No. 98-1836
In the Supreme Court of the United States
UNITED STATES HEALTHCARE SYSTEMS
OF PENNSYLVANIA, INC., PETITIONER
v.
PENNSYLVANIA HOSPITAL INSURANCE CO., ET AL.
ON PETITION FOR A WRIT OF CERTIORARI
TO THE SUPREME COURT OF PENNSYLVANIA
BRIEF FOR THE UNITED STATES
AS AMICUS CURIAE
SETH P. WAXMAN
Solicitor General
Counsel of Record
EDWIN S. KNEEDLER
Deputy Solicitor General
JAMES A. FELDMAN
Assistant to the Solicitor
General
Department of Justice
Washington, D.C. 20530-0001
(202) 514-2217
HENRY L. SOLANO
Solicitor of Labor
ALLEN H. FELDMAN
Associate Solicitor
NATHANIEL I. SPILLER
Deputy Associate Solicitor
ELLEN L. BEARD
Attorney
Department of Labor
Washington, D.C. 20210
QUESTION PRESENTED
Whether Section 514(a) of the Employee Retirement Income Security Act of
1974 (ERISA), 29 U.S.C. 1144(a), preempts state law claims arising from
a health maintenance organization's negligence in denying a claim for benefits
under an ERISA-governed health plan.
In the Supreme Court of the United States
No. 98-1836
UNITED STATES HEALTHCARE SYSTEMS
OF PENNSYLVANIA, INC., PETITIONER
v.
PENNSYLVANIA HOSPITAL INSURANCE CO., ET AL.
ON PETITION FOR A WRIT OF CERTIORARI
TO THE SUPREME COURT OF PENNSYLVANIA
BRIEF FOR THE UNITED STATES
AS AMICUS CURIAE
This brief is submitted in response to the Court's invitation to the Solicitor
General to express the views of the United States.
STATEMENT
1. The original plaintiffs in this case, Basile and Theodora Pappas, were
subscribers to a health maintenance organization (HMO) operated by petitioner
United States Healthcare Systems of Pennsylvania, Inc., a subsidiary of
Aetna, Inc. Pet. App. 20a; Pet. ii. The Pappases received HMO coverage through
an employee welfare benefit plan as defined in Section 3(1) of the Employee
Retirement Income Security Act of 1974 (ERISA), 29 U.S.C. 1002(1), sponsored
by Mrs. Pappas' employer, The Charming Shoppes. Pet. App. 35a-36a. Petitioner's
HMO provided most medical care by contracting with participating providers.
Pet. 2. In a medical emergency, however, the HMO covered treatment by non-participating
providers. Super. Ct. Reproduced R. ("R.") 156a ("Emergency
care is covered anytime, anywhere."); id. at 158a ("In an emergency,
you should contact your primary care physician for help. When a delay would
be detrimental to your health, seek the nearest medical attention. Always
call the toll-free number on the back of your membership card * * * within
24 hours after receiving emergency care.").
On May 20, 1991, Mr. Pappas went to his primary care doctor, Dr. David Asbel,
complaining of neck and shoulder pain, and was treated with an injection
of steroids. Pet. App. 35a. The next morning, after his condition had worsened,
Pappas was transported by ambulance to Haverford Community Hospital (Haverford),
where he was admitted at 11:00 a.m. By that time, he was paralyzed from
the chest down. The emergency room physician, Dr. Stephen Dickter, in consultation
with a neurologist and a neurosurgeon, diagnosed a probable epidural abscess
pressing on Pappas' spine, a neurological emergency requiring immediate
surgery. By 12:30 p.m., Dr. Dickter had made arrangements to transfer Pappas
to Thomas Jefferson University Hospital (Jefferson), which had a spinal
cord trauma unit able to commit to his immediate admission. Id. at 2a-3a,
21a, 36a.
At 12:40 p.m/, the ambulance service that was to transport Pappas to Jefferson
told Dr. Dickter that petitioner would not authorize Pappas's transfer to
Jefferson. At 12:50 p.m., Dr. Dickter called petitioner to request authorization,
making clear that the situation was a neurological emergency. Pet. App.
3a, 21a, 36a. At 1:05, a representative of petitioner told Dr. Dickter that
petitioner would not authorize treatment at Jefferson because it was not
approved by petitioner, but that it would cover treatment at any of three
other participating university hospitals. Id. at 21a, 36a. Dr. Dickter then
initiated a series of telephone calls to arrange for Pappas's admission
at one of the three approved hospitals, resulting in further delays before
he underwent surgery that evening. Id. at 3a, 21a-22a, 36a-37a. Pappas now
suffers from permanent quadriplegia caused by compression of his spine by
the abscess. Id. at 3a, 22a, 37a, 51a-52a.
