contain the spiraling costs of medical treatment for work-
related injuries. Codified at 77 Pa. Const. Stat. Ann.
S 531(5) and (6), Act 44 created a utilization review process
under which the reasonableness and/or necessity of an
employee's medical treatment could be reviewed. It is these
provisions of Act 44 which create the utilization review
process and the corresponding supersedeas that are
challenged in this action. Utilization review is a process
whereby medical providers assess the reasonableness or
necessity of current, prospective, or past medical treatment.

Section 531(5) provides the mechanism by which
utilization review is invoked. It states in pertinent part:

       The employer or insurer shall make payment and
       providers shall submit bills and records in accordance
       with the provisions of this section. All payments to
       providers for treatment provided pursuant to this act
       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 provided pursuant to paragraph (6) . . . .

77 Pa. Const. Stat. Ann. S 531(5) (West 1997) (emphasis
added). Hence, an employer or insurer must pay an
employee's medical expenses within thirty (30) days of
receipt of the medical bills unless the employer or insurer
requests utilization review. The decision to invoke
utilization review is made independently by the employer or
insurer.

                               7
A.

Section 531(6) outlines the utilization review process.
Section 531(6) provides:

       . . . disputes as to reasonableness or necessity of
       treatment by a health care provider shall be resolved in
       accordance with the following provisions:

       (I) The reasonableness or necessity of all treatment
       provided by a health care provider under this act may
       be subject to prospective, concurrent or retrospective
       utilization review at the request of an employe[sic],
       employer or insurer. The department shall authorize
       utilization review organizations to perform utilization
       review under this act. Utilization review of all treatment
       rendered by a health care provider shall be performed
       by a provider licensed in the same profession and
       having the same or similar specialty as that of the
       provider of the treatment under review. Organizations
       not authorized by the department may not engage in
       such utilization review.

       (ii) The utilization review organization shall issue a
       written report of its findings and conclusions within
       thirty (30) days of a request.

       (iii) The employer or the insurer shall pay the cost of
       the utilization review.

       (iv) If the provider, employer, employe [sic] or insurer
       disagrees with the finding of the utilization review
       organization, a petition for review by the department
       must be filed within thirty (30) days after receipt of the
       report. The department shall assign the petition to a
       workers' compensation judge for a hearing or for an
       informal conference under [77 Pa. Const. Stat. Ann.
       S 711.1]. The utilization review report shall be part of
       the record before the workers' compensation judge. The
       workers' compensation judge shall consider the
       utilization review report as evidence but shall not be
       bound by the report.

77 Pa. Const. Stat. Ann. S 531(6).

Thus, utilization review is invoked when an employee,

                               8
employer, or insurer requests review of specific medical
treatment performed.1 The party seeking review submits its
request to the Bureau of Workers' Compensation ("the
Bureau") on a Bureau-prescribed form entitled "Utilization
Review: Initial Request" ("Initial Request"). The Bureau
reviews the Initial Request to ensure that it is properly
completed -- i.e., that all information required by the form
is provided. See 34 Pa. Code S 127.452. The Bureau's
review of the Initial Request does not address the legitimacy
or lack thereof of the request for utilization review.

If the Initial Request is improperly completed (i.e., does
not provide all pertinent information requested by the
form), the Bureau denies the request for review and sends
the form back to the party. If the Initial Request is
completed properly, the request is approved and the party
requesting review must serve a copy of the Initial Request
upon the remaining interested parties, including the
employee, the employer, the insurer, and the health care
provider, as appropriate. See 34 Pa. Code S 127.452.

At this point, according to the Act's regulations, an
employer or insurer with a Bureau-approved request may
suspend payment for the medical treatment in question.
See id. S 127.208.2 The Act does not require -- but permits
-- suspension of medical benefits. In addition, medical
_________________________________________________________________

1. An employee is not likely to request utilization review, however,
because the invocation of that process can result in the termination of
the employee's medical benefits pending such review.

2. Section 127.208 of the regulations pertinent to the Act provides in
part:

       (e) The 30-day period in which payment shall be made to the
       provider may be tolled only if review of the reasonableness or
       necessity of the treatment is requested during the 30-day period
       under the UR provisions . . . . The insurer's right to suspend
       payment shall continue throughout both the initial review and the
       reconsideration review of the UR process. The insurer's right to
       suspend payment shall further continue beyond the UR process to
       a proceeding before a Workers' Compensation judge, unless there is
       a UR determination made at reconsideration that the treatment is
       reasonable or necessary.

34 Pa. Code S 127.208(e) (1996).

                                9
providers are not forbidden from continuing to furnish
medical services to employees who are subjected to such
review, although any such treatment is rendered with the
risk that the medical provider ultimately may not be
compensated depending upon the resolution of the
utilization review. Furthermore, although the employee is
given notice that the Initial Request for utilization review
has been filed, there is no indication on that form that an
employee's medical benefits may be terminated for and
during the disputed treatment. Further, the Initial Request
does not provide any information or explanation regarding
what utilization review entails.

After a request for review is properly filed, the Bureau
randomly assigns the case to a Utilization Review
Organization ("URO"),3 and the Bureau again notifies all
interested parties that the case has been assigned by
sending out a Notice of Assignment form. See 34 Pa. Code
S 127.453. The Notice of Assignment is a copy of the notice
that is sent to the URO, advising the URO that a particular
case has been assigned to it. The Notice of Assignment, like
the Initial Request, does not inform employees that their
medical benefits may be suspended nor does it advise
employees of procedures under which their suspension may
be protested.

The review process is narrowly tailored to the task of
determining whether specific medical treatment is or was
reasonable or necessary. Utilization review is conducted by
a health care provider4 who has "the same or similar
_________________________________________________________________

3. "Utilization Review Organizations" are defined as

       those organizations consisting of an impartial physician, surgeon
or
       other health care provider or a panel of such professionals and
       provides as authorized . . . for the purpose of reviewing the
       reasonableness and necessity of a health care provider pursuant to
       section 531(6).

77 Pa. Const. Stat. Ann. S 29 (West 1997).

4. A "health care provider" is defined as

       any person, corporation, facility or institution licensed or
otherwise
       authorized by the Commonwealth to provide health care services,
       including, but not limited to, any physician, coordinated care

                               10
specialty" as the provider who conducted the treatment in
question. See 77 Pa. Const. Stat. Ann. S 531(6)(i).
Accordingly, the reviewer must apply generally accepted
treatment protocols to assess the reasonableness or
necessity of the questioned treatment. See 34 Pa. Code
S 127.467. The URO may not request, seek, or obtain
independent medical examinations or reports. See id.
S 127.461. Rather, the review is solely based upon the
medical records of the treating medical provider and any
discussions that the URO has had with the medical
provider concerning the treatment. See id. SS 127.461,
127.469.5 Lastly, the URO's role is narrowly defined to
address exclusively whether the medical treatment in
question is reasonable and/or necessary. See 34 Pa. Code
S 127.470.

The URO must assume that the employee's medical
condition is a work-related injury. See id. In addition, the
URO does not consider whether the employee is still
disabled, whether the employee has obtained maximum
medical improvement, or whether the fees charged are
reasonable. As noted, the URO's exclusive function is to
determine the reasonableness or necessity of the prescribed
treatment in question.

The URO must issue a report of its findings and
conclusions within thirty (30) days of a request. 6 See 77 Pa.
_________________________________________________________________

       organization, hospital, health care facility, dentist, nurse,
       optometrist, podiatrist, physical therapist, psychologist,
chiropractor
       or pharmacist and an officer, employe [sic] or agent of such person
       acting in the course and scope of employment or agency related to
       health care services.

77 Pa. Const. Stat. Ann. S 29.

5. The URO must give the treating medical provider an opportunity to
discuss the challenged treatment. See 34 Pa. Code S 127.469. Neither
the statute nor the regulations make any provision for giving the affected
employee the same opportunity.

6. The regulations provide that the URO must complete the review and
make a determination within thirty (30) days of receiving the medical
provider's records or within thirty-five (35) days of the date that the
URO
received the Notice of Assignment, whichever is earlier. See 34 Pa. Code
S 127.465.

