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					REECEFINAL                                                                          10/16/01 10:27 PM


                                        Sharon Reece*
INTRODUCTION.................................................................................... 19
I.   HEALTH CARE DELIVERY: THEN AND NOW ............................. 22
     A. The History of Health Care Delivery in the United
        States .................................................................................. 22
     B. The Current State of Health Care Delivery ...................... 25
     C. Cost Containment Measures.............................................. 30
     D. The Conflict........................................................................ 33
II.  THEORIES OF LIABILITY ............................................................ 36
III. THE PRINCIPAL OBSTACLE: PREEMPTION ............................... 41
     PREEMPTION IN THE MANAGED CARE CONTEXT ...................... 49
     A. The Supreme Court Addresses Preemption ...................... 49
        1. Is There a Plan? ............................................................ 51
        2. Before and After Travelers ........................................... 53
            a. The Early Cases—Before Travelers ........................ 54
            b. Outcome After Travelers ......................................... 60
     B. Litigants Fail to Dodge the Obstacle Under ERISA’s
     Fiduciary Provisions But Find Other Relief ........................... 62
     C. The Courts Address Complete Preemption ....................... 67
     RESPONDS ................................................................................. 71
VI. THE FEDERAL SOLUTION .......................................................... 74
CONCLUSION ....................................................................................... 81
APPENDIX A ........................................................................................ 82
APPENDIX B ........................................................................................ 83

  * Professor Sharon Reece, M.A., J.D., LLM. Professor Reece received her LL.M in
Taxation from New York University School of Law and subsequently taught at the Albany
Law School for many years. She is currently a Visiting Associate Professor of Law at Rutgers
University School of Law, Camden, New Jersey. Professor Reece would like to thank her
research assistant, Christy Schmidt, for her excellent research and editing.

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APPENDIX C ........................................................................................ 84
APPENDIX D ........................................................................................ 85
APPENDIX E ........................................................................................ 87
APPENDIX F......................................................................................... 89
APPENDIX G ........................................................................................ 91
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   American health care spending underwent uncontrollable growth
in the past several decades1 and by the early 1990s health care costs
were increasing exponentially.2 The government and employers
who purchased health care benefits sought measures to contain
rising health care costs and to manage the population’s
increasingly, more complex medical needs.3 These changes involved
new plan designs that included cost containment measures,
curtailment of access to medical services, improved technology, and
limitations on hospital stays through the use of pre-paid health care
  The new pre-paid plans, or managed care organizations (MCOs),
use cost containment measures to exert economic control over
medical decisions, while restricting patients’ freedom of choice over
their medical providers.5 This modus operandum effectively traps
participants in a medical care maze where the plan dictates the
nature and quantity of services the patients receive.6 Obviously,

     See Mark A. Hall, Institutional Control of Physician Behavior: Legal Barriers to Health
Care Cost Containment, 137 U. PA. L. REV. 431, 433 (1988) (citing the “revolutionary
transformation” in American medicine that has curtailed the “uncontrollable growth” in
health care spending that has occurred in the past decade).
ed. 1991) (“Americans spend more money on health care than they spend on groceries, owner-
occupied housing, or transportation”); DAVID U. HIMMELSTEIN & STEFFIE WOOLHANDLER, THE
NATIONAL HEALTH PROGRAM BOOK, 19-20 (1994) (noting that in 1993, the United States spent
more than $900 billion on health care, which represents 14.4% of the Gross National Product
     See Sharon M. Glenn, Comment, Tort Liability of Integrated Health Care Delivery
Systems:     Beyond Enterprise Liability, 29 WAKE FOREST L. REV. 305, 311 (1994)
(acknowledging that health care systems changed to combat the high health care costs and to
assist the new medical needs); Helene L. Parise, Comment, The Proper Extension of Tort
Liability Principles in the Managed Care Industry, 64 TEMP. L. REV. 977, 977 (1991)
(explaining that “government and corporate purchasers of health care benefits” have turned
to “various alternative health care delivery systems” to shelter themselves from the high
health care costs).
     See Parise, supra note 3, at 977 (noting that purchasers are turning to “prospective
payment plans that limit, rather than expand, hospitalization and the use of expensive
technology”); see also FURROW ET. AL., supra note 2, at 700-01 (noting that by utilizing prior
review or high-cost case management, employers control costs); Jack K. Kilcullen, Groping for
the Reins: ERISA, HMO Malpractice, and Enterprise Liability, 22 AM. J.L. & MED. 7, 23
(1996) (citing cost-cutting methods, but also noting providers’ concern that cost-containment
be linked with improved health care quality).
     See Kilcullen, supra note 4, at 25-26 (describing Preferred Provider Organizations (PPOs)
that shape subscribers’ choice of physicians through “better reimbursement rates”).
     See id. at 25 (indicating that managed care organizations indirectly impose limits on
patients’ health care decisions).
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20                                Albany Law Review                                  [Vol. 65

weighing cost against human life and quality of life could lead to
medical care compromises.7
  The process begins with an awkward risk assessment, reeking of
ethical dilemma.8 The dilemma ends with a patient, who, either a
victim of morbidity or mortality, effectively is left without a remedy
under what one must view as a serious and unpredicted “quirk” in
the law.9
  The Employee Retirement Income Security Act of 1974,10
(ERISA), which Congress primarily designed to protect pension
funds from forfeiture or loss caused by employee mismanagement
and the like, also extends to employee welfare plans including
healthcare plans.11 Since Congress drafted the statute in reaction to
an environment of failed pension plans and the economic dangers
associated with mass forfeiture, the statute’s design focused upon
protecting and harmonizing private pensions under a federal
umbrella.12 Although ERISA directly regulates health plans, it does
not provide substantive law for regulating such plans.13
  To further complicate this conundrum, ERISA preempts state
laws which “relate to” such plans14 and provides a basis for removal

       See Deven C. McGraw, Note, Financial Incentives to Limit Services: Should Physicians
be Required to Disclose these to Patients?, 83 GEO. L.J. 1821, 1824 (1995) (explaining how a
physician must weigh considerations such as “what treatment is medically necessary” and to
what extent that particular treatment will decrease their compensation).
       See id. (arguing that cost containment “place[s] physicians in a conflict of interest”
between their patients and their own economic self-interests).
       See McGraw, supra note 7, at 1836-37 (stating that patients have no protection against
financial incentives imposed by HMOs on physicians).
       Pub. L. No. 93-406, § 2, 88 Stat. 832 (1974) (codified at 29 U.S.C. § 1001 (1994))
[hereinafter ERISA].
       Under ERISA, a welfare benefit plan is,
    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, death or unemployment, or vacation benefits,
    apprenticeship or other training programs, or day care centers, scholarship funds, or
    prepaid legal services, or (B) any benefit described in section 186(c) of this title (other
    than pensions on retirement or death, and insurance to provide such pensions.
ERISA § 3, 29 U.S.C. §1002(1) (1994).
       ERISA provides a series of rules regarding vesting, participation, employees, funding,
fiduciary responsibilities, and remedial provisions. See ERISA § 202, 29 U.S.C. § 1052 (1994)
(stating that participation cannot be unduly delayed); ERISA § 302, 29 U.S.C. § 1082 (1994 &
Supp. V 1999) (requiring plans to be adequately funded); ERISA §§ 501-511, 29 U.S.C. §§
1131-1141 (1994 & Supp. V. 1999) (providing for administration and enforcement).
       ERISA § 3, 29 U.S.C. § 1002(1).
       ERISA § 514, 29 U.S.C. § 1144(a) (1994). See infra notes 169-240 and accompanying text
(illustrating the obstacles to preemption and explaining how federal law supersedes over state
laws relating to any employee benefit plan).
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to federal court through its preemption of claims.15 Preemption,
therefore, erects a barrier to state court suits or bars state laws
from regulating employee benefit plans except under specifically
articulated circumstances.16 Not only is a patient plaintiff often
unable to sue in state court with more liberal remedies, but often is
unable even to apply state law and is forced to apply ERISA, which
lacks extensive remedies.17
   In an effort to combat these traps and to secure state subject
matter jurisdiction, plaintiffs sometimes add state medical
malpractice claims, which are typically a matter of state law and
usually interpreted as a way of escaping preemption.18 Courts also
have attempted to dodge these traps by searching for ways to avoid
preemption and to allow state jurisdiction and state law to apply.19
   This article examines the solutions that the courts, legislatures,
and litigants have chosen in an attempt to disable the ERISA
preemption traps and considers the prognosis for the aggrieved
patient under legislation in this area, as Congress discusses and
votes towards a unified Patients’ Bill of Rights.20 This article argues
that since the Supreme Court has closed the avenue to sue MCOs as
fiduciaries directly under ERISA provisions, other avenues must be
opened in this maze of traps either through legislation or Supreme
Court interpretation.21 Where the MCO is the true tortfeasor—as
its financial bottom line and review procedures hamstring
physicians’ decisions—aggrieved patients should not be forced to
assert medical malpractice allegations against physicians merely to
provide the flavor of a state law claim to escape preemption under
ERISA.       Denial of benefits, which lead to quality-of-care
compromises, should be analyzed as traditional quality-of-care
issues and not as plan administration issues since the denial of

      ERISA § 502, 29 U.S.C. § 1132(e) (1994). See infra notes 187-97 and accompanying text
(setting forth the broad power given to the federal court by ERISA’s preemption doctrine).
      See infra notes 174-75, 251-98 and accompanying text (noting that unless it is
demonstrated that the state law in question does not “relate to” any employee benefit plan
enumerated in the ERISA provisions, federal preemption principle will govern).
      For example, ERISA mentions neither the right to a jury trial nor compensatory or
punitive damages. See infra notes 204-13 (providing for civil enforcement of claims).
      See infra notes 361-84 and accompanying text (illustrating how different courts have
treated cases which assert medical malpractice claims against HMOs).
      See Cartledge v. Miller, 457 F. Supp. 1146, 1156 (S.D.N.Y. 1978) (finding that there was
no preemption, despite the fact that the law clearly implicated preemption). See also JOHN H.
(discussing Cartledge v. Miller and noting that other courts soon followed its reasoning by
“refus[ing] to read § 514(a) literally to preempt state domestic relations orders”).
      See infra Parts III-VI.
      See infra Parts IV-VI.
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22                              Albany Law Review                                 [Vol. 65

benefits, at times, is the only mechanism that leads to the morbidity
or mortality.22 Additionally, courts should be able to hold employers
liable for the acts of MCOs chosen to service their employees. In the
same way that the choice of an annuity company by an employer to
provide pension benefits is a fiduciary decision23 for which an
employer is held accountable, the choice of an MCO to provide
healthcare to employees should be a fiduciary decision by the
employer for which the employer is held vicariously accountable.
   This article is divided into six parts. Part I gives a brief overview
of the historic development and current state of health care delivery
in the United States, including descriptions of managed care
organizations and their cost control methods, which increase the
likelihood of quality-of-care lawsuits.24 Part II addresses theories of
liability litigants have used against MCOs.25 Part III addresses the
greatest obstacle to suing plans on those theories and the ERISA
barrier of preemption.26 Part IV addresses how the circuits and the
Supreme Court’s ultimate rulings on the issues affected litigation
over those obstacles.27 Part V examines a variety of state legislative
attempts at a patients’ bill of rights.28 Part VI predicts the winners
and the losers under the alternate versions of the current House
and Senate Congressional Patients’ Bill of Rights.29


  A. The History of Health Care Delivery in the United States

  Originally, health care followed a fee-for-service plan model where
a fee was paid to the provider for each service provided either
directly by the insurance company or directly by the patient and
reimbursed by the insurance company.30            Fee-for-service had
advantages for both the physician and the patient, the physician

      See infra notes 322 and accompanying text.
      Labor Dep’t. Letter on Fiduciary Responsibility and Plan Termination, [Jan.-June 1986]
Pens. & Ben. Rep. (BNA) 472 (Mar. 13, 1986) (noting that the Department of Labor has
interpreted the management of pension plans governed by ERISA to include certain fiduciary
      See infra notes 29-136 and accompanying text.
      See infra notes 137-168 and accompanying text.
      See infra notes 169-227 and accompanying text.
      See infra notes 228-384 and accompanying text.
      See infra notes 385-461 and accompanying text.
      See infra notes 462-513 and accompanying text.
      Stephen R. Latham, Regulation of Managed Care Incentive Payments to Physicians, 22
AM. J.L. & MED. 399, 400 (1996).
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was paid commensurate with the complexity of the case and the
patient could change physicians and shop around for the most
competitive fee.31 A procedure or a consultation generated a fee
commensurate to the complexity of the case—the more complex the
case, the higher the fee.32
  Some criticized this arrangement as a significant contributor to
the rise in health care costs since provider income was tied to the
number of procedures ordered and the cost of the procedures
performed.33 The temptation was to prescribe all care that was of
any benefit—even as a precautionary measure—regardless of cost,
and with the additional temptation to order or perform procedures
in borderline cases.34
  Insurance companies also participated in fee-for-service plans
either through indemnity plans, service benefits, or fixed fees.35 In
the indemnity plan, a stipulated fee was assigned to each procedure
and if the charges exceeded the insurance company’s fee, the patient
could be billed directly for the balance.36 Service benefit plans pay
for the entire cost of a predetermined quantity of medical care that
has been negotiated with the patient at a price that (usually) has
also been negotiated with the health care provider.37 Under a fixed

      See Alma L. Koch, Financing Health Services, in INTRODUCTION TO HEALTH SERVICES
132 (Stephen J. Williams & Paul R. Torrens eds. 5th ed. 1999) (stating that the fee-for-service
system is widely used worldwide and the most preferred by doctors).
THE HEALTH CARE SYSTEM IN THE 1990s at 87-88 (rev. and updated ed. 1993) (describing the
process by which an insurance company determines the fee to be paid to doctors for a specific
      Studies show a significant portion of health care services delivered were either
unnecessary or inappropriate. For example, of services performed on Medicare patients in
eight states, 17% of coronary angiographies, 32% of carotid endarterectomies and 17% of
upper gastrointestinal tract endoscopies were medically unnecessary. Mark R. Chassin et al.,
Does Inappropriate Use Explain Geographic Variations in the Use of Health Care Services?,
258 J. AM. MED. ASS’N. 2533, 2535 (1987). See Wasted Health Care Dollars, CONSUMER REP.,
July 1992, at 435, 438 (stating “the more doctors do, the more they get paid–a situation that’s
tailor-made for cost escalation”).
      See Wasted Health Care Dollars, supra note 33, at 441 (stating, “[e]very symptom can be
investigated by a huge array of tests . . . [and doctors] have certain procedures that seem to
work for them, and they’d prefer to keep doing them, especially in areas where there’s a lot of
      See David D. Griner, Paying the Piper: Third-Party Payor Liability for Medical
Treatment Decisions, 25 GA. L. REV. 861, 870 (1991) (explaining how indemnity plans
reimburse the subscriber for medical expenses and service benefit plans guarantee payment
to the doctor or hospital).
      See id. at 871 (noting that indemnity plans are arranged so that there is little
involvement between the third-party and the health care provider).
      For example, an insurance company might provide a specific number of days in a specific
hospital for a subscriber paying premiums that are determined by the amount of care that is
available to him. See id. at 871-72 (describing the difference between a straight indemnity
plan and a service benefit plan).
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24                                Albany Law Review                                   [Vol. 65

fee plan, the insurance company only reimbursed the physician a
fixed fee for each patient’s medical treatment, regardless of the
specific procedures actually performed.38
   The conventional medical insurance plans typically exerted no
control over the patient’s choice of a physician or over the
physician’s delivery of care.39 Doctors placed “the patient’s care and
treatment above all other considerations, and prescribed “all care
that was of any benefit regardless of the cost,”40 and the patient paid
a separate fee for each service provided.41 Physicians could even
refer patients to treatment facilities in which he or she had a
financial interest.42 Patients were less concerned about the cost of
medical service, since, ostensibly, a third party was actually paying
the bill. This lack of concern for prices, combined with other factors,
caused health care costs to increase drastically.43
   MCOs curtailed these practices by compensating physicians on a
per-patient, rather than on a fee-for-service, basis.44 Under the
MCO’s system, the physician receives a predetermined fee for each

      See Koch, supra note 31, at 133 (indicating that many HMOs adopt fixed fee plans
“especially for specialists contracted with the health plan”); Kenneth R. Pedroza, Note,
Cutting Fat or Cutting Corners, Health Care Delivery and Its Respondent Effect on Liability,
38 ARIZ. L. REV. 399, 406 (1996) (describing that the Medicare Diagnosis-Related Group
(DRG) engaged in a wide-scale effort to control medical costs by fixing the amount that would
be paid to a physician for a given hospital admission, regardless of the services that were
actually rendered).
      See Griner, supra note 35, at 861 (stating, “[i]n this simplest form, the third-party payor
merely pays the health care provider or reimburses the patient for health care expenses, but
exerts no influence over individual treatment decisions”).
      See id. at 881 (emphasizing that patient attitudes toward third party payors combined
with physicians’ desire to provide quality care caused medical costs to soar).
      See Latham, supra note 30, at 400 (explaining that patients insulated themselves from
substantial costs, with the exception of a minimal co-payment or deductible, by utilizing fee-
for-service reimbursement plans).
      See Wasted Health Care Dollars, supra note 32 at 439 (defining the escalating practice of
“induced demand,” in which physicians refer patients to treatment facilities in order to reap
financial gains from created medical “needs”); see also Laura A. Scofea, The Development and
Growth of Employer-Provided Health Insurance, 117 MONTHLY LAB. REV. 3, 7 (March 1994),
at (describing that today, most preferred
provider organizations employ a health plan official to control referrals made by physicians).
      See Tearing U.S. Apart, Part 6: Health Care, ATLANTA J. & CONST., July 26, 1996, at
A16, available at 1996 WL 8222144 (using a bar graph to show health care expenditures as a
percentage of Gross Domestic Product–5.9% in 1965, 7.4% in 1970, 8.4% in 1975, 9.3% in
1980, 10.8% in 1985, 12.6% in 1990, 13.6% in 1992, and 13.9% in 1993); see also June M.
Sullivan, Note, Overcoming the ERISA Barrier to Recovery Against HMOs: Current Trends
and Legislation, 4 QUINNIPIAC HEALTH L.J. 245, 245 & n.12, 246 (2001) (listing some of the
factors that are causing health care prices to rise in an era where Americans are demanding
first-rate medical services that they cannot afford).
      See Pedroza, supra note 38, at 410-16 (describing the cost-saving measures in use in
some of the more popular managed care organizational models).
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patient, regardless of the care provided.45 This arrangement is
referred to as a capitation rate—an actuarially determined prepaid
amount that represents the projected health care cost of each plan
member for the year.46 Borderline and unnecessary procedures
became unprofitable under the new MCOs since the profit margin
and the service costs were embedded in the fixed fee.47 The new
plan style contrasts with the fee-for-service medical insurance plan
model that dominated the healthcare industry for the previous three

               B. The Current State of Health Care Delivery

  “Today, most would not recognize Norman Rockwell’s portrait of
the family doctor.”49 The period during which an independent
physician rendered health care to his or her patients has been
steadily eclipsed by the proliferation of the managed care
structure.50 In 1999, about 906 HMOs operated in the United
States.51 Statistics reveal that the number of persons enrolled in
HMOs increased from approximately 67 million in 1995 to an
estimated 104 million in 1999.52 Consumers became members of
managed care plans either because their employer mandated
participation, or because the employee determined that the cost was

      Id. at 411.
      Id. at 408. See Boyd v. Albert Einstein Med. Ctr., 547 A.2d 1229, 1234 (Pa. Super. Ct.
1998) (discussing the method of calculating the capitation rate based on patient age groups
and apportionment by individual health care facilities); see also STOLINE ET AL., supra note
32, at 88 (describing how managed care organizations use capitation plans to share financial
risk with their health care providers).
      See Randall Bovbjerg, The Medical Malpractice Standard of Care:            HMOs and
Customary Practice, 1975 DUKE L.J. 1375, 1376 (1975) (noting that the fixed capitation
payment motivated the HMOs to scrutinize the effectiveness of the risk-reducing measures);
see also Pedroza, supra note 38, at 408 (noting that the inability to keep costs within the
capitated payments results in financial losses); McGraw, supra note 7, at 1824 (pointing out
that physicians are responsible for costs over and above the capitated rate and may also be
responsible for the cost of inappropriate referrals).
      See M. Cathleen Kaveny, Managed Care, Assisted Suicide, and Vulnerable Populations,
73 NOTRE DAME L. REV. 1275, 1279-1280 (1998) (explaining the historical development of
managed care and strategies employed by managed care organizations to effectively cut costs
including the restructuring of the traditional reimbursement system).
      Dunn v. Praiss, 656 A.2d 413, 415 (N.J. 1995).
      See Michael Rustad & Thomas Koenig, Reconceptualizing Punitive Damages in Medical
Malpractice: Targeting Amoral Corporations, Not “Moral Monsters,” 47 RUTGERS L. REV. 975,
1050-51 (1995) (noting “[t]he era in which health care services are rendered by the
independent physician is ‘nearly over’”).
      Managed Care-Health Maintenance Organizations (HMOs), 14 SMG MARKET LETTER
(SMG Marketing Group), Jan. 2000, at 6.
      See id. (discussing the structures and enrollment trends of the HMO industry, including
membership information for the years 1995-1999).
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26                               Albany Law Review                                  [Vol. 65

lower than the alternative “indemnity—type” insurance plans.53 As
more and more consumers joined managed care plans, physicians
were impelled by the marketplace to participate in managed care
  The two most popular MCOs are Health Maintenance
Organizations, (HMOs)55 and Preferred Provider Organizations
(PPOs).56 In a PPO, an administrative structure is established
whereby the employer purchases health care services for its
employees from providers such as physicians and hospitals for a
predetermined discounted fee arrangement.57           The providers
contract to provide services to a defined group of recipients on a
discounted basis, hoping the quid pro quo will be an increase in
patient volume to offset the revenue loss from the discount.58 In the
exclusive version, the patient must access care from a participating

      For an example of indemnity plan rates compared to an HMO, consider two examples
from Horizon Blue Cross/Blue Shield of New Jersey. A family indemnity plan with a
reimbursement rate of 80% and a deductible of $1,000.00 costs approximately $2,002.31 per
month. An HMO plan with a $10.00 co-pay for the same family costs approximately
$1,379.13 per month. The difference amounts to $7,478.16 per year. See HORIZON BLUE
CROSS        BLUE       SHIELD      OF     NEW      JERSEY,      RATE      WIZARD           at (last visited Oct. 6, 2001) (quoting rates for the
listed parameters).
      See John K. Inglehart, The American Health Care System–Managed Care, 327 NEW ENG.
J. MED. 742, 743 (1992) (commenting on the high percentage of physicians that are involved
with some form of managed care); see also Alan L. Hillman et al., How Do Financial
Incentives Affect Physicians’ Clinical Decisions and the Financial Performance of Health
Maintenance Organizations?, 321 NEW ENG. J. MED. 86, 90 (1989) (describing the effects of a
high percentage of HMO member patients on a physician’s compliance rate with HMO
      The term “managed care entity” refers to “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.” TEX. CIV. PRAC. & REM. CODE ANN. §88.001(8) (Vernon Supp. 2001); see also
William A. Chittenden III, Malpractice Liability and Managed Health Care: History and
Prognosis, 26 TORT & INS. L.J. 451, 452 n.2 (1991) (defining health maintenance organization
(HMO), “as an integrated prepaid health care delivery system in which subscribers pay an
enrollment fee in exchange for medical care”).
      See Chittenden, supra note 55, at 452-53 (defining the PPO under the category as a form
of managed health care). PPOs are sometimes referred to as “Preferred Provider Agreements”
[5][c] (1996) (discussing legislation pertaining to “preferred providers” and distinguishing
between the entity (PPO) as opposed to the arrangement (PPA)).
      See Chittenden, supra note 55, at 452-53 (indicating that the PPO is a newer “cost-
containment innovation in the health care industry”).
      See Stephen J. Williams & Paul R. Torrens, Managed Care: Restructuring the System, in
INTRODUCTION TO HEALTH SERVICES 155 (Stephen J. Williams & Paul R. Torrens eds. 5th ed.
1999) (explaining that by agreeing to take a discounted price the providers are put on a
special list of “preferred providers”); John Lewis Smith III & Lawrence L. Lamade, Preferred
Provider Plans Break New Legal Ground, LEGAL TIMES, Nov. 21, 1983, at 27 (noting that
consumers are encouraged by health care organizations to utilize preferred providers through
the elimination of copayments and deductibles).
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2001]                 Journey to the Patients’ Bill of Rights                              27

provider or pay the entire cost out-of-pocket.59 In the more flexible
form, nonparticipating providers are paid just a percentage of their
fee for their services and the patient can be billed for the
remainder.60 The distinguishing feature of a PPO is that it
encompasses a limited number of providers who are willing to
negotiate reduced fee schedules.61 The PPO members pay co-
insurance “‘premiums’ to the organization which, in turn,
reimburses the providers directly for their services.”62         The
participants are not required to use the preferred physicians, but if
they do they receive “lower deductibles, higher benefit levels and
reduced or nonexistent coinsurance.”63
   The HMO is more restrictive than the PPO. The PPO provides a
list of low-cost providers from which the patient can choose to
receive care. On the other hand, the HMO provides a fixed list of
enrolled potential patients to the provider.64 The subscriber in an
HMO, typically an employer, prepays a fixed premium to the HMO
for the health care of its employees.65 This amount remains fixed
regardless of the amount of medical services accessed.66 The
employer’s resources are therefore protected against large health
care costs.67 Once an employee enrolls in an HMO, the employee
must receive care from the plan providers. Where employees are
offered a choice of HMOs, the element of choice essentially stops at

