CIVIL ACTION NO. H-97-2072
UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF
TEXAS, HOUSTON DIVISION
12 F. Supp. 2d 597; 1998 U.S. Dist. LEXIS 14831
September 18, 1998, Decided
September 18, 1998, Entered
DISPOSITION: Defendants' and Plaintiffs' motions GRANTED in PART and DENIED in PART. ORDERED that the Department is dismissed from the lawsuit.
COUNSEL: For CORPORATE HEALTH INSURANCE INC, AETNA HEALTH PLANS OF TEXAS INC, AETNA HEALTH PLANS OF NORTH TEXAS INC, AETNA LIFE INSURANCE COMPANY, plaintiffs: John Bruce Shely, Andrews and Kurth, Houston, TX.
For THE TEXAS DEPARTMENT OF INSURANCE, ELTON BOMER, defendants: Harry G. Potter, III, Asst Atty General, General Litigation, Austin, TX. George E. Pletcher, Helm Pletcher et al, Houston, TX. George Parker Young, Frideman Young and Suder, Fort Worth, TX. David C. Mattax, Office of Attorney General, Austin, TX. David Keltner, Jose Henry Brantley & Keltner, Fort Worth, TX.
JUDGE: VANESSA D. GILMORE, UNITED STATES DISTRICT JUDGE.
OPINION: ORDER
Pending before the Court are Defendants' motion to dismiss, which has been converted into a motion for summary judgment, (Instrument No. 10), and Plaintiffs' motion for summary judgment, (Instrument No. 20). Based on the parties' submissions and the applicable law, the Court finds that Defendants' and Plaintiffs' motions should be GRANTED in PART and DENIED in PART.
Plaintiffs Corporate Health Insurance, Inc., Aetna Health Plans of Texas, Inc., Aetna Health Plans of North Texas, Inc., and Aetna Life Insurance Company bring this action against Defendants Texas Department of Insurance (the "Department") and Elton Bomer ("Bomer"), Commissioner of the Texas Department of Insurance, and Dan Morales ("Morales"), Attorney General of the state of Texas, in their official Capacities, seeking declaratory and injunctive relief. Plaintiffs request a declaration that Texas Senate Bill 386, the Health Care Liability Act (the "Act"), codified as TEX. CIV. PRAC. & REM. CODE ANN. @@ 88.001-88.003 (West 1998), and which adds or amends TEX. INS. CODE ANN. arts. 20A.09, 20A.12, 20A.12A, 21.58A, and 21.58C (West 1998), is preempted by the Employee Retirement Security Act of 1974 ("ERISA"), 29 U.S.C.A. @ 1001 et seq. (West 1985 & Supp. 1998), and by the Federal Employees Health Benefit Act ("FEHBA"), 5 U.S.C.A. @ 8901 et seq. (West 1967 & Supp. 1996). Plaintiffs also seek, if necessary, to enjoin the enforcement of the Act as it relates in employee benefit plans covered by ERISA and FEHBA.
The Act allows an individual to sue a health insurance carrier, health maintenance organization, or other managed care entity for damages proximately caused by the entity's failure to exercise ordinary care when making a health care treatment decision. TEX. CIV. PRAC. & REM. CODE ANN. @@ 88.002(a) (West 1998). In addition, under the Act, these entities may be held liable for substandard health care treatment decisions made by their employees, agents, or representatives. Id. @ 88.002(b). n1 The Act also establishes an independent review process for adverse benefit determinations and requires an insured or enrollee to submit his or her claim challenging an adverse benefit determination to a review by an independent review organization if such a review is requested by the managed care entity. Id. @ 88.003(c). Additional responsibilities for HMOs and further requirements concerning the review of an adverse benefit determination by an independent review organization are also addressed by the Act. See TEX. INS. CODE ANN. arts. 20A.09, 20A.12, 20A.12A, 21.58A, and 21.58C (West 1998).
On July 21, 1997, Defendants filed a motion to dismiss under Federal Rule of Civil Procedure 12(b)(6) for failure to state a claim and to dismiss Plaintiffs' suit against the Department and Bomer as improper parties. Defendants argue that dismissal is appropriate for the following reasons:
Senate Bill 386 regulates the quality of care provided by the HMO[s] operating in Texas. ERISA and FEHBA, in contrast, govern what types of regulations may be placed on an employee benefit plan. The plain meaning of the statute shows that the purpose of Senate Bill 386 is to prevent health plans from escaping liability for the medical decisions they "make," "control" or "influence." Senate Bill 386 does not seek to regulate how HMO's make benefit or coverage determinations; nor does it proscribe requirements governing the structure of a benefit plan. Accordingly, the ERISA and FEHBA preemption clauses do not apply to Senate Bill 386.
(Defendants' Summary of Argument, Instrument No. 25 at 1). If the Court were to determine that certain provisions of the Act relate to employee welfare benefit plans, Defendants ask this Court to sever any "non-liability" provisions of the Act that it finds to be preempted, saving the valid quality of care liability provisions. (Defendants' Reply, Instrument No. 24 at 8 n.3) Defendants also contend that the Eleventh Amendment bars suit against both the Texas Department of Insurance and Bomer because the state of Texas is immune from suit. Furthermore, according to Defendants, there is "a real question" as to whether Elton Bomer is a proper party given the Plaintiffs' allegations in their complaint (Defendants' Brief, Instrument No. 11 at 38 n.37).
On July 29, 1997, Plaintiffs filed a motion for summary judgment, contending that the Act "impermissibly interferes with the purpose, structure and balance of ERISA and FEHBA, thereby injecting state law into an area exclusively reserved for Congress." (Plaintiff Summary of Argument, Instrument No. 21 at 1). Plaintiffs contend that the language in the Act expressly "refers to" ERISA plans, and that the Act has a connection with ERISA plans because it purports to impose State law liability on ERISA entities and to mandate the structure of plan benefits and their administration. Plaintiffs also maintain that the Act wrongfully binds employers and plan administrators to particular choices and impermissibly creates an alternate enforcement mechanism.
On April 24, 1998, the Court held a hearing on Defendants' motion to dismiss and Plaintiffs' motion for summary judgment. At the hearing, the Court informed the parties that Defendants' motion to dismiss would be converted into a motion for summary judgment. Then, on May 15, 1998, Plaintiffs filed their First Amended Complaint for Declaratory Judgment and Permanent Injunction, adding Morales as a defendant in this case.
II. 12(b)(6) Motion to Dismiss Standard of Review
Rule 12(b)(6) allows for dismissal if a plaintiff fails "to state a claim upon which relief may be granted[.]" FED. R. CIV. P. 12(b)(6). Such dismissals, however, are rare, Clark v. Amoco Prod. Co., 794 F.2d 967, 970 (5th Cir. 1986), and only granted where "it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Conley v. Gibson, 355 U.S. 41, 45-6, 78 S. Ct. 99, 102, 2 L. Ed. 2d 80 (1957). Dismissal can be based either on a lack of a cognizable legal theory or the absence of sufficient facts alleged under a cognizable legal theory. Balistreri v. Pacifica Police Dept., 901 F.2d 696, 699 (9th Cir. 1990); Vines v. City of Dallas, Texas, 851 F. Supp. 254, 259 (N.D. Tex. 1994).
In determining whether a dismissal is warranted pursuant to Pule 12(b)(6), the Court accepts as true all allegations contained in the plaintiff's complaint. Gargiul v. Tompkins, 704 F.2d 661, 663 (2d Cir. 1983), vacated on other grounds, 465 U.S. 1016, 104 S. Ct. 1263 (1984); Kaiser Aluminum & Chem. Sales, Inc. v. Avondale Shipyards, Inc., 677 F.2d 1045, 1050 (5th Cir. 1982. In addition, all reasonable inferences are to be drawn in favor of the plaintiff's claims. Kaiser Aluminum, 677 F.2d at 1050. "To qualify for dismissal under Rule 12(b)(6), a complaint must on its face show a bar to relief." Clark, 794 F.2d at 970.
If the court, in its discretion, accepts for consideration matters that are beyond the pleadings then the motion to dismiss is converted into a motion for summary judgment under Rule 12(b). Rule 12(b) states, in pertinent part, that:
if, on a motion asserting the defense numbered (6) to dismiss for failure of the pleading to state a claim upon which relief can be granted, matters outside the pleading are presented to and not excluded by the court, the motion shall be treated as one for summary judgment and disposed of as provided in Rule 56 . . . .
FED. R. CIV. P. 12(b). A court is more likely to consider matters outside the pleadings if the "'extra-leading material is comprehensive and will enable a rational determination of a summary judgment motion[.]'" Isquith ex rel. Isquith v. Middle South Utilities, Inc., 847 F.2d 186, 193 n.3 (5th Cir. 1988) (quoting 5 C. WRIGHT & A. MILLER, FEDERAL PRACTICE AND PROCEDURE @ 1366 (1969)). However, the Court is unlikely to do so when it is scanty, incomplete, or inconclusive. Id.
The court must give all parties notice of such a conversion and provide them with an opportunity both to be heard and to present further materials in support of their positions on the motion. Nowlin v. Resolution Trust Corp., 33 F.3d 498, 504 (5th Cir. 1994). Following conversion, the court should permit the parties to engage in discovery as appropriate before ruling on the converted motion. Washington v. Allstate Ins. Co., 901 F.2d 1281 (5th Cir. 1990).
In this case, having received for consideration matters that are beyond the pleadings of the parties such as affidavits, contracts for health benefit plans, and statistical data, the Court will convert Defendants' motion to dismiss into a motion for summary judgment. Given that Plaintiffs subsequently filed a motion for summary judgment on the same issues, Plaintiffs have received ample notice that the case may be decided at this stage on the merits. Furthermore, at the motions hearing held on April 24, 1998, the Court informed the parties of its intention to convert Defendants' motion into a motion for summary judgment. The parties also bad an additional opportunity to be heard at (he hearing and to present any additional evidence. Thus, both parties had sufficient notice of the conversion.
III. Summary Judgment Standard
Summary judgment is appropriate if no genuine issue of material fact exists and the moving party is entitled to judgment as a matter of law. FED. R. CIV. P. 56. A fact is "material" if Its resolution in favor of one party might affect the outcome of the suit under governing law. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247, 106 S. Ct. 2505, 2510, 91 L. Ed. 2d 202 (1986). An issue is "genuine" if the evidence is sufficient for a reasonable jury to return a verdict for the nonmoving party. Id. If the evidence rebutting the motion for summary judgment is only colorable or not significantly probative, summary judgment should be granted. Id. at 249-50, 106 S. Ct. at 2511; see Lewis v. Glendel Drilling Co., 898 F.2d 1083, 1088 (5th Cir. 1990).
Under Rule 56(c) of the Federal Rules of Civil Procedure, the moving party bears the initial burden of informing the district court of the basis for its belief that there is an absence of a genuine issue for trial and for identifying those portions of the record that demonstrate such absence. Matsushita Elec. Ind. Co. v. Zenith Radio Corp., 475 U.S. 574, 586-87, 106 S. Ct. 1348, 1355-56, 89 L. Ed. 2d 538 (1986); Leonard v. Dixie Well Serv. & Supply, Inc., 828 F.2d 291, 294 (5th Cir. 1987).
Where the moving party has met its Rule 56(c) burden, the nonmovant "must do more than simply show that there is some metaphysical doubt as to the material facts . . . The nonmoving party must come forward with 'specific facts showing that there is a genuine issue for trial.'" Matsushita, 475 U.S. at 586-87, 106 S. Ct. at 1356 (quoting FED. R. CIV. P. 56(e)) (emphasis in original); Celotex Corp. v. Catrett, 477 U.S. 317, 322-23, 106 S. Ct. 2548, 2552, 91 L. Ed. 2d 265 (1986); Leonard, 828 F.2d at 294. To sustain the burden, the nonmoving party must produce evidence admissible at trial. Anderson, 477 U.S. at 255, 106 S. Ct. at 2514; Thomas v. Price, 975 F.2d 231, 235 (5th Cir. 1992) ("To avoid a summary judgment, the nonmoving party must adduce admissible evidence which creates a fact issue. . . .").
Defendants argue that the Department and Bomer are improper parties to this suit (Defendants' Motion, Instrument No. 10 at 10; Defendants' Reply, Instrument No. 24 at 10). First, Defendants contend that the Eleventh Amendment bars suit against both parties. The Eleventh Amendment provides that "the judicial power of the United States shall not be construed to extend to any suit in law or equity, commenced or prosecuted against one of the United States by citizens of another state or by citizens or subject of any foreign state." U.S. CONST. amend. XI. In addition, the Eleventh Amendment "bars suit against a state entity . . . regardless of whether money damages or injunctive relief is sought. In determining whether an entity is entitled to . . . immunity, [the court] . . . 'must examine the particular entity in question and its powers and characteristics as created by state law. . . .'" Voisin's Oyster House, Inc., v. Guidry, 799 F.2d 183, 186 (5th Cir. 1986) (quoting Laje v. R.E. Thomason Gen. Hosp., 665 F.2d 724, 727 (5th Cir. 1982)).
Several factors are considered in determining whether an agency is an arm of the state including: (1) whether state statutes and case law view the agency as an arm of the state; (2) the source of the entity's funding; (3) whether the entity is concerned with local or statewide problems; (4) the degree of the agency's authority which is independent from the state; (5) whether the entity can sue and be sued in its own name; and (6) whether it has the right to hold and use property. Guidry, 799 F.2d at 186-87. "Positive answers to the latter two inquiries mitigate against an entity's being an alter ego of the State and thus against Eleventh Amendment immunity." Correa v. City of Bay City, 981 F. Supp. 477, 479 (S.D. Tex. 1997).
The Department is clearly a state agency, created by the laws of the state of Texas. See TEX. INS. CODE ANN. art. 1.01 et. seq. (West 1998); El Paso Elec. Co. v. Texas Dep't of Ins., 937 S.W.2d 432, 434 (Tex. 1996). Its primary responsibility is "to regulate the business of insurance in this state." TEX. INS. CODE ANN. art. 1.01A (West 1998). The Department is in the executive branch of the state government, and is controlled by an executive officer, the Commissioner, who is appointed by the Department with the advice and consent of the Senate of Texas. Id. art. 1.09. Several members of the Department, such as deputies, assistants, and other personnel, are appointed by the Commissioner. Id. art. 1.02. All of the above factors favor a finding that the Department is an arm of the State of Texas and therefore entitled to Eleventh Amendment immunity. See Correa, 981 F. Supp. at 479. Consequently, the Court DISMISSES the Department from this lawsuit.