                                 11
Const. Stat. Ann. S 531(6)(ii). The written report must
contain findings, conclusions, and citations to generally
accepted treatment protocols and medical literature, as
appropriate. See 34 Pa. Code S 127.472. The URO sends
the report to the Bureau which then sends a copy to all
interested parties. See id. S 127.476. The employer or
insurer pays for the initial utilization review. See 77 Pa.
Const. Stat. Ann. S 531(6)(iii); 34 Pa. CodeS 127.477.

B.

Originally, Act 44 permitted reconsideration of the URO's
determination if filed within thirty (30) days of the URO's
report. See 77 Pa. Const. Stat. Ann. S 531(6)(iv). The review
on reconsideration mirrored the initial utilization review
except that a different URO conducted the review and the
Bureau advanced the costs of reconsideration and
subsequently billed the losing party. See 34 Pa. Code
S 127.514. Thus, as with the utilization review, an employee
could not testify before a URO concerning the medical
treatment on reconsideration. Further, parties were not
notified before invoking reconsideration review that they
would be billed for the costs of reconsideration review if
they lost.

If a party disagreed with the URO's determination on
reconsideration, it could file a Petition for Review with the
Bureau for de novo review before a Workers' Compensation
Administrative Law Judge ("ALJ"). If the employee prevailed
upon reconsideration, the supersedeas was lifted pending
this de novo hearing. If the employee lost the
reconsideration review, the supersedeas remained in effect.
See id. S 127.208(f).

Even if the medical services provided were ultimately
found to be reasonable and/or necessary, an employee's
benefits could be suspended for a considerable length of
time pending the initial utilization review, reconsideration,
and de novo review by an ALJ. While the Act requires the
initial utilization review to occur within thirty (30) days of
a request, see 77 Pa. Const. Stat. Ann. S 531(5)(ii), and
reconsideration to be filed within thirty (30) days of the
URO's determination and decided within 30-35 days

                               12
thereafter, see 34 Pa. Code S 127.508, there is no time-
frame specified for adjudication and resolution before the
ALJ. Accordingly, employees could have waited months or
even years without medical benefits before the
reasonableness or necessity of their treatment was resolved.

In 1996, the Act was amended yet again by Act 57. Act
57 streamlined the utilization review process by eliminating
the reconsideration process, thereby allowing for faster de
novo review by an ALJ. Thus, after the initial URO issues
its decision, the losing party no longer need seek
reconsideration by another URO, but rather may petition
for de novo review by an ALJ. Under Act 57, if the initial
URO rules in favor of the employee, the supersedeas is
lifted pending the ALJ's review. If the URO rules against the
employee, the supersedeas remains in effect until after the
ALJ renders his/her decision. See id. S 127.208(e). In all
other material respects the provisions of Act 44 remained in
effect and are not challenged here.

II.

The Plaintiffs (hereinafter, collectively "Sullivan") in the
present S 1983 case are ten individual employees7 and two
organizations representing employees who claim that their
medical benefits were suspended without regard to due
process: the Philadelphia Area Project on Occupational
Safety and Health ("PhilaPOSH"),8 and the Philadelphia
Federation of Teachers ("PFT").9 Sullivan claims that the
amendments to the Act violated the Plaintiffs' constitutional
right to due process under the Fourteenth Amendment by
_________________________________________________________________

7. The Plaintiffs-Appellants are Delores Scott Sullivan, William Battle,
Louis Baumgartner, Anthony Cancila, William C. Dillon, Terrence Ervine,
Charles Matthews, Christopher Costello, Lisa Lex, and Susan Hansen.

8. PhilaPOSH is a non-profit organization comprised of over 2000 unions
and individual members, representing approximately 300,000 workers in
Southeastern Pennsylvania. PhilaPOSH advocates for occupational safety
and the rights of injured workers. Plaintiffs alleged that several members
of PhilaPOSH had been directly affected by the utilization review
procedures challenged in this litigation. See Am. Compl. at P 15.

9. In its order dated March 30, 1995, the district court permitted the PFT
to intervene as a plaintiff in this action.

                               13
permitting their employers and/or insurers to suspend the
payment of their workers' compensation medical benefits
without prior notice and without affording them an
opportunity to be heard.10 Sullivan filed the amended
complaint in this action on May 21, 1996, three months
before the amendments in Act 57 rescinding
reconsideration review took effect.

The Defendants in this action include various state
officials responsible for administering the Act ("the
Commonwealth Defendants"),11 the director of SWIF,12 the
School District of Philadelphia ("the School District"), and
several insurance companies.13

The insurance company defendants and the School
District moved to dismiss the complaint on the grounds
that there was no state action involved in suspending
Sullivan's medical benefits.14 Sullivan filed a motion for
partial summary judgment on the issue that the insurers
_________________________________________________________________

10. The Fourteenth Amendment provides, in pertinent part:

         Section 1. All persons born or naturalized in the United States,
and
         subject to the jurisdiction thereof, are citizens of the United
States
       and the State wherein they reside. No State shall make or enforce
       any law which shall abridge the privileges or immunities of
citizens
       of the United States; nor shall any State deprive any person of
life,
       liberty, or property, without due process of law; nor deny to any
       person within its jurisdiction the equal protection of the laws.

U.S. Const. amend. XIV, S 1.

11. The state officials are the Secretary of Labor and Industry, Robert
Barnett (Appellees name Johnny Butler in this position); Director of
Pennsylvania's Bureau of Workers' Compensation, Richard Himler;
Insurance Commissioner for the Commonwealth of Pennsylvania, Linda
Kaiser; and Treasurer for the Commonwealth, Catherine Baker Knoll.

12. The Director of SWIF is Ralph Chase.

13. The insurance companies involved in this action are American
Manufacturer's Mutual Insurance Company, Cigna Corporation,
Continental Casualty Company, USF&G Insurance Company, and Zurich
American Insurance Company.

14. The insurance company defendants contended that there was no
state action with respect to the private decisions that they made. The
School District claimed that there was no state action because it did not
participate in the decision-making process concerning the invocation of
utilization review (and corresponding termination of medical benefits)
because it contracted out the payment of its medical liabilities under the
Act to a private company which is not a party to the present action. See
Sch. Dist.'s Mem. in Supp. Mot. to Dismiss at 1-4 (district court docket
# 11, 12).

                               14
and the School District were state actors subject to the
constraints of due process. In its opinion and order dated
January 24, 1996, the district court ruled that the private
insurers were not state actors, but at that time did not
decide the state action issue with respect to the School
District as the record was incomplete and more discovery
was needed. See Sullivan v. Barnett, 913 F. Supp. 895 (E.D.
Pa. 1996) (hereinafter, "Sullivan I").

On May 28, 1996, Sullivan moved for class certification
to represent the class of workers who have had or will have
their medical benefits suspended under Pennsylvania's
utilization review procedures without advance notice or an
opportunity to be heard prior to supersedeas of benefits
under section 531(5) and (6). See Am. Compl. at P 17.
Holding that the supersedeas provisions did not offend due
process, the district court dismissed the complaint with
respect to the Commonwealth Defendants and the School
District by orders dated November 7, 1996, see Sullivan v.
Butler, 1996 WL 654032 (E.D. Pa. Nov. 7, 1996)
(hereinafter, "Sullivan II"), and December 13, 1996,
respectively, without certifying the plaintiff-class. This
appeal followed.

We have jurisdiction over this appeal pursuant to 28
U.S.C. S 1291. Our review over the district court's rulings is
plenary. See Weiner v. The Quaker Oats Co., 129 F.3d 310,
315 (3d Cir. 1997).

III.

In order for Sullivan to prevail on her claims that the Act
does not provide adequate notice nor an opportunity to be
heard before her benefits are terminated, the Defendants
must be held to be state actors or to be acting under color
of state law.15
_________________________________________________________________

15. Section 1983 provides a cause of action to individuals who have been
deprived of a federal right by a person acting "under color of state law."
See Groman v. Township of Manalapan, 47 F.3d 628, 633 (3d Cir. 1995).
The "under color of state law" requirement ofS 1983 and the "state
action" element of the Fourteenth Amendment have been interpreted to
be "identical in most contexts," Id. at 639 n.15; see also Lugar, 457 U.S.