      See Smith & Lamade, supra note 58 (discussing the characteristics of PPO’s).
(1991) 388 (describing the advantages of the more flexible form of preferred provider
      See id. (noting the other three elements of PPO’s are utilization review, consumer choice
of provider, and expedient settlement of claims).
      Chittenden, supra note 55, at 452-53.
      Id. at 453. Three basic PPO models exist. See Parise, supra note 3, at 982
(distinguishing between the provider sponsored plan, where providers organize and promote
the plan, the carrier model, where insurance companies develop the plan by contracting with
the providers and marketing the plan to employers, and the broker model, where independent
agents contract with multiple providers). Discounts to subscribers are realized because the
PPO system provides an assured volume of business and prompt payment. Id. at 982.
       See Williams & Torrens, supra note 58, at 156 (noting that the HMOs per capita
payment scheme ensures the provider with a fixed revenue regardless of the number of
patients that receive care).
      See Parise, supra note 3, at 982 (stating that “excessive costs,” such as extended
hospitalizations and surgeries “can cause the HMO to lose money”).
      See FURROW ET. AL, supra note 2, at 472 (pointing out that this fixed rate covers both
office-based and hospital-based care).
      See Chittenden, supra note 55, at 452 n.2 (stating that the risk of loss is borne by the
HMO since premiums are fixed and prepaid in advance of the delivery of health care
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this initial point, as once they choose an HMO, they are limited to
which providers they are permitted to use.68
  The three basic types of HMO models are the staff model, the
group model and the individual practice association, or “IPA”
model.69 The models can be distinguished by the relationship
between the HMO and the physicians.70 In the staff model, the
HMO owns and operates the facilities in which the physicians work
as salaried employees.71 The HMO has full responsibility for the
selection of the physicians and a typical employer-employee
relationship exists.72
  The group model is similar to the staff model in that the
physicians usually work in facilities owned or operated by the
HMO.73 Like the staff model, the group model enables a patient to
obtain a variety of services from a single source rather than from
various independent providers.74 The difference between the two
models is that a group model HMO provides health care services to
an enrolled population by contracting with an independent,
organized medical group—such as a partnership or an incorporated
group practice—rather than with individual physicians.75 The
physician is not in an employer relationship with the HMO because
the medical group hires the physicians76 and pays the physicians’
salaries. The medical group also retains its independence by
continuing to service fee-for-service patients in addition to plan
members.77 The group practice then is able to add this prepaid

50, at 388 (1991) (noting that a key difference between the HMO and PPO is that persons
enrolled in an HMO are restricted to using the providers available through the plan, while
PPO enrollees have the option of utilizing outside providers at additional costs).
      Michael Kanute, Comment, Evolving Theories of Malpractice Liability for HMOs, 20
LOY. U. CHI. L.J. 841, 842-44 (1989).
      Id. at 842.
      Karen A. Jordan, Managed Competition and Limited Choice of Providers: Countering
Negative Perceptions Through a Responsibility to Select Quality Network Physicians, 27 ARIZ.
ST. L.J. 875, 902-03 (1995) (stating that this system has “the most complete level of
integration of both health care delivery and financing”).
      Chittenden, supra note 55, at 452; Jordan, supra note 71, at 902; Kanute, supra note 69,
at 842.
      Kanute, supra note 69, at 843.
      See Gregory G. Binford, Malpractice and the Prepaid Health Care Organization, 3
WHITTIER L. REV. 337, 340 (1981) (explaining how the group model organization markets
itself as a “total health care package”).
      See Kanute, supra note 69, at 843 (contrasting the group model with the staff model
HMO ).
      See Jordan, supra note 71, at 903 (describing how the medical group and not the HMO
administrators, “make selection decisions as to individual physicians”).
      See id. (detailing the differences between the staff and group model HMO).
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HMO component to its existing fee-for-service practice through its
affiliation with the HMO. 78
  In the IPA model, the HMO contracts with a separate legal entity
called an “IPA,” which is usually a partnership or a corporation of
physicians.79 A physician may join this collaborative group of
physicians, all of whom are in independent practice and do not
typically share resources, revenues, or premises.80 By contrast, the
group model physicians may share resources, premises, and
revenues.81      The IPA represents practitioners in contract
negotiations with HMOs and then assigns practitioners HMO
enrolled members.82 The physician within the group of independent
practitioners‘ remains free to provide services on a fee-for-service
basis to other members of the community, with the HMO contracts
as additional sources of revenue for the physician.83 The HMO pays
the IPA a capitation fee that is spread among the physician
participants.84 In this sense the IPA model seems to resemble the
group model—the only difference being that the group model pays
physicians on a salaried basis, and the IPA pays according to a fee-
for-service arrangement.85
  Although the distinctions are subtle, they are crucial to the issue
of potential liability for medical malpractice. The closer the link

      See Kanute, supra note 69, at 843 (recognizing that “unlike the staff HMO, the group
may or may not devote a majority of its time to serving the needs of the HMO”).
      Id. (noting that the IPA contracts directly with its physicians). See also Jordan, supra
note 71, at 902-03 (explaining how the IPA model operates in practice).
      See Jordan, supra note 71, at 903 (stating that physicians practice in their own offices
and use their own equipment).
      See id. (explaining how group model like the staff model physicians use HMO owned
      See Kanute, supra note 69, at 843 (describing the contractual relationship between the
HMO, IPA and practicing physicians).
      See Jordan, supra note 71, at 903 (stating, “[t]he medical group may continue operating
a private, fee-for-service practice in addition to the pre-paid HMO obligations”); see also
Williams & Torrens, supra note 58, at 157 (indicating that the physicians involved in HMOs
must make thoughtful decisions because they have long term consequences).
      A capitation fee is an actuarially determined prepaid amount that represents the
projected health care cost of each plan member for the year. Boyd v. Albert Einstein Med.
Ctr., 547 A.2d 1229, 1234 (Pa. Super. Ct. 1988). See also Williams & Torrens, supra note 58,
at 155 (noting that this “per capita form of reimbursement to the medical provider . . . is what
makes the HMO form of managed care significantly different from the PPO form”).
      See Kanute, supra note 69, at 841 (noting that the IPA model combines the features of
both the staff and group model HMOs). See also Robert N. Meyer, Group Prepaid Health
Plan Liability When a Physician Provider Malpractices, 6 N.M. L. REV. 79, 80 (1975) (stating
that some group plans employ doctors directly). Under the fee-for-service system, payment is
made for services and the amount of payment reflects the actual amount of services rendered.
See Kanute, supra note 69, at 841 n.1.
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30                                Albany Law Review                                  [Vol. 65

between the provider and the HMO, the greater the likelihood that
the HMO will be held responsible for the acts of their providers.86

                         C. Cost Containment Measures

  MCOs were seen as the cure for rising health care costs
(nationwide health care costs grew from $12.7 billion in 1950 to
$647 billion in 1990),87 and preliminary evidence showed that MCOs
caused a reduction in health care costs.88 The data revealed that as
a result of managed care, private employer health care costs fell
from double digit increases to a 6.4% increase in 1994.89 A 1995
study calculated that hospital costs in 1993 in areas with high levels
of managed care penetration were 11.5% lower than the national
average, whereas hospital costs in areas with moderate levels of
managed care involvement were 3.6% higher than the average.90 In
addition, in areas with high levels of managed care, hospital stays
were 16.9% shorter than expected for patients with similar
conditions, whereas in areas with low levels of managed care
hospital stays were 17.5% longer than expected.91
  Studies attribute this cost reduction to HMO contracts, which
provide services for rates below the typical fee-for-service charge,
and to the profitability of tight controls over the expenditure of
premiums HMOs receive from employers.92 Physicians are therefore

      See Kanute, supra note 69, at 844 (acknowledging that it is critical “to look past the
HMO label” when attempting to examine and evaluate an HMO for its liability).
      See FURROW ET. AL., supra note 2, at 661 (noting that “[r]ecent increases in the cost of
medical care are alarming”). See also Robert H. Brook ET. AL., Health System Reform and
Quality, 276 JAMA 476, 476 (1996) (indicating that “[t]he transition to managed care in the
United States has been largely driven by a desire by employers, insurance companies, and the
public to control soaring health care costs”).
      FURROW ET. AL, supra note 2, at 717 (noting that studies have “found that HMOs cost
from 10-40% less than fee for service plans”).
      Spencer Rich, Rise in Health Care Spending Slows; Lowest Growth Rate in Three
Decades Tied to HMOs, Low Inflation, WASH. POST, May 28, 1996, at A09, LEXIS, NEXIS
Library WASH. POST File. See also Robert Pear, Health Costs Are Growing More Slowly,
Report Says, N.Y. TIMES, MAY 28, 1996, at A13 (stating that the small increase in health care
costs was the slowest growth recorded in more than three decades).
      See Managed Care: Hospital Costs, Patient Stays, Deaths Lower in Managed Settings,
Study Finds, Health Care Daily (BNA), June 15, 1995, WL 6/12/95 HCD d12 (indicating
[m]arkets with high levels of managed care have had lower costs, shorter hospital stays, and
fewer deaths than those with more traditional health delivery systems”).
      See Bovbjerg, supra note 47, at 1376 (indicating that one characteristic of an HMO is its
ability “to provide all the medical care their enrollees need in exchange for fixed, advance
capitation payments”); McGraw, supra note 7, at 1825-26 (citing studies that indicate
traditional fee for service payment arrangements resulted in a significant number of
unnecessary medical services, which has been curtailed by managed care systems that are
more cost-efficient).
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made to share the financial risk since the prepaid fee is fixed and
does not fluctuate depending on the services provided.93
Additionally, physicians are both implicitly and explicitly
encouraged to avoid the use of costly treatments and specialists,
although this further limits medical options available to
  The main strategies MCOs employ to control costs are financial
incentive programs for physicians95 and utilization review of
physicians.96 Physician incentive programs operate in a number of
ways through primary care physicians.97 Primary care physicians
address the general medical needs of the population, and refer
patients for specialty care in the event of complications or certain
medical conditions.98 Therefore, doctors are key to medical cost
containment because they control the vast bulk of health care
expenditures.99    All patients must first visit a primary care
physician, often deemed “gatekeepers,” who are expected to refer
patients for more extensive procedures only if they believe the
condition warrants it.100 All treatment must be arranged or
provided by the primary care physician in order for the plan
member to receive plan benefits.101 Individual practitioners control,

       See McGraw, supra note 7, at 1827 (explaining how the capitated rate motivates doctors
to only prescribe “medically necessary treatment”).
       See William F. Brossman, Jr., Legal Liability Issues in Managed Care, A.L.I.-A.B.A. 471,
474-76 (1991), WL C653 ALI-ABA 471 (addressing the techniques used by managed care
companies to avoid unwarranted procedures and the use of “gatekeeper[s],” which require
pre-approval by a primary care physician in order to receive “higher level[s] of benefits”). See
generally Jonathan J. Frankel, Note, Medical Malpractice Law and Health Care Cost
Containment: Lessons for Reformers from the Clash of Cultures, 103 YALE L.J. 1297, 1303
(1994) (stating that the reviewing organizations decision to deny coverage “turn[s] a denial of
third-party funding into a denial of access to care” for the patient).
       See McGraw, supra note 7, at 1827-28 (noting physicians share some of the financial risk
for providing the health care needs of managed care plan enrollees).
       See id. at 1826 (stating “[u]tilization review involves the use of an independent reviewer
to evaluate the physician’s treatment decision to determine if the treatment is necessary and
if it will be delivered in the most cost-effective manner”) (footnote omitted). See generally
Griner, supra note 35, at 883-86 (describing the development of utilization review, its
procedures, and effects).
       See McGraw, supra note 7, at 1827 n. 38 (listing the methods HMOs employ to provide
financial incentives).
       See Hall, supra note 1, at 434 (noting that physicians “determine when, how long, how
intensively, and in what environment to treat patients”).
       See id. (stating that doctors, not hospitals, influence the majority of health care
       See Iglehart, supra note 53, at 745 (indicating that an enrolled member can be referred
to a specialist only by his or her primary care physician). See generally Michael D. Reagan,
Physicians as Gatekeepers: A Complex Challenge, 317 NEW ENG. J. MED. 1731, 1731-32
(1987) (explaining how primary care physicians function as gatekeepers).
       See Brossman, supra note 94, at 476 (stating that the gatekeeper technique is similar to
other features used by HMOs); Hall, supra note 1, at 434 (explaining that individual
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32                              Albany Law Review                                [Vol. 65

according to informed estimates, seventy to ninety percent of health
care spending outlay.102
   This incredible level of power over cost control is governed by
financial incentives.      MCOs offer positive reinforcement for
adhering to these restrictions in the form of cash, vacation benefits,
and preferable scheduling.103 Under a withhold agreement, a
certain percentage of the capitation amount,104 is withheld from the
physician’s salary for review at the end of the contract period.105
The HMO establishes and provides gatekeeper primary care
physicians with aggregate target levels for use of costly health care
services such as referrals to specialists, expensive laboratory tests,
and inpatient hospital stays.106 If the physician’s modus operandum
results in medical care services below the target, the HMO returns
the withheld premium to the physician, but if the physician exceeds
that targeted level, the HMO penalizes the physician through a
“forfeiture of all or part of the amount withheld.”107 HMOs also
“frequently reserve the right to fire physicians without cause.”108
Bonus arrangements also operate as positive reinforcement, since a
bonus is paid at the end of the contract period if referrals are
controlled.109 If the HMO finds that the physician has been
incurring too many high-end medical services, even though the
physician may not exceed the target, the HMO may not pay the
physician a bonus.110
   The MCOs also engage in a cost management process called
“‘utilization review’” to monitor and evaluate the medical necessity
and appropriateness of their physicians prescriptions or treatment

practitioners “control the vast bulk of health care expenditures” through their gatekeeper
       Hall, supra note 1, at 434 n.4. See John M. Eisenberg & Sankey V. Williams, Cost
Containment and Changing Physicians’ Practice Behavior: Can the Fox Learn to Guard the
Chicken Coop?, 246 JAMA 2195, 2195 (1981); Arnold S. Relman, The Allocation of Medical
Resources by Physicians, 55 J. MED. EDUC. 99, 99 (1980); Steven A. Schroeder, Variations in
Physician Practice Patterns: A Review of Medical Cost Implications, in THE PHYSICIAN AND
COST CONTROL, 23, 23 (E. Carels, D. Neuhauser & W. Statson eds. 1980).
       Williams & Torrens, supra note 58, at 159.
       See McGraw, supra note 7, at 1827-28 (explaining that the amount withheld is used to
pay for the costs of “excessive referrals to specialists” or for “the use of expensive high
technology health services”).
       See id. 1827-28 (noting that the motivation behind withholding the capitated payment
is to encourage the physician to prescribe only medically necessary treatment).
       Id. at 1828.
       Ellyn E. Spragins, Beware Your HMO, NEWSWEEK, Oct. 23, 1995, at 54.
       McGraw, supra note 7, at 1828.
       See id. (explaining how bonuses operate similarly to target levels).
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recommendations.111 Typically, the HMO or its agents perform the
utilization review to assess the necessity of medical treatment the
physician has recommended before the patient is treated.112 This
type of review is referred to as Prospective Utilization Review.113

                                      D. The Conflict

  Considering health care’s history and the rising costs inherent in
a fee-for-service system, the modern MCOs cost containment
methods appeared to be a welcome change.114 However, a conflict
arose because MCOs designed the incentive and utilization
programs to reduce cost by exerting control over the physician’s
judgment.115    Within this milieu of health care delivery, a
compromise in quality of medical care is an unavoidable risk.116

       “A managed care insurer may either perform the utilization review itself, or . . . assign
the task to a third party contractor.” Andrews-Clarke v. Travelers Ins. Co., 984 F. Supp. 49,
50-51 n.9 (D. Mass. 1997). See Dukes v. U.S. Healthcare, Inc., 57 F.3d 350, 352 & n.1 (3d Cir.
1995) (explaining that a patient’s denial of a timely blood test and treatment, which
eventually resulted in his death, was administered through an HMO using utilization
review); Corcoran v. United HealthCare, Inc., 965 F.2d 1321, 1323-24 (5th Cir. 1992)
(explaining that the decision not to admit the pregnant patient to the hospital, which resulted
in the death of the unborn child, was made through an HMO exercising utilization review);
Jennifer A. Hradil, Comment, Patchwork Patient Protection: Must We Choose a Single
Pattern?, 27 SETON HALL L. REV. 203, 210 & n.32, 211 (1996) (describing how the process of
utilization review can affect the beneficiary’s services and that the control over what is
administered remains with the MCO); F. Christopher Wethly, Note, New York Conference of
Blue Cross and Blue Shield Plans v. Travelers Insurance Co.: Vicarious Liability Malpractice
Claims Against Managed Care Organizations Escaping ERISA’s Grasp, 37 B.C. L. REV. 813,
818-19 (1996) (stating that the utilization review process cuts health care costs by reviewing
the primary care physicians assessments).
       See McGraw, supra note 7, at 1826 (indicating that different forms of utilization review
are employed at different stages in treatment).
       Wickline v. State, 239 Cal. Rptr. 810, 811 (Ct. App. 2 Dist. 1986) (stating that
prospective utilization review comprises preadmission certification for hospitalization or
outpatient procedures). Retrospective utilization review comprises a review of the patient’s
chart after treatment to determine if such was medically necessary, and if not, payment is
denied. Id. See McGraw, supra note 7, at 1826-27 (noting that the HMO’s utilization review
agent may review in hospital treatment to determine if more inpatient days are justified).
       See supra notes 86-90 and accompanying text (reporting studies that show how
managed care organizations were reducing health care costs).
       See id. (suggesting that compensation arrangements place physicians in a conflict of
interest—having to weigh the necessary treatment against the extent that such treatment
will decrease their compensation); Allen R. Myerson, Helping Health Insurers Say No, N.Y.
TIMES, Mar. 20, 1995, at D1 (detailing how one consulting firm has set developed guidelines
to assist insurers and hospitals to make determinations as to the necessity of medical care
with the aim of cutting costs and increasing efficiency).
       See McGraw, supra note 7, at 1828-29 (arguing that incentive programs have a negative
effect the quantity and quality of medical care); Peter H. Mihaly, Note, Health Care
Utilization Review: Potential Exposures to Negligence Liability, 52 OHIO ST. L.J. 1289, 1302
(1991) (noting specifically that “utilization review clearly involves a risk of harm to patients if
it is not done skillfully and carefully”).
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Since financial incentives can collide with medical judgment and
create enticement to be conservative in the provision of health
care,117 the well being of the patient conflicts with cost-control
mechanisms.118 Although cost effectiveness and excellent quality of
care are not necessarily mutually exclusive, the rearrangement in
priorities has led to many medical malpractice claims and
legislative proposals to reduce the overarching influence of business
judgment of the HMO in medical decisions.119
  The object of utilization review, for example, is to deny approval
for procedures or hospitalization, which a reviewer, concerned with
the fiscal bottom line, characterizes as medically unnecessary.120
Fiscal concerns, more than the best interests of the participant
patient, drive the utilization review bureaucratic process and final
determination. The dangers presented by prospective utilization
review are obvious—patients can experience morbidity or mortality
due to the delay in a decision or due to a decision to deny payment
for a medical treatment that was recommended by a physician
exercising his or her medical judgment.121
  In order to bypass the inconvenience and delay inherent in
utilization review, many physicians deal with medical disorders
that previously would have been referred to specialists.122 Some
primary care physicians are forced to perform procedures in their
office that they would not be allowed to do at a hospital because of a
lack of credentials.123 This type of physician vigilantism is certainly

       Note, The Impact of Managed Care on Doctors Who Serve Poor and Minority Patients,
108 HARV. L. REV. 1625, 1628 & n.14 (1995)
       See Wethly, supra note 111, at 818 (describing incentive programs and how they could
affect a patient’s treatment and well being).
       See McGraw, supra note 7, at 1833 (stating that “[d]espite the lack of evidence that
these arrangements cause harm, concerns that physicians might be caught between the
interests of the patients and the interests of their wallets has generated some legislative and
regulatory attention”).
       See Mihaly, supra note 116, at 1289 & n.3 (defining utilization review as the
“[e]valuation of the necessity, appropriateness, and efficiency of the use of medical services,
procedures and facilities”) (alteration in original) (citation omitted).
       See Corcoran v. United HealthCare, Inc., 965 F.2d 1321, 1332 (5th Cir. 1992)
(emphasizing that a prospective utilization review will effect a patient’s decision to undergo
the treatment, if it was rejected for coverage by the insurer).
       See McGraw, supra note 7, at 1828 & n.45 (noting that the “addition of a bonus . . .
arguably creates even stronger incentives for the gatekeeper physician to limit the use of
high-end health care services” and also points out that a study was done on this subject which
revealed that there is “no relationship between the use of bonuses . . . and physician referral
decisions”); Spragins, supra note 108, at 54 (stating that doctors are expected to perform a
range of services outside their specialized field).
       See Spragins, supra note 108, at 55 (noting that some HMO contracts require physicians
to provide services outside their expertise).
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not the forum to settle the problems associated with utilization
  Additionally, preliminary data is emerging revealing that the
euphoria concerning the ability of managed care organizations to
reduce health care costs may be cooling, and the pain of restraint
may not have been as cost-effective as previously thought.124
  The first attempt to link a decision on prospective utilization
review by a health care payor into the medical malpractice
causation chain was in the landmark case of Wickline v. State.125 In
Wickline, a physician requested permission to hospitalize the
plaintiff for an additional eight days.126 Medi-Cal, the HMO,
decided to pay for only four additional days.127 After the patient was
prematurely discharged, her condition deteriorated and resulted in
a leg amputation.128 The patient sued the state-managed care
provider for negligence, but was defeated on appeal when the court
found the physician ultimately responsible for care decisions; and
that it is the physician’s judgment that is implicated when he or she
neglects to request a review of the denial of the hospitalization
extension.129 The court stated that, “cost consciousness has become
a permanent feature of the health care system, it is essential that
cost limitation programs not be permitted to corrupt medical
  Subsequently, in Wilson v. Blue Cross of Southern California,131
the insurance company’s denial of a three-to-four-week hospital stay
recommended by a physician to treat depression resulted in the
patient’s death.132 The court held that a utilization review company
could be held liable for negligence or breach of contract, even if the

       See Paul Fronstin, Americans’ Views on Health Care, Costs: A Study in Contrasts, ACA
NEWS, Oct. 1998, at 31 (stating that the Americans are not happy with the new health care
   In 1996, employer spending on private health insurance totaled $262.7 billion-more than
   four times greater than the $61 billion dollars spent in 1980 . . . Private health plan costs
   per employee increased from an average of $3,502 in 1992 to $3,924 in 1997. For large
   employers, average costs increased from $3,775 in 1992 to $4,369 in 1997.
       239 Cal. Rptr. 810 (Ct. App. 1986).
       Id. at 813.
       Id. at 814.
       Id. at 816.
       See id. at 819 (stating that the decision to discharge a patient from a hospital is
ultimately that of the treating doctor, and should the doctor have found it medically necessary
for the patient to remain hospitalized, the doctor should have requested another extension).
       Id. at 820.
       271 Cal. Rptr. 876 (Ct. App. 1990).
       Id. at 877-78.
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36                                Albany Law Review                                   [Vol. 65

treating physician had not sought a review of the negative decision
on coverage.133
  On the other hand, in Pulvers v. Kaiser Foundation Health Plan,
Inc.,134 the court ruled that the existence of an HMO financial
incentive arrangement did not constitute fraud or breach of
warranty because such an arrangement represented good public
policy and was not designed to interfere with sound medical
judgment.135 In Madsen v. Park Nicollet Medical Center,136 an action
for negligent nondisclosure, the court held that although a profit
motive might have caused an HMO physician to fail to hospitalize a
patient when it was medically necessary, the fact was only
marginally relevant to the case, and the doctor had no affirmative
duty to do so in the situation.137

                             II. THEORIES OF LIABILITY

   Patients who have received poor medical care and resulting injury
while under the MCO system perceive their first remedy as a suit
via a medical malpractice claim, which involves allegations that
physicians or medical services have not complied with the
applicable standard of medical practice in the treatment of a
patient.138 Malpractice is a negligence claim and is usually defined
as “[a] doctor’s failure to exercise the degree of care and skill that a
physician or surgeon of the same medical specialty would use under
similar circumstances”139 or, in other words, a failure to exercise the
“reasonable degree of skill, knowledge, and care” under the
circumstances.140 A doctor’s standard duty of care to his or her
patient depends on whether the doctor is considered a specialist or a

       See id. at 884-85 (ruling that summary judgment should not have been granted simply
because the physician failed to ask for review because it is not certain that a request to allow
the patient to stay “would have been granted”).
       160 Cal. Rptr. 392 (1979).
       See id. at 394 (finding that the doctors did not refrain from offering the necessary
medical procedures as required by the standards of the medical profession). The court also
noted that the use of “‘incentive’ plans is not only recommended by professional
organizations . . . but [are] specifically required by section 1301 of the Health Maintenance
Organization Act.” Id.
       431 N.W.2d 855 (Minn. 1988).
       See id. at 859-60 (finding no conclusive proof that the doctor’s failure to inform the
patient of additional treatment options caused injuries to the patient’s baby and was
necessary to establish a duty to disclose).
       See Julie K. Locke, Note, The ERISA Amendment: A Prescription to Sue MCOs for
Wrongful Treatment Decisions, 83 MINN L. REV. 1027, 1034 (1999) (describing the increasing
frequency with which MCOs are named as defendants in patient lawsuits).
       BLACK’S LAW DICTIONARY 971 (7th ed. 1999).
       Bardessono v. Michels, 478 P.2d 480, 484 (Cal. 1970).
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general practitioner.141 A specialist’s duty of care is measured
against a national standard, or what a reasonable specialist in any
part of the country would have done.142 On the other hand, a
general practitioner’s duty of care (as well as the duty of interns and
residents) is measured against a local community or similar
community standard.143 Additionally, patients can sue doctors and
hospitals directly in state court.144
   When managed care is involved, the issue becomes whether the
doctor should be liable for the dilatory tactics of the MCO’s
bureaucracy due to an overemphasis on review procedures and,
ultimately, on the bottom line.145 If a physician requests a certain
test for a patient and is denied by the prospective utilization review
administrator, consequently resulting in injury to the patient, the
patient may attempt to sue the physician for medical malpractice
since the physician seems the closest target to direct frustration.
How then does the patient reach the MCO to account for its liability
in the matter?
   The most common theory for claims against MCOs is vicarious
liability. Vicarious liability imposes liability on one person for the
negligent actions of another, based solely on the relationship of the
parties involved.146
   The respondeat superior version of vicarious liability creates
liability in the employer MCO for the negligent acts of its employees
and agents committed within the scope of employment.147
Respondeat superior liability is justified because an employer has
the right to control the actions of its employees.148 The greater the

