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. e du/thir dc ir c uit_1998/46Filed 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 PROJEC T 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 o f the Commonwealth of Pennsylvania; RICHARD A. HIMLER, Director of the Pennsylvania Bureau of Work ers Compensation; COMMERCIAL UNION INSURANCE

COMPANY; DONEGAL MUTUAL INSURANCE COMPANY;

HARTFORD INSURANCE COMPANYDelores Scott Sullivan, William Battle, Loui s

Baumgartner,* Anthony Cancila, William C. Dillon,* Terrence Ervine,* Charles Matthews, Christopher Costello, Lisa Lex, Susan Hansen

, Philadelphia Area Project on Occupational Sa fety 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

2Alan 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

3D. 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

4Arthur 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

5Mark 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. Co nst. Stat. Ann. S 531(5) and (6) (West Supp. 1997), whic h provides for the supersedeas of an employee's medic al 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., establ ishes a

6compulsory insurance system for employers that prov ides

compensation to employees who sustain work-related injuries and occupational diseases without regard t o an employee's negligence. See 77 Pa. Const. Stat. Ann. S 431. To guarantee the payment of an employee's claims, t he Act requires employers to obtain insurance -- either th rough a private insurance carrier or through the State Work men'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 liabilitie s. See id. SS 501, 701.

On July 2, 1993, the Pennsylvania legislature amend ed the Act by enacting Act 44. The purpose of Act 44 w as to contain the spiraling costs of medical treatment fo r workrelated injuries. Codified at 77 Pa. Const. Stat. A nn. S 531(5) and (6), Act 44 created a utilization revi ew 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 r eview 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 pertine nt part:

The employer or insurer shall make payment a nd providers shall submit bills and records in accordance with the provisions of this section. All pay ments to providers for treatment provided pursuant to this act shall be made within thirty (30) days of rec eipt of such bills and records unless the employer or ins urer disputes the reasonableness or necessity of the treatment provided pursuant to paragraph (6)

. . . .

77 Pa. Const. Stat. Ann. S 531(5) (West 1997) (emph asis 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 emp loyer or

insurer.

7A.

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

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

(I) The reasonableness or necessity of all t reatment provided by a health care provider under thi s act may be subject to prospective, concurrent or ret rospective utilization review at the request of an empl oye[sic], employer or insurer. The department shall au thorize 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 professio n and having the same or similar specialty as that of the provider of the treatment under review. Orga nizations not authorized by the department may not eng age in

such utilization review.

(ii) The utilization review organization sha ll issue a written report of its findings and conclusio ns 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 utilizatio n review organization, a petition for review by the d epartment must be filed within thirty (30) days after receipt of the report. The department shall assign the peti tion to a workers' compensation judge for a hearing or for an informal conference under [77 Pa. Const. Sta t. Ann. S 711.1]. The utilization review report shal l be part of the record before the workers' compensation judge. The workers' compensation judge shall consider t he utilization review report as evidence but sh all not be bound by the report.

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

Thus, utilization review is invoked when an employe e,

8employer, or insurer requests review of specific me dical

treatment performed.1 The party seeking review subm its its request to the Bureau of Workers' Compensation ("th e Bureau") on a Bureau-prescribed form entitled "Util ization Review: Initial Request" ("Initial Request"). The B ureau reviews the Initial Request to ensure that it is pr operly 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 revi ew.

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 th e 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 questi on. See id. S 127.208.2 The Act does not require -- but permits -- suspension of medical benefits. In addition, med ical

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1. An employee is not likely to request utilization review, however, because the invocation of that process can result i n 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 duri ng the 30-day period under the UR provisions . . . . The insurer' s right to suspend payment shall continue throughout both the i nitial review and the reconsideration review of the UR process. Th e insurer's right to suspend payment shall further continue beyon d the UR process to a proceeding before a Workers' Compensation judge, unless there is

a UR determination made at reconsideration t hat the treatment is reasonable or necessary.

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

9providers are not forbidden from continuing to furn ish

medical services to employees who are subjected to such review, although any such treatment is rendered wit h the risk that the medical provider ultimately may not b e compensated depending upon the resolution of the utilization review. Furthermore, although the emplo yee is given notice that the Initial Request for utilizati on review has been filed, there is no indication on that form that an employee's medical benefits may be terminated for a nd during the disputed treatment. Further, the Initial Request does not provide any information or explanation reg arding

what utilization review entails.

After a request for review is properly filed, the B ureau randomly assigns the case to a Utilization Review Organization ("URO"),3 and the Bureau again notifie s 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 th e notice that is sent to the URO, advising the URO that a pa rticular case has been assigned to it. The Notice of Assignm ent, like the Initial Request, does not inform employees that their medical benefits may be suspended nor does it advis e employees of procedures under which their suspensio n may be protested.

The review process is narrowly tailored to the task of determining whether specific medical treatment is o r was reasonable or necessary. Utilization review is cond ucted by a health care provider4 who has "the same or simila r

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3. "Utilization Review Organizations" are defined a s

those organizations consisting of an imparti al physician, surgeon

or other health care provider or a panel of suc h professionals and provides as authorized . . . for the purpose of reviewing the reasonableness and necessity of a health car e 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 institu tion licensed or

otherwise authorized by the Commonwealth to provide he alth care services, including, but not limited to, any physician , coordinated care

10specialty" as the provider who conducted the treatm ent in

question. See 77 Pa. Const. Stat. Ann. S 531(6)(i). Accordingly, the reviewer must apply generally acce pted treatment protocols to assess the reasonableness or necessity of the questioned treatment. See 34 Pa. C ode 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 an d any

discussions that the URO has had with the medical provider concerning the treatment. See id. SS 127.4 61, 127.469.5 Lastly, the URO's role is narrowly define d to address exclusively whether the medical treatment i n 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 addi tion, the URO does not consider whether the employee is still disabled, whether the employee has obtained maximum medical improvement, or whether the fees charged ar e reasonable. As noted, the URO's exclusive function is to determine the reasonableness or necessity of the pr escribed 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.