                               15
The Commonwealth does not dispute that it is a state
actor, and indeed, it would be hard-pressed to do so in light
of the fact that it was the Commonwealth that enacted the
supersedeas provisions of 77 Pa. Const. Stat. Ann. S 531(5)
and (6) which deprive Sullivan of the Workers'
Compensation medical benefits to which she is entitled. Nor
has SWIF disputed the fact that it is a state actor. See
Commonwealth Br. at 20 n.12; see also Rumph v. State
Workmen's Ins. Fund, 964 F. Supp. (E.D. Pa. 1997);
Baksalary v. Smith, 579 F. Supp. 218, 230 (E.D. Pa. 1984).
Further, the School District apparently does not now
contest that it is a state actor, as it has not briefed the
issue on appeal.16 The insurers, however, deny that their
actions in invoking relief under the supersedeas provisions
appurtenant to the utilization review process constitute
state action. We cannot agree.

State action has been characterized as one of the most
troublesome issues of constitutional law. See Henry C.
Strickland, The State Action Doctrine and the Rehnquist
Court, 18 Hastings Const. L.Q. 587, 588 (1991). Various
cases have led to differing results in factual scenarios that,
at least upon first impression, appear to be similar.
Compare Mark v. Borough of Hatboro, 51 F.3d 1137 (3d Cir.
1995) (concluding that state action existed in context of
volunteer fire department), with Groman v. Township of
Manalapan, 47 F.3d 628 (3d Cir. 1995) (holding that state
action did not attach to actions of a volunteer first aid
_________________________________________________________________

at 935 n.18. Thus, private parties can be held liable for the alleged due
process violations only if "it can be fairly said that the [government] is
responsible for the specific conduct of which the plaintiff complains" --
here, the suspension of employees' Workers' Compensation medical
benefits. Edmonson v. Leesville Concrete Co., 500 U.S. 614, 632 (1991)
(O'Connor, J. dissenting) (quoting Blum v. Yaretsky, 457 U.S. 991, 1004)
(1982).

16. In Sullivan I, the district court initially denied the School
District's
motion to dismiss premised upon the state action issue. See Sullivan I,
913 F. Supp. at 905. However, because the district court held that the
supersedeas provisions of the Act did not violate procedural due process
in Sullivan II, the district court did not ultimately find it necessary to
reach the state action issue with respect to the School District.

                               16
squad). Indeed, the state action inquiry necessarily depends
upon the factual contexts in which the controversies arise.
See Lugar v. Edmondson Oil Co., 457 U.S. 922, 939 (1982);
Jackson v. Wilmington Parking Auth., 365 U.S. 715, 722
(1961) ("Only by sifting through facts and weighing
circumstances can the nonobvious involvement of the State
in private conduct be attributed its true significance.");
Groman, 47 F.3d at 639 n.16. To compound the confusion
surrounding a state action examination, courts have
employed various tests and standards that have been
anything but a model of clarity. See Edmonson v. Leesville
Concrete Co., 500 U.S. 614, 632 (1991) (O'Connor, J.
dissenting) ("Unfortunately, [Supreme Court] cases deciding
when private action might be deemed that of the state have
not been a model of consistency.").

In order to analyze the state action issue before us, it is
critical to place the insurer's role within the Workers'
Compensation system in its proper context. The Act
provides no-fault compensation to all employees within the
Commonwealth for all injuries sustained during the course
of one's employment. In exchange for this guarantee of
automatic compensation for wage loss and medical costs
without regard to proof or fault, employees lost their right
to sue their employers in tort. See Winterberg v.
Transportation Ins. Co., 72 F.3d 318 (3d Cir. 1995). The Act
abolishes an employer's common law defenses and strips
an employee of his/her right to sue upon common law
causes of action. Thus, the Workmen's Compensation
scheme in Pennsylvania has been held to be the exclusive
remedy available to an injured worker. See 77 Pa. Const.
Stat. Ann. S 481(a).17 Cf. Travelers Indemnity Co. v.
DiBartolo, 131 F.3d 343, 350-51 (3d Cir. 1997) (holding an
employer's voluntary purchase of uninsured motorist
coverage is a fringe benefit since it is no longer mandated
_________________________________________________________________

17. 77 Pa. Const. Stat. Ann. S 481(a) states, in pertinent part:

       The liability of an employer under this act shall be exclusive and
in
       the place of any and all other liability to such employes [sic] . .
. or
       anyone otherwise entitled to damages in any action at law or
       otherwise on account of any injury or death . . . .

77 Pa. Const. Stat. Ann. S 481(a) (West 1992).

                               17
by state law and, thus, is not subject to the exclusivity
provision of the Workmen's Compensation Act). The system
is mandatory; an employee cannot opt-out of Pennsylvania
Workers' Compensation scheme. See 77 Pa. Const. Stat.
Ann. S 461 (historical notes).

The benefits provided to employees under the Act are a
constitutionally protected entitlement. None of the parties
disputes this. See, e.g., Sullivan II at 4; see also Baksalary,
579 F. Supp. at 224-225. The Commonwealth has created
this entitlement, and the Commonwealth guarantees that
these benefits will be paid to an injured employee.18

In creating and executing this system of entitlements, the
Commonwealth has enacted a complex and interwoven
regulatory web enlisting the Bureau, the employers, and
the insurance companies. The Commonwealth 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 State 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. It is a "system which the government
alone administers." Edmonson, 500 U.S. at 622. Thus, we
conclude the insurance companies are a partner or an arm
of the State in implementing legislation that administers
constitutionally protected entitlements which the
Commonwealth has enacted as a matter of policy.

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 medical benefits, they
compromise an employee's State-created entitlements. The
_________________________________________________________________

18. The Commonwealth guarantees that Workmen's Compensation
benefits will be paid by imposing a statutory obligation upon the
employer to pay for all work-related injuries of his/her employees. If the
employer's insurance company becomes insolvent, however, the Workers'
Compensation Security Fund, a fund administered and created by the
Commonwealth, assumes the responsibility of paying the benefits to
eligible employees. See 77 Pa. Const. Stat. Ann. S 1053.

                               18
insurers have no power to deprive or terminate such
benefits without the permission and participation of the
Commonwealth. More importantly, however, the
Commonwealth 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.

There is little difference between the approval required
here and that necessary for utilizing a peremptory
challenge, see, e.g., Edmonson, 500 U.S. at 622, or for
employing a nonclaim statute with the assistance of the
probate court. See, e.g., Tulsa Prof 'l Collection Serv. v. Pope,
485 U.S. 478 (1988). "The [Bureau] is intimately involved
throughout, and without that involvement" the supersedeas
could not operate. Id. at 487. Further, the supersedeas
lacks the self-executing characteristic that might otherwise
render due process concerns irrelevant. To the contrary, the
supersedeas provisions at issue are not self-executing, and
without the Commonwealth's involvement and approval, the
insurance companies would be precluded from suspending
medical benefit payments -- an aspect of the Workmen's
Compensation procedure which they had desired.
Accordingly, we hold that the private insurance companies
are state actors when they invoke the supersedeas
provisions under S 531(5) and (6).

Our decision is consistent with West v. Atkins , 487 U.S.
42 (1988). There, the Court held that a private physician
under contract with the State of North Carolina to provide
medical services to prison inmates acted under color of
state law even though the doctor was not directly employed
by the State. In West, the State was under an affirmative
obligation to provide medical care to inmates. The State
delegated that responsibility to a part-time contract
physician, who assumed the State's obligation. Under these
circumstances, the Court held that state action attached to
the actions of the private doctor such that the prisoner
could maintain a S 1983 cause of action against the doctor.