2. The Pappases brought a common law tort action in state court against
Dr. Asbel and Haverford, alleging that Dr. Asbel had committed medical malpractice
and that Haverford was negligent in causing an inordinate delay in transferring
Pappas. Pet. App. 3a, 22a. Haverford filed a third-party complaint against
petitioner, joining it as a defendant for refusing to authorize Pappas's
transfer to Jefferson and adopting (for purposes of that third-party complaint)
the negligence claims made against Haverford in the original complaint.
Id. at 3a, 22a, 37a, 41a, 60a.1
The Pennsylvania trial court granted summary judgment to petitioner. Pet.
App. 34a-44a. It held that ERISA preempts Haverford's third-party complaint
because "[a]ll of [its] allegations fall within the rubric of administration
of an employee benefit plan." Id. at 41a. Thus, it considered this
case analogous to cases preempting state claims for "failure to pay
a benefit claim or preapprove a procedure," which have an "obvious
connection or reference to a benefit plan," and different from cases
holding that "ERISA does not preempt state law claims against an HMO
sued on a theory of vicarious liability generally or ostensible agency specifically"
based on the negligence of others in furnishing care. Id. at 42a-43a.
Plaintiffs' claims against Dr. Asbel and Haverford were later settled. Pet.
App. 4a n.2, 22a n.2, 45a-46a. The trial court entered an order approving
the settlement, substituting respondents Pennsylvania Hospital Insurance
Company and the Commonwealth of Pennsylvania Medical Professional Liability
Catastrophe Loss Fund for Haverford as the real parties in interest, and
declaring final its earlier order granting summary judgment to petitioner.
Id. at 46a. Respondents appealed.
3. The Pennsylvania Superior Court reversed and remanded. Pet. App. 18a-33a.
Characterizing the negligence claim here as "an indirect source of
merely economic influence on administrative decisions," id. at 28a
(citation omitted), it reasoned that "ERISA is in no way implicated
by the claim that [petitioner] negligently caused Mr. Pappas' injuries by
its delay in authorizing his transfer." Id. at 31a. Despite its observation
that "the argument has never been advanced that the decision to withhold
approval for transfer to Jefferson was at all related to medical considerations,"
id. at 27a, the Superior Court concluded that the claims are directly related
to "general health care regulation" rather than plan administration,
and thus are presumptively left to the States under New York State Conference
of Blue Cross & Blue Shield Plans v. Travelers Insurance Co., 514 U.S.
645 (1995). Pet. App. 26a-28a.2
4. The Pennsylvania Supreme Court affirmed. Pet. App. 1a-13a. The court
held broadly that "negligence claims against a health maintenance organization
do not 'relate to' an ERISA plan." Id. at 11a. It reached that conclusion
based on the view that this Court "noticeably changed tack" in
its Travelers decision, id. at 7a, interpreting ERISA's preemption provision
less expansively than in earlier cases. Id. at 9a. Travelers, the court
said, established that "Congress did not intend to preempt state laws
which govern the provision of safe medical care." Id. at 11a. Since
"[c]laims that an HMO was negligent when it provided contractually-guaranteed
medical benefits in such a dilatory fashion that the patient was injured
indisputably are intertwined with the provision of safe medical care,"
the court concluded that the claims in this case are not preempted. Id.
at 11a-12a. The court also reasoned that state negligence laws of general
applicability have only a "tenuous, remote, or peripheral connection
with [ERISA] covered plans," and have only an incidental impact on
the fees charged by HMOs to ERISA plans. Id. at 12a (citing Travelers, 514
U.S. at 661, and De Buono v. NYSA-ILA Med. & Clinical Servs. Fund, 520
U.S. 806, 814-816 (1997)).3
Justice Nigro concurred separately. Pet. App. 14a-16a. In his view, ERISA
does not preempt the third-party claims because petitioner's actions "constituted,
in effect, an individual medical decision or judgment as opposed to a decision
affecting the administration of an employee benefit plan." Id. at 15a.
Relying on Dukes v. U.S. Healthcare, Inc., 57 F.3d 350 (3d Cir.), cert.
denied, 516 U.S. 1009 (1995), he concluded that this case involves claims
about the quality of health care benefits actually received, which are not
preempted by ERISA, rather than claims that the quantum of benefits promised
was not provided, a dispute that ERISA does control. Pet. App. 15a-16a.
DISCUSSION
The Pennsylvania Supreme Court held flatly that "negligence claims
against a health maintenance organization do not 'relate to' an ERISA plan."
Pet. App. 11a. In our view, that holding is both overbroad and incorrect
as applied to this case. In many circumstances, including this case, the
blanket non-preemption rule announced by the Pennsylvania Supreme Court
conflicts with the core holding of Pilot Life Insurance Co. v. Dedeaux,
481 U.S. 41, 48 (1987), that ERISA preempts state common-law causes of action
for improper processing of a claim for benefits under an employee benefit
plan. The Pennsylvania Supreme Court's decision also conflicts with a number
of federal court of appeals decisions holding that ERISA preempts state-law
claims challenging decisions by HMOs and other plan administrators to deny
or delay authorization for particular medical treatments or treatment at
particular hospitals. Finally, questions regarding the scope of ERISA preemption
of negligence claims against HMOs are currently of great nationwide importance.