       Bahr v. Harper-Grace Hospitals, 497 N.W.2d 526, 528 (Mich. Ct. App. 1993).
       Id. See Bates v. Meyer, 565 So. 2d 134, 136-37 (Ala. 1990) (granting summary judgment
in favor of the specialist who acted in accordance with the national medical community).
       Bahr, 497 N.W. 2d at 528.
       See Lancaster v. Kaiser Found. Health Plan, 958 F. Supp. 1137, 1145-46 (E.D. Va. 1997)
(remanding state malpractice claims that implicated treatment alternatives to state court as
they were not preempted by ERISA); see also Locke, supra note 138, at 1034 (noting that
patients may sue MCOs, like physicians, “under state common law theories of liability”).
       See Locke, supra note 138, at 1033 (emphasizing that MCO’s “den[ial of] their patients
diagnostic procedures, multiple treatment options, and expensive referrals” is often based
upon self-serving economic motivations).
       BLACK’S LAW DICTIONARY 927 (7th ed. 1999).
       “A servant is a person employed to perform services in the affairs of another and who
with respect to the physical conduct in the performance of the services is subject to the other’s
control or right to control.” RESTATEMENT (SECOND) OF AGENCY, § 220(1) (1958). See
Chittenden, supra note 55, at 453 (noting that the doctrine of respondeat superior is
“[p]erhaps the most fundamental basis for holding a . . . [MCO] liable in the medical
malpractice context”).
       See Chittenden, supra note 55, at 454 (noting that courts have struggled with the notion
of whether or not an employer hospital can exercise control in the traditional sense because
the practice of medicine requires “the exercise of professional skill and judgment”).
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38                                Albany Law Review                                   [Vol. 65

degree of control exercised by the MCO over the physician, the more
likely a court will allow liability against the MCO under the
respondeat superior doctrine.149 Under the theory, a plaintiff must
prove not only physician malpractice but also that there was a
direct employment relationship between the HMO and the provider,
and that the provider was acting within the scope of his or her
employment when the alleged malpractice occurred.150
   Obviously, the respondeat superior doctrine is more neatly and
successfully applied where plaintiffs are participating in staff model
HMO, since the staff model is the only model in which the provider
is in a direct employment relationship with the HMO.151 In the
group and IPA models—and in PPOs, which constitute the majority
of managed care organizations—the health care providers are
usually independent contractors, not employees of the
organization.152 Plaintiffs have argued that control in the area of
cost containment qualifies to taint an assertion of independent
contractor status, thus allowing a vicarious liability theory.153
   In Schleier v. Kaiser Foundation Health Plan of the Mid-Atlantic
States, Inc., the court examined the relationship between the
physician and the plan to determine if it was one of “‘master-
servant.’”154     Although the physician was an independent
practitioner, the court found that he did not act independently and
was sufficiently under the plan’s control to satisfy the respondeat
superior claim.155 However, the court found that applying another
theory—the “ostensible agency theory”—was a clearer route to
liability in the case of the independent practitioner.156

       See id. at 454 & n.16 (discussing the factors that courts consider to determine the
nature of a doctor’s relationship with a hospital).
       See id. 453-54 (noting that Bing v. Thunig, 143 N.E.2d 3 (1957) held that “the status of
a physician’s relationship with a hospital, as an employee or independent contractor, was
subject to the same analysis of factors as any other principal-agent relationship”).
       See Diana Joseph Bearden & Bryan J. Maedgen, Emerging Theories of Liability in the
Managed Health Care Industry, 47 BAYLOR L. REV. 285, 300-301 (1995) (stating that the
structure of the HMO will determine the degree to which courts will hold HMOs liable under
respondeat superior); Glenn, supra note 3, at 316-17 (emphasizing the susceptibility of staff
employees of HMOs to respondeat superior claims).
       See Bearden & Maedgen, supra note 151, at 301 (arguing that in HMO models other
than the staff model, there is less control exercised by an HMO over its physicians).
       See Robin Woodward Miner, Comment, Enterprise Liability: Channelling Liability With
or Without the Health Security Act of 1993, 38 ST. LOUIS U. L.J. 1009, 1034 (1994) (arguing
that cost-effective HMO management may increase liability because it “tries to minimize
defensive practices by controlling the amount and cost of care provided in order to eliminate
unnecessary treatment and procedures”).
       876 F.2d 174, 177 (D.C. Cir. 1989).
       Id. at 177-78.
       Id. at 178. See also Elsesser v. Hosp. of Phila. Coll. of Osteopathic Med., Parkview Div.,
802 F. Supp. 1286, 1290 (E.D. Pa. 1992) (deciding that the health insurance company was
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   Ostensible or apparent agency is, “[a]n implied or presumptive
agency, which exists where one, either intentionally or from want of
ordinary care, induces another to believe that a third person is his
agent, though he never in fact employed him.”157 Ostensible
agency158 provides a more workable theory to demonstrate vicarious
liability of HMOs because even where a direct agency relationship
does not exist through employment, participants can assert this
theory and recover from principals and HMOs for the actions of
independent contractors that result in vicarious liability.159 Under
this theory, liability can attach when an HMO creates the
appearance that an agency or employment relationship exists
between the HMO and the alleged negligent physician, even if one
did not in fact exist. When patients reasonably rely on that
representation to their detriment, vicarious liability can be found.160
In order to prevail, however, the patient must demonstrate
reasonable reliance on the appearance of agency or employment
resulting in his or her detriment or injury.161 Apparent agency is
created when the HMO markets itself as a provider of
comprehensive health care with competent physicians who are
subject to quality of care evaluations.162 Another theory of liability

liable for the conduct of the doctor because the doctor was an “ostensible agent” of the health
insurance company).
       BLACK’S LAW DICTIONARY 1100 (6th ed. 1990).
       See Haas v. Group Health Plan, Inc., 875 F. Supp. 544, 549 (S.D. Ill. 1994) (deciding
that below average treatment by the HMO’s physician resulting in a punctured eardrum is
not preempted under the ostensible agency theory); Kearney v. U.S. HealthCare, Inc., 859 F.
Supp. 182, 188 & n.8 (E.D. Pa. 1994) (explaining that an HMO’s practice of allowing patients
to choose physicians from a select list does not create an ostensible agency situation but does
not dismiss a malpractice claim against the defendant’s ostensible agent); Smith v. HMO
Great Lakes, 852 F. Supp. 669, 670, 672 (N.D. Ill. 1994) (deciding that a claim that HMO
physicians failed to adequately care for the plaintiff’s baby, resulting in numerous disabilities,
is not preempted by ERISA under the ostensible agency theory because the connection
between the claim and the HMO benefit is too remote).
       See generally RESTATEMENT (SECOND) OF AGENCY § 267 (1958) (outlining justifiable
reliance as a key element in apparent agency); RESTATEMENT (SECOND) OF TORTS § 429 (1965)
(emphasizing “reasonable belief” as a key element in independent contractual liability).
       Boyd v. Albert Einstein Med. Ctr., 547 A.2d 1229, 1235 (Pa. Super. Ct. 1988) (stating
that the decedent “looked to the institution for care” because the decedent had to follow the
HMO’s guidelines); Miner, supra note 153, at 1035 (noting that as long as a patient relied on
the HMO for care and found that the physician was “‘held out’” to be an employee of the HMO
then the HMO can be liable).
       See Boyd, 547 A.2d at 1234-35 (holding that an issue of material fact existed as to
whether physicians were ostensible agents of an HMO); Hannola v. City of Lakewood, 426
N.E.2d 1187, 1192 (Ohio Ct. App. 1980) (holding that physicians on duty in a hospital
emergency room were agents of the hospital regardless of contractual arrangements referring
to them as independent contractors).
       See Chittenden, supra note 55, at 461 (noting that an apparent agency situation may
arise if the HMO provides literature to physicians and patients that induces patients to
reasonably believe that an HMO employs its physicians).
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rests under the doctrine of corporate negligence, which is sometimes
referred to as “negligent credentialing.”163 An HMO, like a hospital,
has been found by courts to owe its subscribers a duty to properly
select and supervise its physicians to determine their competence
and reputation in the medical community.164
  In addition to ostensible agency, claimants could also choose to
bring claims of wrongful death,165 fraud or breach of warranty,166

       See Robert J. Conrad Jr. & Patrick D. Seiter, Health Plan Liability in the Age of
Managed Care, 62 DEF. COUNS. J. 191, 194 (1995) (explaining that under a theory of
negligent credentialing, an HMO may be held responsible for a failure to “conduct a
reasonable investigation of the physicians available . . . to determine their competence and
reputation in the medical community”).
       See Shannon v. McNulty, 718 A.2d 828, 829, 836 (Pa. Super. Ct. 1998) (holding that a
prima facie case of vicarious liability was established against an HMO when the HMO’s triage
nurses acted negligently, resulting in premature delivery and death of an infant); see also
Katherine Benesch, Emerging Theories of Liability for Negligent Credentialling in HMOs,
Integrated Delivery and Managed Care Systems, 9 HEALTH LAW. 14, 15-16 (1996) (reporting
that the court in one case held the hospital liable for public policy reasons, otherwise, “HMOs
would have no incentive to select and retain physicians with the best credentials”); Conrad &
Seiter, supra note 163, at 194 (discussing a case, which held a hospital liable for failing to
supervise and check doctors’ credentials).
       See, e.g., Spain v. Aetna Life Ins. Co., 11 F.3d 129, 131-32 (9th Cir. 1993) (holding that a
state common law wrongful death action brought against the administrator of the decedent’s
employee benefit plan for failure to immediately authorize a bone marrow transplant for a
cancer patient directly relates to the administration of ERISA plan benefits and is, therefore,
preempted); Corcoran v. United HealthCare, Inc., 965 F.2d 1321, 1326 (5th Cir. 1992)
(considering whether or not a claim against an HMO, as the “third-party” reviewing the
“necessity of medical care,” is preempted by ERISA); Kearney v. U.S. Healthcare, Inc., 859 F.
Supp. 182, 183-84 (E.D. Pa. 1994) (pleading that the decedent died because he was not given
special treatment and blaming the HMO for not providing competent physicians).
       See, e.g., Cromwell v. Equicor-Equitable HCA Corp., 944 F.2d 1272, 1275 (6th Cir. 1991)
(filing suit based on breach of contract because the defendant promised home health coverage
and then denied payment); Lancaster v. Kaiser Found. Health Plan, 958 F. Supp. 1137, 1147
(E.D. Va. 1997) (holding that the fraud claim is completely preempted because it challenges
an administrative determination); Schachter v. PacifiCare of Okla., Inc., 923 F. Supp. 1448,
1452 (N.D. Okla. 1995) (ruling that a fraud claim, alleging that the HMO induced the
decedent to rely upon it for her health care, relates to the benefit plan and is preempted).
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negligent misrepresentation/nondisclosure or breach of contract,167
emotional distress,168 and breach of fiduciary duty.169


  In litigation against an MCO, a litigant faces the “formidable
obstacle” of preemption.170 As stated above, for any plan that
ERISA regulates, the preemption doctrine applies,171 and provides
that Federal Law of Titles I and III, “shall supersede any and all
State laws insofar as they may now or hereafter relate to any
employee benefit plan.”172 This provision, in an attempt to protect
employers from inconsistent state regulations, displaces all state
laws that “relate to” employee benefit plans, including state
statutes, regulations, and decisional law.173 ERISA functionally
imposes minimum standards on employee benefit plans, which
comprise pension plans and welfare benefit plans.174

       See, e.g., Pohl v. Nat’l Benefits Consultants, Inc., 956 F.2d 126, 127-128 (7th Cir. 1992)
(claiming that plaintiff was misinformed by the provider when she was told that “the plan
would cover 80 percent of the costs of the treatment, but in fact the plan limited payment for
this type of treatment to $10,000”); Cromwell, 944 F.2d at 1277 (stating that count III,
negligent misrepresentation, was removed to federal court); Schmid v. Kaiser Found. Health
Plan of the Northwest, 963 F. Supp. 942, 945 (D. Or. 1997) (stating that the federal court has
jurisdiction because the breach of contract for necessity requires interpreting the terms of the
plan, which is governed by ERISA); Whelan v. Keystone Health Plan East, No. CIV. A. 94-
5733, 1995 WL 394153, at *4 (E.D. Pa. June 29, 1995) (basing the breach of contract claim on
the negative quality of care plaintiff received); Kearney, 859 F. Supp. at 185 (dismissing the
negligence, breach of contract, and misrepresentation claims); Bernatowicz v. Colgate-
Palmolive Co., 785 F. Supp. 488, 493 (D.N.J. 1992) (concluding that negligent
misrepresentation claims are preempted because they refer specifically to the ERISA plan
and are premised upon the mere existence of such a plan).
       See, e.g., Tassinare v. Am. Nat’l Ins. Co., 32 F.3d 220, 224-25 (6th Cir. 1994) (holding
that a claim for intentional infliction of emotional distress made after pension benefits were
not secured, is preempted because it relates to the benefit plan).
       See, e.g., Anweiler v. Am. Elec. Power Serv. Corp., 3 F.3d 986, 991-92 (7th Cir. 1993)
(agreeing with the district court that the defendants breached their fiduciary duty to plaintiff
by allowing him to sign the reimbursement agreement without providing material
       Fort Halifax Packing Co., Inc. v. Coyne, 482 U.S. 1, 8 (1986).
       See ERISA § 514, 29 U.S.C. § 1144(a) (1994) (providing that the section relates to “any
employee benefit plan described in section 1003(a)”); see also 139 CONG. REC. H8974 (daily
ed. Nov. 9, 1993) (statement of Rep. Dent) (stating that the preemption doctrine is the,
“crowning achievement of this legislation,” because it would forestall “conflicting and
inconsistent” state laws); LANGBEIN & WOLK, supra note 19, at 417 (stating that “Congress
chose to handle [explicit] preemption under ERISA by means of an express provision, ERISA
§ 514”).
       ERISA § 514, 29 U.S.C. § 1144(a). The section entitled “Construction and application”
contains the exceptions relative to this article. ERISA § 514, 29 U.S.C. § 1144(b).
       Id. at § 1144 (a), (c).
       See id. § 1001(b) (obligating fiduciaries of employee benefit plans to disclose financial
information to participants and beneficiaries); see also id. § 1002(3) (defining an “employee
benefit plan” in ERISA as “an employee welfare benefit plan or an employee pension benefit
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  Two exceptions to the broad sweep of preemption are the
insurance saving clause and the deemer clause. The insurance
saving clause saves any state law “which regulates insurance,
banking, or securities” from preemption.175 The deemer clause
qualifies the insurance savings clause by providing that employee
benefit plans should not be deemed insurance companies subject to
state law.176 HMOs are therefore not subject to the preemption
exception since they are not deemed insurance for the purposes of
the savings clause.177 “‘[E]mployee welfare benefit plan[s]’” include
plans that provide health benefits,178 and fall within the parameters
of ERISA regulation because HMOs contract with employers to
provide health benefits.179
  The deemer clause also prevents states from regulating self-
insured plans through preemption.180 This exemption from “state
regulation has been an important motivation for employers to self-
insure” and thereby bars patient’s state law claims against them.181

plan or a plan which is both an employee welfare benefit plan and an employee pension
benefit plan”).
       Id. § 1144 (b)(2)(A).
       Id. §1144(b)(2)(B); See Astrid Meghrigian, ERISA’s Impact on the Provision of Health
Care, 6 HEALTH LAW. 9, 10 (Spring 1992) (stating the result of “the preemption provision is
that often, employees covered by self-funded plans are left without an adequate scope of
       See O’Reilly v. Ceuleers, 912 F.2d 1383, 1389 (11th Cir. 1990) (stating that because
“there are no ‘insurance policies’, ‘policyholders’ or ‘insureds’” in this case the provider is not
considered to be “‘regulating the business of insurance’”).
       ERISA § 3, 29 U.S.C. § 1002(1) (defining an employee welfare benefit plan as a plan
that provides “its participants” with medical benefits).
       See Kearney v. U.S. Healthcare, Inc., 859 F. Supp. 182, 187 n.6 & n.7 (explaining that
when Congress drafted the preemption provision, “it is doubtful that Congress envisioned
HMOs operating hospitals, clinics or treatment centers and directly providing professional
health services by employees or agents free from tort liability even in the most blatant cases
of malpractice where the unfortunate patients were enrolled by their employers”); Blum v.
Harris Methodist Health Plan, Inc., No. CIV. A. 3:97-CV-0374P, 1997 WL 452750 at *3-4
(N.D. Tex. July 31, 1997) (holding that the plaintiff’s claim for negligence and medical
malpractice is not preempted by federal law because the claim “only affect[s] the
relationship . . . as provider-patient, and not as fiduciary-participants”); Schwartz v. FHP Int’l
Corp., 947 F. Supp. 1354, 1358 (D. Ariz. 1996) (noting that the HMO was established by the
Plaintiff’s employer “for the purpose of providing employees and eligible dependents with
medical benefits” therefore, establishing as a matter of fact, the HMO as an ERISA plan).
       See FMC Corp. v. Holliday, 498 U.S. 52, 61 (1990) (stating that “[s]tate laws directed
toward the plans are pre-empted because they relate to an employee benefit plan but are not
‘saved’ because they do not regulate insurance”); Byron Done, Note, Health Care Reform and
ERISA Preemption: Can the States Adopt Aspects of Germany’s Health Care System to
Achieve Universal Access and Cost Containment?, 18 HASTINGS INT’L & COMP. L. REV. 745,
760 (1995) (explaining how ERISA’s “‘deemer clause’” allows employers to avoid state
regulation by opting for self-insurance).
       See Meghrigian, supra note 176, at 9 (noting that “employers perceive that health
coverage can be provided less expensively if paid for by themselves”).
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  The Employee Retirement Income Security Act of 1974 (ERISA)182
presents the major source of remedies and at the same time
presents the greatest obstacle to a comprehensive remedy. Clearly,
what ERISA gives, it has the power to take away. ERISA
preemption requires courts to dismiss state law claims or to remove
them to federal court to be adjudicated under ERISA’s remedial
provisions.183 The problem is that ERISA provides minimum
substantive regulation of welfare plan benefits and provides only
limited remedies.184 Preemption seems a benign jurisprudential
doctrine, but is anything but benign when it locks an aggrieved
patient in to a particular set of remedies.
  Two types of preemption doctrines have emerged under ERISA:
complete (“field”) preemption185 and conflict (“content-conflict”)
preemption.186 Since managed care preemption cases often address
both types of preemption, the area becomes complex and
confusing,187 so understanding the effect of both is crucial to
interpreting the judicial approaches to the cases.
  Under the complete preemption doctrine, Congress is presumed to
have exclusive jurisdiction to regulate the subject of employee

       29 U.S.C. §§ 1001-1461 (1994 & Supp. IV 1995-99) [hereinafter ERISA]. ERISA is
organized into three subchapters: “Subchapter I - Protection of Employee Benefit Rights,”
“Subchapter II - Jurisdiction, Administration, Enforcement; Joint Pension Task Force, Etc.,”
and “Subchapter III - Plan Termination Insurance.” Id.
       Id. §§ 1132, 1144. ERISA also provides for broad preemption under § 1140, which
proscribes interference with rights protected by ERISA. Id. § 1140. See Meghrigian supra
note 176, at 9 (noting this broad preemption under § 1144(a) “displaces all state laws that
‘relate to’ employee pension and welfare benefit plans”).
       See id. (stating that as a result from the preemption, “employees who are employed by
employers who self-insure . . . do not enjoy basic legal protections afforded to employees
participating in state-regulated group health insurance plans”); ERISA § 409, 29 U.S.C. §
1109 (1994) (providing equitable remedies but not punitive relief).
       See Jass v. Prudential Health Care Plan, Inc., 88 F.3d 1482, 1486-87 (7th Cir. 1996)
(noting that the “complete preemption doctrine” is actually a misnomer because it “is not a
preemption doctrine but rather a federal jurisdiction doctrine”).
       See Alessi v. Raybestos-Manhattan, Inc., 451 U.S. 504, 524-25 (1981) (finding that the
New Jersey statute regarding pension plans is an “impermissible intrusion on the federal
regulatory scheme” of ERISA because “ERISA permits integration of pension funds with other
public income maintenance moneys for the purpose of calculating benefits”).
       See McClelland v. Gronwaldt, 155 F.3d 507, 515-16 (5th Cir. 1998) (indicating that the
district court’s analysis of the different types of preemption was inaccurate); Jass, 88 F.3d at
1486-87 (noting that “because the jurisdictional doctrine of ‘complete preemption’ included
the word ‘preemption,’ confusion arose between the jurisdictional doctrine and the federal
defense of preemption”); Warner v. Ford Motor Co., 46 F.3d 531, 535 (6th Cir. 1995)
(criticizing the failure to “keep complete preemption removal and ordinary preemption
doctrine separate and distinct”); Lister v. Stark, 890 F.2d 941, 943 n.1 (7th Cir. 1989)
(recognizing that the term “complete preemption . . . is not a preemption doctrine but rather a
federal jurisdiction doctrine,” which means that a case will be “remanded to state court . . . if
the federal court finds that the preemption is insufficiently complete to confer federal
question jurisdiction”).
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44                                Albany Law Review                                   [Vol. 65

benefit law.188 When federal law occupies a particular field, any
state activity in that field is void, including state laws that are
consistent with the federal act.189 Complete preemption is actually a
jurisdictional concept.190 When a court is faced with a complete
preemption question, its analysis is standard federal removal
analysis,191 similar to the “well-pleaded complaint rule.”192 In a well-
pleaded complaint, a plaintiff, “master of the complaint,” chooses
subject matter jurisdiction through choice of claims. The listing of a
federal claim allows filing in federal court. Complete preemption
acts to remove the case, notwithstanding the absence of a federal
claim on the face of the complaint, for claims that are “necessarily
federal in character.”193 State common law claims, like negligence,
are recharacterized as federal claims194 and necessitate removal to a
federal court.195
  Under conflict preemption, state regulation is preempted if it
conflicts with federal law, as the Supremacy Clause dictates that
federal law will prevail.196 Conflict preemption is a substantive

       See LANGBEIN & WOLK, supra note 19, at 686 (describing that Congress has “‘exclusive
jurisdiction . . . to enforce or clarify benefit rights’”).
       See Metro. Life Ins. Co. v. Taylor, 481 U.S. 58, 60, 63-64 (1987) (stating that Congress
has the power to preempt a particular area that they feel “is necessarily federal in
       See Joyce v. RJR Nabisco Holdings Corp., 126 F.3d 166, 171 (3d Cir. 1997) (holding
“[o]nly state claims that come within ERISA’s civil enforcement provisions in § 502(a) are
completely preempted such that removal to a federal court is appropriate”); see also
McClelland 155 F.3d at 512 (stating “[i]n effect, the application of complete preemption
‘converts an ordinary state common law complaint into one stating a federal claim for
purposes of the well-pleaded complaint rule’”) (quoting Metropolitan Life Insurance Co. v.
Taylor, 481 U.S. 58, 63 (1987)).
       See Billee Elliott McAuliffe, Comment, The Changing World of HMO Liability Under
ERISA, 22 J. LEGAL MED. 77, 82 (March 2001) (explaining that standard federal removal
analysis calls for removal when a complaint even implies “recovery, enforcement, or
clarification of a benefit that ERISA preempts”).
       Taylor, 481 U.S. at 63 (explaining that “a cause of action arises under federal law only
when the plaintiff’s well-pleaded complaint raises issues of federal law”).
       Taylor, 481 U.S. at 63-64.
       Id. at 64-65 (recognizing that ERISA preemption alone does not warrant automatic
removal to federal court).
       Under this doctrine, “Congress may so completely pre-empt a particular area that any
civil complaint raising this select group of claims is necessarily federal in character,” and the
case may be removed even if no federal claim is asserted in the complaint and federal
preemption, raised as a defense, is the only issue of federal law implicated in the case. Id. at
63-64. The Supreme Court first applied the “complete preemption doctrine” in Avco Corp. v.
Aero Lodge No. 735, International Ass’n. of Machinists & Aerospace Workers. 390 U.S. 557,
559-60 (1968) (recognizing that federal law will preempt state law and “[a]ny state law
applied, however, will be absorbed as federal law and will not be an independent source of
private rights”) (quoting Textile Workers Union of America v. Lincoln Mills, 353 U.S. 448,
456-457 (1957)). See also Rice v. Panchal, 65 F.3d 637, 640 (7th Cir. 1995) (distinguishing
complete preemption from conflict preemption).
       See Rice, 65 F.3d at 640 (noting that state law claims subject to conflict preemption are
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concept governing applicable law.197 Both types of preemption have
the jurisdictional consequence of removal to federal court.198
   Removal to federal court is therefore not a totally benign act in
the managed care context because with preemption comes the
remedial scope of ERISA.199 Therefore, if a state law cause of action
fits within the scope of ERISA’s civil enforcement provisions, the
case is necessarily remanded to federal court.200 ERISA section
502(a)(1)(B) states “[a] civil action may be brought . . . by a
participant or beneficiary . . . to recover benefits due to him under
the terms of his plan . . . or to clarify his rights to future benefits
under the terms of the plan.”201 This section has been interpreted as
giving the court a broad power of removal, as it is “declaring that
whenever a plaintiff’s complaint even implies recovery,
enforcement, or clarification of a benefit that ERISA preempts, the
case is subject to removal to federal court.”202

not recharacterized as federal claims as in the complete preemption scenario).
       See id. (explaining that “state law claims that are merely subject to ‘conflict preemption’
under § 514(a) are not recharacterized as claims arising under federal law” but “the federal
law serves as a defense to the state law claim, and therefore, under the well-pleaded
complaint rule the state law claims do not confer federal question jurisdiction”).
       McClelland v. Gronwaldt, 155 F.3d at 515-16 (contrasting the difference between
ordinary preemption and complete preemption, by noting that complete preemption not only
displaces state law, “but also ‘recharacterizes’ preempted state law claims as ‘arising under’
federal law for the purposes of determining federal question jurisdiction”); Toumajian v.
Frailey, 135 F.3d 648, 655 (9th Cir. 1998) (noting that if “complete preemption does not apply,
even if the defendant has a defense of ‘conflict preemption’ because the plaintiff’s claims
‘relate to’ an ERISA plan, the district court [lacks] subject matter jurisdiction, [and] cannot
rule on the preemption issue”); Dukes v. U.S. Healthcare, Inc., 57 F.3d 350, 355 (3d Cir. 1995)
(describing the differences between “preemption” and “complete preemption”).
   When the doctrine of complete preemption does not apply, but the plaintiff’s state claim
   is arguably preempted under § 514(a), [of ERISA] the district court, being without
   removal jurisdiction, cannot resolve the dispute regarding preemption [because] [i]t lacks
   power to do anything other than remand [the case] to the state court where the
   preemption issue can be addressed.
Id. See Rice, 65 F.3d at 640 (stating that claims subject to conflict preemption “are not
recharacterized as claims arising under federal law”). The Court also noted that “[t]he
difference between complete preemption under § 502(a) and conflict preemption under §
514(a) is important because complete preemption is an exception to the well-pleaded
complaint rule that has jurisdictional consequences.” Id.
       See McClelland, 155 F.3d at 512 (noting that state law claims that are completely
preempted under ERISA give rise to federal question jurisdiction and thus provide a basis for
removal). See also Metro. Life Ins. Co. v. Taylor, 481 U.S. at 66-67 (extending the doctrine of
complete preemption to state actions falling within the preemptive scope of ERISA’s civil
enforcement provision, § 502(a)).
       Taylor, 481 U.S. at 67 (noting that in this case the claim is necessarily federal in
character, even though it “purports to raise only state law claims”).
       ERISA § 502, 29 U.S.C. § 1132 (1994).
       McAuliffe, supra note 191, at 82.
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  Any state law that conflicts with ERISA’s provisions will be
preempted under section 514.203 The state law claims subject to
conflict preemption are displaced and subject to dismissal, forcing
the plaintiff to attempt to recover under ERISA or to have the entire
case dismissed.204
  As stated, the effect of ERISA’s preemption of a state law claim is
either to remove the case to federal court or to allow the claim to
remain in state court but under application of federal law.205 In
either case, the effect of ERISA preemption is that the plaintiff is
forced to use ERISA as applicable law, including its remedial
provisions.206    These include common law remedies, equitable
remedies, and statutory penalties,207 amounting to the cost of the
benefit or injunctive relief.208 Jury trials209 and compensatory or
punitive damages210 are not necessarily available under ERISA.