                               19
That the doctor exercised professional judgment and
discretion independent of the State was insufficient to
relieve him of his constitutional obligations. See id. at 52.
The Court emphasized that "[i]t is the physician's function
within the state system, not the precise terms of his
employment, that determines whether his action can fairly
be attributed to the State." Id. at 55-56. "[T]he dispositive
issue concerns the relationship among the State, the
physician, and the prisoner." Id. at 56 (emphasis added).

Similarly, in this case, examining the relationship among
the Commonwealth, employer, and the insurance
companies, we have concluded that the actions of the
insurers constitute state action. The employers are under
an affirmative obligation to insure their employees for work-
related accidents. This obligation is expressly assumed by
the insurance companies when an employer purchases
insurance, see 77 Pa. Const. Stat. Ann. SS 501, 701, and is
assumed by the Commonwealth if and when a insurer
becomes insolvent.19 Like the constitutional right involved
in West, the employees under the Act have a
constitutionally protected entitlement in receiving their
Workers' Compensation medical benefits. In addition, like
the prisoner in West, the employees cannot elect to go
outside the system for medical treatment. Like prisoners,
they are locked into the system, and any relief that the
employees obtain is strictly through the program which the
State has designed. The employees are, in essence,
prisoners -- albeit beneficiaries -- of the Commonwealth's
Workers' Compensation system.

Our conclusion is also consistent with the decision of the
three-judge district court panel which convened in
Baksalary v. Smith,20 579 F. Supp. 218 (E.D. Pa. 1984),
_________________________________________________________________

19. See supra note 17.

20. In Baksalary, a three-judge panel of the district court comprised of
two district court judges and one Court of Appeals judge, convened
pursuant to 28 U.S.C. S 2284. In Baksalary, employees contested an
automatic supersedeas provision under the Act that terminated an
employee's benefits without notice or a pre-termination opportunity to be
heard. If an employer or insurer filed a petition which alleged that an
employee had returned to work at the same or higher rate of pay, or if
the petition -- accompanied by a physician's affidavit -- alleged that the
employee had recovered from his/her disability, then the employer or
insurer could terminate the employee's Workers' Compensation benefits.
See Baksalary, 579 F. Supp. at 221.

                               20
which held that the state action mantle falls upon the
insurers. Baksalary involved a similar challenge to the Act,
held that the insurers acted under color of state law, and
accordingly found that there had been a denial of due
process in violation of the Fourteenth Amendment from the
invocation of section 413, 77 Pa. Const. Stat. Ann.S 774, a
similar supersedeas provision.

We are aware that Baksalary has been criticized by the
Fifth Circuit in Barnes v. Legman, 861 F.2d 1383 (8th Cir.
1988), but we do not share the Fifth Circuit's view. Barnes
concerned a due process challenge to a provision in Texas'
Workers' Compensation Statute that permitted an
insurance carrier to terminate medical benefits based upon
a medical report. As the Barnes decision is predicated upon
its interpretation of Texas -- as distinct from Pennsylvania
-- law, it is necessarily inapposite to this case. The Barnes
court did not explain in detail the procedural involvement
of Texas in permitting the insurance company to deny an
employee his/her benefits. Clearly, however, the statutory
provision permitting the termination of benefits in Barnes
and the supersedeas provisions at issue here vary
significantly. In Barnes, for instance, the insurance
company was not compelled to resume the employee's
benefits even after a State officer reviewing the case
recommended that the insurance company reinstate those
benefits. See Barnes, 861 F.2d at 1384. Thus, the employee
was left with a cause of action under state law only.

In addition, it is unclear whether employers and/or
employees can opt-out of Texas' Workers' Compensation
scheme. In Pennsylvania, as we have stated, they cannot.
Moreover, and perhaps most importantly, it is not clear that
under Texas law that State involvement was required prior
to the termination of benefits. See Tex. Workers'
Compensation Law, art. 8307 S 11 (repealed 1989).21
_________________________________________________________________

21. Article 8307, S 11, provides:

       Association suspending payments. When the association suspends
       or stops payment of compensation, it shall immediately notify the
       board of that fact, giving the board the name, number and style of
       the claim, the amount paid thereon, the date of the suspension or
       stopping of payment thereon, and the reason for such suspension or
       stopping.

Tex. Workers' Compensation Law, art. 8307, S 11 (repealed 1989).

                               21
Nor do we find other state action authorities to be
persuasive in analyzing the context of Pennsylvania's
Workmen's Compensation statutory scheme. As we have
previously observed, the factual context in which the
particular issue arises must be the focus of a state action
inquiry. Other cases cited by the insurers such as Blum v.
Yaretsky, 457 U.S. 991 (1982) (finding no state action when
private nursing homes decided to transfer or discharge
Medicaid patients without notice or a hearing), Rendell-
Baker v. Kohn, 457 U.S. 830 (1982) (finding no state action
when private school fired employees despite the fact that
school was financed from almost exclusively public sources
and was extensively regulated by government), Flagg
Brothers v. Brooks, 436 U.S. 149 (1978) (finding no state
action when private warehouseman invoked self-help
provisions of New York's Uniform Commercial Code by
selling goods entrusted to him), and Jackson v. Metropolitan
Edison Company, 419 U.S. 345 (1974) (finding no state
action when privately owned electric utility terminated a
customer's electric service for nonpayment without a
hearing), do not, by the very nature of the controversies
with which they dealt, involve a comprehensive statutory
scheme similar to that present in this case.

We therefore conclude that, in the present context of a
comprehensive state scheme reflected in the Workers'
Compensation statute of Pennsylvania, the private insurers
are state actors. The Act mandates compliance 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. This relationship more than suffices to satisfy the
constitutional requisites under the tests -- varied though
they may be -- for state action. See Blum, 457 U.S. at 1004
(state action exists if the State has coerced the action or
provided significant encouragement); Rendell-Baker, 457
U.S. at 842 (state action exists if there is a symbiotic
relationship between the state and the private actor); Flagg
Bros., 436 U.S. at 157-59 (state action exists if private actor
exercises powers exclusively within the prerogative of the
State); Jackson, 419 U.S. at 351 (state action exists if a
sufficiently close nexus between State and private actor is

                               22
found); Mark, 51 F.3d at 1156 (suggesting courts should
employ a totality of circumstances approach to state action
inquiries) (Greenberg, J. concurring). We expressly limit our
holding here today, however, to the unique context in which
the instant supersedeas provisions arise.22

IV.

We now address the due process issue that is at the
heart of the instant action.

The gravamen of Sullivan's complaint is that the lack of
notice afforded under the supersedeas provisions, S 531(5)
and (6), of the Act violates the procedural due process
guarantees under the Fourteenth Amendment because
neither the Initial Request for utilization review nor the
Notice of Assignment specifically informs an employee that
the insurer or employer can stop paying for the contested
medical treatments pending review.23 Although employees
are notified that their employers or insurers have invoked
the utilization review process pursuant to 34 Pa. Code
S 127.452, or are notified that the case has been assigned
for review to a URO, pursuant to 34 Pa. Code S 127.453(b),
Sullivan points out that such notification does not provide
any information or explanation concerning what the
utilization review process involves. Sullivan also contends
that neither notification provides any information about
_________________________________________________________________

22. In light of our holding that the private insurance companies are state
actors and are thus bound by the constraints of due process, we need
not address the question as to whether a disparate classification
concerning a public insurer, such as SWIF, and the private insurers
would violate the Equal Protection Clause of the Fourteenth Amendment.

23. Neither party disputes the district court's ruling that Workers'
Compensation benefits are a constitutionally protected property interest
subject to scrutiny under the Due Process Clause of the Fourteenth
Amendment. See, e.g., Sullivan II at 4; see also Baksalary v. Smith, 579
F. Supp. 218, 224-25 (E.D. Pa. 1984) ("We find that when an individual
must forego the use of his [workers'] compensation benefits for as long
as one year . . . that individual has undergone the deprivation of a
constitutionally protected property interest."). Accordingly, we
concentrate upon whether the procedures afforded to employees under
the Act comport with the strictures of due process.