With respect to state officials, "'a gaping hole in the shield of sovereign immunity created by the Eleventh Amendment and the Supreme Court' is the doctrine" of Ex Parte Young, 209 U.S. 123, 28 S. Ct. 441, 52 L. Ed. 714 (1908). Saltz v. Tennessee Dep't of Employment Sec., 976 F.2d 966, 968 (5th Cir. 1992) (quoting Brennan v. Stewart, 834 F.2d 1248, 1252 (1988)). Under the Ex Parte Young doctrine, "a federal court, consistent with the Eleventh Amendment, may enjoin state officials to conform their future conduct to the requirements of federal law, even though such an injunction may have an ancillary effect on the state treasury." Quern v. Jordan, 440 U.S. 332, 337, 99 S. Ct. 1139, 1143, 59 L. Ed. 2d 358 (1979), "The essential ingredients of the Ex Parte Young doctrine are that a suit must be brought against individual persons in their official capacities as agents of the state and the relief sought must be declaratory or injunctive in nature and prospective in effect." Saltz, 976 F.2d at 968 (footnote omitted); see also Cigna Healthplan of La. v. Louisiana, 82 F.3d 642, 644 n1 (5th Cir. 1996) (recognizing "the federal courts have jurisdiction to hear suits against state officials where, as here, the plaintiffs seek only prospective declaratory or injunctive relief to prevent a continuing violation of federal law").
In this case, Plaintiffs have sued Bomer in his official capacity and also seek prospective injunctive relief, not monetary damages. Therefore, Defendants' argument that suit against Bomer is barred by the Eleventh Amendment fails.
Second, Defendants argue that "there may be a real question whether Commissioner Bomer is a proper party" based on the Plaintiffs' allegations in their complaint. (Defendants' Brief, Instrument No. 11 at 38 n.37). According to Defendants, Plaintiffs' "only allegation . . . [regarding Bomer's] official administrative capacity . . . [concerns] his responsibility for enforcing state insurance law. The only role for the Commissioner in Senate Bill 386 is to approve IROs (independent review organization) and it is very unclear whether . . . [Plaintiffs are] alleging [that] the IRO procedures are preempted." (Id. at 38 n.37). In response, Plaintiffs maintain that Bomer is a proper party to this suit because as the Commissioner, Bomer "is responsible for ensuring compliance with . . . the establishment and supervision of independent review organizations." (Plaintiffs' Motion, Instrument No. 20 at 5). The Court agrees with Plaintiffs' contention.
Clearly, Plaintiffs contest the inclusion of the IRO provisions in the Act. In particular, Plaintiffs state that the "IRO procedure improperly affects the administration of employee benefit plans, and is therefore an unwarranted extension into an area governed by ERISA. . . . As such, either directly or indirectly, HMOs and PPOs will incur costs in connection with the establishment of IROs under the Act, thereby also supporting a finding of preemption." (Plaintiffs' Motion, Instrument No. 20 at 17 n.17). Plaintiffs elaborated on this position at the hearing held on April 24, 1998. (Transcript, Instrument No. 60 at 21). Furthermore, Defendants concede that Bomer, as the Commissioner, is responsible for approving the IRO procedure. (Defendants' Brief Instrument No. 11 at 38 n.37).
Moreover, Defendants do not provide the Court with any authority for their proposition that Bomer is an improper party to this suit. On the contrary, the Commissioner of the Texas Board of Insurance has been named as a defendant in other cases similar to the instant case. See NGS Am., Inc. v. Barnes, 998 F.2d 296 (5th Cir. 1993) (enjoining the Commissioner of Insurance for the state of Texas from enforcing a Texas statute that was preempted by ERISA); E-Systems, Inc. v. Pogue, 929 F.2d 1100 (5th Cir. 1991) (holding that the Texas Administrative Services Tax Act was preempted by ERISA and enjoining the Commissioner of Insurance from collecting the tax); Texas Commerce Bancshares, Inc. v. Barnes, 798 F. Supp. 1286 (W.D. Tex. 1992) (examining plaintiff's award of attorney fees and costs in ERISA preemption action filed against the Commissioner of Insurance). Consequently, given Bomer's role with the IRO procedure and other cases where the Commissioner has been named as a defendant, the Court finds that Bomer is a proper party to this suit.
Piaintiffs claim that the Act is preempted by ERISA. Thus, as an initial matter, the Court will examine whether the Act is saved from preemption by ERISA's insurance savings clause.
ERISA provides that "nothing in this title shall be construed to exempt or relieve any person from any law of any State which regulates insurance, banking or securities." 29 U.S.C.A. @ 1144(b)(2)(a) (West 1985) (emphasis added). The Supreme Court "delineated the requirements that a state statute must meet in order to come within the insurance facet of the savings clause" in Metropolitan Life Ins. Co. v. Massachusetts, 471 U.S. 724, 741-47, 105 S. Ct. 2380, 2389-93, 85 L. Ed. 2d 728 (1985). The Supreme Court in Metropolitan Life took the following conjunctive two-step approach:
First, the Court determined whether the statute in question fitted the common sense definition of insurance regulation. Second, it looked at three factors: (1) whether the practice (the statute) has the effect of spreading policyholders' risk; (2) whether the practice is an integral part of the policy relationship between the insurer and the insured, and (3) whether the practice is limited to entities within the insurance industry. If the statute fitted the common sense definition of insurance regulation and the court answered "yes" to each of the questions in the three part test, then the statute fell within the savings clause exempting it from ERISA preemption.
Tingle v. Pacific Mut. Ins. Co., 996 F.2d 105, 107 (5th Cir. 1993) (footnote omitted) (emphasis added). Therefore, "if a statute fails either to fit the common sense definition of insurance regulation or to satisfy any one element of the three-factor Metropolitan Life test, then the statute is not exempt from preemption by the ERISA insurance savings clause." Cigna, 82 F.3d at 650.
When the Court begins to apply this test to the Act, it can both start and finish its analysis with the third factor of the Metropolitan Life test: on its face, the Act is obviously not "limited to entities within the insurance industry." Even though the Act lists health insurance carriers as one group covered by its terms, it also specifies that it applies to health maintenance organizations or other managed care entities for a health care plan. TEX. CIV. PRAC. & REM. CODE ANN. @ 88.002(a) (West 1998). As the Act fails to meet the third factor of the Metropolitan Life test, the Court finds that the statute is not saved from preemption by the insurance exception of Section 514(b) of ERISA. See Cigna, 82 F.3d at 650 (holding that Louisiana's Any Willing Provider statute was not exempt from preemption by ERISA's savings clause because the statute was not limited to entities within the insurance industry).
Having determined that the Act is not saved by the insurance savings clause, the Court must next examine whether the Act is preempted by Section 514(a) of ERISA.
Section 514(a) governs the preemption of state laws by ERISA. More specifically, Section 514(a) provides that ERISA "shall supersede any and all State laws insofar as they . . . relate to any employee benefit plan . . . ." 29 U.S.C.A. @ 1144(a) (West 1985) (emphasis added). Under ERISA preemption analysis, a state law relates to an ERISA plan if it has a connection with or reference to such a plan. Cigna, 82 F.3d at 647.
If the Court determines that certain portions of a state statute are preempted by ERISA and therefore, contravene federal law, then the Court may sever those portions from the statute provided that their invalidity does not affect the remainder of the statute. Texas Pharmacy Ass'n v. Prudential Ins. Co. of Am., 105 F.3d 1035, 1039 (5th Cir. 1997). The Court's decision to sever a statute is also based on whether or not that state statute has a provision for severability or nonseverability. Id.
Since pre-emption turns on Congress's intent, the court must begin "with the text of the provision in question, and move on, as need be, to the structure and purpose of the Act in which it occurs." New York State Conference of Blue Cross & Blue Shield Plans v. Travelers Ins. Co., 514 U.S. 645, 655, 115 S. Ct. 1671, 1676, 131 L. Ed. 2d 695 (1995). "A facial challenge to a legislative Act is, of course, the most difficult challenge to mount successfully, since the challenger must establish that no set of circumstances exists under which the Act would be valid." U.S. v. Salerno, 481 U.S. 739, 745, 107 S. Ct. 2095, 2100, 95 L. Ed. 2d 697 (1987). Thus, in this case, the Court must determine whether any claims brought under the Act would relate to an employee benefit plan and would, therefore, be preempted by Section 514(a) of ERISA.
A. What is an ERISA Plan?
First, the Court must examine what constitutes an ERISA plan. An
employee welfare benefit plan (which includes health benefits
plans), is defined as:
any plan, fund or program which was heretofore or is hereafter
established or maintained by an employer or by an employee
organization, or by both to the extent that such plan, fund, or
program was established or is maintained for the purpose of
providing for its participants or their beneficiaries, through the
purchase of insurance or otherwise, (A) medical, surgical, or
hospital care or benefits, or benefits in the event of sickness,
accident, disability . . . .
29 U.S.C.A. @ 1002(1) (West Supp. 1998) (emphasis added). The first
phrase--plan, fund, or program--has been interpreted as requiring an
"ongoing administrative program" on the part of the
employer. See Fort Halifax Packing Co. v. Coyne, 482 U.S. 1, 11, 107
S. Ct. 2211, 2217, 96 L. Ed. 2d 1 (1987). A "plan, fund, or program"
under ERISA is established if "from the surrounding circumstances a
reasonable person can ascertain the intended benefits, class of
beneficiaries, the source of financing, and the procedures for
receiving benefits." Donovan v. Dillingham, 688 F.2d 1367, 1371,
1373 (11th Cir. 1932); see Peckham v. Gem State Mut. of Utah, 964
F.2d 1043, 1047-48 (7th Cir. 1992). The administrative program,
however, need not be elaborate. Peckham,964 F.2d at 1048.
The second phrase of the definition--established or maintained by an
employer--is designed to distinguish situations in which the
employer merely acts as a conduit for the marketing of an insurance
policy to individual employees (in which case no ERISA plan exists),
from the situation in which the employer financially pays for some
or all of the plan and/or otherwise is involved in its
administration (e.g. defining and administering employee
eligibility, or listing the plan as a benefit of employment).
RAND ROSENBLATT, LAW AND THE AMERICAN HEALTH CARE SYSTEM 190 (Supp.
1998). In particular, this second phrase is designed to
"ensure that the plan is part of an employment relationship. . . .
[This] requirement seeks to ascertain whether the plan is part of an
employment relationship by looking at the degree of participation by
the employer in the establishment or maintenance of the plan."
Peckham, 964 F.2d at 1049.
In Meredith v. Time Ins. Co., 980 F.2d 352, 355 (5th Cir. 1993),
the Fifth Circuit outlined its "comprehensive test for determining
whether a particular plan qualifies as an 'employee welfare benefit
plan'" under ERISA. Under Meredith, the test requires the full
analysis of
whether a plan: (1) exists; (2) falls within the safe-harbor
provision established by the Department of Labor; and (3) satisfies
the primary elements of an ERISA "employee benefit
plan"--establishment or maintenance by an employer intending to
benefit employees. If any part of the inquiry is answered in the
negative, the submission is not an ERISA plan. . . . [The Court's]
analysis is informed by reference to ERISA itself, including germane
indications of congressional intent, and to the extent Congress has
failed to state its intention on the precise issue in
question, we refer to permissible interpretations by the agency
charged with administering the statute--the Department of Labor.
Id. Furthermore, ERISA does not regulate "bare purchases of health
insurance where . . . the purchasing employer neither directly or
indirectly owns, controls, administers or assumes responsibility for
the policy or its benefits." Taggart Corp. v. Life & Health Benefits
Admin., Inc., 617 F.2d 1208, 1211 (5th Cir. 1980). Thus, in this
case, the Court must determine whether the provisions of the Act
relate to any employee benefit plan as defined by Meredith.
In this case, Defendants make (he following argument.
[Plaintiff] AEtna blurs the distinction between an ERISA plan
(established by an employer to provide benefits to an employee) and
a health plan (established by health insurance entities as a vehicle
for bearing the risks of health insurance and providing coverage to
an ERISA plan for those employees). AEtna admits plaintiffs 'offer
products in the form of managed health care coverage to employees
who are enrolled in ERISA and FEHBA plans in Texas.' AEtna may
operate as a 'health plan,' but AEtna is not an ERISA plan
established by an employer.
(Defendants' Reply, Instrument No. 24 at 1). In essence: Defendants
argue that Plaintiffs are operating health plans, but that they are
not operating ERISA plans that would be preempted by ERISA. The
Court agrees.
The Act expressly regulates health insurance carriers, health
maintenance organizations and managed care entities by specifically
addressing their health plans and not the ERISA plans of employers.
Under the Act, "[a] health insurance carrier, health maintenance
organization, or other managed care entity for a health care plan
has the duty to exercise ordinary care when making health care
treatment decisions and is liable for harm to an insured or enrollee
proximately caused by its failure to exercise such ordinary care."
TEX. CIV. PRAC. & REM. CODE ANN. @ 88.002(a) (West 1998). A health
insurance carrier "means an authorized insurance company that issues
policies of accident and sickness" under Article 3.70-1 of (he Texas
Insurance Code. TEX. CIV. PRAC. & REM. CODE ANN. @ 88.001(6) (West
1998). A health maintenance organization includes "organization[s]
licensed under the Texas Health Maintenance Organization Act[.]"
Id. @ 88.001(7). A managed care entity under the Act is
defined as
any entity which delivers, administers, or assumes risk for health
care services with systems or techniques to control or influence the
quality, accessibility, utilization, or costs and prices of such
services to a defined enrollee population, but does not include an
employer purchasing coverage or acting on behalf of its employees or
the employees of one or more subsidiaries or affiliated corporations
of the employer or a pharmacy licensed by the State Board of
Pharmacy.
Id. @ 88.001(8) (emphasis added).
The health plans provided by health insurance carriers, health
maintenance organizations, or managed care entities, as previously
defined, and the health care entities themselves cannot constitute
ERISA plans because the third inquiry under the Fifth Circuit's
test--whether the plan satisfies the primary elements of an ERISA
"employee benefit plan"--must be answered in the negative.