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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 comple te the review and make a determination within thirty (30) days of rec eiving the medical provider's records or within thirty-five (35) days of the date that the

URO received the Notice of Assignment, whichever is ear lier. See 34 Pa. Code

S 127.465.

11Const. Stat. Ann. S 531(6)(ii). The written report must

contain findings, conclusions, and citations to gen erally accepted treatment protocols and medical literature , as appropriate. See 34 Pa. Code S 127.472. The URO sen ds 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. Se e 77 Pa. Const. Stat. Ann. S 531(6)(iii); 34 Pa. CodeS 127.4 77.

B.

Originally, Act 44 permitted reconsideration of the URO's determination if filed within thirty (30) days of t he 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 an d the

Bureau advanced the costs of reconsideration and subsequently billed the losing party. See 34 Pa. Co de S 127.514. Thus, as with the utilization review, an employee could not testify before a URO concerning the medic al treatment on reconsideration. Further, parties were not notified before invoking reconsideration review tha t they

would be billed for the costs of reconsideration re view if they lost.

If a party disagreed with the URO's determination o n reconsideration, it could file a Petition for Revie w with the Bureau for de novo review before a Workers' Compens ation Administrative Law Judge ("ALJ"). If the employee p revailed upon reconsideration, the supersedeas was lifted pe nding 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 ultimate ly found to be reasonable and/or necessary, an employe e's benefits could be suspended for a considerable leng th of time pending the initial utilization review, recons ideration, and de novo review by an ALJ. While the Act require s 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

12thereafter, see 34 Pa. Code S 127.508, there is no timeframe specified for adjudication and resolution bef ore the ALJ. Accordingly, employees could have waited month s 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. A ct 57 streamlined the utilization review process by el iminating the reconsideration process, thereby allowing for f aster 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 peti tion 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 a gainst the employee, the supersedeas remains in effect until a fter the ALJ renders his/her decision. See id. S 127.208(e). In all other material respects the provisions of Act 44 re mained in effect and are not challenged here.

II.

The Plaintiffs (hereinafter, collectively "Sullivan ") in the present S 1983 case are ten individual employees7 a nd two organizations representing employees who claim that their medical benefits were suspended without regard to d ue process: the Philadelphia Area Project on Occupatio nal Safety and Health ("PhilaPOSH"),8 and the Philadel phia Federation of Teachers ("PFT").9 Sullivan claims t hat the

amendments to the Act violated the Plaintiffs' cons titutional right to due process under the Fourteenth Amendment by

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7. The Plaintiffs-Appellants are Delores Scott Sull ivan, William Battle, Louis Baumgartner, Anthony Cancila, William C. Dill on, Terrence Ervine, Charles Matthews, Christopher Costello, Lisa Lex, a nd 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 alleg ed that several members of PhilaPOSH had been directly affected by the util ization review procedures challenged in this litigation. See Am. C ompl. 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.

13permitting their employers and/or insurers to suspe nd the

payment of their workers' compensation medical bene fits without prior notice and without affording them an opportunity to be heard.10 Sullivan filed the amend ed complaint in this action on May 21, 1996, three mon ths 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 ("t he Commonwealth Defendants"),11 the director of SWIF,1 2 the School District of Philadelphia ("the School Distri ct"), and several insurance companies.13

The insurance company defendants and the School District moved to dismiss the complaint on the grou nds that there was no state action involved in suspendi ng Sullivan's medical benefits.14 Sullivan filed a mot ion for partial summary judgment on the issue that the insu rers

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10. The Fourteenth Amendment provides, in pertinent part:

Section 1. All persons born or naturalized i n the United States,

and subject to the jurisdiction thereof, are cit izens of the United

States and the State wherein they reside. No State shall make or enforce any law which shall abridge the privileges o r immunities of

citizens of the United States; nor shall any State de prive any person of life, liberty, or property, without due process of law; nor deny to any person within its jurisdiction the equal pro tection 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 posit ion); Director of Pennsylvania's Bureau of Workers' Compensation, Ric hard Himler;

Insurance Commissioner for the Commonwealth of Penn sylvania, Linda Kaiser; and Treasurer for the Commonwealth, Catheri ne 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 Corp oration, Continental Casualty Company, USF&G Insurance Compa ny, 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. TheSchool District claimed that there was no state act ion because it did not

participate in the decision-making process concerni ng the invocation of utilization review (and corresponding termination o f medical benefits) because it contracted out the payment of its medica l liabilities under the Act to a private company which is not a party to th e present action. See Sch. Dist.'s Mem. in Supp. Mot. to Dismiss at 1-4 ( district court docket # 11, 12).

14and the School District were state actors subject t o the

constraints of due process. In its opinion and orde r dated January 24, 1996, the district court ruled that the private insurers were not state actors, but at that time di d not decide the state action issue with respect to the S chool District as the record was incomplete and more disc overy was needed. See Sullivan v. Barnett, 913 F. Supp. 8 95 (E.D. Pa. 1996) (hereinafter, "Sullivan I").

On May 28, 1996, Sullivan moved for class certifica tion to represent the class of workers who have had or w ill have their medical benefits suspended under Pennsylvania 's utilization review procedures without advance notic e or an opportunity to be heard prior to supersedeas of ben efits under section 531(5) and (6). See Am. Compl. at P 1 7. Holding that the supersedeas provisions did not off end due process, the district court dismissed the complaint with respect to the Commonwealth Defendants and the Scho ol District by orders dated November 7, 1996, see Sull ivan v. Butler, 1996 WL 654032 (E.D. Pa. Nov. 7, 1996) (hereinafter, "Sullivan II"), and December 13, 1996

, respectively, without certifying the plaintiff-clas s. This appeal followed.