       ERISA § 514, 29 U.S.C. § 1144. See Alessi v. Raybestos-Manhattan, Inc., 451 U.S. 504,
525 (3d Cir. 1981) (stating that the drafters of ERISA, “clearly meant to preclude the States
from avoiding through form the substance of the preemption provision”).
       See Giles v. Nylcare Health Plans, Inc., 172 F.3d 332, 337-38 (5th Cir. 1999) (noting
that “[w]hen a complaint contains only state causes of action that the defendant argues are
merely conflict-preempted, the court must remand for want of subject matter jurisdiction”).
       See id. (noting that courts have supplemental jurisdiction over complaints that raise
complete-preempted claims and conflict-preempted claims).
       See Sullivan, supra note 43, at 254 (discussing a plaintiff’s limited remedies under
       ERISA § 502, 29 U.S.C. §1132 (a)(1)(B), (a)(3) (1994). See Sullivan, supra note 43, at
254 (explaining that ERISA limits remedies “to either the cost of the benefit or injunctive
relief”). See also Jane M. Mulcahy, Comment, The ERISA Preemption Question: Why Some
HMO Members are Dying for Congress to Amend ERISA, 82 MARQ. L. REV. 877, 881 (1999)
(noting that if a plan participant sues an HMO that is governed by ERISA for failure to
provide a needed test, “the damages will likely be limited to the cost of the test”).
       See Mulcahy, supra note 207, at 881 (noting that section 1132 of ERISA limits relief “to
either enjoining the HMO from continuing a violative practice or obtaining an equitable
remedy . . . equitable remedies available under the Act include redress for ERISA violation or
enforcement of the unfulfilled provision”).
       See, e.g., Spinelli v. Gaughan, 12 F.3d. 853, 858 (9th Cir. 1993) (concluding that it was
within Congress’ powers to limit plaintiff’s remedies under ERISA to those available in
equity, therefore, a jury trial was not required).
       See Medina v. Anthem Life Ins. Co., 983 F.2d 29, 32 (5th Cir. 1993) (noting that the
plain language of ERISA does not mention recovery of extra-contractual or punitive damages
and nothing in the statute gives plaintiffs a common law remedy to the right to recover
punitive or extra-contractual damages). See also McRae v. Seafarers’ Welfare Plan, 920 F.2d
819, 822-23 (11th Cir. 1991) (holding that the statutory limitation of remedies available under
ERISA § 502(a)(3) are those of an equitable nature, thus precluding extra-contractual
remedies that are legal in nature); Massachusetts Mut. Life Ins. Co. v. Russell, 473 U.S. 134,
146 (1985) (stating that the “carefully integrated civil enforcement provisions found in §
502(a) of the statute as finally enacted . . . provide strong evidence that Congress did not
intend to authorize other remedies that it simply forgot to incorporate expressly”); Sokol v.
Bernstein, 803 F.2d 532, 537 (9th Cir. 1986) (holding that neither extra-contractual nor
emotional distress damages could be recovered). See generally federal court of appeals
decisions that denied punitive damages for claims brought under § 502(a), Drinkwater v.
Metropolitan Life Ins. Co., 846 F.2d 821 (1st Cir. 1988); Varhola v. Doe, 820 F.2d 809 (6th Cir.
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The Supreme Court has indicated that it does not support awarding
such damages.211 Other courts have responded to the limitations set
by the Supreme Court by filling the gaps left by ERISA. Some
courts have allowed certain remedies, such as attorney fees and jury
trials, that ERISA generally disallows212 but that have been allowed
under certain circumstances.213 Courts do recognize that employees
whose plans are governed by ERISA do not enjoy the basic legal
protections afforded to employees in state-regulated group health
insurance plans.214
   The Supreme Court has described ERISA’s preemption clause as,
“‘not a model of legislative drafting; . . . [i]n truth, it is a veritable
Sargasso Sea of obfuscation.”215 Other commentators have described
it as an umbrella which provides “a wealth of strategic
advantages . . . [to HMOs in defense] against claims of improper
administration of employee benefit plans.”216 These criticisms are
valid because a law that was designed to strengthen the security of
pension plans is ill-equipped to address, by implication, concerns
about the quality of health care and health care administration.

1987). But see Mulcahy, supra note 207, at 881-82 (stating that the United States Supreme
Court has yet to decide conclusively whether punitive or extra-contractual damages are
available under ERISA).
       See Pilot Life Ins. Co. v. Dedeaux, 481 U.S. 41, 53-54 (1987).
       See ERISA § 502, 29 U.S.C. 1132(g) (1994) (authorizing the courts’ discretion to decide
whether other legal or equitable relief is necessary). See also Novak v. Andersen Corp., 962
F.2d 757, 761 (8th Cir. 1992) (noting that appropriate “‘equitable relief’” includes declaratory
or injunctive relief, and not monetary damages, even though “redress” within the remedies
provision of ERISA means “to compensate”); Harsch v. Eisenberg, 956 F.2d 651, 663 (7th Cir.
1992) (ruling that plaintiffs were not entitled to attorney fees under ERISA for the portion of
their litigation that dealt with compensatory damages, which were found to be unavailable
under ERISA);. But see Warren v. Soc’y Nat’l Bank, 905 F.2d 975, 982 (6th Cir. 1990) (finding
that plaintiff could recover extracontractual damages in this case, due to the fact that that
“failure of the bank to perform a contractual duty” led to the “loss of one of the most
significant benefits available under ERISA”); Bower v. Bunker Hill Co., 114 F.R.D. 587, 597-
98 (E.D. Wash. 1986) (holding that a right to a jury trial exists under certain circumstances
even if ERISA does not grant that right).
       Sokol, 803 F.2d at 538. See Eaves v. Penn, 587 F.2d 453, 465 (10th Cir. 1978) (holding
that attorney’s fees may be awarded according to five factors, including the degree of
culpability and bad faith of the opposing party, the ability of the offending party to pay an
award of attorney’s fees, deterrence, the overall benefit to all of the pension plan members,
and the level of merit given to the parties claim).
       Meghrigian, supra note 176, at 9 (noting that “employees who are employed by
employers who self-insure” are not afforded protections from the state, like those available in
California, which are specifically designed to ensure adequate financing and reserves and to
protect persons with disabilities).
       Chaghervand v. Carefirst, 909 F. Supp. 304, 309-10 n.4 (D. Md. 1995).
       Paul O’Neil, Protecting ERISA Health Care Claimants: Practical Assessment of a
Neglected Issue in Health Care Reform, 55 OHIO ST. L. J. 723, 724 (1994).
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One author pointed out that ERISA, intended to protect employees,
could now be used to frustrate employees.217
  The frustrations that employee participants have experienced can
be analogized to the frustrations of pension plan participants prior
to the enactment of ERISA.218 The same sensitivity to the plight of
the employee participant may now be necessary. Prior to ERISA,
employers could deny employees’ retirement benefits arbitrarily.
Congress subsequently imposed certain restrictions relating to the
vesting of benefits.219 Currently, employers can deny health care
benefits and can subject employees to reduction in health benefits
arbitrarily.220 No minimum rules exist relating to the quantity and
quality of health care benefits. Indeed, these benefits do not vest221
and employers can reduce or terminate them at will.222
  Although ERISA has broad applicability in targeting abuses
jeopardizing the security of qualified pension plans, it only
minimally regulates health care plans. In 1973, just prior to the
enactment of the HMO act, few HMOs existed—hardly enough to be
a major consideration in the enactment of ERISA.223              The
mismanagement of pension plans caught the attention of Congress
with the closing of the Studebaker plant in Southbend, Indiana, in
1963, where approximately 11,000 workers lost their benefits.224 In

       See id. at 723-24 (noting that judicial decisions have reshaped ERISA, depriving
beneficiaries of remedies they enjoyed prior to the statute’s enactment).
       See LANGBEIN & WOLK, supra note 19, at 67-68 (finding “that the extremely rapid
growth of private pension plans had led to all manner of abuses, ranging from ineptness and
lack of know-how to outright looting of benefit funds and corrupt administration”).
       See ERISA § 203, 29 U.S.C. § 1053 (1994) (setting a minimum level of benefits that an
employee must receive upon reaching normal retirement age and relative to the employee’s
years of service).
       See McGann v. H & H Music Co., 946 F.2d 401, 408 (5th Cir. 1992) (stating that “ERISA
does not broadly prevent an employer from ‘discriminating’ in the creation, alteration or
termination of employee benefits plans . . . “).
       See In re Unisys Corp., 58 F.3d 896, 901 (3d Cir. 1995) (indicating that “ERISA does not
require automatic vesting of welfare benefit plans,” which include hospital care and medical
benefits because “the costs of such plans are subject to fluctuating and unpredictable
       See id. at 904-05 (affirming the judgment of the district court because the employer had
reserved the right to terminate the medical benefit plans at any time).
       Gary Whitted, Private Health Insurance and Employee Benefits, in INTRODUCTION TO
HEALTH SERVICES 180-81 (Stephen J. Williams & Paul R. Torrens eds. 5th ed. 1999) (noting
that the number of HMO plans nearly tripled from 1980-98).
       See LANGBEIN & WOLK, supra note 19, at 62 (suggesting that this event was “the most
important event leading to the enactment of” ERISA); see also Kathlynn L. Butler, Comment,
Securing Employee Health Benefits Through ERISA and the ADA, 42 EMORY L.J. 1197, 1204
(1993) (noting that ERISA was implemented to extensively regulate employee pension plans);
Robert A. Cohen, Note, Understanding Preemption Removal Under ERISA § 502, 72 N.Y.U. L.
REV. 578, 590 (1997) (listing the objectives with which ERISA was enacted in order to protect
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1974, many employee pension plans were seriously under-funded
and some employers were involved in schemes to avoid fulfilling
their retirement plan obligations.225 ERISA was enacted primarily
to address widespread corruption and mismanagement of pension
plans by “protect[ing] . . . the interests of participants . . . and their
beneficiaries, . . . by      establishing    standards     of     conduct,
responsibility, and obligation for fiduciaries of employee benefit
plans, and by providing for appropriate remedies, sanctions, and
ready access to the Federal courts.”226
  ERISA-covered employee welfare plans now constitute the
primary source of health care for employees.227 “Eighty-eight
percent of individuals in families headed by full-time, full-year
workers were insured in 1990 . . . [of which] . . . 77 percent were
insured through an employer-sponsored plan.”228 A majority of
employees are vulnerable to health care provider abuses — a
vulnerability paralleling the abuses and disappointments leading to
ERISA’s enactment. The difference is that while the abuses of
pension plans led to loss of property, the current abuses in health
care can lead to loss of life.


             A. The Supreme Court Addresses Preemption

  Although Congress stated its intent when enacting the section
514 preemption provision,229 many courts have tried to determine

       ERISA § 2, 29 U.S.C. § 1001(a) (1994); LANGBEIN & WOLK, supra note 19, at 63; Larry
J. Pittman, ERISA’s Preemption Clause and the Health Care Industry: An Abdication of
Judicial Law-Creating Authority, 46 FLA. L. REV. 355, 357-58 (1994) (stated that employers
were “engaged in creative schemes to avoid paying pensions to employees”).
       ERISA § 2, 29 U.S.C. § 1001(a)-(b). See also Shaw v. Delta Air Lines, Inc., 463 U.S. 85,
90 (1983) (discussing ERISA’s goal of protecting the rights and interests of employees and
their beneficiaries).
       See Troyen A. Brennan, An Ethical Perspective on Health Care Insurance Reform, 19
AM. J.L. & MED. 37, 58 (Carolyn Piucci & Deborah Holmes eds., 1993) (reporting that “[sixty-
five percent] of the population is insured through an ERISA-qualified plan”).
       See Shaw v. Delta Air Lines, Inc., 463 U.S. 85, 98-99 (1983) (discussing Congress’ intent
at the time the legislation was enacted). Apparently, the conference committee rejected
requests from the administration to limit the provision. Id. at 98. “The version of § 514(a)
that emerged from Conference bore no resemblance to the administration proposal.” Id. at 99
   Finally, I wish to make note of what is to many the crowning achievement of this
   legislation, the reservation to Federal authority the sole power to regulate the field of
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exactly how broadly or narrowly to interpret the provision. In the
years since its enactment, the United States Supreme Court has
granted certiorari to several cases to try to interpret the parameters
of the statute.230 In fact, in 1992, Justice Stevens reported that, “[a]
recent LEXIS search indicat[ed] that there [were] . . . over 2,800
judicial opinions addressing ERISA pre-emption.”231
   The proper application of ERISA preemption to medical
malpractice claims and vicarious liability for the HMO remains
unresolved at the Supreme Court level and uncertainty remains as
to where the Supreme Court is headed in the area of preemption.
However, one can look to more recent Supreme Court cases on
preemption to glean principles regarding the appropriate
application of the preemption clause in actions against HMOs.232
These cases should be useful in defining the contours of the
preemption doctrine and its application in the managed care

   employee benefit plans. With the preemption of the field, we round out the protection
   afforded participants by eliminating the threat of conflicting and inconsistent State and
   local regulation.
Id. at 99 (quoting 120 Cong. Rec. 29197 (1974)).
       It should be stressed that with the narrow exceptions specified in the bill, the
       substantive and enforcement provisions of the conference substitute are intended to
       preempt the field for Federal regulations, thus eliminating the threat of conflicting or
       inconsistent State and local regulation of employee benefit plans. This principle is
       intended to apply in its broadest sense to all actions of State or local governments, or
       any instrumentality thereof, which have the force or effect of law.
Id. (quoting a statement by Senator Williams, 120 Cong. Rec. 29933 (1974)).
        See, e.g., District of Columbia v. Greater Wash. Bd. of Trade, 506 U.S. 125, 129-30
(1992) (noting that the District of Columbia Worker’s Compensation Equity Amendment Act
of 1990 involved a welfare benefit plan and was thus pre-empted by ERISA); Ingersoll-Rand
Co. v. McClendon, 498 U.S. 133, 135-37, 145 (1990) (granting certiorati because ERISA
preemption involves the balance of power between state and federal courts and holding that
the state-law cause of action was pre-empted by the broad, federally regulated ERISA
        See Greater Wash. Bd. of Trade, 506 U.S. at 133, 135 n.471 (Stevens, J., dissenting)
(stating that there is a “burgeoning volume of litigation involving ERISA preemption claims”).
        See Shaw, 463 U.S. at 96-97. The court noted, “[w]e must give effect to this plain
language unless there is good reason to believe Congress intended the language to have some
more restrictive meaning.” Id. at 97. See also Metro. Life Ins. Co. v. Massachusetts, 471 U.S.
724, 739 (1985) (following the reasoning in Shaw and broadly interpreting ERISA’s
preemption provision). But see N.Y. State Conference of Blue Cross & Blue Shield Plans v.
Travelers Ins. Co., 514 U.S. 645, 656 (1995) (interpreting ERISA’s preemption provision more
narrowly). The court indicated,
   [i]nfinite relations cannot be the measure of pre-emption, neither can infinite
   connections. We simply must go beyond the unhelpful text and the frustrating difficulty
   of defining its key term, 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.
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1. Is there a plan?

   At first, the Court had somewhat of a schizophrenic approach to
the application of preemption. What has since emerged is a
broadening followed by a narrowing of the preemption parameters.
The latter approach, in fact, helps the claimant in an action against
an HMO.233
   Two early cases in which the Supreme Court found that ERISA
did not preempt state law revolved around whether or not there was
a “plan” regulated by ERISA.234 In Fort Halifax Packing Co. v.
Coyne,235 the Court had to determine if severance payments rose to
the level of an employee benefit that ERISA was designed to
protect.236 Under ERISA, the benefit itself is not protected—the
benefit “plan” is.237 The Court’s holding remained narrow, stating
that Maine’s statute only affected the benefit and not the plan, since
the statute did not require an employer to maintain a plan in order
to pay out the severance benefit.238 The Court established that,
“[o]nly ‘plans’ involve administrative activity potentially subject to
employer abuse,”239 and found that the “[e]nforcement of the Maine
statute presents no risk either that an employer will evade or that a
State will dislodge otherwise applicable federal regulatory
requirements.”240 Thus, Fort Halifax clarified that when there is no
separate fund or accounting, then a one-time, mass pay-out of

       See Rhonda D. Orin, HMOS and Managed Care Plans—Evolving Liability Issues,
Mealey’s Managed Care Liab. Rep., March 23, 2001, at 21 (2001) (noting that:
   [w]hen that provision is given a broad interpretation, it imposes strict limits on: (a) the
   types of litigation that can be brought against HMOs and managed care plans; (b) the
   relief that can be sought in those actions; (c) the courts in which these actions can be
   brought; and (d) the laws that can be applied. When that provision is interpreted
   narrowly, it opens the doors of the state courts to an increased amount of litigation
   against HMOs and managed care plans, and to a variety of different remedies).
       See Massachusetts v. Morash, 490 U.S. 107, 116-18 (1989) (analyzing the issue of
whether or not vacation time falls within the category of an “employee welfare benefit
plan[]”); see also Fort Halifax Packing Co. v. Coyne, 482 U.S. 1, 7 (1987) (determining whether
severance pay constitutes an employee benefit or an employee benefit plan, the latter being
regulated by ERISA).
       482 U.S. 1 (1987).
       Id. at 3-4 (explaining that the Court’s task was to decide whether a Maine statute
requiring a “one-time severance payment to employees in the event of a plant closing is pre-
empted” by ERISA). The Court held that the statute was not preempted. 4.
       Id. at 7-8 (emphasizing that ERISA regulates “employee benefit plans”). The Court
further clarifies the issue and states that individual benefits are not subject to preemption.
       Id. at 12.
       Id. at 16.
       Id. at 17.
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severance established under a statute is not a “plan” enforceable
under ERISA.241
  Two years later, in Massachusetts v. Morash,242 the Supreme
Court was once again faced with determining what constituted a
“plan” under ERISA’s statutory scheme.243         In Morash, after
dismissal, claimants sought to receive vacation benefits that they
had accrued but not used.244 Under a Massachusetts statute, the
employer was required to pay all unused vacation time to
discharged employees.245 The question presented to the Court was
whether or not this type of payment constituted a “plan.”246 The
Court reasoned that vacation benefits were not a plan, “[b]ecause
ordinary vacation payments are typically fixed, due at known times,
and do not depend on contingencies outside the employee’s control,
they present none of the risks that ERISA is intended to address.”247
  The Court continued that, “[i]f there is a danger of defeated
expectations, it is no different from the danger of defeated
expectations of wages for services performed—a danger Congress
chose not to regulate in ERISA.”248 The Court reasoned that since
vacation benefits are paid out of the general company assets and are
not subject to ERISA reporting and disclosure requirements, they
were not within the scope of ERISA.249 In concluding its reasoning,
the Court expressed that it might have reached a different
conclusion if the payment had come from a separate fund.250 In
essence, the Court reasoned that when a payment is out of general
assets, the payment “does not possess the characteristics of a
welfare benefit plan,” and thereby does not allow for application of
ERISA preemption.251

       See id. at 12, 23 (noting further that an administrative scheme is not necessary for the
possibility of a one-time obligation).
       490 U.S. 107 (1989).
       See id. at 109 (questioning whether payment of “unused vacation time” was a plan
within the meaning of ERISA).
       See id. at 110 (claiming that two bank vice presidents were not compensated for their
accrued vacation time after they had been discharged).
       Id. at 109.
       Id. at 115.
       Id. at 116 (differentiating between vacation benefit funds that could fall under ERISA
from this one which did not).
       See id. at 120 (discussing a greater need to protect employees whose vacation benefits
come from a different fund than their wages).
       Id. at 121.
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  With the Supreme Court deciding both Fort Halifax and Morash
within two years, it clearly established what constitutes or does not
constitute a “plan.”

2. Before and After Travelers

  The Supreme Court has also had to interpret the “relate to”
phrase under the preemption doctrine as to whether or not the law
related to an ERISA plan.252 This aspect of the preemption clause is
more relevant in the managed care context. Since 1981, the
Supreme Court has heard eleven cases in which they have had to
determine, for purposes of preemption, whether or not a state
statute “related to” a plan covered by ERISA.253 In eight of those
eleven cases, the Court held the state law was “related” to the plan
and was therefore preempted.254 The 1995 decision, New York State
Conference of Blue Cross & Blue Shield Plans v. Travelers Insurance

       See Bearden & Maedgen, supra note 151, at 338 (discussing the meaning of “relate to”
and noting “that a state law relates to a benefit plan if it has a connection with or reference to
such a plan”); Frank J. Vandall, An Examination of the Duty Issue in Health Care Litigation:
Should HMOs Be Liable in Tort for “Medical Necessity” Decisions?, 71 TEMP. L. REV. 293, 310
n.113 (1998) (noting the Court’s tendency to interpret the “relate to” phrase broadly).
       De Buono v. NYSA-ILA Med. & Clinical Serv. Fund, 520 U.S. 806, 814-16 (1997)
(holding that New York’s tax on gross receipts for patient services does not relate to ERISA
plans); Cal. Div. of Labor Standards Enforcement v. Dillingham Constr., Inc., 519 U.S. 316,
334 (1997) (ruling that “California’s prevailing wage laws and apprenticeship standards do
not . . . ‘relate to’ ERISA plans”); N.Y. State Conf. of Blue Cross & Blue Shield Plans v.
Travelers Ins. Co., 514 U.S. 645, 668 (1995) (deciding that New York’s surcharge statute was
no different than other local regulations that Congress did not intend to regulate); District of
Columbia v. Greater Wash. Bd. of Trade, 506 U.S. 125, 130 (1992) (holding that D.C.’s
regulation of employee health insurance coverage refers to ERISA plans because the purpose
of the legislation creates a fund that is designed to purchase insurance to provide health
benefits); Ingersoll-Rand Co. v. McClendon, 498 U.S. 133, 140 (1990) (ruling that an
employee’s wrongful termination claim based upon the employer’s avoidance of contributing
to “the employee’s pension fund-’relates to’ an ERISA-covered plan”); FMC Corp. v. Holliday,
498 U.S. 52, 58 (1990) (deciding that Pennsylvania’s regulation of the subrogation rights of an
insurance company in a tort suit “relates to”an ERISA plan); Mackey v. Lanier Collection
Agency & Serv., Inc., 486 U.S. 825, 829 (1988) (holding that Georgia’s statute exempting
ERISA benefit plans from garnishment expressly refers to, and therefore “relates to” and
ERISA plan); Pilot Life Ins. Co. v. Dedeaux, 481 U.S. 41, 47-48 (1987) (ruling that plaintiff’s
common law claims against insurance company for terminating his disability benefits relates
to an ERISA plan); Metro. Life Ins. Co. v. Massachusetts, 471 U.S. 724, 739 (1985) (deciding
that a Massachusetts statute requiring insured benefit plans to purchase specified mental
health benefits “relates to” ERISA plans); Shaw v. Delta Air Lines, Inc., 463 U.S. 85, 100
(1983) (holding that New York’s statute regulating disability benefits “relates to” ERISA
plans); Alessi v. Raybestos-Manhattan, Inc., 451 U.S. 504, 524 (1981) (ruling that a New
Jersey statute eliminating a federally allowed method for calculating pension benefits “relates
to” ERISA pension plans).
       Greater Wash. Bd. of Trade, 506 U.S. at 130; Ingersoll-Rand Co., 498 U.S. at 140;
Holliday, 498 U.S. at 58; Mackey, 486 U.S. at 829; Dedeaux, 481 U.S. at 47-48; Metro. Life Ins.
Co., 471 U.S. at 739; Shaw, 463 U.S. at 100; Alessi, 451 U.S. at 524.
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Co.,255 was the turning point toward retraction from broad
preemption, when the Court boldly pulled back the reigns of the
“relates to” all-encompassing stampede.256 The cases subsequent to
Travelers have all followed its reasoning and not allowed

a. The Early Cases—Before Travelers

  In order to understand the effect of Travelers, one must first
understand how far the Court had extended the “relates to”
provision.    A strict chronological analysis of these decisions
indicates that the Supreme Court found a weakness in its earlier
reasoning. Since Travelers, the Court has attempted to turn the
“relates to” provision into a workable statute without as much
preemptive force as it has originally granted.
  In the first Supreme Court case on content-conflict preemption,
the Court in Alessi v. Raybestos-Manhattan, Inc.,258 pointed out that
the New Jersey statute at issue eliminated integration, which is a
method for calculating benefits under ERISA.259 While the Court
acknowledged that the term “relates to” can be confusing,260 it
nevertheless articulated clearly that Congress wanted ERISA to
have a sweeping preemptive effect, stating “[i]t is of no moment that
New Jersey intrudes indirectly, through a workers’ compensation
law, rather than directly, through a statute called ‘pension
regulation.’ ERISA makes clear that even indirect state action
bearing on private pensions may encroach upon the area of
exclusive federal concern.”261
  The decision was clear for the Alessi Court because ERISA
specifically covered the calculation of pension compensation,262 but

       514 U.S. 645 (1995).
       Id. at 668 (stating that ERISA does not preempt regulations which are “no different
from myriad state laws in areas traditionally subject to local regulation, which Congress could
not possibly have intended to eliminate”).
       See DeBuono, 520 U.S. at 813-15 (stating that even though the state law imposes
administrative burdens on ERISA it does not “relate to” them); Dillingham, 519 U.S. at 334
(concluding that ERISA does not preempt the state law because it is regulating an area that
is traditionally overseen by the state).
       451 U.S. 504 (1981).
       Id. at 524.
       Id. at 523-24.
       Id. at 525.
       See id. at 524-25 (stating that “[w]hatever the purpose or purposes of the New Jersey
statute, we conclude that it ‘relate[s] to pension plans’ governed by ERISA because it
eliminates one method for calculating pension benefits— integration— that is permitted by
federal law”).
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the Court refused to shed any light upon how far the “relates to”
preemption provision might extend.263 The Court’s lack of guidance,
along with the Congressional ambiguity of intent, had a steamroller
effect on all post-Alessi decisions.264
  Two years after Alessi, the Court continued its focus on
Congressional intent and the interpretation of the “relates to”
provision in Shaw v. Delta Air Lines, Inc.265 In Shaw, however, the
court finally announced that “[a] law ‘relates to’ an employee benefit
plan, in the normal sense of the phrase, if it has a connection with
or reference to such a plan.”266 The Supreme Court supported this
expansive interpretation, with information indicating that Congress
had intended ERISA to be broadly defined.267 The Court referred to
the Committee Report, stating that the “pre-emptive scope was as
broad as its language.”268
  In hindsight, however, the Court attempted to limit the “relates
to” phrase somewhat. In dicta, the Court noted the phrase might be
limited for borderline laws that were only “tenuously related to” the
plan, but noted that the question presented in Shaw was not
  In Metropolitan Life Insurance Co. v. Massachusetts,270 the Court
determined that a state statute that required health insurance
policies to include a minimum level of mental health benefits did
“relate to” a plan under section 514(a) of ERISA, even though the
court ultimately held that the state law was not preempted by
section 514(b)(2) of ERISA.271 The Court reached its holding by
giving deference to its previous analyses in Alessi and Shaw, which