Plaintiffs admit that they "offer products in the form of managed
health care coverage to employees who are enrolled in ERISA and
FEHBA plans in Texas." (Plaintiffs' Motion, Instrument No. 20 at 3).
Plaintiffs and the coverage provided by them, however, are
not established or maintained by an employer.
Plaintiffs concede that they fall "within the term 'managed care
entity' as defined in the Act[.]" (Id. at 4). A managed care entity
does not include "an employer purchasing coverage or acting on
behalf of its employees[.]" TEX. CIV. PRAC. & REM. CODE ANN. @
88.001(8) (West 1998). Therefore, by definition, Plaintiffs and the
managed health care plans that Plaintiffs offer would not satisfy
the primary elements of an ERISA employee benefit plan because they
are not established or maintained by an employer. Rather, Plaintiffs
are medical service providers to ERISA plans and their members.
n2
Plaintiffs operate health plans rather than ERISA employee benefit
plans. Consequently, the Court finds that Plaintiffs and the
particular arrangement or services provided by them, that are
addressed under the Act, are not ERISA employee benefit plans since
the coverage is not established or maintained by an employer. See
Cigna, 82 F.3d at 648 (recognizing that Plaintiffs, an HMO and a
health insurer, were not ERISA plans); Washington Physicians Serv.
Ass'n v. Gregoire, 147 F.3d 1039, 1998 WL 318759, *3 (9th
Cir. 1998) (stating that the statute makes it clear that the term
"health plans" "refers to the plan offered by the health carrier
(e.g., an HMO), not the benefit plan offered by the employer");
Dukes v. U.S. Healthcare, 57 F.3d 350, 356 (3d Cir. 1995) (noting the
Department of Labor's argument that plaintiff's claims merely
attacked "the behavior of an entity completely external to the ERISA
plan[,] [the HMO]").
Nonetheless, Plaintiffs argue that the fact that Aetna is not an
ERISA health plan is of "no significance to the preemption
analysis." (Plaintiffs' Surreply, Instrument No. 33 at 1).
Plaintiffs rely on Cigna Healthplan of Inc. v. Louisiana, 82 F.3d
642 (5th Cir. 1996), for this argument.
In Cigna, CIGNA Healthplan of Louisiana ("CIGNA"), a licensed
HMO, and Connecticut General Life Insurance Company
("CGLIC"), a licensed health insurer, filed suit against Richard
Ieyoub, the Attorney General of the state of Louisiana, seeking a
declaratory judgment that Louisiana's Any Willing Provider statute
was preempted by ERISA. 82 F.3d at 644. "The Any Willing Provider
statute . . . mandated that 'no licensed provider . . . who agreed
to the terms and conditions of the preferred provider contract . . .
[could] be denied the right to become a preferred provider.'" Id. at
645 (quoting LA. REV. STAT. ANN. @ 40:2202(5)(c) (West 1992)). The
Fifth Circuit concluded that the statute was preempted by ERISA both
because it referred to ERISA-qualified plans by including certain
enumerated entities, and because it had a connection with such plans
by mandating that "certain benefits available to ERISA plans . . .
be construed in a particular manner." Id. at 648-49.
Since the Court found that the statute in Cigna directly affected
benefits provided under the plan, the Court did not have to examine
whether or not CIGNA or CGLIC was an ERISA plan. Rather, the Court
based its decision on the substantial effect that the statute had on
all insured plans. Id. at 648. The Court, however, did
remark that the fact that CIGNA and CGLIC were not themselves ERISA
plans was inconsequential. Id. at 648. It made this statement while
discussing the statute's "connection with" ERISA plans. Id. The
Court further explained that CIGNA's and CGLIC's status was
inconsequential because:
by denying insurers, employer, and HMOs the right to structure their
benefits in a particular manner, the statute was effectively
requiring ERISA plans to purchase benefits of a particular structure
when they contract with organizations like CIGNA and CGLIC. In that
regard, the statute "bore indirectly but substantially on all
insured plans" and was accordingly preempted by ERISA.
Id. at 648-49 (quoting Metropolitan Life, 471 U.S. at 739, 105 S.
Ct. at 2389).
In accordance with Cigna, the Court finds that whether or not
Plaintiffs in this case are ERISA plans is inconsequential because,
under current Fifth Circuit law, certain severable provisions of the
Act, as discussed below, "relate to" ERISA employee benefit plans.
A state law relates to an ERISA plan "in the normal sense of
the phrase if it has a connection with or reference to such
a plan." Shaw v. Delta Air Lines, Inc., 463 U.S. 85, 96-97, 103 S.
Ct. 2890, 2899-2900, 77 L. Ed. 2d 490 (1983) (emphasis added). The
Supreme Court has given the phrase "relates to" a "broad
common-sense meaning." Pilot Life Ins. Co. v. Dedeaux, 481 U.S. 41,
47, 107 S. Ct. 1549, 1553, 95 L. Ed. 2d 39 (1987)). Under this
definition,
A state law can relate to an ERISA plan even if that law was not
specifically designed to affect such plans, and even if its effect
is only indirect. If a state law does not expressly concern employee
benefit plans, it will be preempted insofar as it applies to benefit
plans in particular cases. . .
Cigna, 82 F.3d at 647. "The most obvious class of preempted state
laws are those that are specifically designed to affect
ERISA-governed employee benefits plans." Corcoran v. United
HealthCare, Inc., 965 F.2d 1321, 1328 (5th Cir. 1992).
In determining whether a state law "relate[s] to" an ERISA plan,
the Supreme Court has adopted a pragmatic approach. See Travelers,
514 U.S. 645 at 654-57, 115 S. Ct. at 1676-77. In Travelers, the
Court stated that it "must go beyond the unhelpful text [of Section
514(a)] and the frustrating difficulty of defining its key
term ['relates to'], and look instead to the objectives of the ERISA
statute as a guide to the scope of the state law that Congress
understood would survive [preemption]." 514 U.S. at 656, 115 S. Ct.
at 1677.
As stated by the Court in New York Conference of Blue Cross &
Blue Shield Plans v. Travelers Ins. Co., in passing Section 514,
Congress intended 'to ensure that plans and plan sponsors would be
subject to a uniform body of benefits law; the goal was to minimize
the administrative and financial burdens of complying with
conflicting directives among States or between States and the
Federal Government . . ., [and to prevent] the potential for
conflict in substantive law . . . requiring the tailoring of plans
and employer conduct to the peculiarities of the law of each
jurisdiction.'
514 U.S. at 656, 115 S. Ct. at 1677 (quoting Ingersoll-Rand Co. v.
McClendon, 498 U.S. 133, 142, 111 S. Ct. 478, 484, 112 L. Ed. 2d 474
(1990)). Therefore, "the basic thrust of . . . [ERISA's] pre-emption
clause . . . was to avoid a multiplicity of regulation in order to
permit the nationally uniform administration of employee benefit
plans." Travelers, 514 U.S. at 657, 115 S. Ct. at 1677-78.
Although the text of Section 514(a) is clearly expansive, in so
far as it affects all state laws that relate to ERISA plans, the
phrase "relate[s] to" does not "extend to the furthest stretch of
its indeterminacy[.]" Id. at 655, 115 S. Ct. at 1677. If that were
the case, "then for all practical purposes pre-emption would never
run its course" and courts would be required "to read Congress's
words of limitation as mere sham, and to read the presumption
against preemption out of the law whenever Congress speaks to the
matter with generality." Id. Thus, in particular, ERISA's "relate[s]
to" language was not "intended to modify 'the starting presumption
that Congress does not intend to supplant state law'" which falls
within areas of traditional state regulation. De Buono v. NYSA-ILA
Med. & Clinical Servs. Fund, 520 U.S. 806, , 117 S. Ct. 1747,
1751-52, 138 L. Ed. 2d 21 (1997) (quoting Travelers, 514 U.S. at
654-55, 115 S. Ct. at 1676).
"The historic powers of the State include the regulation of
matters of health and safety." De Buono, 520 U.S. at , 117 S. Ct.
at 1751-52 (citing Hillsborough County v. Automated Med.
Lab., Inc., 471 U.S. 707, 716, 105 S. Ct. 2371, 2376, 85 L. Ed. 2d
714 (1985)). The Act, in this case, regulates the medical decisions
of health insurance carriers, health maintenance organizations, and
other managed care entities, see TEX. CIV. PRAC & REM CODE ANN. @
88.002 (West 1998), and thereto, clearly operates in a field that
has been traditionally occupied by the States. "Where federal law is
said to bar state action in fields of traditional state regulation,"
this Court should work on the "assumption that the historic police
powers of the States were not to be superseded by the Federal Act
unless that was the clear and manifest purpose of Congress."
Travelers, 514 U.S. at 654-55, 115 S. Ct. at 1676 (quoting Rice v.
Santa Fe Elevator Corp., 331 U.S. 218, 230, 67 S. Ct. 1146, 1152, 91
L. Ed. 1447 (1947)). Consequently, Plaintiffs "bear the considerable
burden of overcoming 'the starting presumption that Congress does
not intend to supplant state law.'" De Buono, 520 U.S. at , 117
S. Ct. at 1752.
Under the "reference to" inquiry, the Supreme Court has "held
preempted a law that 'imposed requirements by reference to [ERISA]
covered programs,' . . . a law that specifically exempted
ERISA plans from all otherwise generally applicable garnishment
provision, . . . and a common-law cause of action premised on the
existence of an ERISA plan." California Div. of Labor Standards
Enforcement, N.A., Inc. v. Dillingham Constr., 519 U.S. 316, 324,
117 S. Ct. 832, 837-38, 136 L. Ed. 2d 791 (1997) (citations omitted)
(quoting District of Columbia v. Greater Washington Bd. of Trade,
506 U.S. 125, 131, 113 S. Ct. 580, 584, 121 L. Ed. 2d 513 (1992)).
Thus, "where a State's law acts immediately and exclusively upon
ERISA plans . . . or where the existence of ERISA plans is essential
to the law's operation . . . that 'reference' will result in
pre-emption." Dillingham, 519 U.S. at 324, 117 S. Ct. at 838.
In Travelers, the Supreme Court examined New York statutes that
imposed "surcharges on bills of patients whose commercial insurance
coverage was purchased by employee healthcare plans governed by
ERISA and . . . on HMOs insofar as their membership fees . . .
[were] paid by an ERISA plan." 514 U.S. at 649, 115 S. Ct. at
1673-74. Notably, the surcharge on HMOs was "not an increase in the
rates to be paid by an HMO to a hospital, but a direct
payment by the HMO to the State's general fund." Id. at 650, 115 S.
Ct. at 1674. The Court held that the "surcharge statutes . . .
[could not] be said to make 'reference to' ERISA plans in any
manner" because the surcharges were "imposed upon patients and HMOs,
regardless of whether the commercial coverage or membership,
respectively, was ultimately secured by an ERISA plan, private
purchase, or otherwise[.]" Id. at 656, 115 S. Ct. at 1677.
Similarly, in this case, the Act imposes a standard of ordinary
care directly upon health insurance carriers and health maintenance
organizations when making health care treatment decisions,
regardless of whether the commercial coverage or membership therein
is ultimately secured by an ERISA plan. See TEX. CIV. PRAC. & REM.
CODE @ 88.001-88.002 (West 1998). The Act also requires managed care
entities to exercise ordinary care when making medical decisions.
Id. @ 88.002(a). However, as already mentioned, the Act specifically
excludes ERISA plans from the definition of a "managed care entity."
See id. @ 88.001(8). Section 88.001(8) of the Texas Civil Practice
and Remedies Code, as added by the Act, provides that a
"managed care entity" does not include "an employer purchasing
coverage or acting on behalf of its employees." Id. Consequently, as
in Travelers, the Act cannot be said to make any reference to ERISA
plans.
Plaintiffs, however, maintain that preemption is mandated because
the Act has an express reference to ERISA plans in several other
provisions. (Plaintiffs' Motion, Instrument No. 20 at 7). In
particular, Plaintiffs seem to argue that the mere inclusion of
certain terms that allegedly refer to ERISA plans, such as "plan,"
"health care plan," "health maintenance organization," and "managed
care entity," warrants preemption. (Plaintiffs' Motion, Instrument
No. 20 at 7-9). Plaintiffs rely on District of Columbia v. Greater
Washington Bd. of Trade, 506 U.S. 125, 113 S. Ct. 580, 121 L. Ed. 2d
513 (1992), and Cigna for this proposition.
n3
In Greater Washington, 506 U.S. at 130, 113 S. Ct. at 583, the
Supreme Court determined that "Section 2(c)(2) of the District's
Equity Amendment Act specifically referred to welfare benefit plans
regulated by ERISA and on that basis alone was pre-empted." Section
2(c)(2) of the Equity Amendment Act provided the following: "Any
employer who provides health insurance coverage for an employee
shall provide health insurance equivalent to the existing health
insurance coverage of the employee while the employee receives or is
eligible to receive workers' compensation benefits under this
chapter." Id. at 128, 113 S. Ct. at 582 (quoting D.C. CODE ANN. @
36-307(a-1)(1) (Supp. 1992) (emphasis added)). Furthermore, the
employer had to provide this health insurance coverage for a maximum
of 52 weeks "at the same benefit level that the employee had at the
time the employee received or was eligible to receive workers'
compensation benefits." Id. (quoting D.C. CODE ANN. @ 36-307
(a-1)(3) (Supp. 1992)). Thus, the health insurance coverage required
of employers was measured by reference to "the existing health
insurance coverage' provided by the employer" and had to be
maintained at the same benefit level. Id. at 130, 113 S.
Ct. at 583-84 (emphasis added) (quoting D.C. CODE ANN.
36-307(a-1)(1) and (3) (Supp. 1992)).
The Court then determined that "the employee's 'existing health
insurance coverage,' in turn, was a welfare benefit plan under ERISA
. . . because it involved a fund or program maintained by an
employer for the purpose of providing health benefits for the
employee 'through the purchase of insurance or otherwise.'" Id. at
130, 113 S. Ct. at 584 (quoting 29 U.S.C. @ 1002(1)). Thus, since
the Equity Amendment Act imposed requirements by reference to such
employer-sponsored health insurance programs that were subject to
ERISA regulation, the Court concluded that the Act was preempted by
ERISA. Id. at 130-31, 113 S. Ct. at 584.