We have jurisdiction over this appeal pursuant to 2 8

U.S.C. S 1291. Our review over the district court's rulings is plenary. See Weiner v. The Quaker Oats Co., 129 F.3 d 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 Defen dants must be held to be state actors or to be acting und er color

of state law.15

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15. Section 1983 provides a cause of action to indi viduals who have been deprived of a federal right by a person acting "und er color of state law." See Groman v. Township of Manalapan, 47 F.3d 628, 6 33 (3d Cir. 1995). The "under color of state law" requirement ofS 1983 and the "state

action" element of the Fourteenth Amendment have be en interpreted to be "identical in most contexts," Id. at 639 n.15; s ee also Lugar, 457 U.S.

15The Commonwealth does not dispute that it is a stat e

actor, and indeed, it would be hard-pressed to do s o in light

of the fact that it was the Commonwealth that enact ed 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 entit led. Nor has SWIF disputed the fact that it is a state actor . See Commonwealth Br. at 20 n.12; see also Rumph v. Stat e 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 no w contest that it is a state actor, as it has not bri efed the issue on appeal.16 The insurers, however, deny that their actions in invoking relief under the supersedeas pr ovisions appurtenant to the utilization review process const itute state action. We cannot agree.

State action has been characterized as one of the m ost troublesome issues of constitutional law. See Henry C. Strickland, The State Action Doctrine and the Rehnq uist Court, 18 Hastings Const. L.Q. 587, 588 (1991). Var ious cases have led to differing results in factual scen arios that, at least upon first impression, appear to be simila r. Compare Mark v. Borough of Hatboro, 51 F.3d 1137 (3 d Cir. 1995) (concluding that state action existed in cont ext 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 fir st aid

___________________________________________________ ______________

at 935 n.18. Thus, private parties can be held liab le for the alleged due process violations only if "it can be fairly said t hat the [government] is responsible for the specific conduct of which the p laintiff complains" -- here, the suspension of employees' Workers' Compens ation 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 den ied the School

District's motion to dismiss premised upon the state action is sue. See Sullivan I, 913 F. Supp. at 905. However, because the district court held that the supersedeas provisions of the Act did not violate p rocedural due process in Sullivan II, the district court did not ultimate ly find it necessary to reach the state action issue with respect to the Sc hool District.

16squad). Indeed, the state action inquiry necessaril y depends

upon the factual contexts in which the controversie s 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 significa nce."); Groman, 47 F.3d at 639 n.16. To compound the confus ion surrounding a state action examination, courts have employed various tests and standards that have been anything but a model of clarity. See Edmonson v. Le esville 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 sta te have not been a model of consistency.").

In order to analyze the state action issue before u s, it is critical to place the insurer's role within the Wor kers' Compensation system in its proper context. The Act provides no-fault compensation to all employees wit hin 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 co sts without regard to proof or fault, employees lost th eir 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 str ips 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 excl usive remedy available to an injured worker. See 77 Pa. C onst. Stat. Ann. S 481(a).17 Cf. Travelers Indemnity Co. v. DiBartolo, 131 F.3d 343, 350-51 (3d Cir. 1997) (hol ding an employer's voluntary purchase of uninsured motorist coverage is a fringe benefit since it is no longer mandated

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17. 77 Pa. Const. Stat. Ann. S 481(a) states, in pe rtinent 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).

17by state law and, thus, is not subject to the exclu sivity

provision of the Workmen's Compensation Act). The s ystem is mandatory; an employee cannot opt-out of Pennsyl vania Workers' Compensation scheme. See 77 Pa. Const. Sta t. Ann. S 461 (historical notes).

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

In creating and executing this system of entitlemen ts, the Commonwealth has enacted a complex and interwoven regulatory web enlisting the Bureau, the employers, and the insurance companies. The Commonwealth extensive ly regulates and controls the Workers' Compensation sy stem. Although the insurance companies are private entiti es, when they act under the construct of the Workers' Compensation system, they are providing public bene fits which honor State entitlements. In effect, they bec ome an arm of the State, fulfilling a uniquely governmenta l obligation under an entirely state-created, self-co ntained public benefit system. It is a "system which the go vernment alone administers." Edmonson, 500 U.S. at 622. Thus , we conclude the insurance companies are a partner or a n arm of the State in implementing legislation that admin isters constitutionally protected entitlements which the Commonwealth has enacted as a matter of policy.

The right to invoke the supersedeas, or to stop pay ments, is a power that traditionally was held in the hands of the State. When insurance companies invoke the supersed eas (i.e., suspension) of an employee's medical benefit s, they compromise an employee's State-created entitlements . The

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18. The Commonwealth guarantees that Workmen's Comp ensation benefits will be paid by imposing a statutory oblig ation upon the employer to pay for all work-related injuries of hi s/her employees. If the employer's insurance company becomes insolvent, how ever, 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.

18insurers have no power to deprive or terminate such

benefits without the permission and participation o f 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 suspen d medical payments without first obtaining authorizat ion from the Bureau. However this authorization may be characterized, any deprivation that occurs is predi cated upon the State's involvement.

There is little difference between the approval req uired 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 in volved throughout, and without that involvement" the super sedeas could not operate. Id. at 487. Further, the superse deas lacks the self-executing characteristic that might otherwise render due process concerns irrelevant. To the cont rary, the supersedeas provisions at issue are not self-execut ing, and without the Commonwealth's involvement and approval , the insurance companies would be precluded from suspend ing medical benefit payments -- an aspect of the Workme n's Compensation procedure which they had desired. Accordingly, we hold that the private insurance com panies are state actors when they invoke the supersedeas provisions under S 531(5) and (6).

