This slip opinion is subject to revision and may not reflect the
final opinion adopted by the Court.
Supreme Court of Missouri
Case Style: State Board of Registration for the
Healing Arts, Respondent v. Richard Fallon, M.D., Appellant.
Case Number: SC82841
Handdown Date: 04/10/2001
Appeal From: Circuit Court of Cole County, Hon.
Thomas J. Brown, III
Counsel for Appellant:
Richard J. Pautler and Lewis R. Mills
Counsel for Respondent: James R. Layton and James O.
Dr. Richard Fallon is a medical director
for Prudential Health Care, which administers an employee benefit plan. He
decided the "medical necessity" of certain treatments, which Prudential used to
extend or deny coverage. The State Board of Registration for the Healing Arts
subpoenaed him, and the circuit court required him to appear. He
Court en banc
Though federal law, ERISA, may pre-empt state laws that interfere with coverage
decisions, it does not prevent the state from exercising its traditional police
powers to review the medical judgments of one of its licensed physicians. ERISA
supersedes all state laws relating to employee benefit plans. The statute
authorizing the Board's action does not "reference" any employee benefit plan.
Dr. Fallon's medical judgment is distinct from the plan's coverage policies, and
his decisions will not mandate a benefits structure or alternative way for a
plan beneficiary to enforce a claim.
(2) While the
legislature granted the Department of Insurance extensive supervisory power over
utilization review, it did not grant the DoI authority to review the medical
judgments of licensed physicians who serve as medical directors.
(3) Dr. Fallon's medical judgment is subject to
oversight by the Board, which is empowered to impose discipline, section
334.100.2. Prudential made an administrative decision in
determining the plan would not cover this type of elective surgery unless the
medical director found it "needed and appropriately provided." Dr. Fallon then
made a purely medical decision when he determined the procedure was "not medically
William Ray Price, Jr. Chief Justice
Opinion Vote: AFFIRMED. Limbaugh, White, Holstein,
Wolff and Benton, JJ., and Wallace, Sp. J., concur. Stith, J., not
Dr. Richard Fallon appeals an order of the circuit court
requiring him to appear before the State Board of Registration for the Healing
Arts (the Board). He contends that the Employee Retirement Income Security Act
of 1974 (ERISA) preempts Missouri law insofar as it grants the Board authority
to review medical decisions made on behalf of an employee benefit plan. Because
Dr. Fallon's actions in this case involved the exercise of medical training and
judgment, the Board is empowered to review his actions as a licensed physician.
The judgment of the circuit court is affirmed.
I. FactsDr. Fallon is a
state-licensed physician and surgeon. Until recently, he was employed as a
medical director for Prudential Health Care (Prudential), which administers an
employee benefit plan. In his capacity as medical director, Dr. Fallon made
decisions concerning the "medical necessity" of certain treatments. Based on his
medical judgment, Prudential would either extend or deny coverage of medical
expenses to plan participants.
On January 27, 1999, the Board received a
complaint from Dr. Duane Keller, an oral surgeon, regarding Dr. Fallon's
determination that a requested surgical procedure was "not medically necessary."
Shortly thereafter, the Board began an investigation into the complaint. On
November 23, 1999, the Board issued a subpoena to Dr. Fallon, which ordered him
to meet with the Board's medical staff for an interview on December 8, 1999. Dr.
Fallon failed to appear.
As required by section 334.127.2,(FN1) the Board sought to enforce the subpoena by
petitioning the Circuit Court of Cole County. On June 22, 2000, the circuit
court entered its final judgment ordering Dr. Fallon to appear before the Board
within sixty days on a date agreed upon by counsel. The circuit court then
stayed the judgment to afford Dr. Fallon an opportunity to exhaust his
II. DiscussionDr. Fallon
cites three points of error in the judgment of the circuit court. First, he
contends that ERISA "superceded and invalidated" Missouri law to the extent that
it authorized the Board to investigate matters related to an employee benefit
plan. Second, he argues that chapter 334, RSMo 2000, does not authorize the
Board to investigate "utilization review" cases. Finally, he argues that his
decisions as medical director did not involve the practice of medicine or any
other conduct that could lead to disciplinary actions under section 334.100,
RSMo 2000. We address each of these contentions in turn.