                               23
how an employee can contest the underlying allegations
that serve the basis for the utilization review. Accordingly,
Sullivan argues that such notification is defective because
(1) the employee receives no notice that his/her benefits
may cease pending review, (2) the employee receives no
meaningful notice prior to the deprivation, and (3) the
employee is not advised of the procedures under which
he/she can protest the imminent deprivation.

The Bureau does not dispute that no notice is provided
to an employee that his/her medical benefits might be
suspended. Rather, the Bureau contends that the decision
to discontinue such benefits (i.e., request a supersedeas) is
discretionary and is determined solely by the employer or
the insurer, not the Bureau. Thus, the Bureau maintains
that it does not have information regarding the status of an
employees' medical benefits in a utilization review case, and
accordingly it does not deny employees of procedural due
process by failing to notify them of such information. The
Bureau further asserts that this case is not akin to
Goldberg v. Kelly, 397 U.S. 306, 314 (1970), 24 such that a
pre-deprivation hearing is required prior to the suspension
of medical benefits. As a result, the Bureau maintains that
sufficient process is afforded to employees under the Act.

"The core of due process is the right to notice and a
meaningful opportunity to be heard." LaChance v. Erickson,
___ U.S. ___, 1998 WL 17107 (1998) at 3; see also
Cleveland Bd. of Educ. v. Loudermill, 470 U.S. 532, 542
(1985); Memphis Light, Gas & Water Div. v. Craft , 436 U.S.
1, 13 (1978); Fuentes v. Shevin, 407 U.S. 67, 80 (1972);
Mullane v. Central Hanover Bank & Trust Co., 339 U.S. 306,
313 (1950). We will thus address the constitutionality of the
pre-deprivation notice the employees receive in this case
and their opportunity to be heard, in turn.

A. Notice

"[A]dequate notice detailing the reasons for a proposed
termination" of a constitutionally protected liberty or
_________________________________________________________________

24. In Goldberg v. Kelly, the Supreme Court held that a pre-deprivation
evidentiary hearing was required prior to the termination of welfare
benefits.

                               24
property interest must be afforded to individuals prior to
the deprivation. Goldberg v. Kelly, 397 U.S. 254, 267-68
(1970). Notice must be "reasonably calculated, under all the
circumstances, to apprise interested parties of the
pendency of the action and afford them an opportunity to
present their objections." Mullane, 339 U.S. at 314. The
level of notice required before an individual is deprived of a
constitutionally protected property interest depends upon
the particular benefits at issue. "[D]ue process is flexible
and calls for such procedural protections as the particular
situation demands." Morrissey v. Brewer, 408 U.S. 471,
481 (1972).

In Memphis Light, Gas & Water Division, the Supreme
Court held that a Memphis utility company did not provide
constitutionally sufficient notice to its customers prior to
terminating their utilities. Although the utility gave its
customers notice that their service could be terminated for
nonpayment of their bill, the company failed to inform its
patrons of how they could protest or object to charges on
their bills. The Court concluded that "[n]otice in a case of
this kind does not comport with constitutional
requirements when it does not advise the customer of the
availability of a procedure for protesting a proposed
termination . . . as unjustified." 436 U.S. at 14-15 (emphasis
added).

In Goldberg v. Kelly, the Court considered whether the
notice provisions of New York City's welfare termination
process comported with due process. As welfare recipients
were given seven days advance notice of the impending
termination, a letter informing them of the precise
questions raised about their continued eligibility and the
legal and factual bases for the Department of Social
Services' doubts, and a personal conference explaining the
same, the Court held that the notice provisions were
adequate. See 397 U.S. at 268. Similarly, although notice
was not directly at issue in Mathews v. Eldridge, 424 U.S.
319, 324 (1976), the Court acknowledged that recipients of
Social Security disability payments were afforded proper
notice which included a letter informing them that their
benefits would be terminated prior to the deprivation, a
detailed explanation of the reasons for the proposed

                                25
termination, and the opportunity to submit additional
evidence to the agency making the determination prior to
the actual deprivation.

Moreover, we held in Ortiz v. Eichler, 794 F.2d 889 (3d
Cir. 1986), that the notice provided by Delaware prior to the
termination or denial of Aid to Families with Dependent
Children, Food Stamps, and Medicaid benefits was
constitutionally deficient because it failed to explain the
reasons for the state agency's action and did not contain
the agency's specific calculations utilizing an employee's
income or financial resources to ascertain his/her eligibility
in making its determination. See id. at 892, 895.

The Supreme Court of Iowa confronted a similar problem
to the one at hand when it considered the notice to which
an employee was entitled before his/her Workers'
Compensation benefits were terminated. There, the Court
held that at a minimum due process required the following:

       (1) the contemplated termination,
       (2) that the termination of benefits was to occur at a
       specified time not less than 30 days after notice,
       (3) the reason or reasons for the termination,
       (4) that the recipient had the opportunity to submit
       any evidence or documents disputing or
       contradicting the reasons given for termination,
       and, if such evidence or documents are submitted,
       to be advised whether termination is still
       contemplated,
       (5) that the recipient had the right to petition for
       review.

Auxier v. Woodward State Hospital-School, 266 N.W.2d 139,
142-43 (Iowa 1978).

Informed by established precedent, we hold that in the
case of terminating the medical benefits of a workers'
compensation employee, at a minimum due process
requires that employees receive notice that includes (1)
timely notification that their medical benefits might cease
prior to the deprivation, (2) an explanation of the reasons
for the proposed termination, (3) an opportunity to respond
to the accusations alleged, and (4) information advising

                                26
them of the availability of the procedures that they may
utilize to protest the proposed termination.

In the instant case, the notice that an employee receives
prior to the termination of his/her medical benefits is
constitutionally inadequate. While the employee is notified
by the Initial Request that utilization review has been
invoked and the reasons upon which the utilization review
is based, the Initial Request does not explain that a
supersedeas or suspension of one's medical benefits may
result nor does it explain what utilization review entails. In
addition, it does not inform an employee of any procedures
under which the employee can protest the suspension of
the medical benefits or contest the merits on which the
proposed deprivation is based.

Similarly, the Notice of Assignment does not cure any of
the above notice deficiencies. The Notice of Assignment is,
in fact, a copy of the notice to the URO informing the URO
that a particular case has been assigned. Like the Initial
Request, the Notice of Assignment does not notify an
employee that his/her medical benefits may be terminated
nor does it advise an employee of any procedures under
which such termination may be challenged. Further, by the
time the Notice of Assignment is received, the employees'
medical benefits may have already been suspended, as the
supersedeas can be invoked and thus a suspension of
benefits effected upon the proper filing of the utilization
review process.

That an employee's medical benefits may be suspended
prior to his/her receiving notice of that termination is
constitutionally fatal to S 531(5) and (6) under the strictures
of the Due Process Clause of the Fourteenth Amendment.
See Carey v. Piphus, 435 U.S. 247, 259 (1978) ("Procedural
due process rules are meant to protect persons not from
the deprivation, but from the mistaken or unjustified
deprivation of life, liberty, or property.") (emphasis added).
At no time prior to the termination is the employee
informed of any procedure under which he/she can dispute
the supersedeas. As the employee is not informed of the
deprivation of his/her medical benefits prior to its taking
effect, inadequate notice effectively strips an employee of

                               27
his/her ability or opportunity to protest or minimize
unjustified deprivations.25

In Baksalary v. Smith, 579 F. Supp. 218, 233 (E.D. Pa.
1984), a three-judge panel of the district court held a
similar supersedeas provision unconstitutional where it
failed to provide notice to the employee until after the
benefits had already been terminated. Similarly, we
conclude that S 531(5) and (6), the supersedeas provisions
pertaining to utilization review of medical benefits, is
unconstitutional because it fails to provide employees with
adequate pre-termination notice.

Our invalidation of this supersedeas provision of the Act
does not thereby annul other provisions of the Act:

       Under Pennsylvania law, separate provisions of a
       statute are presumed severable, and any particular one
       will survive a decision voiding another unless it is so
       interrelated with the void provision or incomplete
       without it that the legislature could not have intended
       it to stand alone.