Our decision is consistent with West v. Atkins , 48 7 U.S. 42 (1988). There, the Court held that a private phy sician

under contract with the State of North Carolina to provide medical services to prison inmates acted under colo r of state law even though the doctor was not directly e mployed by the State. In West, the State was under an affir mative obligation to provide medical care to inmates. The State delegated that responsibility to a part-time contra ct physician, who assumed the State's obligation. Unde r these circumstances, the Court held that state action att ached to the actions of the private doctor such that the pri soner could maintain a S 1983 cause of action against the doctor.

19That the doctor exercised professional judgment and

discretion independent of the State was insufficien t 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 h is employment, that determines whether his action can fairly be attributed to the State." Id. at 55-56. "[T]he d ispositive issue concerns the relationship among the State, th e physician, and the prisoner." Id. at 56 (emphasis a dded).

Similarly, in this case, examining the relationship among the Commonwealth, employer, and the insurance companies, we have concluded that the actions of th e insurers constitute state action. The employers are under an affirmative obligation to insure their employees for workrelated accidents. This obligation is expressly ass umed 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 pris oners, they are locked into the system, and any relief tha t the employees obtain is strictly through the program wh ich the State has designed. The employees are, in essence, prisoners -- albeit beneficiaries -- of the Commonw ealth'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. 19 84),

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19. See supra note 17.

20. In Baksalary, a three-judge panel of the distri ct court comprised of two district court judges and one Court of Appeals judge, convened pursuant to 28 U.S.C. S 2284. In Baksalary, employe es contested an automatic supersedeas provision under the Act that terminated an employee's benefits without notice or a pre-termina tion opportunity to be heard. If an employer or insurer filed a petition w hich 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 affida vit -- alleged that the employee had recovered from his/her disability, the n the employer or insurer could terminate the employee's Workers' Com pensation benefits. See Baksalary, 579 F. Supp. at 221.

20which 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 l aw, and accordingly found that there had been a denial of d ue process in violation of the Fourteenth Amendment fr om 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 (8 th 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 bas ed upon a medical report. As the Barnes decision is predica ted upon its interpretation of Texas -- as distinct from Pen nsylvania -- law, it is necessarily inapposite to this case. The Barnes court did not explain in detail the procedural invo lvement of Texas in permitting the insurance company to den y an employee his/her benefits. Clearly, however, the st atutory provision permitting the termination of benefits in Barnes and the supersedeas provisions at issue here vary significantly. In Barnes, for instance, the insuran ce company was not compelled to resume the employee's benefits even after a State officer reviewing the c ase recommended that the insurance company reinstate th ose benefits. See Barnes, 861 F.2d at 1384. Thus, the e mployee

was left with a cause of action under state law onl y.

In addition, it is unclear whether employers and/or employees can opt-out of Texas' Workers' Compensati on scheme. In Pennsylvania, as we have stated, they ca nnot. Moreover, and perhaps most importantly, it is not c lear 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

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21. Article 8307, S 11, provides:

Association suspending payments. When the as sociation suspends or stops payment of compensation, it shall i mmediately notify the board of that fact, giving the board the nam e, 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 (re pealed 1989).

21Nor 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 t he particular issue arises must be the focus of a stat e action inquiry. Other cases cited by the insurers such as Blum v. Yaretsky, 457 U.S. 991 (1982) (finding no state act ion when private nursing homes decided to transfer or discha rge Medicaid patients without notice or a hearing), Ren dellBaker v. Kohn, 457 U.S. 830 (1982) (finding no stat e action when private school fired employees despite the fac t 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. Met ropolitan Edison Company, 419 U.S. 345 (1974) (finding no sta te action when privately owned electric utility termin ated a customer's electric service for nonpayment without a hearing), do not, by the very nature of the controv ersies with which they dealt, involve a comprehensive stat utory 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 i nsurers 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 be come an integral part of the state in administering the statutory scheme. This relationship more than suffices to sat isfy 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 a ction or provided significant encouragement); Rendell-Baker, 457 U.S. at 842 (state action exists if there is a symb iotic relationship between the state and the private acto r); Flagg Bros., 436 U.S. at 157-59 (state action exists if p rivate actor exercises powers exclusively within the prerogative of the State); Jackson, 419 U.S. at 351 (state action exis ts if a sufficiently close nexus between State and private actor is

22found); Mark, 51 F.3d at 1156 (suggesting courts sh ould

employ a totality of circumstances approach to stat e 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 la ck of notice afforded under the supersedeas provisions, S 531(5) and (6), of the Act violates the procedural due pro cess guarantees under the Fourteenth Amendment because neither the Initial Request for utilization review nor the Notice of Assignment specifically informs an employ ee that the insurer or employer can stop paying for the con tested medical treatments pending review.23 Although emplo yees are notified that their employers or insurers have invoked the utilization review process pursuant to 34 Pa. C ode S 127.452, or are notified that the case has been a ssigned 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

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22. In light of our holding that the private insura nce 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 Fo urteenth Amendment.

23. Neither party disputes the district court's rul ing that Workers' Compensation benefits are a constitutionally protec ted property interest subject to scrutiny under the Due Process Clause of the Fourteenth Amendment. See, e.g., Sullivan II at 4; see also Ba ksalary 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."). Ac cordingly, we concentrate upon whether the procedures afforded to employees under the Act comport with the strictures of due process.

23how an employee can contest the underlying allegati ons

that serve the basis for the utilization review. Ac cordingly, Sullivan argues that such notification is defective because (1) the employee receives no notice that his/her be nefits 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 whi ch he/she can protest the imminent deprivation.

The Bureau does not dispute that no notice is provi ded to an employee that his/her medical benefits might be suspended. Rather, the Bureau contends that the dec ision to discontinue such benefits (i.e., request a super sedeas) is discretionary and is determined solely by the emplo yer or the insurer, not the Bureau. Thus, the Bureau maint ains that it does not have information regarding the sta tus of an employees' medical benefits in a utilization review case, and accordingly it does not deny employees of procedura l due process by failing to notify them of such informati on. The

Bureau further asserts that this case is not akin t o Goldberg v. Kelly, 397 U.S. 306, 314 (1970), 24 suc h that a pre-deprivation hearing is required prior to the su spension of medical benefits. As a result, the Bureau mainta ins that sufficient process is afforded to employees under t he Act.