A.Section 514(a) of ERISA states that the act "shall
supercede any and all State laws insofar as they may now or hereafter relate to
any employee benefit plan." 29 U.S.C. section 1144(a). The Act further defines
"state law" to include "all laws, decisions, rules, regulations, or other State
action having the effect of law, of any State." 29 U.S.C. section 1144
Whether ERISA pre-empts the Board's action in this case turns on
whether the Board's investigation "relates to" the employee benefit plan. The
United States Supreme Court has determined that a state law "relates to" an
employee benefit plan when it "has a connection with or reference to such a
plan." Shaw v. Delta Airlines, Inc., 463 U.S. 85, 97 (1987). Clearly, the
statute authorizing the Board's action in this case does not "reference" any
employee benefit plan. See section 334.127, RSMo 2000. The statute simply
grants the Board authority to subpoena witnesses and documents when conducting
investigations related to the conduct of state licensees. Id.
the inquiry in this case is whether the state action has a "connection with" an
employee benefit plan. Shaw, 463 U.S. at 97. In theory, infinite
connections could exist that would allow a court to find any state law to have a
connection with an employee benefit plan. However, the United States Supreme
Court concluded that "[f]or the same reasons that infinite relations cannot be
the measure of preemption, neither can infinite connections." New York State
Conference of Blue Cross and Blue Shield Plans v. Travelers Ins. Co., 514
U.S. 645, 656 (1995); see also Egelhoff v. Egelhoff, 532 U.S. __, No.
99-1529, slip op. at 4 (March 21, 2001). In Travelers, the Court noted
that the "historic police powers of the States were not to be superceded by the
Federal Act unless that was the clear and manifest purpose of Congress."
Id. at 655. The Court further found that the "historic police powers of
the State include the regulation of matters of health and safety." DeBuono v.
NYSA-ILA Med. and Clinical Serv. Fund, 520 U.S. 806, 814 (1997).
United States Supreme Court has also focused on the effect of state action on
the employee benefit plan. The Court concluded that a state law causing an
indirect burden on an employee benefit plan may not trigger preemption. See
Travelers Ins. Co., 514 U.S. at 668. Nevertheless, the Court found that a
state law "might produce such acute, albeit indirect, economic effects, by
intent or otherwise, as to force an ERISA plan to adopt a certain scheme of
substantive coverage or effectively restrict its choice of insurers, and that
such a state law might indeed be pre-empted under section 514." Id. For
example, ERISA pre-empts state laws that provide alternative enforcement
mechanisms for plan beneficiaries or laws that interfere with employee benefit
structures or their administration. Id. at 658; see also Thompson v.
Gencare Health Systems, Inc., 202 F.3d 1072 (8th Cir. 2000).
determinations at issue in this case fall outside the scope of plan
administration. Dr. Fallon did not simply look to a predetermined list of
covered procedures to arrive at his conclusions. He used medical training and
judgment to make a decision about the "medical necessity" of surgical treatment
for a particular patient. This medical judgment is analytically distinct from
the coverage policies adopted by the employee benefit plan. Though the choice to
cover a patient's expenses is an administrative choice, a physician's finding of
"medical necessity" is a purely medical decision. The Missouri legislature has
charged the Board or Registration for the Healing Arts with reviewing the
medical judgments of state licensees. See section 334.100.1, RSMo 2000.
Whether such medical judgment is exercised by a physician providing direct
treatment or by a physician during a utilization review is merely coincidental
to the Board's review power.
The Board's review of Dr. Fallon's medical
decisions will not mandate any particular benefits structure or provide an
alternative mechanism for a plan beneficiary to enforce any particular claim.