       See id. at 525 (limiting the scope of their decision by stating “[w]e need not determine
the outer bounds of ERISA’s pre-emptive language to find this New Jersey provision an
impermissible intrusion on the federal regulatory scheme”).
       Many courts have expressed concern over the lack of guidance supplied by Congress and
the Supreme Court in interpreting the language of the preemption provision. See supra notes
252-53 and accompanying text (discussing the complications that have arisen in interpreting
the “relates to” preemption provision and the extent to which it applies). But see DeBuono,
520 U.S. at 813-14 (providing guidance to Courts after the Travelers decision, by setting
parameters as to the breadth of ERISA’s reach).
       463 U.S. 85, 95 (1983) (describing the “task [of the Court as one that] is to ascertain
Congress’ intent in enacting the federal statute at issue”).
       Id. at 96-97.
       See id. at 98 (discussing the legislative history behind the preemption provision and
further noting that the drafters “indicated that the section’s pre-emptive scope was as broad
as its language”).
       Id. at 98 & n.18.
       See id. at 100 n.21 (illustrating the limitation of the scope of ERISA pre-emption by
citing American Telephone and Telegraph Co. v. Merry, 592 F.2d 118, 121 (2d Cir. 1979).
       471 U.S. 724 (1985).
       Id. at 739-40 (concluding that the law was not preempted because the law regulates
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found even state laws that only have an indirect impact on plans
should be preempted because they relate to ERISA.272
   Two years later, in Pilot Life Insurance Co. v. Dedeaux,273 an
employee brought state common law tort and contract claims
against the insurance company that issued his employer’s group
policy.274  The employee claimed that the insurer improperly
processed his benefit claims.275 The Supreme Court found that the
common law causes of action related to employee benefit plans and
were therefore preempted.276 In reaching its decision in Dedeaux.,
the Court relied on the broad definition given to the phrase “relates
to” in Shaw and Metropolitan Life Insurance Co.277 By reaffirming
its broad interpretation of the phrase “relates to,” the Court in
Dedeaux found preemption did apply.278
   In Mackey v. Lanier Collection Agency and Service, Inc.,279 the
Supreme Court held that ERISA preempted a Georgia
antigarnishment statute that singled out ERISA employee welfare
benefit plans because the Georgia statute expressly referred to such
plans.280   However, the Court also found a Georgia general
garnishment statute not to be preempted.281
   In Ingersoll-Rand Co. v. McClendon,282 the Court again grappled
with the ERISA section 514 “relates to” concept.283 The Court
determined that the remedies provided under ERISA section 502
were exclusive; and that any plaintiff seeking such cause would
necessarily need to bring those claims in federal court.284 ERISA
provided an action for unlawful discharge, so the plaintiff’s state

      Id. at 739 (highlighting the “broad scope of the preemption clause” and the potential for
even “indirect state action” to impact federal areas of concern) (citation omitted).
      481 U.S. 41 (1987).
      See id. at 43-44 (seeking $750,000 in damages for breaches of contract and fiduciary
duties, as well as, fraud under contract and tort theories).
      Id. at 43.
      Id. at 47-48.
      See id. (noting the Court’s past interpretations of “relates to” and the “broad common-
sense meaning” of the phrase).
      Id. at 47.
      486 U.S. 825 (1988).
      Id. at 830.
      See id. at 838 n.12 (discussing why in this case it is not inconsistent for the court to rule
that ERISA preempts an antigarnishment statute but does not preempt a garnishment
statute). See generally id. at 830-38 (explaining in Part III of the opinion why the general
garnishment statute does not relate to ERISA plans and therefore is not preempted).
      498 U.S. 133 (1990).
      See id. at 138-39 (reaffirming previous interpretations of section 514’s “‘deliberately
expansive’ language” in the key phrase “‘relate to’”) (citations omitted).
      See id. at 143-44 (indicating congressional intent for the exclusivity of ERISA remedies
by emphasizing the Act’s conferral of “exclusive jurisdiction” on the federal district courts).
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common law claim was preempted.285 This determination seems to
have compounded the preemption confusion. Some courts have
tried to interject another level of preemption analysis by refusing to
preempt on the grounds that ERISA does not provide an
appropriate remedy.286 The lack of a remedy, however, is not a
proper reason for denying preemption, as evidenced by the Supreme
Court’s earlier decision noting that the availability of a remedy
under ERISA is irrelevant to the determination of the
appropriateness of preemption.287
   In FMC Corp. v. Holliday,288 the Supreme Court held that ERISA
preempted a Pennsylvania statute that precluded subrogation or
reimbursement from a plaintiff’s tort recovery because it “relate[d]
to” an employee benefit plan.289 The Court emphasized that
preemption was necessary because the state statute had a
connection with an employee benefit plan and made reference to an
employee benefit plan.290
   In District of Columbia v. Greater Washington Board of Trade,291 a
District of Columbia law requiring employers who provided health
insurance for their employees to provide equivalent coverage for
injured eligible employees who were also eligible for workers
compensation, was preempted because it made “reference to”
welfare benefit plans.292 The Court again noted the limitation in
that “if the state law has only a ‘tenuous, remote, or peripheral’
connection with covered plans” pre-emption would not be

       See id. at 145 (holding that the case falls within the federal courts purview since the
remedy sought under state law is one “expressly guaranteed by [ERISA]”).
       This method of analysis sometimes produces tragic results. In Bast v. Prudential
Insurance Co., decedent’s family brought suit against an HMO alleging a bad faith refusal to
authorize a bone marrow transplant. In finding that no remedy was available under ERISA,
the court held that the plan was not a government benefit plan, the savings clause did not
apply to exempt claims from preemption and claims for extracontractual damages were not
permitted under ERISA. See Bast v. Prudential Ins. Co., 150 F.3d 1003, 1011 (9th Cir. 1998)
(holding that the “state law claims are preempted by ERISA,” despite the fact that no remedy
is provided for under ERISA).
       See Pilot Life Ins. Co. v. Dedeaux, 481 U.S. 41, 54 (1987) (advising that courts should be
mindful of the remedies deliberately included and excluded in ERISA’s “comprehensive civil
enforcement scheme,” which were “intended to be exclusive”).
       498 U.S. 52 (1990).
       See id. at 58-59 (noting that the preemption clause is not restricted to specific subject
matters covered by ERISA since doing so would be inconsistent with legislative intent).
       Id. at 59.
       506 U.S. 125 (1992).
       Id. at 130-31.
       Id. at 130 n.1.
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  In the period prior to the Court’s Travelers decision there was an
expansive application of the “relates to” phrase, which was deeply
entrenched in legal analysis. The battleground in the circuits
produced many casualties for both plaintiffs and HMOs within the
milieu of preemption analysis.294
  For instance, in Corcoran v. United HealthCare, Inc.,295 the
plaintiffs filed a malpractice claim and a wrongful death claim
against the plan administrator for denying prenatal care.296 Mrs.
Corcoran had a difficult pregnancy, and, when the utilization review
determined that physician—recommended hospitalization was
unnecessary, Mrs. Corcoran’s fetus died while she was at home
without care.297 Although the plaintiffs argued the utilization
review provided medical advice, the court, using the Supreme
Court’s broad “relate to” interpretation, determined that the
Corcoran’s based their state suit—for denial of coverage by the
utilization review—on what was essentially a benefits
determination, and, therefore, the claim was preempted by
  Of course, this broad reading left the plaintiffs suit in state court,
but required the application of federal law-ERISA. However,
ERISA did not provide remedies for the Corcoran’s injuries.
    The result ERISA compels us to reach means that the
    Corcoran’s 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 decisionmaking[sic].299
  The Supreme Court in Travelers Insurance Co., offered guidance
on the outer parameters of ERISA preemption and therefore proved

       For a list of cases prior to Travelers, where state laws were preempted, see infra
Appendix A. For a list of those cases prior to Travelers not preempting state laws, see infra
Appendix B.
       965 F.2d 1321 (5th Cir. 1992).
       See id. at 1324-25 (stating that the administrator’s denial of pre-certification of a
hospital stay resulted in improper care and the death of plaintiff’s fetus).
       See id. at 1323-24 (describing “utilization review” as third parties evaluating the
appropriateness of medical care and explaining how “utilization review” was conducted in the
       See id. at 1331, 1334 (holding that Congress “enacted a pre-emption clause so broad and
a statute so comprehensive that it would be incompatible with the language, structure and
purpose of [ERISA] to allow tort suits against entities so integrally connected with a plan”).
       Id. at 1338.
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more useful to patients seeking redress in the managed care context
through state court.300 In brief, New York Public Health Law301
required that insurance carriers of patients covered by health plans
other than Blue Cross, Health Maintenance Organizations (HMOs)
or government insurance should pay a thirteen percent surcharge
over the Diagnosis-Related Group (DRG) rate.302 The law imposed
an additional eleven percent surcharge on DRG rates for patients
covered by commercial health insurance carriers.303 The surcharge
effectively raised the health care costs of persons using commercial
insurers or self-insured plans, creating an incentive to enroll in Blue
Cross plans.304 The U.S. District Court for the Southern District of
New York held that ERISA preempted the law imposing those
charges, thus making the law ineffective. 305
  The U.S. Court of Appeals for the Second Circuit upheld the
decision of the District Court, finding that the surcharges had a
sufficient “connection with” ERISA plans to meet the “relate to”
standard for preemption.306 However, the Supreme Court reversed
and held that the surcharges did not “relate to” employee benefit
plans within the meaning of the preemption clause.307 The Court
began its analysis by recognizing that, “where federal law is said to
bar state action in fields of traditional state regulation, we have
worked 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.’”308 The search for the

       See N.Y. State Conf. of Blue Cross & Blue Shield Plans v. Travelers Ins. Co., 514 U.S.
645, 667 (1995) (declaring that “interpret[ing] ERISA’s pre-emption provision as broadly as
respondents suggest would have rendered the entire NHPRDA utterly nugatory, since it
would have left States without the authority to do just what Congres was expressly trying to
induce them to do by enacting the NHPRDA”).               See also infra notes 313-322 and
accompanying text (discussing the impact the Court’s decision in Travelers had on subsequent
       N.Y. PUB. HEALTH LAW § 2807-c(1)(b) (McKinney 1993 & Supp. 2001) (repealed 2001).
       See Travelers Ins. Co. v. Cuomo, 813 F. Supp. 996, 999-1000 (S.D.N.Y. 1993), aff’d in
part rev’d in part, 14 F.3d 708 (1993), rev’d sub nom N.Y. State Conf. of Blue Cross & Blue
Shield Plans v. Travelers Ins. Co., 514 U.S. 645 (1995) (referring to the amendment as the
“Omnibus Revenue Act of 1992”).
       See Cuomo, 14 F.3d 708, 712 (2d Cir. 1993) (describing the complex system of hospital
reimbursement using DRG rates plus statutory surcharges, as well as, the legislative purpose
and practical effect of the statutory scheme).
       Cuomo, 813 F. Supp. 996, 999 (S.D.N.Y. 1993).
       See Cuomo, 14 F.3d at 724 (stating that certain sections specially reference an employee
benefit plan).
       N.Y. State Conf. of Blue Cross & Blue Shield Plans v. Travelers Ins. Co., 514 U.S. 645,
649 (1995).
       Id. at 655 (quoting Rice v. Sante Fe Elevator Corp., 331 U.S. 218, 230 (1947) (citation
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ultimate discernment of congressional intent was critical as
indicated in the Court’s decision, “[w]e simply must go beyond the
unhelpful text and the frustrating difficulty of defining its key term,
and look instead to the objectives of the ERISA statute as a guide to
the scope of the state law that Congress understood would
  According to the Court, the objective of Congress in enacting
section 514 of ERISA was to reduce the administrative and financial
burden on ERISA plans by eliminating the threat of a multiplicity of
conflicting laws.310 In the Court’s quest for congressional intent, it
found no intimation in the legislative history that Congress
intended to preempt traditional state regulation.311 The Court could
not legitimately credit Congress with objectives it did not
contemplate, and therefore, refused to credit Congress with the
intent to preempt vicarious liability claims against HMOs.312 In
addition, issues relating to medical malpractice and professional
responsibility have always been subject to state regulation by way of
state licensing and professional standard statutes, and thus are
clearly within traditional state regulation.313

b. Outcome After Travelers

  The Supreme Court’s decision in Travelers was a fundamental
departure from its traditional approach to the adjudication of
ERISA preemption cases. Prior to Travelers, courts that preempted
vicarious liability claims typically focused on indirect costs to the
plan from claims or from adherence to state laws, reasoning that the
impact of indirect costs established a sufficient relationship between
the claims and the plans to trigger preemption.314 The Court stated
clearly that indirect economic influence in the form of an overall

       Id. at 656.
       Id. at 656-57 (concluding that uniform regulation of employee benefit plans would
relieve those burdens).
       Id. at 665.
       See id. at 668 (stating that “New York’s surcharges do not fall into either category; they
affect only indirectly the relative prices of insurance policies, a result no different from
myriad state laws . . . which Congress could not possibly have intended to eliminate”).
       De Buono v. NYSA-ILA Med. & Clinical Servs. Fund, 520 U.S. 806, 814 (1997)
(indicating that the “historic police powers of the State include the regulation of matters of
health and safety”).
       See Ricci v. Gooberman, 840 F. Supp. 316, 317 (D.N.J. 1993) (stating that “a vicarious
liability claim arising from a health care provider’s alleged malpractice ultimately depends on
the relationship between the provider and the administrative plan”).
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increase in plan costs due to malpractice insurance did not create a
situation “from which Congress meant to insulate ERISA plans.”315
   The inequities associated with the immunities provided by ERISA
preemption have been criticized strongly.316 Many scholars who
view a broad interpretation as detrimental to beneficiaries seeking
redress and to states trying to reform health care, advocate reigning
in on the ERISA preemption doctrine in the managed care
   Travelers has not only provided overdue guidance for those
jurisdictions that oppose ERISA preemption of vicarious liability
claims against HMOs, but it has also made it clear that economic
impact does not create a sufficient relationship with an employee
benefit plan to warrant preemption.318 Supreme Court cases
subsequent to Travelers have maintained Traveler’s spirit,319 but
lower court cases since Travelers have been much less prone to find
preemption under ERISA.320
   After Travelers, plaintiffs found pleading around ERISA
possible321 by ensuring claims did not mention benefits or benefit

       See N.Y. State Conf. of Blue Cross & Blue Shield Plans, 514 U.S. at 661-62 (explaining
that indirect costs associated with general state laws do not render a sufficient relationship
with covered plans).
       See Laura H. Harshbarger, Note, ERISA Preemption Meets the Age of Managed Care:
Toward a Comprehensive Social Policy, 47 SYRACUSE L. REV. 191, 197-98 (1996) (protecting
the ERISA plan’s financial interests, but ignoring the goals “of achieving responsible HMO
conduct and of compensating the injured”); Mulcahy, supra note 207, at 881-83 (1999)
(explaining that five different United States Circuit Courts interpret “equitable relief” as
damages that are limited to declaratory or injunctive relief, thereby excluding punitive and
actual damages).
       See Jay Conison, ERISA and The Language of Preemption, 72 WASH. U. L.Q. 619, 623
(1994) (claiming that current law has made “flawed assumptions” concerning when
preemption should take place); Harshbarger, supra note 316, at 197-98 (stating that the
criticisms of the Corcoran decision, which viewed preemption broadly, is well deserved
because it results in “anomalous results”).
       See supra notes 251-56, 299-314 and accompanying text (discussing the Court’s decision
in Travelers and its impact on other cases).
       See Boggs v. Boggs, 520 U.S. 833, 841 (1997) (“We can begin, and in this case end, the
[preemption] analysis by simply asking if state law conflicts with the provisions of ERISA or
operates to frustrate its objects”); De Buono v. NYSA-ILA Med. & Clinical Servs. Fund, 520
U.S. 806, 816 (1997) (following Travelers in its analysis, the court did not preempt the
application of a state tax law to medical centers owned and operated by multi-employer
plans); Cal. Div. of Labor Standards Enforcement v. Dillingham Constr., N. A., Inc., 519 U.S.
316, 331-32 (1997) (relying upon Travelers in holding a prevailing wage exemption for
apprenticeship plans did not have a sufficient connection with plans to warrant preemption).
The Court pointed out that the State typically regulated apprenticeship programs and
Congress did not intend to displace the State’s prerogatives in such matters. Id. at 334.
       For a list of cases preempted after Travelers, see Appendix C. For a list of cases not
preempted after Travelers, see Appendix D.
       See McAuliffe, supra note 191, at 98 (stating that “it would appear all claims adeptly
written as claiming recovery against HMOs for lapses in the provision of safe medical care
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rights and ensuring quality of care interests were clearly stated.
Plaintiffs could even file vicarious claims against a utilization
review agent for a failure to provide adequate medical care rather
than withholding a specific plan benefit.322 A number of plaintiffs
found that through creative and careful drafting, they could dodge
both preemption obstacles with one phrase: “quality of care”.323 Yet
risk of preemption still remains. Furthermore, vicarious liability
claims based on quality of care still involve physicians, even the
innocent ones.

  B. Litigants Fail to Dodge the Obstacle Under ERISA’s Fiduciary
                  Provisions but Find Other Relief

   Litigants, fighting preemption of claims at every twist of the
maze, sought to use ERISA itself to find relief, and brought
challenges to the conduct of HMOs under the fiduciary provisions of
ERISA.324 Under ERISA, a person is a fiduciary, with respect to a
plan, to the extent that “he exercises any discretionary authority or
discretionary control respecting management of such plan or
exercises any authority or control respecting management or
disposition of its assets.”325 This functional discretion-sensitive test
easily applies to an HMO’s contemplation of medical care requests.
An HMO that deliberately refuses to provide coverage, delays
response to medical treatment requests, or creates financial
incentives to ration care is clearly not always acting in the best
interests of the participant. The HMO can and should be held
accountable under the fiduciary rules. The physician influenced by
fiscal incentives violates the prudent person standard by not doing
what a reasonable person in similar circumstances would do.326 A

should pass by ERISA preemption”).
      See Holman v. Julius, No. 97 C 945, 1997 WL 403641 at *3-4 (N.D. Ill. July 16, 1997)
(pointing out that neither party to the action claimed that entitled benefits were denied under
the plan, and that the plaintiff’s claim did not “necessitate[] an interpretation of the ERISA
      See Rice v. Kaiser Found. Health Plan of Texas, Inc., No. Civ.A. 399CV0714L, 2000 WL
1449891 at *2, *4 (N.D. Tex. Sept. 27, 2000) (ruling that plaintiff’s claim is not preempted
because the cause of action, which made allegations based on the “quality of care . . .
received,” was “only tenuously related to ERISA”); Roessert v. Health Net, 929 F. Supp. 343,
348, 353 (N.D. Cal. 1996) (ruling that the plaintiff’s claim was not preempted because the
“quality of medical care” claim was not related to ERISA).
      See ERISA § 404, 29 U.S.C. § 1104(a)(1) (1994) (stating “a fiduciary shall discharge his
duties with respect to a plan solely in the interest of the participants and beneficiaries”).
      ERISA § 302, § 1002(21)(A)(i) (1994).
      See infra notes 329-31 and accompanying text (discussing a case where a doctor was
found to have violated his fiduciary duty because he did not disclose “his financial interests in
withholding patient care”).
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few courts attempted this approach and viewed the HMO as a
   In one case, a deceased employee’s spouse brought a state court
suit against the HMO that administered the employer’s benefit
plan, alleging that the HMO failed to disclose its practice of giving
primary-care physicians financial incentives to minimize referrals
to specialists, and that the non-disclosure caused the employee’s
death.328 The court of appeals reversed the district court’s dismissal
and held that ERISA’s fiduciary standards required the disclosure
of compensation arrangements under which a physician may
   In a similar ruling, an Illinois appellate court reversed the
dismissal of a breach of fiduciary charge against a physician under
contract with an HMO, but the Illinois Supreme Court reversed its
decision.330 The appeals court held that disclosure of financial
incentives between the physician and the HMOs are necessary in
order to avoid a breach of the physician’s fiduciary duty.331 The
court stated that “[w]hen an HMO’s financial incentives
discourage . . . [physicians from providing services, these] incentives
must be disclosed and the failure to do so is a breach of ERISA’s
fiduciary duties.”332

       See Anweiler, 3 F.3d at 993 (holding that even though the defendant HMO breached its
fiduciary duty, the plaintiff is not entitled to any equitable relief). See also Pirozzi v. Blue
Cross-Blue Shield of Va., 741 F. Supp. 586, 587-88 (E.D. Va. 1990) (stating that the question
for the court, determining if the plan covers certain treatments, is “one of first impression” for
the court). In this case, the doctors diagnosed the plaintiff with lymph node cancer and
recommended that her best chance for survival consisted of an autologous bone-marrow
transplant. Id. at 588. Blue Cross-Blue Shield denied coverage on the basis that the
procedure was experimental. Id. The operation, which cost approximately $100,000, could
not be performed until the hospital received a deposit and assurance of full payment. Id.
After an extended trial and testimony by many expert witnesses, the court held that the
procedure was not experimental and ordered that the fiduciary authorize the operation. Id.
at 594-95.
       See Shea v. Esensten, 107 F.3d 625, 627 (8th Cir. 1997) (observing that, initially, the
spouse brought a wrongful death action in state court alleging fraudulent nondisclosure and
misrepresentation, and after the case was removed to federal court, she amended the
complaint to allege that the HMO violated ERISA’s fiduciary duty requirement).
       Id. at 629 (stating that the plaintiff had stated a cause of action).
       Neade v. Portes, 710 N.E.2d 418, 429 (Ill. App. 2 Dist. 1999), rev’d, 739 N.E.2d 496, 506
(Ill. 2000).
       Id. at 429.
       Id. at 424 (quoting Shea v. Esentem, 107 F.3d 625, 629 (8th Cir. 1997). See also Drolet
v. Healthsource, Inc., 968 F. Supp. 757, 761 (D. N.H. 1997) (ruling that plaintiff had a cause
of action when defendant “made material misrepresentations in the Group Subscriber
Agreement . . . [and that] it can be enjoined under ERISA to prevent further breaches of its
fiduciary duty”). But see Lancaster v. Kaiser Found. Health Plan, 958 F. Supp. 1137, 1149
(E.D. Va. 1997) (stating that “medical malpractice claims focus on whether a health care
provider deviated from an adequate standard of care, not on the contents or administration of
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   The trend to hold HMOs responsible for lack of disclosure, as a
failure of their fiduciary duty, was encouraging, but short-lived.
Last year, the Supreme Court, in Pegram v. Herdrich,333 ruled that
the utilization review acts of HMOs were not fiduciary acts, and
therefore, were not subject to a breach of fiduciary duty
accusation.334    The physician in the case “did not order an
ultrasound diagnostic procedure” despite the fact that she
“discovered a six by eight centimeter inflamed mass in . . . [the
patient’s] abdomen.”335 The patient ultimately suffered peritonitis
resulting from a ruptured appendix and sued the physician and
service provider for an anticipatory breach of fiduciary duty for not
informing her of the cost containment measures.336 Stressing the
possibility of administrative complexity if the Court decided
otherwise, and relying on congressional intent, the Court refused to
define the treatment acts as those of a fiduciary.337 “[T]he Court in
Pegram reached essentially the following conclusion: an HMO is a
business providing contract-based services for an employer that
provides a health benefit plan; the HMO is not the plan itself and is
not a fiduciary administrator of the plan.”338
   Pegram seemed to sound the death knell to one approach for the
litigants, but actually provided an indication of the Court’s current
perception of ERISA preemption and managed care claims.
Although the decision does not directly address preemption, the
Court noted that to allow fiduciary claims would result in federal
malpractice claims,339 which would have no value to participants
because “[i]t would simply apply the law already available in state
courts and federal diversity actions.”340 The Court implied that
state medical malpractice laws would not be preempted, because “in
the field of health care, a subject of traditional state regulation,
there is no ERISA preemption without clear manifestation of

a particular ERISA benefits plan”).
       530 U.S. 211 (2000).
       See id. at 214 (holding that treatment decisions of HMOs carried out through its
employed physicians are non-fiduciary acts under ERISA).
       Id. at 215.
       See id. at 216 n.3 (outlining the specific allegations).
       Id. at 231 (expressing doubt that “Congress would ever have thought of a mixed
eligibility decision as fiduciary in nature”).
       Jeffrey W. Stempel & Nadia von Magdenko, Doctors, HMOs, ERISA, and the Public
Interest After Pegram v. Herdrich, 36 TORT & INS. L.J. 687, 716 (Spring 2001).
       See Pegram, at 235 (noting that whether a claim was based in negligence or breach of
fiduciary duty the standard would be the same, that which is “reasonable and customary” in
the medical community).
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congressional purpose.”341 Nevertheless, the Court concluded that
its decision to reject the breach of fiduciary duty claim conveniently
abrogated the need to solve this problem.342 Pegram’s discussion
about the handling of malpractice issues, distinguishing treatment
and administrative decisions, reflected a clear intent from the
Supreme Court to allow state malpractice claims to escape
   One commentator observed that “[b]ased on the initial response to
Pegram, there is every reason to believe that the next few years will
see an increase in the number of actions filed against HMOs under
state law-particularly malpractice, negligence and vicarious liability
actions-with nothing less than Supreme Court authority to support
the filings.”344 Seemingly, that is exactly what is happening. One
court already has decided that Pegram permits HMOs to be sued
under state law for medical malpractice. In Miller v. HealthAmerica
Pennsylvania, Inc.,345 the Pennsylvania Court of Common Pleas held
that a negligence claim against an HMO was not preempted due to
Pegram, as well as a decision by the Pennsylvania Supreme
   “Also following its decision in Pegram, the Supreme Court denied
certiorari in a case in which the Third Circuit found no ERISA
preemption.”347 This denial may indicate the Court is supporting
severe limits to preemption in the quality of care context.
   Yet one week after Pegram, the Supreme Court reversed and
remanded a major ERISA preemption case, United States
Healthcare Systems of Pennsylvania, Inc. v. Pennsylvania Hospital
Insurance Co.348 to the Pennsylvania Supreme Court “for further
consideration in light of Pegram v. Herdrich.”349 In 1998, the