This Court's disposition of Pegram v. Herdrich, No. 98-1949 (to be argued
Feb. 23, 2000), may have relevance to this case, and we therefore suggest
that the Court hold the petition in this case pending its decision in Pegram.
But both the conflict between the Pennsylvania Supreme Court and several
courts of appeals, and the importance of the question presented here, suggest
that, if Pegram does not clearly resolve this case, plenary review would
be warranted.4
1. Based on the limited but undisputed facts of record in this case, it
appears that petitioner denied Mr. Pappas a benefit he was entitled to receive
under the terms of his plan -emergency care at a hospital outside the HMO
network- and that respondents seek to hold petitioner liable for its negligence
in making that erroneous benefit determination. When viewed in that light,
respondents' claims are preempted by ERISA because they relate to plan administration
and would provide an independent enforcement mechanism as an alternative
to ERISA's limited remedies. As a result, the Pennsylvania Supreme Court
decision is both incorrect in this case and overbroad as a general matter
under existing law.5
As we explain in our recent amicus brief in Pegram v. Herdrich, No. 98-1949
(filed November 19, 1999), an HMO can perform various functions in relation
to an employee welfare benefit plan. In re U.S. Healthcare, Inc., 193 F.3d
151, 162 (3d Cir. 1999); Dukes v. U.S. Healthcare, Inc., 57 F.3d 350, 361
(3d Cir.), cert. denied, 516 U.S. 1009 (1995). First, by its very nature,
an HMO serves as a medical-service provider to the plan, contracting for
or directly providing medical care to the plan's participants and beneficiaries.
In re U.S. Healthcare, 193 F.3d at 162. Second, it may serve as a plan administrator,
performing administrative duties such as determining eligibility for benefits,
calculating and disbursing benefits, monitoring available funds, and keeping
records. Ibid.; see also Fort Halifax Packing Co. v. Coyne, 482 U.S. 1,
9 (1987).6 Those roles can and should be distinguished for purposes of ERISA
preemption analysis, but the Pennsylvania Supreme Court failed to do so.
To understand those roles, it is helpful to begin with ERISA's definition
of a plan-particularly since both Pennsylvania appellate courts incorrectly
assumed that petitioner's HMO is identical to the employee benefit plan
sponsored by Mrs. Pappas's employer. Pet. App. 4a n.1, 23a n.3. ERISA defines
an "employee welfare benefit plan" as "any plan, fund, or
program * * * established or maintained by an employer * * * for the purpose
of providing for its participants or their beneficiaries, through the purchase
of insurance or otherwise * * * medical, surgical, or hospital care or benefits"
or other benefits. 29 U.S.C. 1002(1). Based on that definition, the essentials
of a plan have been interpreted to be the existence of "intended benefits,
a class of beneficiaries, [a] source of financing, and procedures for receiving
benefits." Donovan v. Dillingham, 688 F.2d 1367, 1373 (11th Cir. 1982);
accord Grimo v. Blue Cross/Blue Shield, 34 F.3d 148, 151 (2d Cir. 1994);
Kenney v. Roland Parson Contracting Corp., 28 F.3d 1254, 1257-1258 (D.C.
Cir. 1994) (collecting cases).
The ERISA plan in this case was the arrangement by which The Charming Shoppes,
Mrs. Pappas' employer, undertook to provide medical benefits to eligible
employees and their families, in this instance by purchasing memberships
in petitioner's HMO. The intended benefit was coverage for the specific
kinds of medical care specified in the Group Master Contract between petitioner
and The Charming Shoppes, care that is generally provided (except in emergencies)
by doctors and hospitals under contract with petitioner. R. 158a; see Danca
v. Private Health Care Sys., Inc., 185 F.3d 1, 6 n.6 (1st Cir. 1999) (explaining
that the benefits under an ERISA health plan are "the monetary payments
for medical services, not the services themselves"). The intended beneficiaries
were The Charming Shoppes' employees and their dependents enrolled in the
HMO. The source of funding was The Charming Shoppes, which paid premiums
to petitioner. Pet. 2; Pet. App. 35a-36a. And the procedure to apply for
and collect benefits under the HMO is outlined in the Member Handbook and
Group Master Contract. Under that procedure, petitioner decides whether
to authorize or reimburse treatment. R. 158a; Pet. 17. Petitioner itself,
however, is not an ERISA plan; rather, it is a service provider to the plan
and to its participants and beneficiaries.