"The core of due process is the right to notice and a meaningful opportunity to be heard." LaChance v. Er ickson, ___ 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 (1 972); Mullane v. Central Hanover Bank & Trust Co., 339 U. S. 306, 313 (1950). We will thus address the constitutional ity of the pre-deprivation notice the employees receive in thi s case and their opportunity to be heard, in turn.

A. Notice

"[A]dequate notice detailing the reasons for a prop osed termination" of a constitutionally protected libert y or

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24. In Goldberg v. Kelly, the Supreme Court held th at a pre-deprivation evidentiary hearing was required prior to the termi nation of welfare

benefits.

24property interest must be afforded to individuals p rior to

the deprivation. Goldberg v. Kelly, 397 U.S. 254, 2 67-68 (1970). Notice must be "reasonably calculated, unde r all the circumstances, to apprise interested parties of the pendency of the action and afford them an opportuni ty to present their objections." Mullane, 339 U.S. at 314 . The level of notice required before an individual is de prived of a constitutionally protected property interest depend s upon the particular benefits at issue. "[D]ue process is flexible and calls for such procedural protections as the pa rticular situation demands." Morrissey v. Brewer, 408 U.S. 4 71, 481 (1972).

In Memphis Light, Gas & Water Division, the Supreme Court held that a Memphis utility company did not p rovide constitutionally sufficient notice to its customers prior to terminating their utilities. Although the utility g ave its

customers notice that their service could be termin ated for nonpayment of their bill, the company failed to inf orm its patrons of how they could protest or object to char ges 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 o f the availability of a procedure for protesting a propos ed termination . . . as unjustified." 436 U.S. at 14-1 5 (emphasis
added).

In Goldberg v. Kelly, the Court considered whether the notice provisions of New York City's welfare termin ation process comported with due process. As welfare reci pients were given seven days advance notice of the impendi ng termination, a letter informing them of the precise questions raised about their continued eligibility and the legal and factual bases for the Department of Socia l Services' doubts, and a personal conference explain ing the same, the Court held that the notice provisions wer e adequate. See 397 U.S. at 268. Similarly, although notice was not directly at issue in Mathews v. Eldridge, 4 24 U.S. 319, 324 (1976), the Court acknowledged that recipi ents of Social Security disability payments were afforded p roper notice which included a letter informing them that their benefits would be terminated prior to the deprivati on, a detailed explanation of the reasons for the propose d

25termination, and the opportunity to submit addition al

evidence to the agency making the determination pri or to the actual deprivation.

Moreover, we held in Ortiz v. Eichler, 794 F.2d 889 (3d Cir. 1986), that the notice provided by Delaware pr ior to the termination or denial of Aid to Families with Depen dent Children, Food Stamps, and Medicaid benefits was constitutionally deficient because it failed to exp lain the reasons for the state agency's action and did not c ontain the agency's specific calculations utilizing an emp loyee'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 prob lem

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 C ourt held that at a minimum due process required the fol lowing:

(1) the contemplated termination, (2) that the termination of benefits was to occur at a specified time not less than 30 days after n otice, (3) the reason or reasons for the terminatio n, (4) that the recipient had the opportunity t o submit any evidence or documents disputing or contradicting the reasons given for terminat ion, and, if such evidence or documents are submi tted,

to be advised whether termination is still contemplated, (5) that the recipient had the right to peti tion for

review.

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

Informed by established precedent, we hold that in the case of terminating the medical benefits of a worke rs' compensation employee, at a minimum due process requires that employees receive notice that include s (1) timely notification that their medical benefits mig ht 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 adv ising

26them of the availability of the procedures that the y may

utilize to protest the proposed termination.

In the instant case, the notice that an employee re ceives prior to the termination of his/her medical benefit s 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 pro cedures 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 a ny of the above notice deficiencies. The Notice of Assign ment 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 a n employee that his/her medical benefits may be termi nated nor does it advise an employee of any procedures un der which such termination may be challenged. Further, by the time the Notice of Assignment is received, the empl oyees' medical benefits may have already been suspended, a s the supersedeas can be invoked and thus a suspension of benefits effected upon the proper filing of the uti lization review process.

That an employee's medical benefits may be suspende d prior to his/her receiving notice of that terminati on is constitutionally fatal to S 531(5) and (6) under th e strictures

of the Due Process Clause of the Fourteenth Amendme nt. See Carey v. Piphus, 435 U.S. 247, 259 (1978) ("Pro cedural due process rules are meant to protect persons not from the deprivation, but from the mistaken or unjustifi ed deprivation of life, liberty, or property.") (empha sis added). At no time prior to the termination is the employee informed of any procedure under which he/she can di spute the supersedeas. As the employee is not informed of the deprivation of his/her medical benefits prior to it s taking effect, inadequate notice effectively strips an emp loyee of

27his/her ability or opportunity to protest or minimi ze

unjustified deprivations.25

In Baksalary v. Smith, 579 F. Supp. 218, 233 (E.D. Pa. 1984), a three-judge panel of the district court he ld a similar supersedeas provision unconstitutional wher e it failed to provide notice to the employee until afte r the benefits had already been terminated. Similarly, we conclude that S 531(5) and (6), the supersedeas pro visions pertaining to utilization review of medical benefit s, is unconstitutional because it fails to provide employ ees with adequate pre-termination notice.

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

Under Pennsylvania law, separate provisions of a statute are presumed severable, and any part icular one will survive a decision voiding another unle ss it is so interrelated with the void provision or inco mplete without it that the legislature could not ha ve 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 "unl ess" clause from S 531(5) of the Act. We are thereby lef t with a statute that reads as follows and that requires emp loyers 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 a nd providers shall submit bills and records in accordance with the provisions of this section. All pay ments to providers for treatment provided pursuant to this act shall be made within thirty (30) days of rec eipt of such

bills and records.