Stoner v. Presbyterian Hosp., 609 F.2d 109, 112 (3d Cir.
1979) (citing 1 Pa. Const. Stat. Ann. S 1925). Thus, under
our holding today we do no more than sever the "unless"
clause from S 531(5) of the Act. We are thereby left with a
statute that reads as follows and that requires employers or
insurers to make payments in accordance with the
provision of the Act, but that does not give those employers
or insurers the discretion or opportunity to invoke the
supersedeas of an employee's medical benefits:

       The employer or insurer shall make payment and
       providers shall submit bills and records in accordance
       with the provisions of this section. All payments to
       providers for treatment provided pursuant to this act
       shall be made within thirty (30) days of receipt of such
       bills and records.
_________________________________________________________________

25. At oral argument, the Commonwealth conceded that no notice was
afforded to the employees whose medical benefits were terminated
pursuant to the supersedeas provisions at issue here. In addition, the
Commonwealth recognized that providing notice would be "easy" to
remedy.

                               28
B. Opportunity to be heard

Due process requires that "an individual be given an
opportunity for a hearing before he is deprived of any
significant property interest." Boddie v. Connecticut, 401
U.S. 371, 379 (1971) (emphasis in original). The right to be
heard " `must be granted at a meaningful time and in a
meaningful manner.' " Fuentes, 407 U.S. at 80 (quoting
Armstrong v. Manzo, 380 U.S. 545, 552 (1965)). While it is
undisputed that some sort of hearing is required before an
individual is finally deprived of a liberty or property
interest, due process necessitates some sort of pre-
termination opportunity to be heard regarding the basis of
the proposed termination. See Loudermill, 470 U.S. at 542
("Even decisions finding no constitutional violation in
termination procedures have relied on the existence of some
pre-termination opportunity to respond.") "The opportunity
to present reasons, either in person or in writing, why
proposed action should not be taken is a fundamental due
process requirement." Id. at 546.

In the case before us, the employees were not given a
pre-deprivation opportunity to respond to the proposed
termination of their medical benefits. Indeed, as we have
discussed above, they were not even given notice of the
impending termination. "[The] right to be heard has little
reality or worth unless one is informed that the matter is
pending and can choose for himself whether to appear or
default, acquiesce or contest." Mullane, 339 U.S. at 314. So,
while the Commonwealth's statutory scheme provides that
employees be given an opportunity for a post-termination
evidentiary hearing in the form of a de novo hearing before
an ALJ, we must address what pre-termination opportunity
to be heard is required to satisfy the constitutional
minimum of due process.

In order to determine the extent of the pre-deprivation
process, we must consider and balance the following
factors:

       First, the private interest that will be affected by the
       official action. Second, the risk of erroneous
       deprivation of such interest through the procedures
       used, and the probable value, if any, of additional or

                               29
       substitute safeguards; and, finally, the government's
       interest including the function involved and thefiscal
       and administrative burdens that the additional or
       substitute procedural requirements would entail.

Mathews v. Eldridge, 424 U.S. 319, 334-35 (1976). We will
deal with each factor in turn.

(1) Private Interest

The employees' interest is in the uninterrupted payment
of their medical benefits pending the final administrative
decision on their cases. Sullivan II at 5. As the district court
acknowledged, this interest is "without a doubt[,]
significant." Id. Without receiving her medical treatments, a
concomitant of having her medical benefits paid to her
medical provider, Sullivan alleges that she has endured
longer periods of disability, unnecessary pain, and
functional restriction. See Am. Compl.

Notwithstanding the employees' significant interest, the
district court found that these interests were mitigated by
several factors. First, the district court noted that, unlike
Goldberg, termination of one's medical benefits would not
deprive an employee of the very means of his/her
subsistence. See Sullivan II at 5. The district court also
concluded that the availability of full remedies mitigates the
impact of the supersedeas. Id. at 6. For instance, an
employee whose medical benefits are reinstated on appeal
by an ALJ is entitled to an award of benefits plus ten (10)
percent interest. See 77 Pa. Const. Stat. Ann. S 717.1(a)
(West Supp. 1997). In addition, the prevailing employee
may recover the costs of litigating his/her right to medical
benefits. See id. S 996 (West Supp. 1997).

Additionally, the district court noted -- and the
Defendants contend -- that the Act does not proscribe a
medical provider from continuing to treat an employee
during the utilization review process. Sullivan II at 5 n.4.
Indeed, in the amended complaint, some of the Plaintiffs
admit to receiving some medical treatments although such
treatments were undergoing utilization review. See, e.g.,
App. A-107 (Louis Baumgartner). Further, there is nothing
in the statute that requires that an employee's medical
benefits be suspended. See Sullivan II at 8.

                               30
Finally, the Defendants emphasize that this case is
unlike Goldberg, Mathews, and other traditional due
process cases because the court must not only weigh the
private interest of Sullivan against the governmental
interest, but must also consider the conflicting private
interest of the insurance companies. The insurers have an
interest in not paying for unnecessary and/or unreasonable
medical treatment. The Defendants argue this interest is
significant because once such treatment is paid it cannot
be recouped from employees or their medical providers even
if the disputed treatment is found to be unreasonable or
unnecessary. See Moats v. Workmen's Compensation Appeal
Bd., 588 A.2d 116, 118 (1991) ("[T]he employer may not
seek reimbursement from the claimant or be relieved of
paying past medical bills."). Accordingly, the district court
held that "a full evidentiary hearing prior to a possible
temporary suspension of benefits is not an indispensable
requisite for the process that is due." Sullivan II at 6.

The district court mischaracterized the nature of
Sullivan's interest, and in so doing, minimized the severity
of the deprivation at issue. The district court apparently
viewed the medical benefits as more akin to a pecuniary
interest, and not an interest in the relief that the medical
treatment provides to injured employees. The remedies that
the Act provides to an employee whose medical benefits are
unjustly terminated provide merely superficial redress as
they focus upon a monetary interest as distinct from a
medical interest in one's well-being. Further, as medical
benefits are typically terminated upon invocation of
utilization review, the employee does not receive any
medical treatment pending review and thus there may be
no medical costs to reimburse upon a determination that
the medical treatments were, in fact, reasonable and
necessary. Once the supersedeas is invoked, it can take
several months before the URO reaches its decision and --
before the reconsideration process was rescinded-- even
longer if reconsideration review was requested. 26 Although a
_________________________________________________________________

26. Although the URO is required to render a decision within thirty (30)
days of the receipt of the employee's medical records or sixty (60) days
from the date of assignment, in the amended complaint, Sullivan alleges

                               31
monetary award may compensate an individual forfinancial
losses, a monetary award cannot be deemed an adequate,
effective, or appropriate substitute for relieving an
employee's disability or pain. Nor can it be a substitute for
necessary medical care. Hence, we are persuaded that the
employees' private interest in receiving uninterrupted
medical benefits is a weighty and significant factor in the
pre-termination calculus.

(2) Risk of Erroneous Deprivation

The district court held that the risk of erroneous
deprivation in the instant case was slight. The utilization
review process considers only medical reports provided
directly by the treating physician and related specifically to
certain questioned medical procedures and treatments; no
independent medical reports are consulted. The reviewer is
a physician in the same profession and with the same
specialty as the treating physician, and the reviewer is only
permitted to apply generally accepted medical protocols to
determine whether the questioned treatment is reasonable
or necessary. The district court acknowledged -- and
Defendants argue -- that medical reports are unbiased,
objective, and trustworthy, and thus, the problems
associated with credibility of witnesses are not present such
that a pre-deprivation hearing would be helpful. In
addition, as reconsideration review has been eliminated by
Act 57, an employee can receive a de novo evidentiary
hearing before an ALJ more quickly than before. 27 As a
result, the district court held that additional safeguards
_________________________________________________________________

that this time frame is often not adhered to. See Am. Compl. P 66. The
length of the deprivation here further supports our conclusion that the
private interests are significant. See Mathews , 424 U.S. at 341 ("the
possible length of wrongful deprivation of . . . benefits is an important
factor in assessing the impact of official action on the private
interests.")(internal quotations and citation omitted); see, e.g.,
Baksalary,
579 F. Supp at 224 (stating that resolution of case typically took one
year or more).