As was true here, HMOs can perform at least two different roles in their
relationship with members who are enrolled under ERISA plans, and the correct
identification of the role being performed can have profound consequences
under ERISA. When an HMO acts as a medical service provider, a number of
courts have held-and we agree- that the HMO is subject to suit under state
law for negligence in performing its medical duties. In re U.S. Healthcare,
supra; Rice v. Panchal, 65 F.3d 637 (7th Cir. 1995); Pacificare of Okla.,
Inc. v. Burrage, 59 F.3d 151 (10th Cir. 1995); Dukes v. U.S. HealthCare,
Inc., 57 F.3d 350 (3d Cir.), cert. denied, 516 U.S. 1009 (1995); Lupo v.
Human Affairs Int'l, Inc., 28 F.3d 269 (2d Cir. 1994). In those cases, the
nonpreempted claims were generally either vicarious liability claims against
an HMO for medical malpractice by its agents, or direct claims against the
HMO for its negligence in selection and supervision of those agents. See,
e.g., Dukes, 57 F.3d at 352-353.
On the other hand, when an HMO makes benefit determinations in its role
as a plan administrator, most courts have held-and we agree-that ERISA preempts
any state-law challenges to those decisions. See, e.g., Parrino v. FHP,
Inc., 146 F.3d 699 (9th Cir.) (HMO denial of particular cancer treatment),
cert. denied, 119 S. Ct. 510 (1998); Turner v. Fallon Community Health Plan,
Inc., 127 F.3d 196 (1st Cir. 1997) (same), cert. denied, 523 U.S. 1072 (1998);
Cannon v. Group Health Serv. of Okla., Inc., 77 F.3d 1270 (10th Cir.) (HMO
delay in authorizing particular cancer treatment), cert. denied, 519 U.S.
816 (1996); Kuhl v. Lincoln Nat'l Health Plan of Kansas City, Inc., 999
F.2d 298 (8th Cir. 1993) (HMO delay in authorizing surgery at non-network
hospital), cert. denied, 510 U.S. 1045 (1994).
The Labor Department's ERISA claims regulations (both current and proposed)
also recognize that HMOs, like insurance companies and other organizations
outside the plan itself, may be responsible for making claim determinations
under an employee benefit plan. See 29 C.F.R. 2560.503-1(c), (g)(2) and
(j); see also 63 Fed. Reg. 48,408 (1998) (proposed amended claims regulation
defining an "adverse benefit determination" to include benefit
denials "resulting from the application of any utilization review directed
at cost containment"); see also id. at 48,406 (addressing claims procedures
of plans in which benefits are provided by an HMO or similar entity). As
both the case law and the regulations show, such benefit determinations
will often involve a significant component of medical judgment, and may
have tragic medical consequences. But, so long as the judgment is an adjunct
to a plan coverage decision, rather than a judgment made primarily in the
course of diagnosis or treatment, it is a "benefit determination nonetheless."
Corcoran v. United HealthCare, Inc., 965 F.2d 1321, 1332 (5th Cir.), cert.
denied, 506 U.S. 1033 (1992).7 And benefit determinations can be challenged
only under ERISA, not under state law, as this Court held in Pilot Life
(discussed at pp. 14-16, infra).
The distinction between plan administration and medical treatment may not
always be easy to apply in practice. In this case, however, the Pennsylvania
Supreme Court did not suggest that petitioner acted other than in its role
as plan administrator, or, indeed, that petitioner exercised any medical
judgment at all. Rather, the undisputed facts indicate that petitioner,
responding to an inquiry from a physician on behalf of a patient, made a
benefit determination. Although that determination conflicted with the terms
of the plan regarding emergency care and may have contributed to an avoidable
personal tragedy for Mr. Pappas and his wife, t was a "benefit determination
nonetheless." Corcoran, 965 F.2d at 1332. In these circumstances, it
is clear that any state-law action the Pappases themselves could have brought
against petitioner for negligent claims processing or misinterpretation
of plan terms would have been preempted.8 It is equally clear that the Pappases
could have (and did) bring a state negligence action against Dr. Asbel and
Haverford that is entirely outside ERISA's preemptive reach.
The preemption analysis is somewhat complicated because the claim before
the Court was brought by Haverford, a medical service provider, rather than
directly by the Pappases. Normally, a medical service provider has standing
to bring an ERISA claim only if it is an assignee of a participant or beneficiary.
See 29 U.S.C. 1132(a); Cagle v. Bruner, 112 F.3d 1510, 1515 (11th Cir. 1997)