Contrary to Plaintiffs' contention, in Greater Washington, the
Supreme Court did not conclude that the statute referred to ERISA
plans simply because it contained certain terminology. Rather, as
explained in California Div. of Labor Standards Enforcement, N.A.,
Inc. v. Dillingham Constr., 519 U.S. at 324, 117 S. Ct. at 838, the
Court reasoned that the reference to ERISA plans resulted in
preemption because the existence of ERISA plans was
essential to the statute's operation.
n4
Unlike the statute in
Greater Washington, the Act is not premised on the existence of an
ERISA plan. It merely requires health insurance carriers, HMOs, and
other managed care entities to exercise ordinary care when making
medical decisions. The Act imposes this standard on these entities
without any reference to or reliance on an ERISA plan.
In Cigna, 82 F.3d at 645-47, the Fifth Circuit held that
Louisiana's Any Willing Provider statute was preempted by ERISA
because it referred to ERISA-qualified plans. The statute required
all licensed providers "who agreed to the terms and conditions of
the preferred provider contract" to be accepted as providers in the
preferred provider organization ("PPO"). LA. REV. STAT.
ANN. @ 40:2202(5)(C) (West 1992) (emphasis added). Under the Health
Care Cost Control Act, a "preferred provider contract" was defined
as "an agreement 'between a provider or providers and a group
purchaser or purchasers to provide for alternative rates of payment
specified in advance for a defined period of time.'" Cigna, 82 F.3d
at 647-48 (quoting LA. REV. STAT. ANN. @ 40:2022(5)(a) (emphasis
added)).
The Fifth Circuit then examined the definition of "group
purchasers." Under the statute, group purchasers may have included
entities "such as 'Taft-Hartley' trusts or employers who establish
or participate in self funded trusts or programs,' which 'contract
[with health care providers] for the benefit of their . . .
employees.'" Cigna, 82 F.2d at 648 (quoting LA. REV. STAT. ANN. @
40:2022(5)(a) (emphasis added)). Since the entities
encompassed by the term "group purchasers" included ERISA plans, the
Court determined that Louisiana's Health Care Cost Control Act, "and
through it the Any Willing Provider statute, expressly referred to
ERISA plans." Id.
Unlike the statute in Cigna, the requirement imposed by the Act
does not contain a reference to ERISA plans. The Act states that
health insurance carriers, HMOs, and other managed care entities
have a duty to exercise ordinary care, when making health care
treatment decisions. TEX. CIV. PRAC. & REM. CODE ANN. @ 88:002 (West
1998). None of these enumerated entities constitute ERISA plans
since, by definition, they are not "established or maintained by an
employer or by an employee organization . . . for the purpose of
providing" health care benefits for employees. 29 U.S.C.A. @
1002(1) (West Supp. 1998); see TEX. CIV. PRAC. & REM. CODE ANN. @
88.001 (West 1998).
In this case, the Court finds that, as in Travelers, the
existence of an ERISA plan is not essential to the operation of the
Act. Furthermore, the Act does not work "immediately and exclusively
upon ERISA plans." Dillingham, 519 U.S. at 324 117 S. Ct.
at 838. Consequently, the Court concludes that the Act "cannot be
said to make a 'reference to' ERISA plans in any manner." Travelers,
514 U.S. at 656, 115 S. Ct. at 1677.
Plaintiffs also suggest that the Act explicitly refers to ERISA
plans by its use of the term "health care plan" and "managed care
entity." (Plaintiff's Motion, Instrument No. 20 at 8). The Act
defines "health care plan" as "any plan whereby a person undertakes
to provide, arrange for, pay for, or reimburse any part of the cost
of any health care services." TEX. CIV. PRAC. & REM. CODE ANN. @
88.001(3) (West 1998). The Act then states that a "managed care
entity for a health care plan" must exercise ordinary care when
making medical decisions. Id. @ 88.002(a) (emphasis added). The
phrase "health care plan" cannot be isolated from the term "managed
care entity" simply to create a reference to an ERISA plan. In this
context, "health care plan" cannot constitute an ERISA plan because
a "managed care entity . . . does not include an employer purchasing
coverage or acting on behalf of its employees[.]" Id. @ 88.001(8).
"A law that does not refer to ERISA plans may yet be
pre-empted if it has a 'connection with' ERISA plans." Dillingham,
519 U.S. at 324, 117 S. Ct. at 838. "To determine whether a state
law has the forbidden connection, [the court looks] . . . both to
'the objectives of the ERISA statute as a guide to the scope of the
state law that Congress understood would survive,' as well as to the
nature of the effect of the state law on ERISA plans." Id. (quoting
Travelers, 514 U.S. at 656, 115 S. Ct. at 1677); see De Buono, 520
U.S. at , 117 S. Ct. at 1750 (noting (he Court's rejection of a
strictly literal reading of Section 514(a) and emphasis on the
objectives of the ERISA statute).
Here, Plaintiffs contend that the Act has a "connection with"
ERISA plans in several ways. Plaintiffs claim that the Act
improperly imposes state law liability on ERISA entities,
impermissibly mandates the structure of plan benefits and their
administration, unlawfully binds plan administrators to particular
choices, and wrongfully creates an alternate enforcement mechanism.
(Plaintiffs' Motion, Instrument No. 20 at 9-18).
i. Imposition of State Law Liability
According to Plaintiffs, the "Fifth Circuit has twice
held that attempts to impose state law liability on managed care
entities in 'connection with' their 'health, care treatment
decisions' fall within the scope of the preemption clause."
(Plaintiffs' Response, Instrument No. 20 at 10). In particular,
Plaintiffs rely on the Fifth Circuit's decisions in Corcoran
v. United Health Care, Inc., 965 F.2d 1321 (5th Cir. 1992), and
Rodriguez v. Pacificare Of Tex., Inc., 980 F.2d 1014 (5th Cir. 1993)
for this argument
In Corcoran, 965 F.2d at 1331, the Fifth Circuit held that a
Louisiana tort action for the wrongful death of an unborn child was
preempted by ERISA. In that case, United HealthCare ("United"), the
provider of utilization review services
n5
to an employee benefit
plan, determined that Mrs. Corcoran's hospitalization during the
final months of her pregnancy was not necessary despite her doctors'
repeated recommendations for complete bed rest. Id. at 1322-24. The
contract between United and Mrs. Corcoran's employer provided that
United would "contact the Participant's physician and based upon the
medical evidence and normative data determine whether the
Participant should be eligible to receive full plan benefits
for the recommended hospitalization and the duration of benefits."
Id. at 1331 (quotation omitted). Contrary to her doctor's requests,
United only authorized ten hours per day of home nursing care for
Mrs. Corcoran. Id. at 1324.
While the nurse was off-duty, the fetus went into distress and
died. Id. Subsequently, the Corcorans brought suit against United
for wrongful death, alleging "that their unborn child died as a
result of various acts of negligence committed by" the mother's
health plan and United. 965 F.2d at 1324.
United argued that the Corcorans' claims were preempted by ERISA
because its "decision [was] made in its capacity as a plan fiduciary
[and was] about what benefits were authorized under the plan." Id.
at 1329. According to United, the company simply applied previously
established eligibility criteria in order to determine whether Mrs.
Corcoran was qualified for the benefits provided by the plan. Id.
Thus, United maintained that, under prevailing ERISA preemption law,
the Corcorans could not "sue in tort to redress injuries flowing
from decisions about what benefits are to be paid under a plan." Id.
at 1330.
The Corcorans, on the other hand, contended that their cause of
action sought "to recover benefits solely for United's erroneous
medical decision that Mrs. Corcoran did not require hospitalization
during the last month of her pregnancy." Id. at 1330. Therefore, the
Corcorans continued, United's exercise of medical judgment fell
"outside the purview of ERISA preemption." Id.
Unable to agree with either characterization, the Fifth Circuit
concluded that United made "medical decisions . . . in the context
of making a determination about the availability of
benefits under the plan." Id. at 1331. The Court reasoned that
"United decided 'what the medical plan . . . [would] pay for.' When
United's actions were viewed from this perspective, it . . .
[became] apparent that the Corcorans were attempting to recover for
a tort allegedly committed in the course of handling a benefit
determination." Id. at 1332 (quoting the Quality Care Program
("QCP") booklet which contains a description of the QCP, a
cost-containment service plan, and the services provided by United).
Since United made the erroneous medical decision as a "part and
parcel of its mandate to decide what benefits were available under
the . . . plan[,]" the Court concluded that ERISA's preemption of
"state-law claims alleging improper handling of benefit claims was
broad enough to cover the cause of action asserted here." Id.
"Although imposing liability on United. . . [may] have the salutary
effect of deterring poor quality medical decisions, . . . [the Court
found there was] a significant risk that state liability rules would
be applied differently to the conduct of utilization review
companies in different states." Id. at 1333.
Despite its finding of preemption, the Court
acknowledged "the fact that . . . [its] interpretation of the
preemption clause . . . [left] a gap in remedies within a statute
intended to protect participants in employee benefit plans" and
suggested a reevaluation of ERISA. Id. at 1333, 1338-39. Indeed,
the Fifth Circuit recognized that:
the result ERISA compels us to reach means that the Corcorans have
no remedy, state or federal, for what may have been a serious
mistake. This is troubling for several reasons. First, it eliminates
an important check on the thousands of medical decisions routinely
made in the burgeoning utilization review system. With liability
rules generally inapplicable, there is theoretically less deterrence
of substandard medical decision making. Moreover, If the cost of
compliance with a standard of care . . . need not be factored into
utilization review companies' cost of doing business, bad medical
judgments will end up being cost-free to the plans that rely on
these companies to contain medical costs. ERISA plans, in turn, will
have one less incentive to seek companies that can deliver both high
quality services and reasonable prices.
Second, in any plan benefit determination, there is
always some tension between the interest of the beneficiary in
obtaining quality medical care and the interest of the plan in
preserving the pool of funds available to compensate all
beneficiaries. . . .
Finally, cost containment features such as the one at issue in
this case did not exist when Congress passed ERISA. While we are
confident that the result we have reached is faithful to Congress's
intent neither to allow state-law causes of actions that related to
employee benefit plans nor to provide beneficiaries in the
Corcoran's position with a remedy under ERISA, the world of employee
benefit plans has hardly remained static since 1974. Fundamental
changes such as the widespread institution of utilization review
would seem to warrant a reevaluation of ERISA so that it can
continue to serve its noble purpose of safeguarding the interests of
employees. Our system, of course, allocates this task to Congress,
not the courts, and we acknowledge our role today by interpreting
ERISA in a manner consistent with the expressed intentions of its
creators.
Id. at 1338 (emphasis added).
n6
Since Corcoran, the Supreme Court
has reevaluated the "potentially infinite reach of
'relations' and 'connections'" under ERISA preemption and has
rendered three decisions, namely Travelers, Dillingham, and De Buono
v. NYSA-ILA Med. & Clinical Servs. Fund, 520 U.S. 806, 117 S. Ct.
1747, 138 L. Ed. 2d 21 (1997), that "reveal the proper way to
analyze[] ERISA preemption" American Drug stores, Inc. v. Harvard
Pilgrim Health Care, Inc., 973 F. Supp. 60, 64-65 (D. Mass. 1997)
(quoting Travelers, 514 U.S. at 656, 115 S. Ct. at 1677).
n7
Without the benefit of these recent opinions, the Court in
Corcoran stated that "the fact that states traditionally have
regulated in a particular area is no impediment to ERISA
preemption." 965 F.2d at 1334. As such, the Court did not begin, as
the recent Supreme Court cases did, with the presumption against
preemption where the statute at issue addresses a historic police
power of the states--namely, a matter of health and safety. See
Dillingham, 519 U.S. at 324, 117 S. Ct. at 838; De Buono, 520 U.S.
at , 117 S. Ct. at 1751-52; Travelers, 514 U.S. at 653-55, 115 S.
Ct. at 1676-77. Instead, the Court in Corcoran reasoned that
"Congress perhaps could not have predicted the interjection into the
ERISA 'system' of the medical utilization review process[,]" and
therefore, concluded that "Congress enacted a preemption clause so
broad and a statute so comprehensive that it would be incompatible
with the language, structure, and purpose of the statute to allow
tort suits against entities so integrally connected with a plan."
Corcoran, 965 F.2d at 1334 (emphasis added). Although the fact that
"the States traditionally regulated . . . [certain] areas
would not immunize their efforts[,]" since Corcoran, it is clear
that there must be an "indication in ERISA . . . [or] its
legislative history of any intent on the part of Congress to preempt
a traditionally state-regulated substantive law. Dillingham, 519
U.S. at 330, 117 S. Ct. at 840-41 (emphasis added).
Furthermore, in Corcoran, the Court noted that:
the cost of complying with varying substantive standards would
increase the cost of providing utilization review services, thereby
increasing the cost to health benefit plans of including cost
containment features such as the Quality Care Program (or causing
them to eliminate this sort of cost containment program altogether)
and ultimately decreasing the pool of plan funds available to
reimburse participants.
965 F.2d at 1333. However, the Supreme Court in Travelers emphasized
that an "indirect economic influence . . . does not bind a plan
administrator to any particular choice and thus function as a
regulation of an ERISA plan itself." 514 U.S. at 659, 115 S. Ct. at
1679. Moreover,
if ERISA were concerned with any state action--such as quality of
care standards or hospital workplace regulations--that
increased the cost of providing certain benefits, and thereby,
potentially affected the choices made by ERISA plans, [then] we
could scarcely see the end of ERISA's pre-emptive reach, and the
words 'relate to' would limit nothing.
Dillingham, 519 U.S. at 329, 117 S. Ct. at 840 (citing Travelers,
514 U.S. at 663-64, 115 S. Ct. at 1681).
In light of the Supreme Court's recent mandate regarding ERISA
preemption analysis, perhaps the Fifth Circuit would reach a
different decision in Corcoran today. Even so, this Court finds the
facts in Corcoran to be distinguishable from the conduct covered by
the Act.
The plaintiffs in Corcoran filed suit against their HMO regarding
a medical decision made in relation to the denial of certain plan
benefits. In this case, a suit brought under the Act would relate to
the quality of benefits received from a managed care entity when
benefits are actually provided, not denied. The Act imposes a duty
of ordinary care upon certain entities when making health care
treatment decisions and holds those entities liable for damages
proximately caused by a failure to exercise that duty. TEX.