27. Most of the Plaintiffs before us were subjected to the reconsideration
review process as the termination of their medical benefits occurred prior
to the amendment to the Act. See Am. Compl. PP 102, 105, 129, 163,
181, 198, 216, 254.

                               32
were not necessary to protect an injured employee from
being deprived of one's constitutionally protected property
interest in receiving medical benefits. We disagree.

Contrary to the district court's conclusions, we believe
that the risk of erroneous deprivation is significant and that
additional safeguards can meaningfully minimize the risk of
wrongful termination of one's medical benefits. As we stated
above, employees receive no notice that a supersedeas of
their medical benefits will likely result upon the invocation
of utilization review. They are given no pre-deprivation
opportunity to be heard either in writing or in person; they
are not advised of how they can protest or dispute the
underlying allegations that their medical treatments are
unreasonable or unnecessary. Although the employee's
physician must be given an opportunity to discuss the
employee's treatment, see 34 Pa. Code S 127.469, we are
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.

The district court seems to have equated the teaching of
Mathews that an evidentiary hearing is not necessarily
required prior to the deprivation of a constitutionally
protected interest with the notion that no pre-termination
process need be afforded at all. We have come to a different
conclusion. Due process dictates that employees have some
sort of pre-deprivation opportunity to respond before the
supersedeas takes effect so as to guard against an
erroneous deprivation of benefits.

(3) Governmental Interest

The governmental interest that must be considered is
ensuring that only truly disabled individuals are receiving
reasonable and necessary medical treatment. Sullivan II at
8. The government also has an interest in containing the
rising costs of medical care and insurance payments.
Indeed, cost containment is the purpose behind the
supersedeas provisions in question here. Further, the
government has an interest in conserving its scarcefiscal
and administrative resources, and an increase in pre-
deprivation procedures may well be an added burden upon
those resources. While we agree that such legitimate

                               33
interests exist, we are also aware that the government has
an interest in not wrongfully depriving medical benefits to
disabled individuals and ensuring that employees who
reasonably and legitimately need medical care under the
Act will continue to receive it. On balance, therefore, we are
not convinced that any governmental interest outweighs the
private interest we have discussed above and which favors
Sullivan. Thus, we conclude that the denial of any pre-
deprivation process cannot be sustained.

C. What Process is Due

Now that we have weighed the three factors under the
Mathews analysis, and concluded that S 531(5) and (6) do
not adequately suffice to protect Sullivan's due process
interests, we must decide how much process to afford
employees receiving medical benefits under the Act prior to
the termination of such benefits.

In only one case, Goldberg v. Kelly, 397 U.S. 306 (1970),
which involved subsistence welfare benefits, has the Court
required a full evidentiary hearing prior to the deprivation.
In contrast, in Mathews, the Court concluded that an
evidentiary hearing was not necessary before an individual
was deprived of his/her Social Security benefits because,
unlike the welfare benefits at issue in Goldberg, the
disability payments were less likely to be the individual's
sole source of income. The Court held that notice of the
proposed reasons for the termination and advice as to how
the recipient could obtain and submit additional
information prior to the termination was sufficient to
comport with pre-deprivation due process procedure.
Similarly, in Loudermill, the Supreme Court determined
that due process required that a tenured public employee
be given oral or written notice of the charges against
him/her, an explanation of the employer's evidence, and an
opportunity to present her position prior to termination of
her position. See 470 U.S. at 546.

While we believe that additional procedural safeguards
will cure the problems currently at issue with the
supersedeas provisions, due process does not require a
Goldberg-style evidentiary hearing prior to the deprivation
of medical benefits. Utilization review is premised upon

                               34
"routine, standard, and unbiased medical reports,"
Mathews, 424 U.S. at 344 (quoting Richardson v. Perales,
402 U.S. 389, 404 (1971)), from the treating physician,
reviewed by a physician in the same specialty who assesses
the case based upon generally accepted medical protocols,
principles, and practices. Issues of credibility and veracity
are less likely to be an issue in such a case. Accordingly,
the potential benefit of a pre-termination evidentiary
hearing -- or even an oral presentation to the medical
reviewer -- is substantially less in this context than in a
Goldberg-context. See, e.g., Mathews, 424 U.S. at 344-45.

Nevertheless, we think that at a minimum the employee
should be granted the opportunity to present additional
evidence such as his/her personal testimony in writing as
to the reasonableness and necessity of the disputed
treatment, as this could significantly lessen the risk of
erroneously depriving an employee of his/her medical
benefits. This may be particularly true for the recipient of
unorthodox, naturopathic, or non-traditional medical
treatments -- such as, for example, acupuncture or
chiropractic manipulation. Without some sort of indication
from the very individual who is receiving the questioned
medical treatment as to its success or the employee's
improvement, the risk of erroneously terminating an
employee's medical benefits is too high.

We are ever mindful of the fact that the supersedeas
provision contested in this case applies only to disabled
workers who may experience chronic pains over the course
of several years. Many of these workers may be disabled for
life. The personal written submission of such disabled
workers is critical to assessing the relative benefits that a
particular treatment or practice might have. While reading
medical reports and reviewing patients' charts might appear
to show relatively slight improvement, suggesting that the
medical treatment is unreasonable or unnecessary, a
particular treatment might be the only medical treatment
that alleviates an individual's pain or mitigates the severity
of his/her symptoms. As the utilization review process
concerns itself only with the specific medical practice that
is being challenged, see 34 Pa. Code S 127.470, the
reviewing physician may have little or no perspective as to

                               35
how a particular treatment is benefitting the patient in the
context of the overall medical care that the employee has
undergone during the course of his/her disability. 28 The
opportunity for the employee to present his/her side of the
story -- to introduce his/her own personal account as to
how the particular treatment has ameliorated his/her
condition -- may be highly relevant to the URO's
determination and may not be adequately reflected or
documented in the medical reports.

Cognizant of the governmental interest, we believe that
this additional procedural safeguard of permitting an
employee to submit his/her personal account in writing of
the reasonableness or necessity of the disputed medical
treatment would not prove unduly onerous or
administratively burdensome or costly to implement. To the
contrary, the present procedures could remain intact but
with the exception that the employee be notified at a
meaningful time and in a meaningful manner (prior to the
termination of his/her medical benefits) that he/she can
submit, if he/she so chooses, a letter or a statement to the
URO regarding the reasonableness or necessity of his/her
medical treatment. The reviewing physician could then
consider the employee's account as part of the evidence
considered when making his/her determination. We are not
persuaded that this type of evidence would pose a problem
for the reviewing physician, as doctors regularly make
judgments about the course of treatments depending upon
the input from their patients. The reviewing physician as
part of the utilization review process would simply consider
the employee's account of the medical treatment before
rendering judgment.

In sum, we hold that the supersedeas provisions under
S 531(5) and (6) violate the dictates of due process by not
_________________________________________________________________

28. While we recognize that the regulations require that a URO attempt
to obtain a complete set of medical records from all of an employee's
medical providers for a particular injury, see 34 Pa. Code. S 127.462,
there is no guarantee that all of an employee's records will be located,
received, and reviewed during the utilization review. In any event,
medical records provide but one component for consideration before an
employee is deprived of his/her constitutionally protected interest in
his/her medical benefits.

                               36
affording disabled employees notice or an opportunity to be
heard before their medical benefits are suspended. To
remedy the procedural defects in the statute, at a
minimum, an employee must be given: (1) timely and
reasonable notice of the imminent suspension of the
medical benefits and treatment before the suspension takes
effect; (2) a description of the reasons why utilization review
has been invoked; (3) 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; and (4) a description of the procedures
under which the employee can appeal an adverse
determination.

V.

In addition to the deficiencies we have discussed
regarding the Commonwealth's statutes, we now consider
whether the regulations governing utilization review provide
adequate guidance to UROs and ALJs. We hold that they
do.