See Travelers, 514 U.S. at 658. The plan beneficiary in this case will
not be able to enforce her claim through the Board's investigation or
disciplinary proceedings. Nor will the beneficiary be able to bring a claim
against Dr. Fallon for medical malpractice. Hull v. Fallon, 188 F.3d 939,
943 (8th Cir. 1999), cert. denied, 528 U.S. 1189 (2000); see
also Thompson, 202 F.3d at 1073 (8th Cir. 2000). The Board is simply
initiating an investigation to ensure that Dr. Fallon is using "that degree of
skill and learning ordinarily used under the same or similar circumstances by
the member of the applicant's or licensee's profession." Section 334.100.2(5),
RSMo 2000. Though ERISA may pre-empt state laws that interfere with coverage
decisions, it does not prevent the state from exercising its traditional police
powers to review the medical judgments of one of its licensed physicians. The
point is denied.
B.In his second point, Dr. Fallon contends that the
trial court erred in entering final judgment because the Missouri legislature
has not granted the Board authority to investigate "utilization review" cases.
He argues that the legislature vested such authority in the Department of
In 1997, the Missouri legislature granted the Department of
Insurance extensive supervisory power over utilization review. See
section 374.500 et seq., RSMo 2000; section 376.1350 et seq.,
RSMo 2000. While this statutory scheme provides a detailed regulatory framework
for reviewing the administrative decisions of utilization review agents, it does
not grant the Department of Insurance any authority to review the medical
judgments of licensed physicians who serve as medical directors. Id. As
stated before, the review authorized by the Board is not concerned with
"utilization review" or the administration of insurance benefits. It is simply a
review of the exercise of licensed medical judgment in accordance with the
state's traditional police powers. The Department of Insurance has no authority
to conduct such a review. The Board is charged with overseeing Dr. Fallon's
medical judgment, while the Department of Insurance regulates his administrative
insurance determinations. The point is denied.
C.In his final point, Dr. Fallon contends that the trial
court erred in entering final judgment because chapter 334 does not authorize an
investigation into the type of conduct at issue in this case. Specifically, he
argues that his conduct could not lead to discipline under section 334.100
because his decision was nothing more than an initial determination that the
employee benefit plan would not pre-certify benefits for the surgical procedure.
Dr. Fallon's argument ignores the distinct nature of the two determinations
in this case. Prudential made an administrative decision when it
determined that the plan would not extend benefits to cover this type of
elective surgery unless the medical director found it to be "needed and
appropriately provided." Dr. Fallon then made a purely medical decision
when he determined that the procedure was "not medically necessary." Though his
decision naturally led to a denial of coverage, the decision embodied the
medical judgment of a licensed professional who determined whether a certain
procedure was medically necessary for a specific patient.
The Arizona Court
of Appeals addressed a similar argument in Murphy v. Board of Medical
Examiners, 949 P.2d 530 (Ariz. Ct. App. 1997). In Murphy, the court
considered whether the Board of Medical Examiners of the State of Arizona had
jurisdiction to discipline "a licensed physician whose position as medical
director for a managed health care company requires him to render decisions that
potentially affect patients' medical care." Murphy, 949 P.2d at 535. The
court noted that Dr. Murphy was not engaged in the "traditional practice of
medicine." Id. at 536. Nevertheless, the court found that Dr. Murphy
substituted his medical judgment for that of the treating physicians in
determining that the proposed surgical procedure was "not medically necessary."
Id. In holding that the Board of Medical Examiners may discipline the
license of a medical director, the court concluded, "There is no other way to
characterize Dr. Murphy's decision: it was a 'medical' decision."
"[T]he obvious intention of Chapter 334 is to embrace 'any person
who habitually holds himself out as a professor of the art of healing.'"
State ex rel. Collet v. Scopel, 316 S.W.2d 515, 519 (Mo. 1958). Dr.
Fallon's medical judgment is subject to oversight by the Board, which is
empowered to impose discipline under section 334.100.2. The point is denied.
IV. ConclusionThe judgment
of the circuit court is
FN1. "The board may enforce its subpoenas, including subpoena duces
tecum, by applying to a circuit court of Cole County, the county of the
investigation, hearing or proceeding, or any county where the person resides or
may be found, for an order upon any person who shall fail to obey a subpoena to
show cause why such subpoena should not be enforced . . .." Section 334.127.2,
opinion is subject to revision and may not reflect the final opinion adopted by