       Id. at 237.
       Id. See also Gary M. Ford & Jennifer E. Eller, Managed Care Litigation Review, WL
SF83 ALI-ABA 571, *580-81 (May 2001) (arguing how the courts decision in Pegram suggests
state law claims against MCOs will not be preempted).
       See Arnold J. Rosoff, Breach of Fiduciary Duty Lawsuits Against MCOs: What’s Left
After Pegram v. Herdrich?, 22 J. LEGAL MED. 55, 72 (2001) (setting forth the view of the Court
that malpractice claims ought not be preempted, as such claims are a matter of state law).
       Orin, supra note 233, at 21, 25.
       50 Pa. D. & C.4th 1 (Ct. Com. Pl. 2000).
       Id. at 18, 24 (finding that a negligence complaint allegedly resulting in kidney failure
was not preempted because it was a “mixed eligibility decision”).
       Ford & Eller, supra note 342, at 11 (involving a case where an infant died after being
released from the hospital). See Bauman v. U.S. Healthcare, Inc., 193 F.3d 151, 164-65 (3d
Cir. 1999), (holding that a claim regarding the “inadequacy of the quality of care” is not
       724 A.2d 889 (Pa. 1998), vacated and remanded, 530 U.S. 1241 (2000).
       United States Healthcare Sys., Inc. v. Pa. Hosp. Ins. Co., 530 U.S. 1241 (2000).
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Pennsylvania Supreme Court in what was then called “Pappas v.
Asbel”350 determined that “negligence claims against a health
maintenance organization do not ‘relate to’ an ERISA plan” and,
thus, this lawsuit was not subject to removal to federal court under
ERISA preemption.351 The Supreme Court reversal and remand is
confusing since Pappas seemed to agree with the Pegram
preemption dicta.352 In the rehearing, the Pennsylvania Supreme
Court implied that the Supreme Court must have wanted a
clarification in order to align the holding with the mixed decision
ruling of Pegram. 353 The Pennsylvania Court simply upheld its
initial denial of preemption.354 Whether or not the court was correct
will be left for determination. The decision could indicate resistance
to interpreting the Supreme Court’s seeming support of state
medical malpractice actions to avoid preemption as anything but
carte blanche. One author suggests that the ambiguity of Pegram
virtually screams for legislation.355
   Some authors have criticized Pegram as opening the door to all
cost-containment gate-keeping mechanisms unless the defendant
HMO can successfully characterize the screening as a benefit
determination.356     “Paradoxically then, although the defendant
HMO in Pegram won, the managed care industry lost.”357 In
circumstances where a claimant seeks to hold an HMO liable for
negligent administration of the cost-containment provisions of an
employee benefits plan or the type and extent of benefits promised,
ERISA preemption is to be expected.358

       724 A.2d 889 (Pa. 1998), rev’d sub nom. United States Healthcare Sys., Inc. v. Pa. Hosp.
Ins. Co., 530 U.S. 1241 (2000).
       Pappas, 724 A.2d. at 893.
       See Rosoff, supra note 343, at 72 (stating that the court’s opinion was terse, surprising
and unsigned).
       See Pappas v. Asbel, 768 A.2d 1089, 1091 (Pa. 2001) (stating that the Supreme Court
wanted them to reconsider their decision under Pegram).
       See Rosoff, supra note 343, at 59-60, 74-75 (noting that although the Pegram decision
had a substantial effect on preemption, the scope of ERISA preemption remains cloudy).
       See Thomas R. McLean & Edward P. Richards, Managed Care Liability for Breach of
Fiduciary Duty After Pegram v. Herdrich: The End of ERISA Preemption for State Law
Liability for Medical Care Decision Making, 53 FLA. L. REV. 1, 4, 46-47 (2001) (recapping the
consequences of the Pegram decision, one being that HMOs to avoid liability will ignore
quality of care issues).
       Id. at 4. See also Stempel & von Magdenko, supra note 338, at 722-23 (arguing that
after Pegram, HMOs will be subject to suit on the same grounds as all other medical service
       See Kuhl v. Lincoln Nat’l Health Plan, Inc., 999 F.2d 298, 303 (8th Cir. 1993) (delaying
pre-certification of heart surgery arose from administration of benefits and therefore was
preempted); Pomeroy v. John Hopkins Med. Servs. Inc., 868 F. Supp. 110, 116 (D. Md. 1994)
(holding that an HMO’s refusal to pay for appropriate medical treatment relates to the HMO’s
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  Denial of benefits and malpractice actions are sometimes
inseparable, as made very clear by Pegram.359 Where the denial of
care creates the possibility for a physician to be exposed to a
malpractice claim, although the physician properly ordered the
treatment, the physician should not be subject to state law claims.
Instead, a direct action for breach of fiduciary duty should be
brought against the administrators of the plan. No amendments
are required for these since the fiduciary rules of ERISA are
   However, where the physician allows his or her judgment to be
impaired by the policies of the HMO and the resulting medical
decisions fall below the acceptable medical standard of practice,
then a cause of action against the physician with vicarious liability
for the HMO should exist. These actions should not be preempted
following the Travelers rationale.360 Conversely, if physicians have
not been negligent, malpractice actions brought simply to avoid the
preemption doctrine of ERISA should not be allowed.

                C. The Courts Address Complete Preemption

  When interpreting a preemption clause in a statute, courts
analyze the congressional intent of the provision. Generally,
“[p]reemption under §502 [of HMO liability] has been predicated on
the premise that the HMO and its ‘medical necessity’
determinations are part [of the administration] of an ERISA plan,”
and therefore, part of the plan itself.361
  Early litigation concerning complete preemption under ERISA
focused on characterization of the claims. If the court could in any
way characterize a claim as one for benefits due—enforcing rights to

benefit plan and is therefore preempted by ERISA); Kearney v. U.S. Healthcare, Inc., 859 F.
Supp. 182, 187 (E.D. Pa. 1994) (holding that a claim based on an HMO’s failure to refer a
member to a specialist for economic reasons is preempted); Dukes v. U.S. Health Care Sys. of
Pa., Inc., 848 F. Supp. 39, 43 (E.D. Pa. 1994) (stating that a vicarious liability claim brought
against an HMO is preempted because the alleged misrepresentation by the HMO relates to
the benefit plan and because a malpractice claim against an HMO relates to the treatment
provided for in the plan); Elsesser v. Hosp. of Phila. Col. of Osteopathic Med., 802 F. Supp.
1286, 1292 (E.D. Pa. 1992) (deciding that the claims of wrongful refusal of testing, breach of
contract, misrepresentation of primary care physician qualifications and the
misrepresentation of availability of specialized treatment are preempted).
      See Pegram v. Herdrich, 530 U.S. 211, 228 (2000) (discussing how eligibility decisions
and treatment decisions are often related, thereby confusing the issue as to whether they are
administrative or medical).
      See supra notes 315-28, 344-49 (illustrating cases that have tried to sue HMOs on the
basis of a vicarious liability theory).
      David L. Trueman, HMO Liability: Narrowing the ERISA Preemption, N.Y.L.J., Nov.
22, 1999, at 4.
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benefits or clarifying rights to future benefits, as appearing in
section 502—the claim would be preempted because ERISA
provided a remedy for the claim.362 The court in Metropolitan Life
Insurance Co. v. Taylor,363 set the tone for this approach by
preempting breach of contract claims against a provider.364 Clearly,
a breach of contract claim concerns benefits under the plan, but the
Court’s examination provided that claims of ERISA’s nature were
immediately preempted.365 For example, in Lupo v. Human Affairs
International, Inc.,366 the circuit court held the district court’s denial
of remand to state court to be reversible error since the plaintiff’s
claims, on their face, were solely state common law claims, not § 502
claims.367 The plaintiff was, incidentally, directly suing the plan for
negligence, breach of fiduciary duty, and intentional infliction of
emotional distress.368
  Suing for direct negligence was more successful in earlier cases,
because courts felt that a medical malpractice claim made directly
against the provider was not a claim for benefits but was rather
related to care issues.369 However, courts were preempting vicarious

       See Sofo v. Pan-Am. Life Ins. Co., 13 F.3d 239, 241 (7th Cir. 1994) (holding that a state
claim for wrongful recession of a medical plan was completely preempted by ERISA because
the claim was interpreted as a participant’s claim for denial of benefits); Kuhl, 999 F.2d at
302 (concluding that the three state law claims of tortious interference, malpractice, and
misconduct by the HMO all arise from the administration of benefits under the benefit plan
and are therefore preempted by ERISA); Rodriguez v. PacifiCare of Texas, Inc., 980 F.2d
1014, 1017 (5th Cir. 1993) (ruling that a state law claim based on displeasure with an HMO’s
handling of medical claims has a sufficient connection to the benefit plan such that the claim
is preempted by ERISA); Corcoran v. United Healthcare, Inc., 965 F.2d 1321, 1338 (5th Cir.
1992) (stating that when ERISA was passed by Congress it was Congress’s intent to prevent
state law claims related to employee benefit plans for these types of claims).
       481 U.S. 58 (1987) rev’g Taylor v. Gen. Motors Corp. 763 F.2d 216 (6th Cir. 1985).
       See id. at 64 (noting that the claim was preempted by ERISA despite only having state
law causes of action).
       See id. at 66-67 (holding that it was the intent of Congress to make claims under section
502(a) removable to federal court regardless of whether preemption was obvious when the
suit was filed).
       28 F.3d 269 (2d Cir. 1994).
       Id. at 272, 274.
       See id. at 272 (listing the counts of Lupo’s complaint and noting that the counts had no
“significant resemblance” to the claims listed in ERISA 502(a)(1)(B)).
       See Kearney v. U.S. HealthCare, Inc. 859 F. Supp. 182, 186 (E.D. Pa. 1994) (indicating a
different result in regards to preemption if the claim was based on a denial of benefits rather
than a failed promise to provide competent services); Burke v. Smithkline Bio-Science Lab.,
858 F. Supp. 1181, 1184 (M.D. Fla. 1994) (holding that the malpractice claim is grounded in
state law and therefore not preempted); Paterno v. Albuerne, 855 F. Supp. 1263, 1264 (S.D.
Fla. 1994) (remanding the case for lack of subject matter jurisdiction because the vicarious
liability claim does not fall under ERISA preemption); Smith v. HMO Great Lakes, 852 F.
Supp. 669, 672 (N.D. Ill. 1994) (holding that the negligence claim does not relate to the plan
and remanding the case to state court).
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liability claims because these claims required examination of the
plan to determine the result.370
   Until 1995, nearly every claim against an HMO implicating a
cause of action that could potentially be interpreted as alleging a
failure to provide benefits due under a plan, was found preempted
by ERISA.371 The walls crumbled for vicarious liability preemption,
and other preempted causes of action, after circuit courts began to
follow the rationale in Dukes v. U.S. Healthcare, Inc.372 In Dukes, an
HMO member was refused diagnostic blood work that had been
prescribed by his physician.373 The patient died from a condition
that could have been revealed by the early blood test.374 Dukes,
citing Metropolitan Life Insurance Co., v. Taylor, clarified the
differences in analysis—the effect of section 502 versus section 514
preemption—and created a standard for section 502 preemption,
explaining that claims merely attacking the quality of benefits do
not fall within the scope of section 502(a)’s enforcement provisions
and are not completely preempted, whereas claims challenging the
quantum of benefits due under an ERISA-regulated plan are
completely preempted under section 502(a)’s civil enforcement
scheme.375 For instance, a claim concerning “‘utilization review’” is
administrative, and therefore concerns benefits and rights under
the plan.376 As a “quantity” of benefits claim, it is preempted.377
However, a claim concerning “arranging for medical treatment” is

       See Pomeroy v. John Hopkins Med. Servs., Inc., 868 F. Supp. 110, 116 (D. Md. 1994)
(recognizing that, by the court preempting the plaintiff’s medical malpractice claim, the
plaintiff is left with no remedy); Dukes v. U.S. Health Care Systems, Inc., 848 F. Supp. 39, 43
(E.D. Pa. 1994) (rejecting the state law claims under the preemption doctrine because the
description of the relationship between the provider and the insurance company relate to the
plan and circumstances surrounding medical treatment relate to the plan).
       See Trueman, supra note 361 (noting that until recently the distinction between medical
and administrative decisions made by HMO’s had not been seen, leading courts to preempt
       57 F.3d 350 (3d Cir. 1995).
       Id. at 352 (noting that the HMO was sued under Pennsylvania’s ostensible agency
theory for the negligence of the doctors and medical providers who refused to do the blood
       Id. (stating that a timely blood test would allegedly have diagnosed the deadly
       See id. at 355, 357 (explaining that neither the text of ERISA nor anything in its
legislative history suggest that section 502 was intended to apply to the quality of benefits
received by members of a benefit plan).
       See id. at 360-61 (“ERISA is implicated in ‘utilization review’ decisions but not medical-
treatment decisions because only the former are ‘made in connection with a cost containment
       See id. at 361 (stating that the claims did not allege a denial of benefits, which is
considered to be a “quantity” issue as opposed to a “quality”issue).
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necessarily one of “quality” and would not be preempted.378 This
“quality versus quantity” measure became the scale on which to
weigh claims.379
  Additionally, Dukes is important because it applies this analysis
to both direct and vicarious liability claims. As long as the claims
related to quality of care and not quantity of benefits, the court
could not completely preempt under section 502.380 Depending upon
the circuit, more cases could remain in state court.381
  In analyzing medical malpractice claims and denial of benefits
claims under the principle of complete preemption, ERISA evidently
does not provide a standard of care for medical practice, nor does it
regulate the conduct of managed care organizations, so preemption
would not impact malpractice actions. ERISA does, however,
provide a remedy for benefit denials, so denial of benefit claims
brought in state court could be preempted as duplicative.382

       See id. at 351-52 (holding that the claims did not attempt to recover benefits due,
enforce rights under the plan, or clarify rights to future benefits and therefore should not be
       See Blaylock v. Hynes, 104 F. Supp. 2d 1184, 1189-90 (D. Minn. 2000) (implying that
prior to preemption, an interpretation of the benefits plan is often required, the outcome of
which affects both the future administrator of the plan and the plan’s participants).
       See Lancaster v. Kaiser Found. Health Plan of Mid-Atlantic States, Inc., 958 F. Supp.
1137, 1146 (E.D. Va. 1997) (holding that negligence and fraud claims that challenge an
administrative decision for benefits are completely preempted, while quality of care
malpractice claims are not preempted under section 502). See Appendix E for cases where
courts did not preempt, since claims attacked quality of benefits. See Appendix F for cases
where courts preempted, since claims were for benefits or rights under the plan.
       See supra note 197 for a juxtaposition of the varied court uses of the Dukes approach.
One commentator has posited a reason for the continued disagreement among the circuits,
   An important reason for the divergence is that the distinction drawn in Dukes between
   quality-of-care claims and coverage, or entitlement-to-benefits claims is far from a bright
   line; claims do not fall neatly into one or the other of the Dukes categories . . . . [O]ne
   could argue that the quality of the patient’s care was inadequate because the benefit, the
   CT scan, was denied; thus, both quality-of-care and entitlement-to-benefits issues would
   be implicated. The timing of the lawsuit might provide the only real differentiation. If
   the lawsuit were brought while the patient was still alive and, presumably, might still
   benefit from the scan, then it would be a claim for benefits; if brought after the patient’s
   death, then it would be a quality-of-care claim. Moreover, if the thrust of the lawsuit was
   that the quality of care in this particular case was deficient, say because of the treating
   physician’s judgment that the CT scan was not needed, that would be essentially a
   traditional malpractice theory. However, if the lawsuit went further and contended that
   the structure of the plan predisposed or favored such denials of care in close cases, then
   that would implicate the administration of the plan and entitlement to benefits
   generally, bringing the matter more squarely within the purview of ERISA. Despite this
   troublesome aspect, the Dukes analytic framework would work for many cases, allowing
   lawsuits brought after the fact for bad outcomes to be heard in state courts, outside of
   ERISA’s restrictive framework.
Rosoff, supra note 343, at 63.
       See ERISA § 502, 29 U.S.C. § 1132(a)(1)(B) (1994) (enabling a person to bring a civil
action for the denial of benefits of their plan).
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Predictable candidates for preemption exist where the state law
operates either in synchrony or in schism with ERISA regulation of
an issue. Benefit denial claims must, therefore, be linked to quality
of care in order for state courts to have jurisdiction under conflict
  After Dukes, as after the Travelers case, the wording of the
complaint linking it to quality of care could determine whether or
not the claims are preempted.383 For example, in Huss v. Green
Spring Health Services, Inc.,384 the court found that denial of
treatment was based upon inadequate administration of the plan
and was completely preempted, but the court noted if the claim was
the denial of treatment based upon poor medical judgment, it would
not have been preempted.385 The outcome in many of these cases
may be seen as a form of judicial vigilantism; and this has been
interspersed by what one might term legislative vigilantism.


  As of mid-1998, ERISA preempted state suits for approximately
eighty-three percent of those insured (approximately 124 million
people),386 so laws attempting to remove the preemption obstacle are
  The catch is that ERISA does not specifically allow states to
rectify the lack of substantive regulation. The broad application of
the preemption clause has a chilling effect on the development of

       See In re United States Healthcare, Inc. 193 F.3d 151, 162 (3d Cir. 1999) (stating that
“[i]t is significant that none of these three counts as pled alleges a failure to provide or
authorize benefits under the plan,” therefore the claims where not completely preempted).
       No. 98-6055, 1999 WL 225885, at *1 (E.D. Pa. Apr. 16, 1999).
       See id. at *5-*6 (holding that because the claim was of administrative error, it falls
within the scope of section 502 of ERISA and is therefore preempted). See also Blaylock v.
Hynes, 104 F. Supp. 2d 1184, 1190 (D. Minn. 2000) (stating that ERISA does not provide a
federal cause of action for situations where misrepresentations have been made as to the
extent of plan benefits); Berger v. Livengrin Found., No. CIV.A. 00-CIV-501, 2000 WL 325957,
at *3 (E.D. Pa. Mar. 27, 2000) (holding that claims regarding the quality of health care
provided are not preempted by ERISA); Rivers v. Health Options Connect, Inc., 96 F. Supp.
2d 1370, 1374 (S.D. Fla. 2000) (maintaining that conflict preemption is only a defense, not a
basis for removal and therefore, may be presented in state court); Person v. Physicians Health
Plan, Inc., 20 F. Supp. 2d 918, 923 (E.D. Va. 1998) (holding that because the claim “reads like
an action against [the defendant] for denying benefits, [which is] an administrative decision,”
the case must be preempted by ERISA); Moreno v. Health Partners Health Plan, 4 F. Supp.
2d 888, 893 (D. Ariz. 1998) (stating that ERISA does not preempt a medical malpractice
claim, becaues it bears no relation to the “recovery of benefits or the clarification of rights to
future benefits under an ERISA plan”).
[hereinafter HIT & MISS], available at
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state health care laws.387 For example, ERISA preempted a state
statute requiring employers to provide life and health insurance to
former employees receiving workers compensation.388 A Louisiana
state statute establishing an association to administer catastrophic
health insurance, which was to be supported by funds collected from
service charges paid by insurers extending benefits in Louisiana,
was also preempted.389 In addition, ERISA preempted a statute
mandating employers to provide health benefits.390 Furthermore,
states that have a patients’ bill of rights may be threatened with
  In the sea of obfuscation of ERISA preemption, state legislators
have attempted to provide a solution.392 Virtually all states have
enacted some type of managed care reform, ranging from access of
services to prohibiting the use of incentives that encourage
physicians to deny care.393 However, other states have been more
active, focusing on legislation that addresses ERISA preemption by
giving citizens the right to sue in state court using state law.394

       See, e.g., generally, Stone & Webster Eng’g Corp. v. Ilsley, 690 F.2d 323, 329 (1982)
(defining ERISA’s effect on state statutes and employing the preemption theory as it relates
to employee benefits plans). “[The Connecticut statute’s] only purpose is to add an additional
statutory requirement–the cost of which is to be borne by the employer–to a private employee
benefit plan. Thus, the state statute relates to an employee benefit plan as defined by ERISA
and must be construed as preempted by 29 U.S.C. § 1144(a).” Id. at 329.
       See id. at 329 (stating that “the only state laws which survive preemption are those
relating to plans that are themselves exempted from ERISA”).
       See Bricklayers Local No. 1 Welfare Fund v. La. Health Ins. Ass’n, 771 F. Supp. 771,
772-73, 775-76 (E.D. La. 1991) (granting summary judgment to the plaintiff in an action
seeking to declare service charges on an insurance company as not allowed due to ERISA
       See Standard Oil Co. v. Agsauld, 633 F.2d 760, 765 (9th Cir. 1980), aff’d mem. 454 U.S.
801 (1981) (denying Hawaii’s argument that the statute did not fall within the realm of
ERISA preemption on the basis that it related to the administration of benefit plans because
the court found there was no distinction between state laws relating to benefits as opposed to
       See supra notes 402-403, 457-460 and accompanying text (recapping two cases where
the courts preempted state laws that allowed patients to sue HMOs).
       See David A. Hyman, Regulating Managed Care: What’s Wrong With a Patient Bill of
Rights?, 73 S. CAL. L. REV. 221, 230 (2000) (noting that such action was necessary because
“ERISA’s preemption of state regulation and common law causes of action, coupled with the
perception that managed care was the choice of employers rather than employees, created an
accountability crisis for managed care”). For a list of state patient bills of rights, see infra
Appendix G.
       See HIT & MISS, supra note 386, at 4 (noting that all of the states except South Dakota
have enacted one or more provisions to protect consumers from managed care related
problems, but the state rules are inconsistent and vary widely). See also Hyman, supra note
392, at 230 (noting that while most states enacted patient bill of rights there was “significant
state-by-state variation in the provisions which were included”).
       See Hyman, supra note 392, at 230 (noting “these [state] initiatives quickly broadened
from the targeting of particularly offensive practices to more comprehensive regulatory
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For example, on May 22, 1997, Texas became the first state to enact
what has proven to be successful legislation allowing patients to
hold a health insurance carrier, health maintenance organization,
or other managed care entity liable for damages from medical
malpractice. The Texas Health Care Liability Act395 provides for an
independent review process for detrimental claims determinations396
and a direct cause of action against an HMO for negligent health
care treatment decisions, and for the negligence of its member
  The statute provides in pertinent part:
    (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; (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.398
  Texas’s statute carefully avoids ERISA preemption problems
because it does not seek to apply the negligence standard to
treatments not covered by the plan.399 For example, an HMO would
not be held to the standard of ordinary care for a decision not to
provide a certain type of treatment within the scope of its policy.
The statute provides that “[t]he standards in Subsections (a) and (b)
create no obligation on the part of the health insurance carrier,
health maintenance organization, or other managed care entity to
provide to an insured or enrollee treatment which is not covered by

       TEX. CIV. PRAC. & REM. CODE ANN. §§ 88.001 to .003 (Vernon Supp. 2001)).
       See id. § 88.003(c) (outlining the procedure and time limitations for independent review
of claims).
       See id. § 88.002(a), (b) (setting forth health insurance carriers’ duties including duties
owed by its employees and agents).
       See infra note 417 and accompanying text (quoting the pertinent language of the
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the health care plan of the entity.”400 The section for independent
review of decisions to deny benefits and forbidding HMOs from
terminating physicians who advocate for their patients, however,
recently has been preempted because the state law relates to an
ERISA plan.401
  The district court in Texas exhibited judicial activism when it
granted employees the right to sue HMOs for malpractice.402 Three
years later, though, in May 2001, a Texas court denied a woman’s
claim against her HMO under the notion that the claim was
preempted because it concerned the administration of her health
care benefits and not the care actually received.403
  Unfortunately, this cloud of preemption looms over every lawsuit
brought under the state patient bill of rights statutes. All of the
legislative initiatives with regard to managed care reform are
essentially on legal “death row,” since once a court preempts these
laws, they are essentially ineffective and can only be resurrected by
the Supreme Court or Congress.404

                            VI. THE FEDERAL SOLUTION

  Congress has become aware of the problems within the managed
health care system, and has been offering and debating Patients’
Bills of Rights for at least two terms.405 The obstacle to overcome, in
order to attain passage, is bipartisanship;406 however, the Senate
recently overcame that obstacle and on June 29, 2001, passed a

       § 88.002(d).
       See Corp. Health Ins. Inc. v. Tex. Dep’t of Ins., 12 F. Supp. 2d 597, 625, 628 (S.D. Tex.
1998), aff’d in part, rev’d in part 215 F.3d 526 (5th Cir. 2000) (holding that sections 88.002(f)
and 88.003 (c) are preempted and thus severed from the rest of the act).
       See id. at 619, 630 (inferring that because a claim to sue an HMO could not arise out of
how a claim was handled the claim must be based on the poor quality of medical treatment
       Roark v. Humana, Inc., No. CIV.A. 3:00-CV-2368-D, 2001 WL 585874, at *1, *5 (N.D.
Tex. May 25, 2001).
       See supra Part III, notes 169-227 and accompanying text (discussing the formidable
obstacle of preemption).
       See, e.g., Patients’ Bill of Rights act of 2001, H.R. 2315, 107th Cong. (2001), available at; Bipartisan Patients’ Bill of Rights Act of 2001, S. 889, 107th Cong.
(2001) available at; Bipartisan Patient Protection Act, s. 872, 107th
Cong. (2001) available at; Bipartisan Patient Protection Act of 2001,
H.R. 256, 107th Cong. (2001), available at; Patients’ Bill of Rights Act,
S. 6, 107th Cong. (2001), available at; see also Hyman supra note 392, at
222-23 & n.2 (noting that Congress has produced a plethora of patient bills of rights).
       See Hyman, supra note 392, at 253 (explaining the difficulty in passing a patients’ bill of
rights “with Democrats deriding Republican proposals as a bill of goods and a bill of wrongs,
and Republicans arguing that the Democrat’s approach creates a lawyer’s right to bill”)
(citations omitted).
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“Bipartisan” Bill of Rights.407 The bill conflicts with the more
recently passed, Republican-backed House version (the Norwood
Amendment).408 While the House was debating other versions of the
bill, Representative Greg Ganske introduced the successful version
after Republican Representative Charlie Norwood met with the
President and drafted it with terms the President supported.409
After the session break, Congress will return and attempt to unify
the bills that will pass to the President.410
  Both versions address general protections including the right to
be informed about cost-sharing measures,411 payment for emergency
room visits,412 timely access to specialists,413 access to gynecological
and obstetrical care,414 pediatric care,415 and appeals processes.416