The facts in Rodriguez v. Pacificare of Tex., Inc., the other
case cited by Plaintiffs for their argument that the Act wrongfully
imposes state law liability on managed care entities, may be
distinguished for the same reason. In Rodriguez, David Rodriguez
("Rodriguez") brought a negligence action against his HMO and his
primary care physician. 980 F.2d at 1016. Rodriguez attempted to
seek medical attention for himself and his children after they were
involved in an automobile accident Id. Rodriguez believed that he
and his children needed to see an orthopedic surgeon, but he was
unable to obtain the requisite referral letter from their primary
care physician or his HMO. Id. Without obtaining the needed letter,
Rodriguez and his family went to see an orthopedic surgeon who
placed Rodriguez on a therapy program. Id. Rodriguez's HMO refused
to cover the expenses because Rodriguez had not first obtained
approval for such expenses as required by his plan. Id. Rodriguez
thereafter filed suit against his HMO and primary care physician
"for failing to 'provide prompt and adequate medical care and
coverage.'" Id. (quoting Rodriguez's complaint filed in Texas state
court).
The Fifth Circuit determined that Rodriguez's state law claims
were sufficiently related to the employee benefit plan" because his
"claims, at bottom, resulted from dissatisfaction over . . . [his
HMO's] handling of his medical claim." Id. at 1017. Unlike
Rodriguez's claims against his HMO and primary care physician, a
suit brought under the Act may challenge the quality of benefits
actually received without challenging a denial of benefits or the
handling of a medical claim. A suit addressing the quality of care
actually received is more akin to the claims asserted by plaintiffs
in Dukes v. U.S. Healthcare, Inc., 57 F.3d 350 (3d Cir. 1995).
n9
In Dukes, the Third Circuit examined two separate claims. The
first claim involved the death of Darryl Dukes ("Dukes"). Dukes had
several ailments which prompted him to visit his primary care
physician who identified a problem with his ear. Dukes, 57 F.3d at
352. Later, another doctor performed surgery on Dukes's ear and
ordered blood tests to be performed. Id. For some unknown reason,
when Dukes presented the prescription to the laboratory, the
hospital refused to perform the blood tests. Id. On the next day,
Dukes went to see a third doctor who also ordered blood tests. Id.
The hospital performed the tests. Id. However, by that time, Dukes's
condition had worsened and he subsequently died. At the time of his
death, Dukes's blood sugar level was extremely high--a condition
that allegedly could have been detected through a timely blood test.
Id.
The other claim, examined in Dukes, concerned Ronald and Linda
Visconti and their stillborn child. Id. at 353. The Viscontis
maintained that Linda's obstetrician negligently ignored symptoms
that Linda exhibited during the third trimester of her pregnancy
that were typical of preeclampsia. Id.
"The plaintiffs in these two cases filed suit in state
court against health maintenance organizations ("HMOs") organized by
U.S. Healthcare, Inc., claiming damages, under various theories, for
injuries arising from (he medical malpractice of the HMO-affiliated
hospitals and medical personnel." Id. at 351. The defendant HMOs
removed both cases to federal court based on the "complete
preemption doctrine."
n10
Id. at 351. The Court held that since
plaintiffs' claims fell outside the scope of the ERISA provision
granting the right to recover benefits and enforce rights due under
terms of the plan or to clarify rights to future benefits then the
complete preemption doctrine did not permit removal. Id. In
particular, the Court held that "quality control of benefits, such
as health care benefits provided here, is a field traditionally
occupied by state regulation. Id. at 357 (emphasis added) (citing
Travelers, 514 U.S. at 657-59, 115 S. Ct. at 1678-79). The Court
then "interpreted the silence of Congress as reflecting an intent
that it remain as such." Id.
This Court finds the discussion in Dukes to be applicable here.
n11
The Court, in Dukes, made a distinction between a claim for the
withholding of benefits and a claim about the quality of benefits
received. The Court reasoned that "instead of claiming that the
welfare plans in any way withheld some quantum of plan benefits due,
the plaintiffs in both cases complained about the low quality of the
medical treatment that they actually received . . . ." 57 F.3d at
357 (emphasis added). In particular, "Dukes did not allege . . .
that the Germantown Hospital refused to perform blood studies on
Darryl because the ERISA plan refused to pay for those studies.
Similarly, the Viscontis did not contend that Serena's death was due
to their welfare plan's refusal to pay for or otherwise provide for
medical services." Id. at 356-57. In this case, a suit may be
brought under the Act that simply challenges the quality of the
benefits received, not a benefit determination.
Thus, the distinction can be summarized as follows:
Claims challenging the quality of a benefit, as in Dukes, are not
preempted by ERISA. See Pacificare of Oklahoma, Inc. v. Burrage, 59
F.3d 151, 154 (10th Cir. 1995) (medical malpractice claim not
preempted by ERISA when issue of doctor's negligence required
assessment of providing admittedly covered treatment or giving
professional advice). Claims based upon a failure to treat where the
failure was the result of a determination that the requested
treatment wasn't covered by the plan, however, are preempted by
ERISA. Corcoran v. United HealthCare, Inc., 965 F.2d 1321, 1331
(5th Cir.), cert. denied, 506 U.S. 1033, 113 S. Ct. 812, 121 L. Ed.
2d 684 (1992) (medical determinations made by an HMO preempted by
ERISA because made in context of benefits determination under the
plan).
Schmid v. Kaiser Found. Health Plan of Northwest, 963 F. Supp. 942,
944 (D. Or. 1997).
In this case, the Act addresses the quality of benefits actually
provided. ERISA "simply says nothing about the quality of benefits
received." Dukes, 57 F.3d at 357. "A reading of . . . [Section]
514(a) resulting in the preemption of traditionally
state-regulated substantive law in . . . [an] area[] where ERISA has
nothing to say would be 'unsettling.'" Dillingham, 519 U.S. at 330,
117 S. Ct. at 840 (quoting Travelers, 514 U.S. at 664-65, 115 S. Ct.
at 1681).
Furthermore, "the Supreme Court has cautioned that 'some state
actions may affect employee benefit plans in too tenuous, remote, or
peripheral a manner to warrant a finding that the law 'relates to'
the plan.'" Cigna, 82 F.3d at 647 (quoting Shaw, 463 U.S. at 100
n.21, 103 S. Ct. 2890. 2891 n.21). For example, "'run-of-the-mill
state-law claims such as unpaid rent, failure to pay creditors, or
even torts committed by an ERISA plan are not preempted." Corcoran,
965 F.2d at 1329 (quoting Mackey v. Lanier Collection Agency &
Serv., Inc., 486 U.S. 825, 833, 108 S. Ct. 2182, 2187, 100 L. Ed. 2d
836 (discussing these types of claims in dicta)). In addition,
"ERISA does not preempt state laws that have 'only an indirect
economic affect on the relative costs of various health insurance
packages' available to ERISA-qualified plans" such as quality
standards. Cigna, 82 F.3d at 647 (quoting Travelers, 514 U.S. at
659-60, 115 S. Ct. at 1680); see Dillingham, 519 U.S. at
329, 117 S. Ct. at 840 (noting that if ERISA were concerned with any
state action, such as medical care quality standards, that increased
costs of providing certain benefits then courts could scarcely see
the end of ERISA's preemptive reach); Pacificare, 59 F.3d at 154
("As long as a state law does not affect the structure, the
administration, or type of benefits provided by an ERISA plan, the
mere fact that the [law] has some economic impact on the plan does
not require that the [law] be invalidated."). As such, the Court
finds that "quality control of benefits, such as the health care
benefits provided [by HMOs and other managed care entities] is a
field traditionally occupied by state regulation and . . .
interprets the silence of Congress as reflecting an intent that it
remain such." Dukes, 57 F.3d at 357 (emphasis added).
Accordingly, the Court concludes that the Act does not constitute
an improper imposition of state law liability on the enumerated
entities.
n13
ii. Mandating the Structure and Administration of Plan Benefits
Next, the Court will examine Plaintiffs' argument that the Act
has a connection with ERISA plans because it improperly mandates the
structure of plan benefits and their administration in violation of
clear Supreme Court authority. In Travelers, the Court noted that,
given the objectives of ERISA and its preemption clause, Congress
intended for ERISA to preempt "state laws that mandate[] employee
benefit structures or their administration." 514 U.S. at 658, 115 S.
Ct. at 1678. For example, in Shaw v. Delta Air Lines, Inc., 463 U.S.
85, 97, 103 S. Ct. 2890, 2900, 77 L. Ed. 2d 490 (1983), the Court
held that a New York statute "which prohibited employers from
structuring their employee benefit plans in a particular manner that
discriminated on the basis of pregnancy . . . [and another statute]
which required employers to pay employees specific benefits . . .
clearly 'related to' benefit plans." ERISA preempted these New York
statutes because their "mandates affecting coverage could have been
honored only by varying the subjects of a plan's benefits whenever
New York law might have applied, or by requiring every plan to
provide all beneficiaries with a benefit demanded by New
York law if New York law could have been said to require it for any
one beneficiary." Travelers, 514 U.S. at 657, 115 S. Ct. at 1678.
Therefore, "absent preemption, benefit plans would have been
subjected to conflicting directives from one state to the next."
Coyne & Delany Co. v. Selman, 98 F.3d 1457, 1468 (4th Cir. 1996)
(citing Shaw, 463 U.S. at 99, 103 S. Ct. at 2901).
Plaintiffs claim that the Act "imposes a 'negligence' standard of
review on HMOs and PPOs . . . in contravention of the federally
mandated abuse of discretion standard of review of a factual benefit
determination under ERISA[,]" and "purports to re-define the
standard for 'appropriate and medically necessary' as it pertains to
ERISA plans." (Plaintiffs' Motion, Instrument No. 20 at 15).
With respect to Plaintiffs' first contention, the Court
reiterates its conclusion that a suit may only be brought under the
Act that challenges the quality of care received, not a benefit
determination. Such a claim would not implicate the abuse of
discretion standard required under ERISA for factual benefit
determinations. See Pierre v. Connecticut Gen. Life Co.,
932 F.2d 1552, 1562 (5th Cir. 1991) (holding that "for factual
determinations under ERISA plans, the abuse of discretion standard
of review is the appropriate standard"). Whether a claim brought
under the Act seeks a review of a plan administrator's factual
benefit determination rather than a review of a medical decision
should be examined by the Court on a case-by-case basis. At that
time, the Court could determine whether or not the particular claim
conflicts with the standard of review provided under ERISA.
Plaintiffs also claim that the Act wrongfully purports to
redefine the standard for "appropriate and medically necessary" as
it pertains to ERISA plans. (Plaintiffs' Motion, Instrument No. 20
at 15). Section 88.001(1) of the Texas Civil Practice and Remedies
Code, which was added by the Act, defines "appropriate and medically
necessary" as "the standard for health care services as determined
by physicians and health care providers in accordance with the
prevailing practices and standards of the medical profession and
community. TEX. CIV. PRAC. & REM. CODE ANN. @ 88.001(1) (West 1998).
Plaintiffs contend that "this imposed definition of medical
necessity is different from that contained in many ERISA
plans." (Plaintiffs' Motion, Instrument No. 20 at 15). Since
Plaintiffs' health care plans purportedly confer authority upon the
plan administrator to make coverage determinations in accordance
with the terms of the plan, Plaintiffs argue that the Act's
definition of "appropriate and medically necessary" changes "the
terms of employee benefit plans and restrict[s] the ability of plans
to deny claims based upon medical necessity or other terms defined
in the plan." (Id. at 16).
With respect to the Act's definition of when a health care
benefit is "appropriate and medically necessary," the Court must
examine this term in conjunction with the procedure provided by the
Act for the review of claims relating to an adverse benefit
determination by an independent review organization ("IRO"). Section
88.003 of the Texas Civil Practice and Remedies Code, as added by
the Act, provides the following:
(a) A person may not maintain a cause of action under this chapter
against a health insurance carrier, health maintenance organization,
or other managed care entity that is required to comply with the
utilization review requirements of Article 21.58A,
Insurance Code, or the Texas Health Maintenance Organization Act
(Chapter 20A Vernon's Insurance Code), unless the affected insured
or enrollee or the insured's or enrollee's representative:
(1) has exhausted the appeals and review applicable under the
utilization review requirements; or
TEX. CIV. PRAC. & REM. CODE ANN. @ 88.003 (West 1998) (emphasis
added).
In addition, the Act amended and added several provisions to the
Texas Insurance Code that address specific responsibilities of an
HMO and further explain and define the procedure for independent
review of an adverse benefit determination by an IRO. See TEX. INS.
CODE ANN. arts. 20A.09, 20A.12, 20A.12A, 21.58A, and 21.58C (West
1998). Article 20A.09, which was amended by the Act now requires an
HMO to issue evidence of coverage to an enrollee that describes "the
enrollee's right to appeal denials of an adverse determination . . .
to an independent review organization." TEX. INS. CODE ANN. art.
20A.09(e)(4) (West 1998).
Under the amendments to Article 20A.12 of the Texas Insurance
Code, every HMO must establish a complaint system that
provides far the "resolution of oral and written complaints
initiated by enrollees concerning health care services." Id. art.
20A.12(a). The complaint system mandated by Article 20A.12 has
several requirements that reference the IRO procedure. Specifically,
Article 20A.12A, which was also added by the Act, states that the
complaint system must include:
(1) notification to the enrollee of the enrollee's right to appeal
an adverse determination to an independent review organization;
Id. arts. 20A.12A(a) and (b). Article 20A.12A then defines "adverse
determination," "independent review organization," and
"life-threatening condition." Id. art. 20A.12A(c).
The Act also amends Article 21.58A Section 6 of the Texas
Insurance Code. If the appeal of an adverse determination is denied,
Section 6 now requires the utilization review agent to
submit a clear and concise statement to the appealing party
informing him of his "right to seek review of the denial by an
independent review organization under Section 6A . . . and the
procedures for obtaining that review." Id. art. 21.58A(6)(b)(5)(C).
Furthermore, if the enrollee is faced with a life threatening
condition then he "is entitled to an immediate appeal to an
independent review organization as provided by Section 6A[.]" Id.
art. 21.58A(6)(c).