(collecting cases). When a service provider brings such a derivative claim,
it is limited to ERISA remedies, and ERISA preempts any remedies under state
law. See, e.g., Memorial Hosp. Sys. v. Northbrook Life Ins. Co., 904 F.2d
236, 250 (5th Cir. 1990). On the other hand, a number of courts have held
that a service provider can sometimes bring an independent state-law action
against a plan administrator for negligent misrepresentation without running
afoul of ERISA preemption. In Home Health, Inc. v. Prudential Ins. Co. of
Am., 101 F.3d 600, 604 (8th Cir. 1996) (collecting cases). In those cases,
a service provider has typically contacted a plan administrator to ask whether
an individual is covered by the plan, been assured that coverage existed,
provided services in reliance on that assurance, and later been refused
payment on the ground that coverage did not exist under the plan. See, e.g.,
id. at 602; Lordmann Enters., Inc. v. Equicor, Inc., 32 F.3d 1529, 1530-1531
(11th Cir. 1994), cert. denied, 516 U.S. 930 (1995); Memorial Hosp. Sys.,
904 F.2d at 238.
Although neither line of service-provider cases addresses the precise scenario
presented here, their underlying principles support the conclusion that
respondents' claims are preempted. Haverford's third-party complaint alleged
that petitioner was liable for Haverford's delay in transferring Mr. Pappas
to a suitable hospital. Pet. App. 60a. It did not allege that petitioner
misled it or reneged on any promise. The only specific allegation against
petitioner is that petitioner refused to authorize coverage of treatment
at Jefferson, when asked to do so by Haverford on behalf of Mr. Pappas.
Under these circumstances, the complaint necessarily alleges that petitioner
made a benefit determination under the plan, which can be challenged only
under ERISA. Respondents' common-law negligence claim is therefore preempted.9
2. In Pilot Life, the Court held that ERISA preempts state common law causes
of action "based on alleged improper processing of a claim for benefits
under an employee benefit plan." 481 U.S. at 48. It reached that conclusion
for three reasons: (1) there was "no dispute that the common law causes
of action asserted in Dedeaux's complaint 'relate to' an employee benefit
plan" within the meaning of ERISA's express preemption provision, Section
514(a), 29 U.S.C. 1144(a), 481 U.S. at 47; (2) the state- law claims were
not saved from preemption by the insurance savings clause in Section 514(b)(2)(A)
of ERISA, 29 U.S.C. 1144(b)(2)(A), 481 U.S. at 48-51; and (3) the civil
enforcement provisions of Section 502(a) of ERISA, 29 U.S.C. 1132(a), are
"the exclusive vehicle for actions by ERISA-plan participants and beneficiaries
asserting improper processing of a claim for benefits." 481 U.S. at
52. The Pennsylvania Supreme Court's decision in this case conflicts with
the first and third rationales for the Pilot Life holding.10
Pilot Life involved a claim for long-term disability benefits under an ERISA
plan administered by an insurance company, which bore the responsibility
for making benefit determinations; the plaintiff was a plan participant
whose benefits the insurer had terminated and reinstated several times.
481 U.S. at 43. The Court, however, did not focus on either the type of
benefits or the reasons for their termination and reinstatement. Applying
Pilot Life in this case, the benefit at issue was coverage or payment for
emergency medical treatment at a hospital outside the HMO network of participating
providers. Coverage was denied before treatment was provided, rather than
after, even though pre-authorization was not required in an emergency, and
the denial was for reasons that contradicted the plain language of petitioner's
own brochure describing the covered benefits. Nevertheless, as discussed
at pages 12-13, supra, the cause of action here, like the one in Pilot Life,
in essence is "based on alleged improper processing of a claim for
benefits under an employee benefit plan," which this Court held is
expressly preempted by Section 514(a) of ERISA. 481 U.S. at 48.
Pilot Life also relied on a theory of field preemption, holding that "Congress
clearly expressed an intent that the civil enforcement provisions of ERISA
§ 502(a) be the exclusive vehicle for actions by ERISA-plan participants
and beneficiaries asserting improper processing of a claim for benefits,
and that varying state causes of action for claims within the scope of §
502(a) would pose an obstacle to the purposes and objectives of Congress."
481 U.S. at 52. While this Court has never delineated the boundaries of
that preempted field in the context of health care benefits, it seems clear
that they overlap with the boundaries of the field that the Pennsylvania
court declared nonpreempted- that is, all negligence claims against HMOs.
In addition, we believe that Pilot Life field preemption applies to this
case because respondents' claims-unlike some service-provider claims against
plans-essentially challenge petitioner's denial of benefits under the plan.11
The Pennsylvania Supreme Court disregarded Pilot Life because it believed
that this Court had limited that precedent's expansive interpretation of
the "relate[s] to" clause in subsequent decisions such as New
York State Conference of Blue Cross & Blue Shield Plans v. Travelers
Ins. Co., 514 U.S. 645 (1995), and De Buono v. NYSA-ILA Medical & Clinical
Services Fund, 520 U.S. 806 (1997). Pet. App. 6a-13a. But while Travelers
and De Buono both involved state-imposed economic burdens on the provision
of health care and emphasized that health care regulation is traditionally
left to the States, they did not involve state causes of action for benefits
against ERISA plans. As a result, neither case can reasonably be read to
limit Pilot Life's holding that such causes of action "relate to"
plans or that "ERISA's civil enforcement remedies were intended to
be exclusive" with respect to such causes of action. 481 U.S. at 54.