       See Bipartisan Patient Protection Act, S. 1052, 107th Cong. (2001), available at (pronouncing the act as “[o]rdered to be printed as passed”). Senators
Edward Kennedy (D-Mass.), John Edwards (D-N.C.) and John McCain (R-Ariz.) introduced
the bipartisan bill on June 14, 2001. Id.
       See Bipartisan Patient Protection Act, H.R. 2563, 107th Cong. § 402(a) (2001), available
at (pronouncing that “[t]he aggregate amount of liability for
noneconomic loss in an action . . . may not exceed $1,500,000,” and that “[a] state may limit
damages for noneconomic loss or punitive, exemplary, or similar damages in an action . . . to
amounts less than the amounts permitted”). Contra S. 1052, 107th Cong., § 402(a)(1)-(b)(2)
(2001), available at (stating that “a civil assessment, in an amount not
to exceed $5,000,000, payable to the claimant may be awarded,” and that there is no limit in
wrongful death cases for awards of punitive damages when state law allows for damages that
are “only punitive or exemplary in nature” and when the defendant acted “with willful or
wanton disregard for the rights or safety of others”).
       See John Whiteside, Battle Lines Drawn for Congress Health Fight, REUTERS, Aug. 5,
2001, (coining the successful
bill as a product of Norwood’s “last-minute deal with [the] President” and stating that
Norwood’s actions revolved around the pointlessness of passing a bill that the President
would veto).
       See id. (expecting that negotiations would be time consuming and difficult).
        See S. 1052, § 121(b)(2) (listing various “cost – sharing requirements”); Bipartisan
Patient Protection Act, H.R. 2563, 107th Cong., § 121(b)(2) (2001), (describing an inclusive list
of “cost-sharing” measures, such as out of pocket expenses, premiums, deductibles, and costs
associated with out of network providers).
       See S. 1052, § 113(a)(1)-(2)(B)(i-ii) (discussing situations where emergency-room care is
paid for by the insurer); H.R. 2563, § 113(a)(1)-(2)(B)(i-ii) (listing the conditions required for
emergency-room care and the medical emergency services to be provided).
       See S. 1052, §114(a)(1) (discussing generally a patient’s right to timely access to a
specialist); H.R. 2563, §114(a)(1)-(3) (providing the patient an opportunity to be treated by a
nonparticipating specialist in the event a participating specialist is not available).
       See S. 1052, §115 (addressing a patient’s right to gynecological and obstetrical care);
H.R. 2563, §115 (mandating access to gynecological and obstetrical care without an exception
or a referral).
       See S. 1052, § 116 (discussing a patient’s right to pediatric care); H.R. 2563, § 116
(permitting a health care enrollees the opportunity to acquire pediatric care for the benefit of
their children).
       See S. 1052, §§ 103-104 (discussing the internal and external appeals processes); H.R.
2563, §§ 103-104 (vesting the right in an enrollee to appeal any claim denial pursuant to
proscribed procedures).
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The major difference and the hottest topic of contention is the right-
to-sue provisions.417
  The Senate version would permit civil remedies for lawsuits in
federal and state courts regarding coverage decisions,418 but would
require the application of federal law under ERISA.419 This version
effectively continues the preemption of these claims since, although
the physical situs of the case may be state court, the law that must
be applied is federal, specifically ERISA.420 The Senate version
amends ERISA’s remedial provisions for benefit determination
claims by allowing contract damages (economic loss) and non-
economic damages.421 Additionally, the act allows punitive damages
for up to five million dollars if the plaintiff shows, by “clear and
convincing evidence,” that “bad faith” or “flagrant disregard” for the
plaintiff’s rights under the plan was the “proximate cause of the
injury or death.”422
  Medical quality-of-care actions under the Senate version would
fall under state law and escape ERISA section 514 preemption.423
Although “civil assessments” would have a cap of five million dollars
in federal court, no caps would be imposed on the state court actions
by the legislation.424 This version is a win for potential plaintiffs
since it would remove a major obstacle to remedial action. The
Senate version would also not limit attorneys’ fees.425 Punitive
damages in such court actions, would be allowed, if the state
wrongful death statute allows punitive damages, exclusively, or if
the plaintiff proves that the defendant acted with “willful or wonton
disregard for the rights” and safety of the patient and if the plaintiff

       See Whiteside, supra note 409, at 2 (advocating a $3.5 million limit on damage awards,
while noting that Democrats are pushing for a higher limit of $5 million).
       See S. 1052, § 402(a)(1)-(b)(2) (outlining the requirements for a cause of action in federal
and state court relating to health benefits).
       See id. § 402(a)(1) (providing that the “plan sponsor or issuer shall be liable” to the
injured party for “economic and non-economic damages” that result from a failure of providing
health benefits that are so required under the bill’s provisions).
       See id. (allowing federal civil remedies for those who were denied health benefits in
cases where there were no medically reviewable decisions present).
       See id. § 402(a)(1) (discussing the allowable damages for failing to provide “contract
       See id. § 402(b)(2) (stating that “nothing in this title [should] . . . impair [or preempt]
any cause of action under State law . . . to recover damages resulting from personal injury or
for wrongful death . . . if such cause of action arises by reason of a medically reviewable
       See id. § 402(a)(1) (describing the civil remedies and limits for federal causes of action).
State causes of action are not mentioned. Id.
       See id. § 402(a)(1) (limiting attorney’s contingency fees to a maximum of one-third of the
“total amount of plaintiff’s recovery” plus out-of-pocket expenses spent by the attorney).
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proves that the action was the “proximate cause of the personal
injury or wrongful death.”426
  The original House bill was essentially in synchrony with the
Senate version; however, the most recent House amendment has
significantly altered the previous House version and has swung the
pendulum towards a win for the HMOs and a loss for the aggrieved
patient. The current House version would amend the remedial
provisions of ERISA section 502 to allow suit for unlimited economic
loss;427 however, non-economic damages would face a cap of $1.5
million.428 In addition, punitive damages can only be awarded up to
an aggregate of $1.5 million if the case involved a denied claim that
was reversed by an “independent medical review,” which would
clearly be a setback for plaintiffs who have suffered serious
morbidity or mortality.429 The amended version allows most suits
covering both claims for benefits and medical claims to be brought
in state court, but requires lawsuits to be governed under federal
standards. The amended version also preempts state Patient
Protection laws.430 Employer-defendants can, therefore, remove
such actions to federal court.431 This version does allow plaintiffs to
sue employers in limited circumstances.432 Punitive damages and
awards for pain and suffering will be allowed in both state and
federal court, but the amendment caps both at $1.5 million.433 The
Senate version of the bill allows much larger punitive damages ($5
million) and unlimited pain and suffering awards.434 In the House
version, economic damages remain unlimited.435

       See id. § 402(b)(2) (discussing situations where state law would not be preempted, such
as in the case where state law only provides punitive or exemplary damages).
       See Bipartisan Patient Protection Act, H.R. 2563, 107th Cong. § 402(a) (2001), available
at (setting forth the limitations for recovering non-economic damages
while declining to mention any restrictions or limitations on monetary damages).
       See 147 CONG. REC. H5262, 5266 (daily ed. Aug. 3, 2001) (statement of Rep. Turner)
(characterizing the Norwood amendment as one that “destroys that balance” which the
original bill seeks with respect to patient-protection laws).
       See H.R. 2563, § 402(a) (stating that claims against health plans, for claims of benefits,
“shall be maintained exclusively under” federal law”).
       See id. (allowing for causes of action when the “designated decision maker” does not
exercise ordinary care or when the lack of exercising ordinary care proximately causes
“personal injury to, or death of, the participant or beneficiary”); 146 CONG. REC. at H5262
(highlighting the Norwood amendment, which adds subpart (n) containing causes of action
relating to health benefit claims under section 502 of ERISA).
       See H.R. 2563, § 402(a) (limiting punitive damages to $5 million for failing “to provide
contract benefits in accordance with the plan” by adding subpart (n)(10) to section 502 of
       See S. 1052 § 402(a)(10)(B) (limiting punitive damages to $5 million for failing “to
provide contract benefits in accordance with the plan” by adding subpart (n)(10) to section 502
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   If either version of the bill passes, the effects on managed care
litigants would be drastic. Patients would be able to sue in state or
federal court for most medical and administrative claims, effectively
codifying the Dukes/Pegram line of cases.436 However, although the
House amendment would allow state court action for medical
quality of care actions,437 the Norwood amendment allows removal
of non-medically reviewable determination claims to federal court.438
   Proponents of the passed Senate version are excited about the
Bill’s ability to force health plan accountability through the suit
provisions.439    One court in 1997 suggested that the ERISA
preemption laws should change, as proposed by the Senate, because
allowing liability will ensure that cost-saving utilization review
measures will maintain quality under the threat of potential
liability and that the current ERISA preemption “shield of near
absolute immunity” is unjustified.440 Removing ERISA preemption
would allow state remedies, such as compensatory or punitive
damages, and would serve as a deterrent to wrongful denials and
delays of needed care.441
   During the Senate’s debate, the Republicans, who had their own
version of the bill,442 insisted that the Democratic version would

of ERISA).
       See Bipartisan Patient Protection Act, H.R. 2563, §402(a)(11)(A), 107th Cong. (2001)
(limiting attorney’s fees to one third of the award plus costs by adding subpart (n)(11) to
section 502 of ERISA).
       See Ford & Eller, supra note 342, at 587 (describing a variety of the changes that would
be made, including “new federal remedies,” the allowance of state court suits, “new forms of
damages,” and the allowance of a patient’s right to sue without exhausting “administrative
       See H.R. 2563 § 152(a)(1) (explaining that State law is only pre-empted when required
by the bill and “amendments made thereby”).
       See id. § 402(b)(2) (prohibiting removal to district courts in cases where the defendant is
not an “employer, plan, plan sponsor, or other entity treated under section 502(n)”).
       See, e.g., CABLE NEWS NETWORK, http://www.cnn.cominteractive/allpolitics/0106/
patient.bill/content.special.html (last visited Sept. 31, 2001) (on file with Albany Law Review)
(quoting Dr. Thomas Reardon stating that “finally, health plans are to be just as accountable
as practicing physicians” because HMO decisions will be subject to an “external, independent
and binding” appeals process).
       See Andrews-Clarke v. Travelers Ins. Co., 984 F. Supp. 49, 62 (D. Mass. 1997)
(emphasizing that the “more efficient approach is to allow insurers and utilization review
providers to make benefit determinations on a case-by-case basis”).
       See HIT & MISS, supra note 386, at 28 (discussing how patients who are in plans
“purchased or provided by employers” are currently precluded from seeking compensatory or
punitive damages).
       See Dana Bash, Debate Begins on the Patients’ Bill of Rights, /2001/
ALLPOLITICS/06/21/ patients. bill.bigp/ (June 21, 2001) (listing the members sponsoring the
Democratic Bill and the sponsors of the Republican Senate Bill). See generally Bipartisan
Patient’s Bill of Rights Act of 2001, S. 889, 107th Cong. (2001) (listing the sponsors of the bill
“to protect consumers in managed care plans and in other health coverage” as Senators Frist,
Breaux and Jeffords).
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2001]                  Journey to the Patients’ Bill of Rights                               79

open the doors to unlimited lawsuits.443 The Democrats, however,
counter the “floodgate of lawsuits” argument by pointing out that in
the four years since Texas passed its patient protection bill, health
insurance premiums have gone up less than the national average.
In that same amount of time, 1400 patients have exercised their
right to appeal, but only seventeen patients have sued.444
Nevertheless, the House version, by placing limits on the punitive
damage awards, does reduce the chance of having excessive
lawsuits, especially since the threat of lawsuits would eventually
cause providers to raise insurance costs and further add to the
number of lawsuits.445 In order to combat these potential threats,
both versions provide for repeal if more than one million individuals
lose their coverage due to the act.446
   Republicans also worry that the Democratic bill, by allowing state
court suits, would open the damage floodgates, whereas keeping the
suits preempted and in federal court would ensure lower damage
awards.447 The Republican version of the bill prohibits medical
malpractice claims unless the provider failed to follow the external
review’s recommendations.448
   Another important concern is the possibility that increased
liability exposure and higher or unlimited damage awards could not
only increase health insurance costs, but also health care costs.449
Some providers may need to increase costs under the threat of

       See Bash, supra note 442 (listing the differences between the two versions and reporting
that the Republicans argue the “Democratic approach would make trial lawyers rich”).
       See 147 CONG. REC. H5262, 5266 (daily ed. Aug. 3, 2001) (statement of Rep. Turner)
(arguing against the Norwood amendment, which is similar to the Texas law, because the bill
favors insurance companies).
       See id. at H5266 (noting that the President would not sign a bill that did not have a cap
on non-economic damages, although the President, in 1995, “pushed tort reform in Texas”
which had “no caps on noneconomic damages in lawsuits brought against HMOs”); see also
Judith Nemes, Jury Still Out on HMO Liability: More Lawsuits Against Insurers Might Raise
Costs, 23 Crain’s Chi. Bus. 1 (2000), 2000 WL 8129348 (citing the executive director of the
Illinois Association of HMOs who warns that increases in litigation costs for HMOs could
produce or “contribute” to increased premium costs for businesses).
       See Bipartisan Patient Protection Act, S. 1052, 107th Cong. § 606(a)-(b) (2001) (allowing
the Secretary to repeal section 402 after one year if “more than 1,000,000 individuals in the
United States have lost their health insurance coverage as a result of” the Act); Bipartisan
Patient Protection Act, H.R. 2563, 107th Cong. § 706(a)-(b) (2001) (allowing the Secretary to
file a report within 24 months after the bill’s enactment to determine the effect on individuals’
health care coverage so that the Act may be repealed if more than 1,000,000 patients lose
their health care coverage).
       See Bash, supra note 442 (listing the Republican arguments in favor of keeping lawsuits
against HMOs in federal court). The Republicans also criticize the Democratic version of the
bill because it leaves “open the possibility that employers would be sued.” Id.
       See id. (requiring that patients exhaust internal and external appeals before suing,
although they will be allowed to seek out a court order mandating temporary coverage).
       McAuliffe, supra note 191, at 106.
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liability in response to rising malpractice insurance costs.450 In
addition, some say more procedures to protect against liability
would also increase costs;451 however, caution can only benefit the
   According to the Congressional Budget Office, the Democratic
version of the bill would lead to an estimated 4.2% increase in
premiums over five years.452 The Republican version and previous
Senate version would only lead to an estimated 2.9% increase over
five years.453
   A number of sources criticize the current “piecemeal” reforms,
arguing that the real issue is the quality of care and the
improvement of services.454 David A. Hyman argues that legislators
ignore empirical research and build reforms around emotional pleas
via horrific anecdotes and powerful lobbyists.455 In turn, the public
hears these horror stories and pushes the reform bandwagon and its
vote-seeking drivers toward the edge of mistake.456
   Eventually, it appears that some version will pass and yet the
same questions remain: where will lawsuits be fought and for what
stakes? There is ample precedent that a House/Senate conference
can result in gridlock. Regardless of the posture we find ourselves
in, the cases dealing with this issue—as set forth in the
appendices—will provide guidance.

       See id. (explaining how judgment costs will be spread out to all subscribers because of
the increased costs stemming from the allowance of more “emergency department visits,
specialty consultation[s], and point-of-service options”).
       See McAuliffe, supra note 191, at 106 (explaining that many procedures that are
normally not necessary will be performed to avoid potential adverse claims and judgments).
       See Andrews-Clarke v. Travelers Ins. Co., 984 F. Supp. 49, 62-63 (D. Mass. 1997)
(suggesting a better approach to ERISA reform that allows insurers and decision makers “to
make benefit determinations on a case-by-case basis” but to still hold these individuals legally
responsible for their decisions). States such as Connecticut address quality through reporting
requirements that        mandate yearly quality assurance reports from managed care
organizations. CONN. GEN. STAT. ANN. § 38a-478c (2000). This approach may be an
alternative route to ensure quality without reliance on judicial processes.
       See Hyman, supra note 392, at 237-44 (discussing the use of anecdotal evidence to scare
the public and legislatures into reform); see also The Foundation for Taxpayer and Consumer
Rights, Consumers for Quality Care, at /healthcare/ (last
visited Sept. 31, 2001) (featuring a Casualty of the Day section that lists different individuals
along with their personal HMO horror stories).
       See Hyman, supra note 392, at 243-44 (criticizing Congress’ approach of using anecdotal
complaints by stating that it “targeted an unpopular institutional arrangement for ‘reform’”
rather than the real quality problem).
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2001]            Journey to the Patients’ Bill of Rights                81


  A paradigm shift has occurred in health care delivery. Although
ERISA applies to all employee benefit plans, it has met, in large
part, the challenge to live up to its stated policy goals and to protect
employees from abuses in the pension area, but it has failed the sick
employee who depends on an HMO. The courts have continued the
expansion of the non-preemption trend, articulated in Travelers, to
expand the remedial provisions of ERISA. The battleground,
however, has now moved in the legislative arena where the
Patients’ Bill of Rights is struggling to allow patients to sue in state
court for damages. The struggle centers around the limits of these
rights. The recent dynamics in health care have resulted in ERISA
being used as never intended, but its intent has always been clear—
to provide consistent, predictable, and protected benefits for
employees. Health care is one of the most urgently sought benefits
by employees because of its high cost. With universal health care on
the dim horizon, that is unlikely to change. There must be a
realistic assessment of ERISA’s preemption doctrine. Traditional
state claims, such as medical malpractice, must remain in state
court for ease of administration. These claims belong in state court,
and to preempt these matters, where there is frank malpractice by
the physician and vicarious liability to the HMO, is inherently
unjust and allows health care providers a type of legislated
“malpractice insurance,” the cost of which is borne by the
  Federalization either through common law or legislative
enactment may be necessary to create uniformity to protect the
participants of health care plans. The lack of uniformity in pension
regulation threatens to affect employers engaged in interstate
commerce by creating additional costs in trying to conform to a
variety of state regulations. Lack of uniformity which will result by
having each state decide the issue will have the same impact here
because, in jurisdictions where the lower courts narrowly interpret
the preemption clause, malpractice insurance costs could create
additional expenses for health care.
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                               APPENDIX A

             State laws preempted in cases prior to Travelers

  See Tolton v. Am. Biodyne, Inc., 48 F.3d 937, 941-43 (6th Cir.
1995) (holding that section 514(a) preempted claims for insurance
bad faith, wrongful death, and medical malpractice arising from
defendants’ refusal to authorize treatment); Spain v. Aetna Life Ins.
Co., 11 F.3d 129, 131-32 (9th Cir. 1993) (declaring the wrongful
death claim based on the delay in authorizing cancer treatment to
be expressly preempted because it dealt with the negligent
administration of benefits and the functioning of the plan); Kuhl v.
Lincoln Nat’l Health Plan of Kan. City, Inc., 999 F.2d 298, 302-03
(8th Cir. 1993) (holding the claim to be expressly preempted by
section 514(a) since it was based on the improper processing of
medical benefits and therefore, relates to the plan); Smith v.
Dunham-Bush, Inc., 959 F.2d 6, 7 (2d Cir. 1992) (finding that an
employee’s common-law claims of breach of oral promise and
negligent misrepresentation were preempted by ERISA); Pohl v.
Nat’l Benefits Consultants, Inc., 956 F.2d 126, 127-28 (7th Cir.
1992) (holding that section 514(a) preempted plaintiffs’ negligent
misrepresentation claim because, if successful, the claim would
increase the amount of benefits provided, in essence resulting in an
impermissible enlargement or alteration of the coverage); Cromwell
v. Equicor–Equitable HCA Corp., 944 F.2d 1272, 1276 (6th Cir.
1991) (applying previous assertions that breach of contract, bad
faith, negligent misrepresentation, and fraud claims are all
preempted since they relate to the plan); Reilly v. Blue Cross & Blue
Shield United of Wis., 846 F.2d 416, 418 (7th Cir. 1988) (declaring
plaintiffs’ claim of bad faith and request for punitive damages
preempted under ERISA since the health plan was “self-insured”);
Bailey–Gates v. Aetna Life Ins. Co., 890 F. Supp 73, 78 (D.Conn.
1994) (concluding that ERISA preempts plaintiff’s loss of
consortium claim since the claim itself relies on the improper
administration of the plan); Pomeroy v. Johns Hopkins Med. Servs.,
Inc., 868 F. Supp. 110, 114 (D. Md. 1994) (stating that the existence
of the claim is based upon the benefit plan); Butler v. Wu, 853 F.
Supp. 125, 129-30 (D.N.J. 1994) (dismissing plaintiffs’ tort claims
against the HMO because ERISA preempts state law tort claims
“brought against an HMO for the negligence of one of its
participating physicians, where the HMO does not itself provide
health care services”); Nealy v. U.S. Healthcare HMO, 844 F. Supp.
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2001]            Journey to the Patients’ Bill of Rights                83

966, 973 (S.D.N.Y. 1994) (concluding that claims against an HMO
based on professional misconduct, negligent infliction of personal
injuries, breach of contract, and misrepresentation were all
preempted by ERISA because they necessarily related to the
administration of the employee benefit plan); Diaz v. Tex. Health
Enters., Inc., 822 F. Supp. 1258, 1262 (W.D. Tex. 1993) (asserting
that ERISA did preempt plaintiff’s state law negligence claims
because they did not fall under the purview of exceptions set forth
in other opinions and the plan itself was essential to the claim);
Ricci v. Gooberman, 840 F. Supp. 316, 318 (D.N.J. 1993) (holding
that ERISA preempts state law tort claims of vicarious liability);
Bernatowicz v. Colgate-Palmolive Co., 785 F. Supp. 488, 493 (D.N.J.
1992) (finding the claim to be preempted since plaintiffs’ negligent
misrepresentation claim was premised on the existence of a pension
plan and the claim arose solely from alleged misrepresentation over
plan rules, it was preempted); Fortune v. Med. Assocs. of Woodhull,
P.C., 803 F. Supp. 636, 640 (E.D.N.Y. 1992) (declaring that
plaintiffs’ claim of breach of contract was preempted by ERISA since
it relates to the employee welfare benefit plan); Altieri v. Cigna
Dental Health, Inc., 753 F. Supp. 61, 63-65 (D. Conn. 1990)
(dismissing plaintiffs claims of negligence and misrepresentation
because the state law tort claims were preempted by ERISA);
Sandler v. N.Y. News, Inc., 721 F. Supp. 506, 512-15 (S.D.N.Y.
1989) (holding that a breach of contract claim was preempted by
ERISA but the negligent misrepresentation claim was not
preempted because plaintiff was an employee suing his employer
and resolution of the claim would have had no direct effect on the
administration of benefits under the plan).

                              APPENDIX B

        State laws not preempted in cases prior to Travelers

   See Haas v. Group Health Plan, Inc., 875 F. Supp. 544, 549 (S.D.
Ill. 1994) (finding the plaintiff’s vicarious liability medical
malpractice claim to be based on poor treatment by the HMO
physician and therefore, not related to the plan); Dearmas v. Av-
Med, Inc., 865 F. Supp. 816, 818 (S.D. Fla. 1994) (ruling that the
plaintiffs’ vicarious liability negligence claims based on the doctor’s
treatment did not relate to the plan); Kearney v. U.S. Healthcare,
Inc., 859 F. Supp. 182, 188 (E.D. Pa. 1994) (holding that plaintiff’s
claim that the HMO’s “ostensible agent was professionally negligent
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84                        Albany Law Review                      [Vol. 65

in treating or giving medical advice to [plaintiff] . . . will not be
dismissed,” but the vicarious liability claims are dismissed); Paterno
v. Albuerne, 855 F. Supp. 1263, 1263-64 (S.D. Fla. 1994) (relying on
the Supreme Court decision in Mackey v. Lanier Collection Agency
& Serv., 486 U.S. 825, the court concluded that the vicarious
liability claim was not preempted); Smith v. HMO Great Lakes, 852
F. Supp. 669, 672 (N.D. Ill. 1994) (stating that the plaintiffs’ state
negligence claims “do not ‘relate to an employee benefit plan’”
because they are not claims for benefits nor do they rely on the
benefit plan and are therefore not preempted).

                             APPENDIX C

             State laws preempted in cases post-Travelers

  See Hull v. Fallon, 188 F.3d 939, 942-43 (8th Cir. 1999), cert.
denied, 528 U.S. 1189 (2000) (ruling that the plaintiff’s medical
malpractice claims related to the administration of benefits and
were therefore preempted by ERISA); Danca v. Private Health Care
Sys., Inc., 185 F.3d 1, 7 (1st Cir. 1999) (holding that ERISA
preempted state-law claims that alleged a failure to follow the
physician’s recommended treatment); Parrino v. FHP, Inc. 146 F.3d
699, 704-05 (9th Cir. 1998) (deciding ERISA preempted a state-law
based challenge to an HMO’s denial of coverage for experimental
proton-beam therapy); Turner v. Fallon Cmty. Health Plan, Inc.,
127 F.3d 196, 199 (1st Cir. 1997) (“It would be difficult to think of a
state law that ‘relates’ more closely to an employee benefit plan
than one that affords remedies for the breach of obligations under
that plan.”); Jass v. Prudential Health Care Plan, Inc., 88 F.3d
1482, 1491 (7th Cir. 1996) (explaining that a negligence action
based on a vicarious liability theory would require analysis of, and
would relate to, the existence of an ERISA plan and thus was found
to be preempted); Rubin-Schneiderman v. Merit Behavioral Care
Corp., No. 00 Civ. 8101(JSM), 2001 WL 363050, at *2-5 (S.D.N.Y.
April 10, 2001) (noting that decisions by utilization review agents to
disapprove requested treatments relate to the administration of
plan benefits, and not to provisions of medical care, and therefore
preempted plaintiffs’ claims); Brandon v. Aetna Servs., Inc., 46 F.
Supp. 2d, 110, 113-14 (D. Conn. 1999) (finding a medical
malpractice claim preempted since it was “predicated on the alleged
improper decisions about coverage of . . . claims”); Huss v. Green
Spring Health Servs., Inc., No. 98-6055, 1999 WL 225885, at *6
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2001]               Journey to the Patients’ Bill of Rights                85

(E.D. Pa. April 16, 1999) (deciding that an administrative issue was
related to the plan, and therefore, preempted the plaintiff’s claim
despite the fact that she was incorrectly informed about the plan’s
coverage); Silva v. Kaiser Permanente, 59 F. Supp. 2d 597, 600
(N.D. Tex. 1999) (deciding that tort claims resembling negligence or
substandard care were preempted); Lamonica v. Guardian Life Ins.
Co. of Am., No. Civ. A. 96-6020 (JEI), 1997 WL 80991, at *7 (D.N.J.
Feb. 20, 1997) (concluding that a breach of contract claim is
preempted because it involved benefits available under the plan);
Pell v. Shmokler, No. Civ. A. 96-6002, 1997 WL 83743, at *6 (E.D.
Pa. Feb. 20, 1997) (finding that the breach of contract claim was
preempted); Schmid v. Kaiser Found. Health Plan of the N.W., 963
F. Supp. 942, 945 (D. Or. 1997) (concluding that the breach of
contract claim was “related to” the plan, and therefore, completely
preempted under ERISA); Clark v. Humana Kan. City, Inc., 975 F.
Supp. 1283, 1287, 1289 (D. Kan. 1997) (following Corcoran v. United
Health Care, Inc., 965 F.2d 1321 (5th Cir. 1992) and concluding that
utilization review is administrative and not a quality-of-care issue
and was therefore preempted); Andrews-Clarke v. Travelers Ins.,
Co., 984 F. Supp. 49, 53-55 (D. Mass. 1997) (finding that the state
claims concerning the improper processing of benefits were
preempted); Santana v. Deluxe Corp., 920 F. Supp. 249, 257 (D.
Mass. 1996) (ruling that the plaintiff’s breach-of-contract claim,
concerning the failure to pay for benefits, was preempted by
ERISA); Schachter v. Pacificare of Okla., Inc., 923 F. Supp. 1448,
1453 (N.D. Okla. 1995) (ruling that vicarious liability claims are not
preempted, but that the fraud claims were since they related to the
plan); Dalton v. Peninsula Hosp. Ctr., 626 N.Y.S.2d 362, 365-66
(Sup. Ct. 1995) (concluding that corporate negligence was related to
the plan and is, therefore, preempted).