Furthermore, the Act adds a new section 6A to Article 21.58A of
the Texas Insurance Code which outlines the utilization review
agent's responsibilities with respect to the independent review of
adverse determinations. Id. art. 21.58A(6A). In particular, Section
6A of Article 21.58A provides that;
A utilization review agent shall:
(1) permit any party whose appeal of an adverse determination is
denied by the utilization review agent to seek review of that
determination by an independent review organization assigned to the
appeal in accordance with Article 21.58C of this code;
Id. art. 21.58A(6A). Notably, under Article 20A.12A, the provisions
in Article 21.58A that relate to independent review, namely Section
6A, apply to an HMO as if the HMO were a utilization review agent.
Id. art. 20A.12A(b). Moreover, given the addition of the IRO
procedure by the Act, Section 8 of Article 21.58A now provides that
"confidential information in the hands of a utilization
review agent may be provided to an independent review organization"
subject to the rules and standards already in effect under the Texas
Insurance Code. Id. art. 21.58A(8)(f).
Lastly, the Act added Article 21.58C to the Texas Insurance Code.
This section outlines the standards for independent review
organizations, such as certification requirements. Id. art. 21.58C.
For example, Article 21.58 explains the Commissioner of the Texas
Insurance Board's responsibilities for the certification and
designation of independent review organizations and how an entity
may be certified as an independent review organization. Id.
Plaintiffs argue that an administrator's determination as to
"whether a claim for benefits is covered under the medical necessity
definition contained in the plan implicates an interpretation of a
plan's term." (Plaintiffs' Motion, Instrument No. 20 at 16).
Therefore, Plaintiffs continue, the Act which contains these
procedures for an independent review of a benefit determination is
preempted because it mandates the structure and administration of
benefits.
In response, Defendants maintain that "the IRO is geared solely
to corporate determinations of 'medical necessity,' the
practice of medicine admittedly being a non-preempted traditional
area of state regulation." (Defendants' Response, Instrument No. 46
at 11). Defendants also explain, and Plaintiffs do not dispute, that
"only when AEtna, or another managed care entity, makes adverse
determinations that benefits are not medically necessary [do] the
IRO provisions [become applicable]." (Id. at 14). According to
Defendants, "the only possible HMO action that could be called a
'benefit determination' which could ever be grounds for action under
the IRO provisions of . . . [the Act] are 'adverse determinations.'
Adverse determinations are necessarily limited to 'medical
necessity' decisions[.]" (Id. at 12).
In Travelers, the Supreme Court provided guidance as to the scope
of plan administration that Congress intended to protect from state
interference, 514 U.S. at 657-68, 115 S. Ct. at 1678. The Court
discussed
earlier decisions which held various state statutes preempted for
"mandating employee benefit structures or their administration." . .
. The Court [also] explained that ERISA preempted the statutes at
issue in Shaw because they imposed "mandates affecting
coverage" which directly affected the benefit structures which ERISA
plans could offer. . . . The law at issue in FMC Corp. v. Holliday
interfered with benefit calculations; by prohibiting plans from
obtaining subrogation, the law frustrated any attempt at providing
uniform national benefits. . . . In Alessi v. Raybestos-Manhattan,
Inc., . . . ERISA preempted a statute which prohibited plans from
using a method of calculating benefits permitted by federal law. . .
. In each of these cases, the [Supreme] Court was concerned with
administrative and structural matters central to the administration
of ERISA plans themselves.
American Drug, 973 F. Supp. at 68 (emphasis added) (quoting
Travelers, 514 U.S. at 657-58, 115 S. Ct. at 1677-78). The Act's use
of independent review process implicates the "limited range of
administrative functions which are part of operating an employee
benefit plan[,]" namely determining the eligibility of claimants.
American Drug, 973 F. Supp. at 66; see Fort Halifax, 482 U.S. at
8-9, 107 S. Ct. 2211, 2216 (1987).
Furthermore, the Act's definition of "appropriate and medically
necessary" along with the provisions under Section 88.003 for
reviewing an adverse determination by an IRO and the further
clarification of the IRO procedure and requirements in Articles
20A.09(4), 20A.12A, 21.58A(6), (6A), and (8)(f) and 21.58C
n14
are
akin to the situation addressed by the Fifth Circuit in Corcoran. In
Corcoran, the Court recognized that United gave medical advice, but
emphasized that such advice was made or given while administering
the benefits under the plan. 965 F.2d at 1331. Consequently, since
ERISA preempts state law causes of action alleging the improper
handling of benefit claims, the Corcorans' state law claims were
preempted by ERISA because part of "United's actions involved
benefit determinations." Id. at 1332. As in Corcoran, by
participating in the separate review process provided for under the
Act, an insured or enrollee is seeking a review of a benefit
determination. Moreover, under Article 21.58A of the Texas Insurance
Code, a utilization review agent must comply with the IRO's
determination and must pay for the review. TEX. INS. CODE ANN. arts.
21.58A(6A)(3) and (4) (West 1998).
Allowing state based procedures for independent review of an
adverse benefit determination, like the one at issue here, "would
subject plans and plan sponsors to burdens not unlike those that
Congress sought to foreclose through . . . [Section] 514(a).
Particularly disruptive is the potential for conflict in state law.
. . . Such an outcome is fundamentally at odds with the goal of
uniformity that Congress sought to implement." Ingersoll-Rand, 498
U.S. at 142, 111 S. Ct. at 484.
Consequently, as explained by the Supreme Court in Travelers, 514
U.S. at 657, 115 S. Ct. at 1677-78, the Court finds that the
provisions for an independent review improperly mandate the
administration of employee benefits and therefore, have a connection
with ERISA plans. See Coyne, 98 F.3d at 1468 (indicating that state
laws which mandate employee benefit structures or their
administration have a connection with ERISA plans). "Congress
intended ERISA to preempt state laws[,] [such as the IRO provisions
in the Act,] that 'mandate[] employee benefit structures or their
administration." Id. (quoting Travelers, 514 U.S. at 658, 115 S. Ct.
at 1678). However, the Court finds that the relevant
language in Section 88.003 of the Texas Civil Practice and Remedies
Code, the relevant language added by the Act in Articles
20A.09(e)(4), 21.58A(6)(b)(5), and 21.58A(6)(c) of the Texas
Insurance Code, and that Articles 20A.12A, 21.58A(6A), 21.58A(8)(f),
and 21.58C of the Texas Insurance Code, all addressing the IRO
procedure, can be severed from the Act without affecting the other
provisions or conflicting with the legislative intent.
"Whether portions of a state statute found to contravene federal
law are severable is a question of state law." Texas Pharmacy, 105
F.3d at 1039. The Texas Code Construction Act provides that.
in a statute that does not contain a provision for severability or
nonseverability, if any provision of the statute or its application
to any person or circumstance is held invalid, the invalidity does
not affect other provisions or applications of the statute that can
be given effect without the invalid provision or application, and to
this end the provisions of the statute are severable.
TEX. GOV'T CODE ANN. @ 311.032(c) (West 1988); see also TEX. GOV'T
CODE ANN. @ 312.013 (a) (West 1988) (providing the same standard).
Thus, "under the Texas Code Construction Act, a Texas
statute should be deemed severable if the invalidity of one
provision does not affect the other provisions, unless it has an
express provision for severability or nonseverability." Texas
Pharmacy, 105 F.3d at 1039; see In re Johnson, 554 S.W.2d 775, 787
(Tex. Civ. App.--Corpus Christi, 1977, writ ref'd n.r.e.) (noting
that where invalid sections on an act may be separated, the court
"must do so and not permit the invalid part to destroy the whole
law"). However, the court should "sustain the remainder only if the
result is consistent with the original legislative intent." Black v.
Dallas County Bail Bond Bd., 882 S.W.2d 434, 437 (Tex. Civ.
App.--Dallas 1994, no writ); See Anderson v. Wood, 137 Tex. 201, 152
S.W.2d 1084, 1087 (Tex. 1941) (concluding that the whole statute was
void because the remainder, by reason of its generality, would have
given the act a broader scope than was intended by the legislature).
In this case, the Act does not have an express provision for
severability or nonseverability of the statute. Furthermore, an
examination of the legislative history of the Act reveals the dual
purpose that the legislature sought to achieve with the
passage of the Act. Specifically, the legislature sought to address
two distinct issues: quality of care and denial of care. With
respect to quality of care, the Act establishes a standard of care
for HMOs and other managed care entities and allows participants to
sue an HMO or a managed care entity for negligent medical decisions.
(Index of Legislative History-Testimony of Rep. Smithee, Instrument
No. 17, Exh. A at AG01585 and Exh. B at AG01607). With regard to
denial of care, the Act creates an independent review process that
reviews adverse benefit determinations by an HMO or a managed care
entity. (Id.) In particular, as a prerequisite to filing a lawsuit
under the Act, a participant would "be able to get an independent
review [of his or her HMO's denial of coverage] by a doctor [in
order] to try and get the care" that he or she needs. (Index of
Legislative History-Testimony of Rep. Smithee. Instrument No. 17,
Exh. B at AG01607). Thus, the Court finds that it was clearly the
intent of the legislature to address both the quality of care issue
and the denial of care issue under the Act.
The Court has already determined that the IRO provisions concern
the review of an adverse benefit determination and are
therefore, an improper mandate of benefit administration. As such,
the IRO provisions and, in particular, the relevant language in
Section 88.003 of the Texas Civil Practice and Remedies Code, the
relevant language added by the Act in Articles 20A.09(e)(4),
21.58A(6)(b)(5), and 21.58A(6)(c) of the Texas Insurance Code, and
Articles 20A.12A, 21.58A(6A), 21.58A(8)(f), and 21.58C of the Texas
Insurance Code would have no effect on lawsuits that may be brought
under the Act challenging the quality of a benefit that an
individual has actually received. The Court can still give affect to
the provisions of the Act that only address quality of care. In
other words, even without these sections which address the IRO
procedure, suits addressing the quality of a benefit may still be
brought under the Act against an HMO or other managed care entity.
This goal under the Act--quality of care--is separate and distinct
from the independent review process which solely addresses adverse
benefit determinations by a plan administrator or utilization review
agent. Thus, upholding the other provisions of the Act is consistent
with the legislative intent. Moreover, where the invalid
sections of an act may be separated, the Court "must do so and not
permit the invalid part to destroy the whole," In re Johnson, 554
S.W.2d at 737. Therefore, since the Act can still be given effect
without these sections, the Court finds that they may be severed
from remainder of the Act.
iii. Binding Employers or Plan Administrators to Particular Choices
The Court agrees with Plaintiffs' next argument that, under
existing Fifth Circuit authority, certain provisions in the Act bind
employers or plan administrators to particular choices. In Cigna,
the Fifth Circuit held that the statute had a connection with ERISA
plans because it required "ERISA plans to purchase benefits of a
particular structure when they contracted with organizations like
CIGNA and CGLIC." 82 F.3d at 648. The Court reasoned that:
ERISA plans that choose to offer coverage by PPOs are limited by the
statute to using PPOs of a certain structure--i.e., a structure that
includes every willing, licensed provider. Stated another way, the
statute prohibits those ERISA plans which elect to use PPOs from
selecting a PPO that does not include any willing, licensed
provider. As such, the statute connects with ERISA plans.
Id. Furthermore, the Court found that it was "sufficient for
preemption purposes that the statute eliminated the choice of one
method of structuring benefits," Id.; cf. Dillingham, 519 U.S. at
330, 117 S. Ct. at 842 (holding that prevailing wage statute is not
preempted by ERISA because statute merely "alters the incentives . .
. but does not dictate the choices, facing ERISA plans").
Later, in Texas Pharmacy Ass'n v. Prudential Ins. Co. of Am., the
Fifth Circuit relied on its opinion in Cigna and determined that
Texas's Any Willing Provider statute was preempted by ERISA. 105
F.3d at 1037. The Court explained that "as with the Louisiana
statute at issue in Cigna, the Texas statute relates to ERISA plans
because it 'eliminates the choice of one method of structuring
benefits,' by prohibiting plans from contracting with pharmacy
networks that exclude any willing provider." Id. (citing Cigna, 82
F.2d at 648).
Based on the Fifth Circuit's holding in Cigna and Texas Pharmacy,
the Court finds that the Act creates two provisions that bind
employers or plan administrators to particular choices--Sections
88.002(f) and (g) of the Texas Civil Practice and Remedies
Code.
n15
Section 88.002(f) provides that:
[a] health insurance carrier, health maintenance organization, or
managed care entity may not remove a physician or health care
provider from its plan or refuse to renew the physician or health
care provider with its plan for advocating on behalf of an enrollee
for appropriate and medically necessary health care for the enrollee.
TEX. CIV. PRAC. & REM. CODE ANN. @ 88.002(f) (West 1998) (emphasis
added). Section 88.002(g) states that:
[a] health insurance carrier, health maintenance organization, or
managed care entity may not enter into a contract with a physician,
hospital, or other health care provider or pharmaceutical company
which includes an indemnification or hold harmless clause for the
acts or conduct of the health insurance carrier, health maintenance
organization, or other managed care entity. Any such indemnification
or hold harmless clause in an existing contract is hereby declared
void.
Id. @ 88.002(g) (emphasis added).
Thus, in the instant case, ERISA plans that choose to offer
coverage by either a health insurance carrier, HMO, or other managed
care entity are limited by the Act to using an entity of a certain
structure--i.e., a structure that does not remove a physician or
health care provider from its plan for advocating on behalf of an
enrollee for appropriate and medically necessary health care and a
structure that does not include a prohibited indemnification or hold
harmless clause. In other words, the Act prohibits ERISA plans from
using a managed care entity that does not conform to the
requirements in these provisions. By denying health insurance
carriers, HMOs, and other managed care entities the right to
structure their benefits in a particular manner, the Act effectively
requires ERISA plans to purchase benefits of a particular structure
when they contract with organizations like Plaintiffs. See Cigna, 82
F.3d at 648.
Since these provisions require ERISA plans to purchase benefits
of a particular structure they essentially cause the Act to have a
"connection with" such plans.
n16
However, the Court finds that
these provisions may be severed from the remainder of the statute.
Although these provisions at issue would clearly serve to enhance
the quality of care that could be provided, the absence of these
sections from the Act, does not affect the otherwise valid
provisions concerning quality of care. A suit may still be brought
under the Act challenging the quality of a benefit actually
received. Moreover, upholding the validity of the remainder of the
Act is in accord with the legislative intent. The floor debates as
well as the testimony, in support of the Act, given before the
Senate Interim Committee on Managed Care and Consumer Protections
and the Senate Economic Development Committee reveal the proponents'
and the legislature's concern over managed care entities and the
lack of quality care. (Index of Legislative History, Instrument Nos.