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

28B. Opportunity to be heard

Due process requires that "an individual be given a n opportunity for a hearing before he is deprived of any significant property interest." Boddie v. Connectic ut, 401 U.S. 371, 379 (1971) (emphasis in original). The ri ght to be heard " `must be granted at a meaningful time and i n a meaningful manner.' " Fuentes, 407 U.S. at 80 (quot ing Armstrong v. Manzo, 380 U.S. 545, 552 (1965)). Whil e it is undisputed that some sort of hearing is required be fore an individual is finally deprived of a liberty or prop erty interest, due process necessitates some sort of pre termination opportunity to be heard regarding the b asis of the proposed termination. See Loudermill, 470 U.S. at 542 ("Even decisions finding no constitutional violatio n in termination procedures have relied on the existence of some pre-termination opportunity to respond.") "The oppo rtunity to present reasons, either in person or in writing, why proposed action should not be taken is a fundamenta l due process requirement." Id. at 546.

In the case before us, the employees were not given a pre-deprivation opportunity to respond to the propo sed termination of their medical benefits. Indeed, as w e 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 ma tter is pending and can choose for himself whether to appea r or default, acquiesce or contest." Mullane, 339 U.S. a t 314. So, while the Commonwealth's statutory scheme provides that employees be given an opportunity for a post-termin ation evidentiary hearing in the form of a de novo hearin g before an ALJ, we must address what pre-termination opport unity to be heard is required to satisfy the constitution al minimum of due process.

In order to determine the extent of the pre-depriva tion process, we must consider and balance the following

factors:

First, the private interest that will be aff ected by the official action. Second, the risk of erroneo us deprivation of such interest through the pro cedures used, and the probable value, if any, of add itional or

29substitute safeguards; and, finally, the gov ernment's

interest including the function involved and thefiscal

and administrative burdens that the addition al or substitute procedural requirements would ent ail.

Mathews v. Eldridge, 424 U.S. 319, 334-35 (1976). W e will

deal with each factor in turn.

(1) Private Interest

The employees' interest is in the uninterrupted pay ment of their medical benefits pending the final adminis trative

decision on their cases. Sullivan II at 5. As the d istrict court acknowledged, this interest is "without a doubt[,] significant." Id. Without receiving her medical tre atments, a concomitant of having her medical benefits paid to her medical provider, Sullivan alleges that she has end ured 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 miti gated by several factors. First, the district court noted th at, unlike Goldberg, termination of one's medical benefits wou ld not deprive an employee of the very means of his/her

subsistence. See Sullivan II at 5. The district cou rt also concluded that the availability of full remedies mi tigates the impact of the supersedeas. Id. at 6. For instance, an employee whose medical benefits are reinstated on a ppeal by an ALJ is entitled to an award of benefits plus ten (10) percent interest. See 77 Pa. Const. Stat. Ann. S 71 7.1(a) (West Supp. 1997). In addition, the prevailing empl oyee may recover the costs of litigating his/her right t o medical benefits. See id. S 996 (West Supp. 1997).

Additionally, the district court noted -- and the Defendants contend -- that the Act does not proscri be a medical provider from continuing to treat an employ ee during the utilization review process. Sullivan II at 5 n.4. Indeed, in the amended complaint, some of the Plain tiffs admit to receiving some medical treatments although such treatments were undergoing utilization review. See, e.g., App. A-107 (Louis Baumgartner). Further, there is n othing in the statute that requires that an employee's med ical benefits be suspended. See Sullivan II at 8.

30Finally, 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 government al interest, but must also consider the conflicting pr ivate interest of the insurance companies. The insurers h ave an interest in not paying for unnecessary and/or unrea sonable medical treatment. The Defendants argue this intere st is significant because once such treatment is paid it cannot be recouped from employees or their medical provide rs even if the disputed treatment is found to be unreasonab le or unnecessary. See Moats v. Workmen's Compensation Ap peal 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 dist rict court held that "a full evidentiary hearing prior to a po ssible temporary suspension of benefits is not an indispen sable 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 app arently viewed the medical benefits as more akin to a pecun iary interest, and not an interest in the relief that th e medical treatment provides to injured employees. The remedi es that the Act provides to an employee whose medical benef its are unjustly terminated provide merely superficial redr ess as they focus upon a monetary interest as distinct fro m a medical interest in one's well-being. Further, as m edical benefits are typically terminated upon invocation o f utilization review, the employee does not receive a ny 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 an d 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

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26. Although the URO is required to render a decisi on within thirty (30) days of the receipt of the employee's medical recor ds or sixty (60) days from the date of assignment, in the amended complai nt, Sullivan alleges

31monetary award may compensate an individual forfina ncial

losses, a monetary award cannot be deemed an adequa te, effective, or appropriate substitute for relieving an employee's disability or pain. Nor can it be a subs titute for necessary medical care. Hence, we are persuaded tha t the employees' private interest in receiving uninterrup ted medical benefits is a weighty and significant facto r 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 uti lization review process considers only medical reports provi ded directly by the treating physician and related spec ifically to certain questioned medical procedures and treatment s; no independent medical reports are consulted. The revi ewer is a physician in the same profession and with the sam e specialty as the treating physician, and the review er is only permitted to apply generally accepted medical proto cols to determine whether the questioned treatment is reaso nable or necessary. The district court acknowledged -- an d Defendants argue -- that medical reports are unbias ed, objective, and trustworthy, and thus, the problems associated with credibility of witnesses are not pr esent such that a pre-deprivation hearing would be helpful. In addition, as reconsideration review has been elimin ated by Act 57, an employee can receive a de novo evidentia ry hearing before an ALJ more quickly than before. 27 As a result, the district court held that additional saf eguards

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that this time frame is often not adhered to. See A m. Compl. P 66. The length of the deprivation here further supports our conclusion that the private interests are significant. See Mathews , 42 4 U.S. at 341 ("the possible length of wrongful deprivation of . . . be nefits is an important factor in assessing the impact of official action o n the private interests.")(internal quotations and citation omitt ed); 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.