On the contrary, Travelers reaffirms the Court's earlier holdings that ERISA
preempts "state laws that mandate[] employee benefit structures or
their administration," as well as "state laws providing alternative
enforcement mechanisms" to those contained in ERISA. 514 U.S. at 658.12
3. The Pennsylvania Supreme Court's decision also conflicts with a long
list of federal court of appeals decisions, both before and after Travelers,
holding that ERISA preempts state-law challenges to decisions by HMOs, insurers,
utilization review organizations, and other plan administrators to deny
or delay authorization for particular medical treatments or treatment at
particular hospitals. See, e.g., Hull v. Fallon, 188 F.3d 939 (8th Cir.
1999) (refusal to authorize particular diagnostic test); Danca v. Private
Health Care Sys., Inc., supra (refusal to authorize treatment at a particular
hospital); Bast v. Prudential Ins. Co. of Am., 150 F.3d 1003 (9th Cir. 1998)
(delay in authorizing particular cancer treatment), cert. denied, 120 S.
Ct. 170 (1999); Jass v. Prudential Health Care Plan, Inc., 88 F.3d 1482
(7th Cir. 1996) (refusal to authorize physical therapy after knee surgery);
Cannon v. Group Health Serv. of Okla., Inc., supra (delay in authorizing
particular cancer treatment); Tolton v. American Biodyne, Inc., 48 F.3d
937 (6th Cir. 1995) (refusal to authorize psychiatric benefits); Kuhl v.
Lincoln Nat'l Health Plan of Kansas City, Inc., supra (delay in authorizing
surgery at non-network hospital); Corcoran v. United HealthCare, Inc., supra
(refusal to authorize hospitalization during high-risk pregnancy). Two of
those cases, Danca and Kuhl, specifically involved decisions by a utilization
review or health maintenance organization to deny preauthorization for treatment
at a particular hospital recommended by the patient's treating physician.
In each of those cases from seven different circuits, the courts treated
a decision to deny pre-authorization for medical treatment as a type of
benefit determination for which a state-law claim is preempted under Pilot
Life, and also often completely preempted under Metropolitian Life Insurance
Co. v. Taylor, 481 U.S. 58 (1987), requiring removal to federal court. See,
e.g., Danca, 185 F.3d at 5-6; Kuhl, 999 F.2d at 302-303. Thus, the federal
courts of appeals have concluded uniformly that Pilot Life mandates preemption
of state-law negligence claims alleging improper benefit determinations
by managed health care organizations acting on behalf of ERISA plans. The
decision of the Pennsylvania Supreme Court is in conflict with those decisions.
4. We agree with petitioner (Pet. 19-22) that, regardless of the merits,
this is an area of law of great importance. A majority of the 123 million
Americans who receive health care through ERISA-regulated employee benefit
plans are now subject to a managed care regime in which at least some coverage
decisions are made before treatment is provided. See Berg Testimony at 14.
The profusion of litigation in the lower courts as to the extent of ERISA
preemption with respect to activities by HMOs is further testament to the
importance of the issues presented and the regularity with which they arise.
And while Congress may eventually enact new legislation in this field, it
has not yet done so, and the issues under current law are significant enough
to warrant review by the Court.
5. In Pegram v. Herdrich, No. 98-1949 (to be argued Feb. 23, 2000), this
Court granted certiorari to review a Seventh Circuit decision holding that
individuals who obtained membership in an HMO through an ERISA plan stated
a claim of breach of fiduciary duty, in violation of ERISA. The plaintiff's
allegations in Pegram concern the HMO's allegedly improper incentive payments
to HMO physicians in connection with two kinds of conduct-the minimization
of certain costly forms of treatment and the physicians' determination of
whether certain claims fall within the scope of the medical benefits provided
by the HMO.
There is a connection between the second set of allegations-the "administration"
or claims-processing allegations -in Pegram and the allegations in this
case. For example, one of the arguments advanced by the petitioners in Pegram
(Pet. Br. 24-26)-an argument with which we disagree (see U.S. Br. 24-26)-is
that the "intended benefit" in an ERISA plan that provides medical
benefits through an HMO is simply membership in the HMO, not the particular
medical benefits to be provided by the HMO. If, however, that contention
were correct, then the conduct of the HMO in this case would not involve
a claim for benefits under an ERISA plan (because it would not involve a
question of membership in the HMO), and it is likely that the state-law
negligence claim would therefore not be preempted (though for a reason different
than that given by the Pennsylvania Supreme Court). Even if the Court rejects
petitioners' contention in Pegram (as we believe it should), the decision
in Pegram still could affect this case. We argue in Pegram (at Br. 20-23),
as we argue above, see pp. 11-12, that the "administration" claims
in Pegram are controlled by the principle that determinations regarding
the benefits due under ERISA plans are governed by ERISA and its fiduciary
duty standards, and we rely on this Court's precedents holding that state-law
claims based on the performance of such duties are preempted precisely because
they are governed by ERISA. If the Court adopts that view in Pegram and
reaffirms the underlying principle, it would effectively hold or at least
strongly imply that claims (such as the "administration" claims
in Pegram and the claim in this case) regarding allegedly improper benefits
determinations under ERISA plans are not subject to state law.