Sullivan claims that the regulations governing utilization
review fail to provide standards for determining whether the
contested medical treatment is reasonable or necessary.
Without such standards, Sullivan contends that the
decisions by the UROs and ALJs are ad hoc, arbitrary, and
without any consistency among the various UROs or ALJs
such that those decisions violate her right to procedural
due process under the Fourteenth Amendment. We cannot
agree.

The district court properly held that the regulations in
question provide sufficient guidance to reviewing physicians
and ALJs to comport with due process. As in any case that
is subject to utilization review, the inquiry solely focuses
upon whether the medical treatment in question is
reasonable and/or necessary. See 34 Pa. CodeS 127.470.
In so doing, the regulations provide that the reviewing
physician must be of the same specialty as the treating
physician, see 77 Pa. Const. Stat. Ann.S 531(6)(i), and that
the reviewer must analyze the disputed treatment in light of
generally accepted medical protocols. See 34 Pa. Code

                               37
S 127.467. The reviewing physician may not consider
whether the injury being treated is work-related, whether
the employee continues to be disabled, whether the
employee has reached maximum medical improvement, or
whether the fees assessed for the services provided are
reasonable. See id. S 127.470. Furthermore, the reviewer
must provide a detailed opinion in writing that explains the
basis for his/her determination. See id. S 127.472.
Accordingly, the regulations provide guidelines which serve
to provide necessary guidance to the reviewing physician
concerning the appropriate bases for his/her determination
such that the ultimate determinations are not arbitrary and
do not discriminate.

Similarly, the de novo hearings before Workers'
Compensation ALJs also comport with due process. As in
any administrative hearing, the ALJ hears testimony,
considers evidence, and renders decisions consistent with
the applicable law. At these de novo hearings, an employee
has the opportunity to present his/her own medical expert,
the right to cross-examination of the witnesses, and the
right to present additional evidence to support his/her
claim. Further, the statute provides that the ALJ shall
consider -- but is not bound by -- the report from the
utilization review. See 77 Pa. Const. Stat. Ann. S 531(6)(iv).
There is no indication that the de novo hearings in the
utilization review context suffer from any different
procedure or lack of guidance than any other
administrative hearing of which we are aware. Accordingly,
we hold that the regulations provide sufficient guidance to
the reviewing physicians and the ALJs in evaluating
employees' cases such that the employees' rights to
procedural due process are honored.

VI.

We now address whether imposing the costs of
reconsideration review upon a losing employee -- without
giving him/her proper notice beforehand -- violates due
process.

Before the amendments in Act 57, if either party
disagreed with the decision rendered by the URO, that

                               38
party could petition the Bureau for reconsideration review
within thirty (30) days of receiving the decision. See 34 Pa.
Code S 127.502(a). Unlike the initial utilization review,
however, where the employer or insurer paid for the review,
the Bureau advanced the costs of reconsideration review
and charged the losing party for the cost thereafter. While
Act 57 eliminated reconsideration review, Act 57 did not
become effective until August 23, 1996, nearly three
months after the amended complaint in this action was
filed. Thus, most of the Plaintiffs before us were subjected
to the costs of reconsideration review when they suffered an
adverse decision upon reconsideration. It is unclear from
the undeveloped record below, however, whether any of the
Plaintiffs actually paid these reconsideration fees.

Sullivan contends that the imposition of a fee upon a
losing employee violated an employee's right to due process
because such a fee was imposed without any notice,
without an opportunity to be heard on the underlying
contested claim, and without any consideration for the
employee's ability to pay. There was no in forma pauperis
status for reconsideration. Sullivan further asserts that
such a scheme violated the liberty interests of employees
because one may have foregone reconsideration review
rather than risk paying the substantial costs of
reconsideration if he/she lost.29

We do not decide whether the imposition of costs on
reconsideration without notice violated the dictates of due
process. As the Act has been amended, reconsideration
review no longer exists, these fees are no longer imposed,
and thus, this is not a continuing problem. Further, given
the undeveloped record, we cannot determine whether any
of the Plaintiffs, in fact, paid these fees. Accordingly, we
remand to the district court to determine whether any of
the Plaintiffs paid the costs of reconsideration, what those
costs were, and to re-examine the possible constitutional
difficulties that the imposition of reconsideration fees poses.
_________________________________________________________________

29. The costs of reconsideration review varies. The typical charge is
several hundred dollars. See Am. Compl. P 77.

                               39
VII.

At this juncture, we raise an Eleventh Amendment
sovereign immunity issue sua sponte as it is relevant to our
jurisdiction over the Commonwealth Defendants. See V-1
Oil Co. v. Utah State Dep't of Pub. Safety, 131 F.3d 1415,
1419 (10th Cir. 1997) (raising Eleventh Amendment
sovereign immunity sua sponte); Suarez Corp. Indus. v.
McGraw, 125 F.3d 222, 227 (4th Cir. 1997) ("We believe
that, because of its jurisdictional nature, a court ought to
consider the issue of Eleventh Amendment immunity at any
time, even sua sponte."); Atlantic Healthcare Benefits Trust
v. Goggins, 2 F.3d 1, 4 (2d Cir. 1993) (raising Eleventh
Amendment issue sua sponte); Charley's Taxi Radio
Dispatch Corp. v. Sida of Hawaii, Inc., 810 F.2d 869, 873
n.2 (9th Cir. 1987) (same); but see Bouchard Transp. Co. v.
Florida Dep't of Envtl. Protection, 91 F.3d 1445, 1448 (11th
Cir. 1996) (stating that the "Eleventh Amendment is not
jurisdictional in the sense that courts must address the
issue sua sponte").

The Eleventh Amendment30 confers sovereign immunity
upon the States such that they cannot be subject to suit in
district court absent either Congressional intent to abrogate
that immunity enacted pursuant to a valid exercise of
power, see Seminole Tribe v. Florida, #6D 6D6D# U.S. ___, 116 S. Ct.
1114, 1123 (1996), or a State's explicit consent. See Port
Auth. Trans-Hudson Corp. v. Feeney, 495 U.S. 299, 304
(1990). The Eleventh Amendment, however, does not
immunize State officials for actions taken in their individual
capacities. See Scheur v. Rhodes, 416 U.S. 232, 237-38
(1974).

The amended complaint does not make clear whether the
Plaintiffs have brought suit against the Commonwealth
Defendants in their official or individual capacities, or both.
_________________________________________________________________

30. The Eleventh Amendment provides:

       The Judicial power of the United States shall not be construed to
       extend to any suit in law or equity, commenced or prosecuted
       against one of United States by Citizens of another State, or by
       Citizens or Subjects of any Foreign State.

U.S. Const. amend. XI.

                               40
We leave this for the district court to decide. If the district
court determines that the Commonwealth Defendants have
only been sued in their official capacities, the district court
-- in its discretion -- may allow the Plaintiffs to amend
their complaint to include those Defendants in their
individual capacities. In any event, the district court will be
obliged to address whether redress can be sought against
the Commonwealth Defendants in federal court under
Eleventh Amendment proscriptions.

VIII.

In conclusion, we hold that the supersedeas provisions of
77 Pa. Const. Stat. Ann. S 531(5) and (6), are
unconstitutional in that they violate an employee's
procedural due process rights by failing to provide adequate
notice that his/her medical benefits may be suspended
upon the invocation of utilization review and by not
granting the employee an opportunity to respond in writing
before that termination takes effect. We also hold that the
private insurance companies are state actors and thus may
be joined in a S 1983 action when they elect to invoke the
supersedeas provisions to terminate or suspend an
employee's constitutionally protected interests in receiving
medical benefits.

Thus, we will reverse the order of the district court
dismissing Sullivan's complaint and will remand to the
district court for further proceedings in accordance with
this opinion. On remand, among other issues, the district
court should address the issue of reconsideration fees, the
question of certifying a class, and for the first time, it
should consider whether it has subject matter jurisdiction
over the Commonwealth Defendants in light of Eleventh
Amendment sovereign immunity.

A True Copy:
Teste:

        Clerk of the United States Court of Appeals
        for the Third Circuit

                                41