14, 16). Even though these provisions clearly were designed to
promote quality medical care, this goal care be given effect without
these invalid provisions and accordingly, the Court finds that they
may be severed from the Act.
iv. Alternate Enforcement Mechanism
Lastly, Plaintiffs argue that the liability sections created by
the Act, Sections 88.002(a) and (b) of the Texas Civil Practice and
Remedies Code, purport to create an alternate enforcement
mechanism. (Plaintiffs' Surreply, Instrument No. 53 at 6).
State laws that provide "alternate enforcement mechanisms [for
employees to obtain ERISA plan benefits] also relate to ERISA plans,
triggering pre-emption." Travelers, 514 U.S. at 658, 115 S. Ct. at
1613; Coyne, 98 F.3d at 1468 (noting Congress' intent to preempt
state laws that provide alternate enforcement mechanisms for
employees to obtain ERISA plan benefits). In this case, the Court
has already determined that the liability sections of the Act,
namely Sections 88.002(a) and (b) of the Texas Civil Practice and
Remedies Code, provide a cause of action for challenging the quality
of benefits received. Such a lawsuit would not create an alternate
enforcement mechanism for employees to obtain ERISA benefits. See
Dukes, 57 F.3d at 360-361 (distinguishing between an HMO's denial of
plan benefits and an HMO's role as the arranger of a participant's
medical treatment which implicates the quality of care that a
participant receives). Rather, it would ensure the quality of care
that employees actually receive. Whether a claim seeks a review of
an adverse benefit determination or to secure quality
coverage should be determined by the Court on a case-by-case-basis.
See Schmid, 963 F. Supp. at 945 n. 1 (noting that a "determination
of whether or not a particular claim is preempted by ERISA must be
made on a case-by-case basis"). It is not apparent to the Court that
every claim that may be asserted under the Act would establish an
alternate enforcement mechanism for benefit determinations.
Based on the foregoing analysis, the Court holds that Plaintiffs
have not met their burden of proving that every claim brought under
the Act would be preempted by ERISA. Even though some economic
impact may result, a claim concerning the quality of a benefit
actually received would remain valid.
Plaintiffs finally argue that the Act is preempted by FEHBA. In
response, Defendants maintain that "FEHBA preemption applies only
when there exists a conflict between the particular state law being
relied upon in litigation and contractual provisions in a FEHBA
policy 'which relate to the nature or extent of coverage of
benefits.'" (Defendants' Brief, Instrument No. 11 at 36). According
to Defendants, Plaintiffs fail "to set forth any facts
alleging any particular FEHBA policy or contract language
conflicting with the Act. (Id.).
Conversely, Plaintiffs argue that FEHBA preemption is required
given the Fifth Circuit's decision in Burkey v. Gov't Employees
Hosp. Ass'n, 983 F.2d 656 (5th Cir. 1993). Plaintiffs contend that
Defendants' argument, raised by the plaintiffs in Burkey, was
clearly rejected by the Fifth Circuit.
As with ERISA, FEHBA provides that state law may be preempted.
However, "FEHBA preemption is far more narrow than that of" ERISA.
Arnold v. Blue Cross & Blue Shield of Texas, Inc., 973 F. Supp. 726,
732 (S.D. Tex. 1997). Congress expressed its intent to pre-empt
state law under FEHBA in 5 U.S.C.A. @ 8902(m)(1) (West Supp. 1996),
which states that:
the provisions of any contract under this chapter which relate to
the nature or extent of coverage or benefits (including payments
with respect to benefits) shall supersede and preempt any State or
local law, or regulation issued thereunder, to the extent that such
law or regulation is inconsistent with such contractual provisions.
This language makes it clear "that Congress did not intend for state
law to be entirely preempted. Arnold, 973 F. Supp. at 731.
By expressly limiting the FEHBA's preemptive effect to those laws or
regulations that are inconsistent with insurance carrier [or health
plan] contracts, Congress indicated that courts may not assume that
the FEHBA preempts all related state law claims but must instead
conduct a case-by case analysis to determine whether a plaintiff's
state law claim conflicts with a contractual provision.
Id. at 732 (citing Transitional Hosps. Corp. v. Blue Cross & Blue
Shield of Texas, inc., 924 F. Supp. 67, 70 (W.D. Tex. 1996)). "The
policy underlying @ 8902(m)(1) is to ensure nationwide uniformity of
the administration of FEHBA benefits." Burkey, 983 F.2d at 660.
In Burkey, a federal employee and her son brought an action
against the Government Employees Hospital Association ("GEHA") under
Louisiana law "which authorized damages and attorneys' fees for
unreasonable delay in paying health and accident insurance claims."
983 F.2d at 657. The Burkeys claimed that GEHA breached its
contractual obligation to pay the son's medical bills.
The Fifth Circuit held that "Louisiana's penalty provision was
inconsistent with and therefore preempted by the federal
law regulating federal employee health benefits." Id. at 657-58.
Although the Burkeys argued that their state law claim related to
remedies, not the "nature or extent of coverage or benefits[,]" the
Court reasoned that "tort claims arising out of the manner in which
a benefit claim is handled are not separable from the terms of the
contract that governs benefits. . . . [Therefore,] such claims
'relate to' the plan under @ 8902(m)(1) as long as they have a
connection with or refer to the plan." Id. at 660. "Insofar as the
Burkeys' claim for statutory delay damages necessarily referred to
GEHA's plan to determine coverage and whether the proper claims
handling process was followed, it referred to the plan, 'related to'
it and was therefore preempted." Id.
Unlike the claim asserted by (he Burkeys, an individual may file
suit under the Act seeking damages for the substandard quality of
care actually received. As articulated by the Court under the ERISA
preemption analysis, such a suit would not arise out of the manner
in which a benefit claim was handled and would not refer to
Plaintiffs' plan to determine coverage or whether the proper claims
handling process was followed. Therefore, even under Burkey,
a claim addressing the quality of a benefit received would not
"relate to", a FEHBA plan. Moreover, with respect to other claims
that one may bring under the Act, a court should conduct a
case-by-case analysis to determine whether that claim conflicts with
a contractual provision. See Arnold, 973 F. Supp. at 732.
Accordingly, the Court finds that Defendants' and Plaintiffs'
motions for summary judgment are GRANTED in part and DENIED in part.
(Instrument Nos. 10 and 20).
The Court ORDERS that the Department is dismissed from the
lawsuit.
The Court also finds that the following provisions are preempted
by ERISA and accordingly, the Court ORDERS them to be severed:
Section 88.002(f), Section 88.002(g), Section 88.003(a)(2), Section
88.003(b), Section 88.003(c), the relevant language in Section
88.003(d), Section 88.003(e), and the relevant language in Sections
88.003(f) and (g) of the Texas Civil Practice and Remedies Code, the
language added by (he Act in Article 20A.09(e)(4), Article 20A.12A,
the amendments to Articles 21.58A(6)(b)(5) and 21.58A(6)(c), Article
The Court finds that the remaining provisions of the Texas Civil
Practice and Remedies Code and the Texas Insurance Code, as added
and amended by the Act, are not preempted by ERISA.
The Clerk shall enter this Order and provide a copy to all parties.
For the reasons stated in the Court's Order signed on September
18, 1998, this action is DISMISSED.
THIS IS A FINAL JUDGMENT.
----------------FOOTNOTES--------------
@ 88.002. Application
(a) A health insurance carrier, health maintenance organization, or
other managed care entity for a health care plan has the duty to
exercise ordinary care when making health care treatment decisions
and is liable for damages for harm to an insured or enrollee
proximately caused by its failure to exercise such ordinary care.
(b) A health insurance carrier, health maintenance organization, or
other managed care entity for a health care plan is also liable for
damages for harm to an insured or enrollee proximately caused by the
health care treatment decisions made by its:
(1) employees;
TEX. CIV. PRAC. & REM. CODE ANN. @@ 88.002(a) and (b) (West 1998).
n2 At the hearing held on April 24, 1998, Mr. John B. Shely,
counsel for Plaintiffs, argued that Plaintiffs "provide various
services to employee benefit plans that are ERISA plans."
(Transcript, Instrument No. 60 at 6).
n3 Plaintiffs also claim that the Fifth Circuit's opinion in
Texas Pharmacy Ass'n v. Prudential Ins. Co. of Am., 105 F.3d 1035
(5th Cir. 1997), mandates a finding that the Act "refers to" ERISA
plans. However, in Texas Pharmacy, the Court never discussed the
"reference to" or "refers to" analysis. See id. at 1037. Rather, the
Court simply concluded that the "Texas statute related to ERISA
plans because it 'eliminated the choice of one method of structuring
benefits,' by prohibiting plans from contracting with pharmacy
networks that exclude any willing provider." Id. Thus, the Court
found that Texas's Any Willing Provider statute had a "connection
with" ERISA plans. Id.
The Court also mentioned that the statute applied to ERISA
benefits plans themselves because it defined "managed care providers
to include HMOs, PPOs or 'another organization' that provided health
care benefits." Id. at 1038. Notably, the Court emphasized the
phrase "another organization" as the entity that could conceivably
constitute an ERISA plan. Id.
n4 The Supreme Court reached the same conclusion in
Ingersoll-Rand Co. v. McClendon, 498 U.S. 133, 111 S. Ct. 478, 112
L. Ed. 2d 474 (1990). In Ingersoll-Rand, the Court held that a Texas
wrongful discharge claim made "specific reference to, and indeed was
premised on, the existence of a pension plan." Id. at 140, 111 S.
Ct. at 483 (emphasis added). In order to prevail on this wrongful
discharge claim, plaintiff had to plead and the court had to find
"that an ERISA plan existed and the employer had a pension-defeating
motive in terminating the employment." Id. Therefore, since the
Court's inquiry had to be "directed to the [ERISA] plan," the Court
found that the cause of action "related to" an ERISA plan. Id.
n5 "Utilization review" is a form of cost-containment service
that "refers to 'external evaluations that are based on established
clinical criteria and are conducted by third-party payors,
purchasers, or health care organizers to evaluate the
appropriateness of an episode, or series of episodes, of medical
care.'" Corcoran, 965 F.2d at 1323 (quoting Blum, An Analysis of
Legal Liability in Health Care Utilization Review and Case
Management, 26 HOUS. L. REV. 191, 192-93 (1989)).
n6 The Fifth Circuit also requested further clarification from
the Supreme Court and further legislative action from Congress in
Texas Pharmacy, 105 F.3d at 1039-40. In Texas Pharmacy, the Court
"concluded that the result in that case was compelled by the
unmistakable breadth of ERISA preemption recognized by the Supreme
Court[.]" Id. at 1040. The Court, however, emphasized that "[a)
different result . . . [would] require further guidance from the
Supreme Court or further action from Congress." Id.
n7 Indeed, in light of the fundamental changes that have taken
place in the health care delivery system, it may be that the Supreme
Court has gone as far as it can go in addressing this area and it
should be for Congress to further define what rights a patient has
when he or she has been negatively affected by an HMO's decision to
deny medical care. Congress has begun to examine the "cost
containment" objectives of health plans, referenced in Corcoran, to
determine whether their original intent to disallow state causes of
action related to the denial of benefits is still reasonable. See
Larry Lipman & Rebecca Carr, Rival Bills Aim to Heal HMO Issues,
ATLANTA J. & ATLANTA CONST., July 17, 1998, at A1. "A House
Republican task force outlined a bill that seeks to give patients .
. . an appeals process for managed care decisions . . . ." Id.
However, in a recent statement regarding H.R. 4250, the Patient
Protection Act, Congressman Pete Sessions indicated the
legislature's desire to have the judiciary define the scope of ERISA
preemption. 144 CONG. REC. E1471-04 (daily ed. July 30, 1998)
(speech of Representative Pete Sessions). Regrettably, Rep. Sessions
sought to "ensure that the Patient Protection Act neither broadened
nor changed the current scope of ERISA preemption as it was being
developed in the courts." Id. at E1472. This statement clearly
exemplifies the legislature's misunderstanding as to the role of the
judiciary. The courts can neither narrow nor broaden the scope of
ERISA preemption in a vacuum. Rather, the courts can only attempt to
interpret the scope of the ERISA preemption clause, as enacted by
Congress some 24 years ago, in light of the congressional intent.
Defining the scope of ERISA preemption is a responsibility delegated
to the legislative branch of government. Interpreting the
legislative intent concerning the scope of ERISA preemption can only
be accomplished by the courts after the legislature has done its
job. If Congress wants the American citizens to have access to
adequate health care, then Congress must accept its responsibility
to define the scope of ERISA preemption and to enact legislation
that will ensure every patient has access to that care.
n8 The Court in Corcoran recognized a similar distinction. The
Court discussed Independence HMO, Inc. v. Smith, 733 F. Supp. 983
(E.D. Pa. 1990), a case in which the district court held that a
malpractice action brought against an HMO was not preempted by
ERISA, and acknowledged that the Smith case initially appeared to
support the Corcorans' position since "the plaintiff was attempting
to hold an ERISA entity liable for medical decisions. " Corcoran,
965 F.2d at 1333 n.16. However, the Court distinguished the facts in
Smith from the Corcorans situation because "the medical decisions at
issue . . . [in Smith did] not appear to have been made in
connection with a cost containment feature of the plan or any other
aspect of the plan which implicated the management of plan assets,
but were instead made by a doctor in the course of treatment." Id.
n9 As an additional argument, Defendants suggest that "AEtna is
barred by res judicata from asserting ERISA preemption as a defense
to the quality of care claims embodied in Senate Bill 386."
(Defendants' Response, Instrument No. 46 at 19). According to
Defendants, the Dukes case is "res judicata as to AEtna because
AEtna is the successor in interest to the defendant in Dukes, U.S.
Healthcare." (Id.). "As the successor in interest to U.S. Healthcare
after Dukes was decided, [Defendants continue,] AEtna was in essence
the HMO that lost in Dukes, wherein the court clearly limited and
expressly distinguished the holding of Corcoran from cases in which
the claims are based on the quality of care provided by the HMOs."
(Id.).
The Fifth Circuit's "test for res judicata requires that: (1) The
parties be identical in both suits, (2) A court of competent
jurisdiction rendered the prior judgment, (3) There was a final
judgment on the merits in the previous decision, and (4) The
plaintiff raises the same cause of action or claim in both suits."