In short, the Court's disposition of Pegram could significantly illuminate
the question presented in this case. For that reason, the Court may wish
to hold the petition in this case pending its decision in Pegram. Nonetheless,
the question presented in this case (concerning preemption of state-law
causes of action) is fundamentally different from the question presented
in Pegram (concerning the scope of fiduciary duties under ERISA). For the
reasons given above, the question presented here is an important one, the
decision below conflicts with decisions of a number of federal courts, and
the issues in this case are regularly subject to litigation around the country.
Accordingly, if the decision in Pegram does not fully dispose of the question
presented in this case, the Court should grant plenary review in this case
to ensure uniform interpretation of the extent to which ERISA beneficiaries
may bring state-law negligence claims against HMOs.
CONCLUSION
The petition for a writ of certiorari should be held pending this Court's
decision in Pegram v. Herdrich, No. 98-1949, and then disposed of accordingly.
Alternatively, the petition for a writ of certiorari should be granted.
Respectfully submitted.
SETH P. WAXMAN
Solicitor General
EDWIN S. KNEEDLER
Deputy Solicitor General
JAMES A. FELDMAN
Assistant to the Solicitor
General
HENRY L. SOLANO
Solicitor of Labor
ALLEN H. FELDMAN
Associate Solicitor
NATHANIEL I. SPILLER
Deputy Associate Solicitor
ELLEN L. BEARD
Attorney
Department of Labor
DECEMBER 1999
1 Dr. Asbel also filed a cross-claim against petitioner seeking contribution
and indemnity, Pet. App. 3a-4a, 22a, 37a, which apparently was not pursued
and is not before this Court. See Pet. 5-6; Pet. App. 22a n.2, 38a, 46a.
2 The court also noted that, "if the original complaint had claimed
that [petitioner] was vicariously liable because of the negligence of its
contracting agents, Dr. Asbel and Haverford, in securing Mr. Pappas' transfer,
there would be no question" that the claim would withstand preemption.
Pet. App. 31a-32a. In fact, the record is unclear on whether either Dr.
Asbel or Haverford had a contractual relationship with petitioner as a participating
provider in its HMO network. Since the HMO is structured to provide services
through primary care physicians, and Dr. Asbel, an osteopath, performed
that role for Mr. Pappas, we assume that he was a participating provider.
See Pet. App. 3a, 20a; R. 158a. Dr. Dickter, who had worked full-time in
Haverford's emergency room for ten months at the time of these events, testified
that he had never previously called petitioner for any purpose. R. 60a,
67a. This suggests, if anything, that Haverford was not a participating
provider.
3 The court disagreed, however, with the Superior Court's reasoning that
the state-law claims at issue here are not preempted because "Congress,
when crafting ERISA, was ignorant of the cost containment procedures utilized
by HMOs." Pet. App. 12a n.6.
4 Respondents argue (Br. in Opp. 4-5) that this Court lacks jurisdiction
under 28 U.S.C. 1257(a) because the decision of the Pennsylvania Supreme
Court is not a final judgment. We agree with petitioner (Reply Br. 1-6)
that this case meets the four requirements for immediate review under Cox
Broadcasting Corp. v. Cohn, 420 U.S. 469, 482-483 (1975): (1) the federal
question, concerning ERISA preemption, has been finally decided; (2) petitioner
might prevail on remand on nonfederal grounds, making review of the federal
issue unnecessary; (3) reversal of the state court judgment on preemption
grounds would preclude further litigation; and (4) denying immediate review
might seriously erode federal policy regarding the scope of ERISA preemption
of tort claims against HMOs. This Court has previously granted certiorari
to review an ERISA preemption case in a similar posture without commenting
on any jurisdictional issue. See Ingersoll-Rand Co. v. McClendon, 498 U.S.
133, 136-137 (1990) (reviewing case in which Texas Supreme Court, holding
that state wrongful discharge claims were not preempted, had reversed and
remanded for trial).
5 The Department of Labor has supported proposed amendments to ERISA to
provide more effective remedies for improper benefit determinations, either
by narrowing ERISA preemption or strengthening ERISA remedies or both. See
ERISA Preemption: Remedies for Denied or Delayed Claims: Hearing Before
a Subcomm. of the Senate Comm. on Appropriations, 105th Cong., 2d Sess.