                                 APPENDIX D

             State laws not preempted in cases post-Travelers

  See Lazorko v. Pa. Hosp., 237 F.3d 242, 249-50 (3d Cir. 2000)
(holding “[b]ecause [plaintiff’s] claim is one concerning the propriety
of care rather than the administration of that care, the claim is not
completely preempted”) (emphasis added); Coyne & Delany Co. v.
Selman, 98 F.3d 1457, 1472 (4th Cir. 1996) (holding that the claim
was not preempted because it does not relate to the plan or to the
administration of benefits); Prudential Health Care Plan Inc. v.
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Lewis, 77 F.3d 493 (10th Cir. 1996) (unpublished table decision
affirming trial court) (following PacifiCare and refusing to preempt
a vicarious liability claim where no need to refer to the plan exists);
Cent. States, S.E. & S.W. Areas Health & Welfare Fund v.
Pathology Lab. of Ark., 71 F.3d 1251, 1254 (7th Cir. 1995)
(explaining how “ERISA does not preempt enforcement of contracts
that specify who pays how much to whom for medical care”);
Pacificare of Okla., Inc. v. Burrage, 59 F.3d 151, 154-55 (10th Cir.
1995) (stating that “a vicarious liability medical practice claim
based on substandard treatment by an agent of the HMO is not
preempted” since it could be resolved without reference to the plan)
(quoting Haas v. Group Health Plan, Inc., 875 F. Supp. 544, 548
(S.D. Ill. 1994)); Tiemann v. U.S. Healthcare, Inc., 93 F. Supp. 2d
585, 598 (E.D. Pa. 2000) (finding that the vicarious liability claim
was not preempted inasmuch as it did not challenge a failure to
provide, or authorize, benefits); Berger v. Livengrin Found., No.
CIV. A. 00-CV-501, 2000 WL 325957, at *3 (E.D. Pa. Mar. 27, 2000)
(finding that claims attacking the quality of benefits were not
completely preempted); Morton v. Mylan Pharm., No. 99-4896, 2000
WL 340196 at *3 (E.D. Pa. Mar. 22, 2000) (finding that claims are
not preempted when they are not related to the plan); Snow v.
Burden, No. C.A. 99-1874, 1999 WL 387196, at *4 (E.D. Pa. May 6,
1999) (remanding the case because plaintiff complained solely about
inadequate medical treatment and alleged “that Keystone should be
held liable for its role, under agency and negligence principles”);
Aetna U.S. Healthcare Inc. v. Maltz, No. 98 CIV. 8829 WHP., 1999
WL 285545, at *4 (S.D.N.Y. May 4, 1999) (finding that complete
preemption did not apply because there was a claim regarding the
quality of benefits and remanding the case to state court);
Moscovitch v. Danbury Hosp., 25 F. Supp. 2d 74, 81 (D. Conn. 1998)
(holding that where the HMO is making medical treatment
decisions rather than benefit qualification decisions, state-law
claims are not preempted); Corp. Health Ins. Inc. v. Tex. Dep’t of
Ins., 12 F. Supp. 2d 597, 611-20 (S.D. Tex. 1998) (observing that
state law provisions making managed-care entities liable for
substandard health care treatment decisions are not preempted by
ERISA); Cyr v. Kaiser Found. Health Plan of Tex., 12 F. Supp. 2d
556, 567-68 (N.D. Tex. 1998) (finding that the claims against the
HMO, including fraudulent concealment and tortious interference,
were subject to complete preemption); Moreno v. Health Partners
Health Plan, 4 F. Supp. 2d 888, 893 (D. Ariz. 1998) (finding that
“Congress has expressed no desire that ERISA be used to degrade
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the quality of healthcare.”); Ray v. Value Behavioral Health, Inc.,
967 F. Supp. 417, 423 (D. Nev. 1997) (following Travelers, the Court
stated that it would “not impose such a sweeping federalization of
basic personal injury claims in the absence of any language in the
text of ERISA or in the absence of any evidence of Congressional
intent”); Newton v. Tavani, 962 F. Supp. 45, 47 (D.N.J. 1997)
(noting the distinction between denying benefits and the way that
the medical benefits were provided); Edelen v. Osterman, 943 F.
Supp 75, 76 (D.D.C. 1996) (finding plaintiff’s claim to be too
tenuously related to a benefit plan to be considered “related to” and
therefore, the claim was not preempted); Ouellette v. Christ Hosp.,
942 F. Supp. 1160, 1165 (S.D. Ohio 1996) (finding that the plaintiff’s
claims were not completely preempted and therefore, remanded the
case to state court); Kampmeier v. Sacred Heart Hosp. No. CIV. A.
95-7816, 1996 WL 220979 at *3 (E.D. Pa. May 2, 1996) (stating
“plaintiffs take issue with when the test was . . . [administered], not
with whether it would [sic] have been provided”); Roessert v. Health
Net, 929 F. Supp. 343, 350 (N.D. Cal. 1996) (finding that the
quality-of-care issue escaped preemption because it did not relate to
the plan); Webb v. Gibson, No. 95 C 2084, 1995 WL 716640, at *4
(N.D. Ill. Nov. 30, 1995) (finding that vicarious liability claims have
been held not to preempted under ERISA, and accordingly are not
preempted in this case).

                              APPENDIX E

Cases where courts did not preempt claims since they attacked
                    the quality of benefits

  See Lazorko v. Pa. Hosp., 237 F.3d 242, 249, 251 (3d Cir. 2000)
(ruling that the plaintiffs’ claim for inadequate health care was not
completely preempted by ERISA and was improperly removed to
federal court); In re U.S. Healthcare, Inc., 193 F.3d 151, 164 (3d Cir.
1999) (finding that three of the plaintiffs claims “were not claims ‘to
recover benefits due . . . under the terms of [the] plan, . . . and hence
were not completely preempted”); Rice v. Panchal, 65 F.3d 637, 646
(7th Cir. 1995) (finding that the plaintiff avoided complete
preemption by casting a state law claim); PacifiCare of Okla., Inc. v.
Burrage, 59 F.3d 151, 155 (10th Cir. 1995) (finding that a medical
malpractice claim could result in vicarious liability for the HMO, by
stating “[j]ust as ERISA does not preempt the malpractice claim
against the doctor, it should not preempt the vicarious liability
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88                      Albany Law Review                      [Vol. 65

claim against the HMO if the HMO has held out the doctor as its
agent”); Rosenkrans v. Wetzel, 131 F. Supp. 2d 609, 612, 614 (M.D.
Pa. 2001) (“There is often a fine line-as noted in the cases cited-
between the acts of denial of coverage and failure to deliver quality
care.”); Berger v. Livengrin Found., No. CIV.A. 00-CV-501, 2000 WL
325957, at *4 (E.D. Pa. March 27, 2000) (holding that the claim
dealt with a quality of care issue and was therefore, not preempted);
Rivers v. Health Options Connect, Inc., 96 F. Supp. 2d 1370, 1374
(S.D. Fla. 2000) (stating that conflict preemption is a federal
defense, not a basis for removal as is complete preemption);
McDonald v. Damian, 56 F. Supp. 2d 574, 578 (E.D. Pa. 1999)
(stating that plaintiff’s complaint simply alleged negligence for
failing to diagnose and was therefore not preempted); Harris v.
Deaconess Health Servs. Corp., 61 F. Supp. 2d 889, 895 (E.D. Mo.
1999) (concluding that the plaintiffs’ claims did not fall within
ERISA’s scope, because they did not “seek to recover benefits or
enforce rights that arise under the terms of an ERISA-governed
plan”); DeLucia v. St. Luke’s Hosp., No. CIV.A. 98-6446, 1999 WL
387211, at *4 (E.D. Pa. May 25, 1999) (finding that the “policy had
the effect of discouraging doctors from ‘provid[ing] complete and
proper care under the circumstances of this case’” and thereby
concluding that the claim was based on a quality of care issue);
Crum v. Health Alliance-Midwest, Inc., 47 F. Supp. 2d 1013, 1017,
1019-20 (C.D. Ill. 1999) (holding that wrongful death and
respondeat superior claims are not completely or expressly
preempted under Travelers and Dukes); Snow v. Burden, No. C.A.
99-1874, 1999 WL 387196, at *5 (E.D. Pa. May 6, 1999) (noting that
the issue was not the decision to approve or disapprove the
procedure); Phommyvong v. Muniz, No. CIV.A. 3:98-CV-0070-L,
1999 WL 155714, at *3-*4 (N.D. Tex. Mar. 11, 1999) (finding that
the plaintiff’s claim was based on a quality of care claim and,
therefore, was not preempted); Herrera v. Lovelace Health Sys.,
Inc., 35 F. Supp. 2d 1327, 1331-32 (D.N.M. 1999) (noting that after
PacifiCare, the court does not preempt claims of medical
malpractice, corporate negligence, or emotional distress claims);
Moscovitch v. Danbury Hosp., 25 F. Supp. 2d 74, 80 (D. Conn. 1998)
(stating the claim “does not assert that PHS was making wrong
decisions about whether certain care would be covered by its plan,
but instead challenges the decisions made by PHS with respect to
the quality and appropriate level of care and treatment”); Hoose v.
Jefferson Home Health Care, Inc., No. 97-7568, 1998 WL 114492, at
*3-*4 (E.D. Pa. Feb. 6, 1998) (finding the allegations did not fall
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2001]           Journey to the Patients’ Bill of Rights                89

under ERISA because there was no claim that a benefit was due to
the patient under the terms of the plan); Blum v. Harris Methodist
Health Plan, Inc., No. Civ.A. 3:97-CV-0374P, 1997 WL 452750, at *3
(N.D. Tex. July 31, 1997) (remanding the case to state court because
health care quality issues are not preempted by ERISA); Ray v.
Value Behavioral Health, Inc., 967 F. Supp. 417, 422 (D. Nev. 1997)
(describing a two-step process of whether or not a claim is “related
to” ERISA); Dykema v. King, 959 F. Supp. 736, 741 (D.S.C. 1997)
(finding the malpractice claim under vicarious liability was not
preempted because the complaint attacked the quality of care she
received); Yanez v. Humana Med. Plan, Inc., 969 F. Supp. 1314,
1315-16 (S.D. Fla. 1997) (stating that “run-of-the-mill” state law
cases are not within the scope of ERISA); Fritts v. Khoury, 933 F.
Supp. 668, 672 (E.D. Mich. 1996) (acknowledging the complaint does
not make allegations based on improper benefit decisions, therefore,
remanding the case because of improper removal under ERISA
preemption); Roessert v. Health Net, 929 F. Supp. 343, 353 (N.D.
Cal. 1996) (holding that the claim is not preempted under section
502 because the complaint does not allege quantity of benefits);
Prihoda v. Spritz , 914 F. Supp. 113, 118 (D. Md. 1996) (stating that
the claim was not removable to federal court because the plaintiff
was challenging the quality of care received and not its
administration); Whelan v. Keystone Health Plan East, No. CIV. A.
94-5733, 1995 WL 394153, at *4 (E.D. Pa. June 29, 1995) (granting
plaintiff’s motion to remand to state court because ERISA does not
provide a federal claim for medical quality of care issues).

                             APPENDIX F

 Cases where the courts preempted claims since they addressed
               benefits or rights under the plan

  See Thompson v. Gencare Health Sys., Inc., 202 F.3d 1072, 1073
(8th Cir. 2000) (reaffirming that ERISA preempts “‘state common
law tort and contract actions asserting improper processing of a
claim for benefits’”); Hull v. Fallon, 188 F.3d 939, 943 (8th Cir.
1999) (finding that ERISA preempts a vicarious liability tort action
for medical mistreatment where the HMO overruled the doctor’s
recommendation for a thallium stress test as a denial of benefits
under ERISA); Jass v. Prudential Health Care Plan, Inc., 88 F.3d
1482, 1495 (7th Cir. 1996) (recharacterizing the negligence claims
as a denial of benefits and allowing the plaintiff to amend her
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90                       Albany Law Review                       [Vol. 65

complaint to seek remedies available under ERISA); Krasny v.
Waser, No. 6:01-CV-405-ORL-31JGG, 2001 WL 710048, at *7 (M.D.
Fla. June 25, 2001) (holding that plaintiff’s claims were completely
preempted because they involved a denial of benefits under the plan
and not “solely substandard medical treatment”); Calad v. Cigna
Healthcare of Tex., Inc., No. CIV. 300-CV-2693-H, 2001 WL 705776,
at *6 (N.D. Tex. June 21, 2001) (finding that plaintiff’s allegations,
“while couched in terms of negligence, instead reflect a claim
regarding [defendant’s] administration of benefits”); Roark v.
Humana, Inc., No. CIV.A. 3:00-CV-2368D, 2001 WL 585874, at *4-
*5 (N.D. Tex. May 25, 2001) (denying the motion to remand to state
court because the claim is preempted since the claim was about
“administration of benefits” and not “medical treatment”);
Cristantielli v. Kaiser Found. Health Plan of Tex., 113 F. Supp. 2d
1055, 1066 (N.D. Tex. 2000) (finding that all of the claims related to
the denial of benefits are preempted); Silva v. Kaiser Permanente,
59 F. Supp. 2d 597, 600 (N.D. Tex. 1999) (refusing to remand
because the plaintiff’s complaint simply alleged a denial of ERISA
plan benefits); Garrison v. Northeast Ga. Med. Ctr., 66 F. Supp. 2d
1336, 1343-44 (N.D. Ga. 1999) (finding that the complete
preemption exception to the well-pleaded complaint rule applies
because the claim was based on the denial of a benefit under an
ERISA plan); Person v. Physicians Health Plan, Inc., 20 F. Supp. 2d
918, 923 (E.D. Va. 1998) (concluding that the plaintiff’s action was
more like an action “for denying benefits, an administrative
decision, rather than for an erroneous medical decision”); Clark v.
Humana Kan. City, Inc., 975 F. Supp. 1283, 1287 (D. Kan. 1997)
(finding that utilization review is not a quality of care issue, but an
administrative one and therefore is preempted); Schmid v. Kaiser
Found. Health Plan, 963 F. Supp. 942, 945 (D. Or. 1997) (holding
that plaintiff’s claims would require an interpretation of the terms
of the ERISA plan); LaMonica v. Guardian Life Ins. Co., No. Civ.A.
96-6020(JEI), 1997 WL 80991, at *1, *7 (D.N.J. Feb. 20, 1997)
(preempting the case as an administrative claim for non-payment of
benefits under an ERISA plan); Chaghervand v. CareFirst, 909 F.
Supp. 304, 312 (D. Md. 1995) (stating that claims for
misadministration of benefits are preempted by ERISA).
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                                        APPENDIX G


  Arkansas actually passed the first patients’ bill of rights
legislation in 1995, entitled “Patient Protection Act.”457 The act
included a right-to-sue provision allowing recovery of not less than
$1000 and a right to recover attorney’s fees and costs upon a
successful suit.458 However, the Eighth Circuit precluded the entire
act under a permanent injunction in Prudential Insurance Co. of
America v. National Park Medical Center, Inc.459 The court held
that ERISA completely preempted the Arkansas act because the
statute specifically referred to ERISA plans, even though the
reference was merely to announce that self-funded plans are exempt
from the state law.460


   In November of that same year, electors rejected California’s
“Health Care Patient Protection Act of 1996.”461 Yet, California has
subsequently been successful in passing the “Managed Health Care
Insurance Accountability Act of 1999,”462 which addresses routes to
sue for denial or delay in service causing substantial harm.463
Health care service plans cannot contract around this liability, nor
may enrollees waive their rights.464 There have been no cases
following the enactment.

       ARK. CODE ANN. § 23-99-201 to 209 (Michie 1999).
       Id. § 23-99-207.
       154 F.3d 812, 832 (8th Cir. 1998).
       See id. (stating that there is no portion of the Arkansas PPA that can be severed from
the act because the references to ERISA are “fundamental to each and every provision” of the
       CAL. HEALTH & SAFETY CODE §§ 1399.900 to 1399.970 (West 2000) (rejected by electors
on Nov. 5, 1996).
       1999 Cal. Stat. C. 536 (S.B.21), § 3 (codified at CAL. CIV. CODE § 3428 (West Supp.
       CAL. CIV. CODE § 3428(a) (West Supp. 2001) (stating that the health care service plan or
managed care entity “shall be liable for any and all harm legally caused by its failure to
exercise that ordinary care . . . (1) The failure to exercise ordinary care resulted in the denial,
delay, or modification of the health care . . . and (2) The subscriber or enrollee suffered
substantial harm”).
       Id. § 3428(d), (f) (explaining that such attempts would be contrary to the provisions set
forth as well as public policy, and therefore, void).
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  In Florida, the state legislature has proposed the “Managed Care
Organization’s Patient’s Bill of Rights,”465 which emphasizes that
HMOs owe a fiduciary duty to the people of Florida to provide
quality health care and health benefits.466 The bill ensures that the
  professional judgment of a physician will not be altered by a
managed care organization unless the course of treatment deviates
from the medical standard in the community and the physician is
not restricted from communicating the medical care options that are
in the best interest of the patient.467 When a managed care
organization is found liable, it is responsible for actual and punitive
damages, attorney’s fees, and monetary and injunctive
compensation.468 The law sets a floor of $500 per violation.469


   In 1996, Georgia enacted its patients’ bill of rights to be effective
in July 1999.470 It includes a provision making it illegal to provide
financial incentives in order to provide less care.471 The act further
ensures patient access to quality care by providing protection for
health care providers who opt to discuss “appropriate care” with
their patients.472 According to the AMA, in the three years since
Georgia passed its law, no patients have filed lawsuits and the
number of uninsured has decreased by 1.5%.473 This fact tends to
disprove the contention that such bills create incentives for

       S.B. 984, 2001 Leg., 103d Reg. Sess. § 1 (Fla. 2000), LEXIS FL-BILLS.
       Id. § 2(4).
       Id. § 3(3)(c)-(d).
       Id. § 4(1).
       Id. § 4(2).
       Patient Protection Act of 1996 § 1, GA. CODE ANN. §§ 33-20A-1 to –41 (2000).
       Id. § 33-20A-6(a) (stating “[a] managed care plan may not use a financial incentive or
disincentive program that directly or indirectly compensates a health care provider or
hospital for ordering or providing less than medically necessary and appropriate care to his or
her patients”).
       Id. § 33-20A-7(a)-(c) (providing further protections for health care providers when they
testify on behalf of an enrollee challenging denial of health care and establishing penalties for
any managed care plan who engages in such prohibitions).
       See AMA Member Communications, HMOs Continue to Spread Myths, Patients’ Bill of
Rights Continues to Move Forward, (last
updated June 29, 2001).
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  Hawaii passed its “Patients’ Bill of Rights and Responsibilities
Act” in 1998.474 The intention of the act when passed was to ensure
and strengthen consumer protection when receiving health care
from managed care plans as well as HMOs.475 The act provides
various mechanisms to ensure such protection, including enrollee
participation in treatment decisions,476 utilization review
practices,477 and performance measurement and data reporting


  The Illinois Act,479 passed in 1987, was subject to judicial
examination in Moran v. Rush Prudential HMO, Inc.480 In Moran,
the court addressed a provision of the Illinois HMO Act that
requires HMOs to submit to binding independent external review
for any claim denied on medical necessity grounds.481 Like the Fifth
Circuit in Corporate Health Insurance, Inc. v. Texas Department of
Insurance,482 Moran analyzed the provision through the lens of
section 502 and section 514 preemption, agreeing with the Fifth
Circuit that the law fell under the savings clause and escaped
section 514 preemption.483 However, unlike the Fifth Circuit, the

       HAW. REV. STAT. §§ 432E-1 to -13 (Supp. 2000).
       See Health—Patient Bill of Rights and Responsibilities Act—Managed Care Plans Act
137, 1999 Haw. Sess. Law 137, WL 1999 Hawaii Laws Act 137 (codified as amended at HAW.
REV. STAT. §§ 432E-1 to -13 (Supp. 2000)) (setting forth the legislative intent of the act).
       See HAW. REV. STAT. § 432E-4(a)-(d) (Supp. 2000) (mandating enrollee’s right to know
treatment options, including the “option of no treatment at all,” and further prohibiting
managed care organizations from hindering the relay of such information).
       See id. § 432E-9(a)-(d) (requesting the establishment of procedures to assess quality
assurance mechanisms).
       See id. § 432E-10(a)-(b) (providing annual reporting standards, accessible to all
enrollees, which shall include “measures of quality, outcomes, access, satisfaction, and
utilization of services”).
       Health Maintenance Organization Act, 215 ILL. COMP. STAT. ANN. 125/1-1 to 6-19 (West
& Supp. 2000).
       230 F.3d 959 (7th Cir. 2000), cert. granted, 121 S. Ct. 2589 (June 29, 2001).
       See id. at 964 (stating that “[section 4-10 of the HMO Act . . . [requires “HMO’s] to
provide a mechanism for a review by an independent physician when the patient’s primary
care physician and HMO disagree about the medical necessity of a treatment proposed by the
primary care physician”).
       Corporate Health Ins., Inc. v. Texas Dep’t of Ins., 215 F.3d 526 (5th Cir. 2000).
       See Moran, 230 F.3d at 969 (concluding that “[section] 4-10 of the HMO Act falls within
the savings clause because it ‘regulates insurance’ under a common sense understanding and
because it meets at least two of the [determinative] factors”); Corporate Health Ins., 215 F.3d
at 538 (stating that the independent review provision “meet[s] the common sense test of the
savings clause” and satisfies two of the three prongs of the McCarran-Ferguson test).
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Seventh Circuit in Moran determined the independent review was
actually part of the plan and not subject to section 502


  Maine enacted a patient’s bill of rights485 that provides limited
damages to patients when a managed care organization fails to
provide adequate medical care.486 If an HMO is liable for medical
malpractice487 the law allows for actual or compensatory damages,
and non-economic damages at a $400,000 cap,488 but denies punitive
damages.489 The act also prohibits financial inducement by a
participating provider who delays or denies necessary or
appropriate services, but does not prohibit cost control


  The Massachusetts Patients’ Bill of Rights,491 passed in July of
2000,492 does not specifically provide for liability of an HMO for
health care decisions, but uses a council to establish a quality-of-
care patient-centered system that would ensure that financial
incentives do not interfere with quality treatment.493


  In 2000, Michigan enacted the “Patient’s Right to Independent
Review Act.”494 The act entitles enrollees to request external review

       See Moran, 230 F.3d at 970-72 (indicating that section 4-10 of the HMO Act should be
treated “as mandated contract terms and . . . as part of the insurance contract”); Corporate
Health Ins., 215 F.3d at 538-39 (holding that the independent review provision was
preempted by ERISA’s exclusionary remedy, even though it passed the savings clause).
       Health Plan Improvement Act, ME. REV. STAT. ANN. tit. 24-A, §§ 4301-4313 (West Supp.
       Id. § 4313(9) (setting forth the limitations on awards of damages).
       Id. § 4313(1)(A)-(B) (explaining when a cause of action may be maintained by an
       Id. § 4313(9)(A)-(B).
       Id. § 4313(9)(C).
       Id. § 4303(3-B).
       2000 Mass. Adv. Leg. Serv. ch. 141, §§ 1-35 (Law Co-op. 2001) (codified as amended in
scattered sections of MASS. GEN. LAWS ch. 6A, 111, 112, 118E, 118G, 175, 176A, 176B, 176G,
176I, 176O, 180).
       Id. at § 35.
       See MASS ANN. LAWS ch. 6-A, § 16D (Law. Co-op. Supp. 2001) (overseeing the office of
patient protection and monitoring issues such as health care costs, access and quality).
       MICH. COMP. LAWS. §§ 550.1901 to 550.1929 (Supp. 2001).
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of health carriers’ adverse determinations.495    The reviewing
organization may evaluate the “necessity” or “appropriateness” of
the denied health care procedure.496


   A proposed patients’ bill of rights in the state of Oklahoma is
presently facing opposition. The Oklahoma Association of Health
Plans is using ERISA preemption to challenge a state “Patients’ Bill
of Rights” law, which imposes state law tort liability for “health care
treatment decisions,” arguing that “implementation of the act will
drive up health care costs and make it less accessible for many


  The state legislature in Washington enacted the Health Care
Patient Bill of Rights in 2000.498 The law creates a path for medical
malpractice and vicarious liability (both respondeat superior and
ostensible agency) claims against providers, “for any and all harm
proximately caused by its failure to follow [the] standard of care
when the failure resulted in the denial, delay, or modification of the
health care service recommended for, or furnished to, an enrollee.”499
The act protects employer-purchasers from liability.500

       See id. § 550.1907 (establishing the right to external review as well as procedures to
follow in requesting review). The statute states that a carrier must first exhaust “the health
carrier’s internal grievance process.” Id. § 5501.1907(2).
       See id. §§ 550.1903(z), 550.1911 (13) (setting forth the definition of “utilization review”
and establishing decision making strides for external reviewing organizations).
       Oklahoma Health Plans Challenge State’s Right to Sue Law, Mealey’s Managed Care
Liab. Rep., at 4 (Sept. 8, 2000).
       WASH. REV. CODE ANN. § 48.43.500 (West Supp. 2001).
       2000 Wash. Leg. Serv. Ch. 5, § 17(1)(a), (West 2000), WL WA- LEGIS-OLD.
       See id. § 17(5) (shifting liability to the governmental entity that was established to
provide the requisite health insurance to it’s employees).

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