In re Howe, 913 F.2d 1138, 1143-44 (5th Cir. 1990). In this case,
Defendants' res judicata argument clearly fails to meet the fourth
requirement. Plaintiffs seek a declaration that the Act is preempted
by Section 514(a) of ERISA whereas, in Dukes, 57 F.3d at 351, U.S.
Healthcare, Inc. sought a determination that removal of the
plaintiffs' claims to federal court was proper under the complete
preemption doctrine. Furthermore, in Dukes, the Third Circuit did
not address whether the plaintiffs' state law claims were preempted
under Section 514(a)--the exact issue in this case. Id. at 361.
Rather, the Court left this issue open for resolution by the state
courts on remand. Id. Consequently, the Court finds that Aetna is
not by barred by res judicata from arguing that the Act is preempted
by ERISA.
n10 The "complete preemption" exception provides that "Congress
may so completely preempt a particular area that any civil complaint
raising this select group of claims is necessarily federal in
character." Metropolitan Life Ins. Co v. Taylor, 481 U.S. 58, 63-64,
107 S. Ct. 1542, 1546, 95 L. Ed. 2d 55 (1987). "The Supreme Court
has determined that Congress intended the complete-preemption
doctrine to apply to state causes of action which fit within the
scope of ERISA's civil-enforcement provisions." Dukes, 57 F.3d at
354 (quoting Metropolitan Life, 481 U.S. at 64-66, 107 S. Ct. at
1547-48).
n11 Plaintiffs claim that this Court cannot rely on the
discussion in Dukes because it is a removal case. (Plaintiffs'
Motion, Instrument No. 20 at 31). The Court recognizes that a
determination that a claim is not completely preempted under Section
502(a) of ERISA does not necessarily mean that that claim is not
preempted under Section 514. See Dukes, 57 F.3d at 352 (holding that
plaintiffs' claims are not completely preempted under Section 502,
but remanding the case to the state court for a determination of
whether plaintiffs' claims are preempted under Section 514(a)); Rice
v. Panchal, 65 F.3d 637, 646 n.10 (7th Cir. 1995). However, the
Court finds the Third Circuit's discussion of state regulation of
"quality of care" to be quite relevant to the instant case.
Notably, despite their supposed opposition to removal cases,
Plaintiffs also request this Court to rely heavily on two other
removal cases, Corcoran and Rodriguez.
n12 The Third Circuit cautions that "the distinction between
quantity of benefits due under a welfare plan and the quality of
those benefits will not always be clear . . . where the benefit
contracted for is health care services rather than money to pay for
such services." Dukes, 57 F.3d at 358. In some cases, "it may be
appropriate to conclude that the plan participant or beneficiary has
been denied benefits under the plan." Id. Such a determination
should be made on a case-by-case basis. See Schmid v. Kaiser Found.
Health Plan of Northwest, 963 F. Supp. 942, 945 n.1 (D. Or. 1997).
n13 Plaintiffs also argue that Section 88.002(b) of the Texas
Civil Practice and Remedies Code, as added by the Act, improperly
imposes vicarious liability on the enumerated entities for the
negligent health care treatment decisions of their employees,
agents, ostensible agents, or other representatives. (Plaintiff's
Motion, Instrument No. 20 at 14). Plaintiffs claim that the Seventh
Circuit's decision in Jass v. Prudential Health Care Plan, Inc., 88
F.3d 1482 (7th Cir. 1996), calls for this conclusion. In Jass, the
HMO's agent determined that physical therapy to rehabilitate the
plaintiff's knee after her surgery was not necessary. Id. at 1485.
After suffering permanent damage to her knee, the plaintiff filed a
negligence claim against the agent and a vicarious liability claim
against the HMO and surgeon. Id. The Court dismissed the plaintiff's
claim against her HMO for vicarious liability based on the agent's
conduct because her cause of action was held to be a Section 502(a)
denial of benefits claim, not a quality of care suit. Id. at 1491.
Thus, the Jass case is inapposite since this Court has already
determined that a suit may be brought under the Act that challenges
the quality of a benefit received.
Furthermore, whether a suit brought under the Act against all HMO
for vicarious liability based on the actions of a doctor would be
preempted should be determined on a case-by-case basis and would be
dependent upon the provisions of the plan and the claims asserted by
the plaintiffs. The Court may or may not be required to examine the
plan to determine the nature of the relationship between the
parties. See e.g., Jass, 88 F.3d at 1493 (dismissing vicarious
liability claim against HMO based on doctor's conduct because agency
relationship was solely a result of HMO's health care plan and
because claim required examination of the plan).
n14 As mentioned, Article 20A.12 of the Texas Insurance Code
requires HMOs to maintain both an oral and a written complaint
system. TEX. INS. CODE ANN. art. 20A.12 (West 1998). This article
does not discuss the IRO procedure that is addressed by the other
amendments.
n15 Plaintiffs also argue that Section 88.002(b) of the Texas
Civil Practice and Remedies Code, as added by the Act, "purports to
transform the independent contractor relationship [it has with
certain providers] into one of agency, express or implied, in
contravention of the express terms of the contract." (Plaintiffs'
Motion, Instrument No. 20 at 17). Under Section 88.002(b), the named
entities are held liable for a negligent health care treatment
decision made by its employees, agents, ostensible agents, or other
representatives. TEX. CIV. PRAC & REM. CODE ANN. @ 88.002(b) (West
1998). To the extent that certain providers are independent
contractors, not agents of the HMO, then the court should address
that concern on a case-by-case basis. Other suits against a managed
care entity for vicarious liability, such as those based on the
conduct of an HMO's employee, are still viable. Furthermore, even
assuming that Plaintiffs' argument is valid, this consequence does
not deny the named entities the right to structure their benefits in
a particular manner--they still have the option to employ providers
only as independent contractors.
n16 The decisions in Cigna and Texas Pharmacy clearly hold that
these type of provisions have a connection with ERISA plans. Thus,
as stated by the Fifth Circuit in Texas Pharmacy, this Court notes
that "a different result will require further guidance from the
Supreme Court or further action from Congress." 105 F.3d at 1040.
A recent district court case from Massachusetts, however, noted
that "where a third-party, such as a carrier, provides
administrative services for a plan, it is critical to distinguish
between the carrier's administration of the ERISA plan and 'its own
administration of its business.'" American Drug, 973 F. Supp. at 68.
In American Drug Stores, Inc. v. Harvard Pilgrim Health Care, Inc.,
the Court determined that Massachusetts' Any Willing Provider
statute did not have a connection with ERISA plans because it did
not mandate employee benefit structures or administration. Id. at
69. The Court, therefore, found that the statute was not preempted
by ERISA. Id. The Court reasoned that "the organization and offering
of restricted pharmacy networks should be seen as part of the
carrier's own administration rather than its administration of ERISA
plans." Id. at 68. The Massachusetts statute, the Court continued,
did not concern administrative and structural matters central to the
administration of ERISA plans themselves." Id. Furthermore, even
more recently, in Washington Physicians Serv. Ass'n v. Gregoire, 147
F.3d 1039, 1993 WL 318759, *4 (9th Cir. 1998), the Ninth Circuit
stated that: the mere fact that many ERISA plans choose to buy
health insurance for their plan members does not cause a regulation
of health insurance to automatically 'relate to' an employee benefit
plan--just as a plan's decision to buy an apple a day for every
employee, or to offer employees a gym membership, does not cause all
state regulation of apples and gyms to 'relate to' employee benefit
plans.
Although the Courts in both American Drug and Washington
Physicians present convincing arguments, this Court must find that
Sections 88.002(f) and 88.002(g) of the Texas Civil Practice and
Remedies Code have a connection with ERISA plans in light of current
Fifth Circuit authority. A different result will require Congress to
act on the promise to ensure that "'no human being in need of
legitimate care should be stopped from getting it.'" Larry Lipman &
Rebecca Carr, Rival Bills Aim to Heal HMO Issues, ATLANTA J. &
ATLANTA CONST., July 17, 1998, at A1 (quoting a statement made by
House Speaker Newt Gingrich at the George Washington University
Medical Center).
n17 The Court did not sever Section 88.001(l), the definition of
appropriate and medically necessary, from the Act. Given the
severance of the mentioned provisions, the inclusion of this
definition does not cause the statute to relate to an ERISA plan. It
is simply an unnecessary definition because the term was only
referenced in Section 88.002(f), which was removed. As such, it
could be easily removed without effecting any other provisions in
the Act. However, Texas law provides for severance of invalid
provisions, not unnecessary provisions. So, the Court declined to
remove that section simply because it would produce a clearer, more
concise statute. This matter will be left to the decision of the
legislature.
CIV. PRAC. & REM. CODE ANN. @ 88.002(a) (West 1998). Furthermore,
the Act clearly states that a "health care treatment decision," is
"a determination made when medical services are actually provided by
the health care plan and a decision which affects the quality of the
diagnosis, care, or treatment provided to the plan's insureds or
enrollees." Id. @ 88.001(5) (emphasis added). Thus, Corcoran is
factually distinguishable from the instant case.
n8
Also in Dukes, the Court distinguished the Corcoran case based on
the dual roles that may be assumed by an HMO. Dukes, 57 F.3d at
360-61. The Court emphasized that in Corcoran, United "only
performed an administrative function inherent in the "utilization
review'" whereas the defendant HMOs in Dukes played two roles--the
utilization review role and the role as an arranger for the actual
medical treatment for plan participants. Id. at 361. "Unlike
Corcoran, [in Dukes] there . . . [was] no allegation . . . that the
HMOs denied anyone any benefits that they were due under the plan.
Instead, the plaintiffs [in Dukes were] . . . attempting to hold the
HMOs liable for their role as the arrangers of their decedents'
medical treatment." Id. Likewise, a plaintiff bringing suit under
the Act may seek to hold a HMO liable in its position as the
arranger of poor quality medical treatment, thereby, avoiding any
allegation that the HMO wrongfully denied benefits under the plan
and therefore, any connection with ERISA.
n12
(2) before instituting the action:
(A) gives written notice of the claim as provided by Subsection (b);
and
(B) agrees to submit the claim to a review by an independent
review organization under Article 21.58A, Insurance Code, as
required by Subsection (c).
(b) the notice required by Subsection
(a)(2)(A) must be delivered or mailed to the health insurance
carrier, health maintenance organization, or other managed care
entity against whom the action is made not later than the 30th day
before the date the claim is filed.
(c) The insured or enrollee or the insured's or enrollee's
representative must submit the claim to a review by an independent
review organization if the health insurance carrier, health
maintenance organization, or managed care entity against whom the
claim is made requests the review not later than the 14th day after
the date notice under Subsection (a)(2)(A) is received by
the health insurance carrier, health maintenance organization, or
other managed care entity. If the health insurance carrier, health
maintenance organization, or other managed care entity does not
request the review within the period specified by this subsection,
the insured or enrollee or the insured's or enrollee's
representative is not required to submit the claim to independent
review before maintaining the action.
(d) Subject to Subsection (e),
if the enrollee has not complied with Subsection (a), an action
under this section shall not be dismissed by the court, but the
court may, in its discretion, order the parties to submit to an
independent review or mediation or other nonbinding alternative
dispute resolution and may abate the action for a period of not to
exceed 30 days for such purposes. Such orders or the court shall be
the sole remedy available to a party complaining of an enrollee's
failure to comply with Subsection (a).
(e) The enrollee is not
required to comply with Subsection (c) and no abatement or other
order pursuant to Subsection (d) for failure to comply shall be
imposed if the enrollee has filed a pleading alleging in substance
that:
(1) harm to the enrollee has already occurred because
of the conduct of the health insurance carrier, health maintenance
organization, or managed care entity or because of an act or
omission of an employee, agent, ostensible agent, or representative
of such carrier, organization, or entity for whose conduct is liable
under Section 88.002(b); and
(2) the review would not be beneficial
to the enrollee, unless the court, upon motion by a defendant
carrier, organization, or entity finds after that such pleading was
not made in good faith, in which case the court may enter an order
pursuant to Subsection (d).
(f) If the insured or enrollee or the
insured's or enrollee's representative seeks to exhaust the appeals
and review or provides notice, as required by Subsection (a), before
the statute of limitations applicable to a claim against a managed
care entity has expired, the limitations period is tolled until the
later of:
(1) the 30th day after the date the insured or enrollee or
the insured's or enrollee's representative has exhausted the process
for appeals and review applicable under the utilization review
requirements; or
(2) the 40th day after the date the insured
or enrollee or the insured's or enrollee's representative gives
notice under Subsection (a)(2)(A). (g) This section does not
prohibit an insured or enrollee from pursuing other appropriate
remedies, including injunctive relief, a declaratory judgment, or
relief available under law, if the requirement of exhausting the
process for appeal and review places the insured's or enrollee's
health in serious jeopardy.
(2) notification to the enrollee of the procedures for appealing an
adverse determination to an independent review organization; and
(3) notification to an enrollee who has a life-threatening condition
of the enrollee's right to immediate review by an independent review
organization and the procedures to obtain that review.
(2) provide to the appropriate independent review organization not
later than the third business day after the date that the
utilization review agent receives a request for review a copy of:
(A) any medical records of the enrollee that are relevant to the
review;
(B) any documents used by the plan in making the
determination to be reviewed by the organization;
(C) the written notification described in Section 6(b)(5) of this
article;
(D) any documentation and written information submitted to
the utilization review agent in support of the appeal; and
(E) a list of each physician or health care provider who has
provided care to the enrollee and who may have medical records
relevant to the appeal;
(3) comply with the independent review
organization's determination with respect to the medical necessity
or appropriateness of health care items and services for an
enrollee; and
(4) pay for the independent review.
21.58A(6A), Article 21.58A(8)(f), and Article 21.58C of the
Texas Insurance Code.
n17
SIGNED this 18th day of September, 1998, at Houston, Texas.
VANESSA D. GILMORE
UNITED STATES DISTRICT JUDGE
FINAL JUDGMENT
The Clerk shall enter this Order and provide a copy to all parties.
SIGNED this 18th day of September, 1998.
VANESSA D. GILMORE
UNITED STATES DISTRICT JUDGE
n1 The Act provides, in pertinent part, the following:
(2) agents;
(3) ostensible agents; or
(4) representatives who are acting on its behalf and over whom it
has the right to exercise influence or control or has actually
exercised influence or control which result in the failure to
exercise ordinary care.