5-14 (1998) (testimony of Assistant Secretary Olena Berg) [hereinafter Berg
Testimony]; see also H.R. 2990, 106th Cong., 1st Sess. § 1302 (1999)
(provision in House-passed version of Patients' Bill of Rights amending
Section 514 of ERISA, 29 U.S.C. 1144, to save from preemption certain state
personal injury claims involving group health plans). The Department's position
is based on the belief that participants and beneficiaries of ERISA-covered
health plans currently have inadequate remedies for the negligence of plan
administrators in making benefit determinations. ERISA itself does not provide
compensatory damages for the improper processing of benefit claims. Mertens
v. Hewitt Assocs., 508 U.S. 248 (1993); Massachusetts Mut. Life Ins. Co.
v. Russell, 473 U.S. 134 (1985). At the same time, under Pilot Life, ERISA
appears to preempt most, if not all, state-law causes of action that could
provide such relief. Cf. UNUM Life Ins. Co. of Am. v. Ward, 119 S. Ct. 1380,
1390-1391 n.7 (1999).
6 An HMO also acts as an insurer to the extent that it bears risk. See Group
Life & Health Ins. Co. v. Royal Drug Co., 440 U.S. 205, 227 n.34 (1979)
(noting that "certain aspects" of advance-payment medical-benefits
plans may be the "business of insurance" under the McCarran-Ferguson
Act, 15 U.S.C. 1012). See also Washington Physicians' Serv. Ass'n v. Gregoire,
147 F.3d 1039, 1045-1046 (9th Cir. 1998) (an HMO "provides medical
services directly" and also is "in the business of insurance"),
cert. denied, 119 S. Ct. 1033 (1999); Anderson v. Humana, Inc., 24 F.3d
889, 892 (7th Cir. 1994). But see Texas Pharmacy Ass'n v. Prudential Ins.
Co., 105 F.3d 1035, 1038-1039 (5th Cir.), cert. denied, 522 U.S. 820 (1997).
7 If, however, the HMO makes the treating physician's medical judgment in
rendering treatment decisions the sole basis for coverage determinations
under an ERISA plan, ERISA would not preempt state malpractice claims against
the treating physician or state vicarious liability claims against the HMO
for those treatment decisions (as opposed to the benefit decisions).
8 ERISA provides a participant or beneficiary with causes of action "to
recover benefits due to him under the terms of his plan, to enforce his
rights under the terms of the plan, or to clarify his rights to future benefits
under the terms of the plan," 29 U.S.C. 1132(a)(1)(B), and "to
enjoin any act or practice which violates any provision of [ERISA] or the
terms of the plan, or * * * to obtain other appropriate equitable relief,"
29 U.S.C. 1132(a)(3). By the time the Pappases could bring suit here, however,
there was no further plan benefit due to them (appropriate treatment, albeit
critically delayed, had been provided and paid for), and there was no injunctive
or other equitable relief that could provide an appropriate or meaningful
remedy. Cf. Mertens v. Hewitt Assocs., 508 U.S. 248, 255-258 (1993) (only
traditional equitable relief available under ERISA).
9 It is possible that other state-law causes of action could have been alleged
in this case that would not be preempted. For example, if Dr. Asbel was
a network provider, the Pappases could have alleged that petitioner was
vicariously liable for his malpractice or directly negligent in selecting
him as a provider. See cases cited at page 10, supra. But no such claims
were made.
10 The second rationale for the Pilot Life holding is not at issue in this
case. As previously noted, p. 8 n.6, supra, the Secretary has argued, and
several courts have held, that HMOs can be insurers for purposes of the
insurance savings clause to the extent they bear insurance risks. There
is no contention, however, that respondents' claims against petitioner are
based on a state insurance law. Rather, like the claim in Pilot Life, they
are based on generally applicable tort law. Thus, unlike UNUM Life Insurance
Co. of America v. Ward, 119 S. Ct. 1380, 1390-1391 n.7 (1999), this case
does not involve ERISA's insurance savings clause or its construction in
Pilot Life. Nor does this case involve ERISA's deemer clause, 29 U.S.C.
1144(b)(2)(B).
11 We note that the Court indicated in Pilot Life that the field preemption
effect of Section 502 extended so far as to preempt even state insurance
laws that would otherwise be saved by ERISA's insurance savings clause.
See 481 U.S. at 52-57. We have argued that that conclusion may be subject
to doubt. See U.S. Amicus Br. 20-25, UNUM Life Ins. Co. of Am. v. Ward,
119 S. Ct. 1380 (1999). See also UNUM, 119 S. Ct. at 1390 n.7. That issue
is not presented here, however, since the state-law cause of action at issue
here is not one arising under a law that would be saved by ERISA's insurance
savings clause. See note 10, supra.
12 Because we do not understand the Pennsylvania Supreme Court to have "impose[d]
a substantive coverage requirement on ERISA-governed health plans,"
Pet. 8, as distinct from having subjected petitioner to suit for an erroneous
or negligently delayed coverage determination, we do not agree with petitioner
that the decision below conflicts with Metropolitan Life Insurance Co. v.
Massachusetts, 471 U.S. 724, 739 (1985), or Shaw v. Delta Air Lines, Inc.,
463 U.S. 85 (1983). See Pet. 8-9.