32were not necessary to protect an injured employee f rom

being deprived of one's constitutionally protected property interest in receiving medical benefits. We disagree

.

Contrary to the district court's conclusions, we be lieve that the risk of erroneous deprivation is significa nt 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 supersede as of their medical benefits will likely result upon the invocation of utilization review. They are given no pre-depriv ation opportunity to be heard either in writing or in per son; they are not advised of how they can protest or dispute the underlying allegations that their medical treatment s are unreasonable or unnecessary. Although the employee' s physician must be given an opportunity to discuss t he employee's treatment, see 34 Pa. Code S 127.469, we are hard-pressed to believe that the portrait of the em ployee's illness and treatment is complete without a stateme nt or other input from the employee himself.

The district court seems to have equated the teachi ng of Mathews that an evidentiary hearing is not necessar ily required prior to the deprivation of a constitution ally protected interest with the notion that no pre-term ination process need be afforded at all. We have come to a different conclusion. Due process dictates that employees hav e some sort of pre-deprivation opportunity to respond befo re the supersedeas takes effect so as to guard against an erroneous deprivation of benefits.

(3) Governmental Interest

The governmental interest that must be considered i s ensuring that only truly disabled individuals are r eceiving reasonable and necessary medical treatment. Sulliva n II at 8. The government also has an interest in containin g the rising costs of medical care and insurance payments

. Indeed, cost containment is the purpose behind the supersedeas provisions in question here. Further, t he government has an interest in conserving its scarce fiscal and administrative resources, and an increase in pr edeprivation procedures may well be an added burden upon those resources. While we agree that such legitimat e

33interests exist, we are also aware that the governm ent has

an interest in not wrongfully depriving medical ben efits to disabled individuals and ensuring that employees wh o reasonably and legitimately need medical care under the Act will continue to receive it. On balance, theref ore, we are not convinced that any governmental interest outwei ghs the private interest we have discussed above and which favors Sullivan. Thus, we conclude that the denial of any predeprivation process cannot be sustained.

C. What Process is Due

Now that we have weighed the three factors under th e Mathews analysis, and concluded that S 531(5) and ( 6) do not adequately suffice to protect Sullivan's due pr ocess interests, we must decide how much process to affor d 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 th e Court required a full evidentiary hearing prior to the de privation. In contrast, in Mathews, the Court concluded that a n evidentiary hearing was not necessary before an ind ividual was deprived of his/her Social Security benefits be cause, unlike the welfare benefits at issue in Goldberg, t he disability payments were less likely to be the indi vidual's

sole source of income. The Court held that notice o f 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 determi ned that due process required that a tenured public emp loyee be given oral or written notice of the charges agai nst him/her, an explanation of the employer's evidence, and an opportunity to present her position prior to termin ation of her position. See 470 U.S. at 546.

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

34"routine, standard, and unbiased medical reports,"

Mathews, 424 U.S. at 344 (quoting Richardson v. Per ales, 402 U.S. 389, 404 (1971)), from the treating physic ian, reviewed by a physician in the same specialty who a ssesses the case based upon generally accepted medical prot ocols, principles, and practices. Issues of credibility an d veracity are less likely to be an issue in such a case. Acco rdingly, the potential benefit of a pre-termination evidenti ary hearing -- or even an oral presentation to the medi cal reviewer -- is substantially less in this context t han in a Goldberg-context. See, e.g., Mathews, 424 U.S. at 3 44-45.

Nevertheless, we think that at a minimum the employ ee should be granted the opportunity to present additi onal evidence such as his/her personal testimony in writ ing as to the reasonableness and necessity of the disputed treatment, as this could significantly lessen the r isk of erroneously depriving an employee of his/her medica l benefits. This may be particularly true for the rec ipient of unorthodox, naturopathic, or non-traditional medica l treatments -- such as, for example, acupuncture or chiropractic manipulation. Without some sort of ind ication from the very individual who is receiving the quest ioned 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 supersedea s provision contested in this case applies only to di sabled workers who may experience chronic pains over the c ourse of several years. Many of these workers may be disa bled for life. The personal written submission of such disab led workers is critical to assessing the relative benef its that a particular treatment or practice might have. While reading medical reports and reviewing patients' charts migh t appear to show relatively slight improvement, suggesting t hat the medical treatment is unreasonable or unnecessary, a particular treatment might be the only medical trea tment that alleviates an individual's pain or mitigates t he severity of his/her symptoms. As the utilization review proc ess concerns itself only with the specific medical prac tice that is being challenged, see 34 Pa. Code S 127.470, the reviewing physician may have little or no perspecti ve as to

35how a particular treatment is benefitting the patie nt in the

context of the overall medical care that the employ ee has undergone during the course of his/her disability. 28 The opportunity for the employee to present his/her sid e of the story -- to introduce his/her own personal account as to how the particular treatment has ameliorated his/he r condition -- may be highly relevant to the URO's determination and may not be adequately reflected o r 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 writ ing of the reasonableness or necessity of the disputed med ical treatment would not prove unduly onerous or administratively burdensome or costly to implement. To the contrary, the present procedures could remain intac t but with the exception that the employee be notified at a meaningful time and in a meaningful manner (prior t o the termination of his/her medical benefits) that he/sh e can submit, if he/she so chooses, a letter or a stateme nt to the URO regarding the reasonableness or necessity of hi s/her medical treatment. The reviewing physician could th en consider the employee's account as part of the evid ence considered when making his/her determination. We ar e not persuaded that this type of evidence would pose a p roblem for the reviewing physician, as doctors regularly m ake judgments about the course of treatments depending upon the input from their patients. The reviewing physic ian as part of the utilization review process would simply consider the employee's account of the medical treatment bef ore rendering judgment.

