The issue in the Kentucky Association case involves Kentucky's AWP law, which says that health insurers may not discriminate against any health care provider who is willing to meet the terms and conditions for participation in a health plan.

AWP laws, Mr. Young said, reflect unnecessary government interference in private relationships between doctors and health plans.

The Supreme Court's decision upholding AWP laws represents "another step for those who believe the government can best determine how health care should be financed and delivered, further limiting choices for health care consumers," Mr. Young said.

Health plans said that AWP laws may undermine health maintenance organizations, because they prevent HMOs from assuring member physicians that the physicians will have a sufficient volume of patients to make the HMO arrangement economically feasible.

The Kentucky Association of Health Plans sued to prevent enforcement of the law, arguing that it is preempted by the Employee Retirement Income Security Act. ERISA preempts state laws that relate to employee benefit plans, but state laws that regulate the business of insurance are saved from preemption.

The Kentucky Association argued that the AWP law does not regulate the business of insurance and thus is not saved from preemption.

Both a United States District Court and the Sixth Circuit Court of Appeals ruled against the Kentucky Association, and upheld the AWP law.

The United State Supreme Court, in a unanimous opinion written by Justice Antonin Scalia, agreed.

In the first part of the opinion, the court rejected the Kentucky Association's argument that the AWP law is not "specifically directed" towards the insurance industry.

The Kentucky Association had argued that the law regulates not only insurers, but also providers, and thus is not specifically directed towards insurers.

But the court said that while it is true that as a consequence of the AWP law, providers will be unable to enter into certain agreements with insurers, it does not necessarily follow that the AWP law is not specifically directed at the insurance industry.

"Regulations ?directed toward' certain entities will almost always disable other entities from doing, with the regulated entities, what the regulations forbid; this does not suffice to place such regulation outside the scope of ERISA's savings clause," the court said.

The Kentucky Association also argued that AWP laws do not regulate the business of insurance because they do not control the actual terms of insurance policies. Rather, the association said, they focus on the relationship between insurers and third-party providers.

But the court rejected this argument as well. The Kentucky's AWP law, the court said, regulates insurance by imposing conditions on the right to engage in the business of insurance.

This means, the court added, that the law substantially affects the risk pooling arrangement between the insurer and the insured.

"No longer may Kentucky insureds seek insurance from a closed network of health care providers in exchange for a lower premium," the court said.

"The AWP prohibition substantially affects the type of risk pooling arrangements that insurers may offer," the court said.

The court added that its decision, in effect, establishes a new two-part test for determining whether a state law regulates the business of insurance.

The first part of the test is that the law must be specifically directed toward entities engaged in insurance. The second part, the court said, is that the law must substantially affect the risk pooling arrangement between the insurer and the insured.

The Kentucky AWP law satisfies both parts of the test, the court said.

The Alliance of American Insurers based in Downers Grove, Ill. called the decision "a major setback" for p-c insurers.

"While on the surface, this would not appear to affect property-casualty insurers, it will surely drive up medical costs," said Keith Bateman, Alliance vice president of workers' compensation, adding that "out-of-control medical costs are a major factor in premiums related to workers compensation and auto insurance."

In addition, he said, "this decision makes it more difficult for networks to keep out doctors who have a history of poor results or that may engage in fraudulent behavior."