In sum, we hold that the supersedeas provisions und er S 531(5) and (6) violate the dictates of due proces s by not

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

36affording disabled employees notice or an opportuni ty 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 suspensio n takes effect; (2) a description of the reasons why utiliz ation review has been invoked; (3) an opportunity and time to su bmit a personal statement in writing regarding the employe e's view of the reasonableness and/or necessity of the dispu ted medical treatments; and (4) a description of the pr ocedures 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 consi der whether the regulations governing utilization revie w provide adequate guidance to UROs and ALJs. We hold that th ey do.

Sullivan claims that the regulations governing util ization review fail to provide standards for determining wh ether the

contested medical treatment is reasonable or necess ary. Without such standards, Sullivan contends that the decisions by the UROs and ALJs are ad hoc, arbitrar y, and without any consistency among the various UROs or A LJs such that those decisions violate her right to proc edural due process under the Fourteenth Amendment. We cann ot

agree.

The district court properly held that the regulatio ns in question provide sufficient guidance to reviewing p hysicians and ALJs to comport with due process. As in any cas e that is subject to utilization review, the inquiry solel y focuses upon whether the medical treatment in question is reasonable and/or necessary. See 34 Pa. CodeS 127.4 70. In so doing, the regulations provide that the revie wing physician must be of the same specialty as the trea ting 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. Co de

37S 127.467. The reviewing physician may not consider

whether the injury being treated is work-related, w hether the employee continues to be disabled, whether the employee has reached maximum medical improvement, o r whether the fees assessed for the services provided are reasonable. See id. S 127.470. Furthermore, the rev iewer must provide a detailed opinion in writing that exp lains the basis for his/her determination. See id. S 127.472. Accordingly, the regulations provide guidelines whi ch serve to provide necessary guidance to the reviewing phys ician concerning the appropriate bases for his/her determ ination

such that the ultimate determinations are not arbit rary 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 consisten t with the applicable law. At these de novo hearings, an e mployee has the opportunity to present his/her own medical expert, the right to cross-examination of the witnesses, an d the right to present additional evidence to support his /her claim. Further, the statute provides that the ALJ s hall 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 differen t procedure or lack of guidance than any other administrative hearing of which we are aware. Accor dingly, we hold that the regulations provide sufficient gui dance 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 -- wi thout 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, th at

38party 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 r eview, however, where the employer or insurer paid for the review,

the Bureau advanced the costs of reconsideration re view and charged the losing party for the cost thereafte r. While Act 57 eliminated reconsideration review, Act 57 di d not become effective until August 23, 1996, nearly thre e months after the amended complaint in this action w as filed. Thus, most of the Plaintiffs before us were subjected to the costs of reconsideration review when they su ffered an adverse decision upon reconsideration. It is unclea r 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 underlyin g contested claim, and without any consideration for the employee's ability to pay. There was no in forma pa uperis

status for reconsideration. Sullivan further assert s that such a scheme violated the liberty interests of emp loyees because one may have foregone reconsideration revie w 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 dictate s of due process. As the Act has been amended, reconsiderati on review no longer exists, these fees are no longer i mposed, 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. Accord ingly, we

remand to the district court to determine whether a ny of the Plaintiffs paid the costs of reconsideration, w hat those costs were, and to re-examine the possible constitu tional difficulties that the imposition of reconsideration fees poses.

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

39VII.

At this juncture, we raise an Eleventh Amendment sovereign immunity issue sua sponte as it is releva nt to our jurisdiction over the Commonwealth Defendants. See V-1 Oil Co. v. Utah State Dep't of Pub. Safety, 131 F.3 d 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 beli eve that, because of its jurisdictional nature, a court ought to consider the issue of Eleventh Amendment immunity a t any time, even sua sponte."); Atlantic Healthcare Benef its Trust v. Goggins, 2 F.3d 1, 4 (2d Cir. 1993) (raising Ele venth Amendment issue sua sponte); Charley's Taxi Radio Dispatch Corp. v. Sida of Hawaii, Inc., 810 F.2d 86 9, 873 n.2 (9th Cir. 1987) (same); but see Bouchard Transp . Co. v. Florida Dep't of Envtl. Protection, 91 F.3d 1445, 1 448 (11th Cir. 1996) (stating that the "Eleventh Amendment is not jurisdictional in the sense that courts must addres s 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 t o 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. S ee Port Auth. Trans-Hudson Corp. v. Feeney, 495 U.S. 299, 3 04 (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 t he Plaintiffs have brought suit against the Commonweal th Defendants in their official or individual capaciti es, or both.

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30. The Eleventh Amendment provides:

The Judicial power of the United States shal l not be construed to extend to any suit in law or equity, commenc ed 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.

40We leave this for the district court to decide. If the district

court determines that the Commonwealth Defendants h ave only been sued in their official capacities, the di strict court -- in its discretion -- may allow the Plaintiffs to amend their complaint to include those Defendants in thei r individual capacities. In any event, the district c ourt will be obliged to address whether redress can be sought ag ainst

the Commonwealth Defendants in federal court under Eleventh Amendment proscriptions.

VIII.

In conclusion, we hold that the supersedeas provisi ons 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 suspend ed upon the invocation of utilization review and by no t 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 th us may be joined in a S 1983 action when they elect to inv oke 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 cou rt dismissing Sullivan's complaint and will remand to the district court for further proceedings in accordanc e with this opinion. On remand, among other issues, the di strict

court should address the issue of reconsideration f ees, the question of certifying a class, and for the first t ime, it should consider whether it has subject matter juris diction over the Commonwealth Defendants in light of Eleven th Amendment sovereign immunity.

A True Copy:

Teste:

Clerk of the United States Court of Appeals

for the Third Circuit

41