REECEFINAL 10/16/01 10:27 PM ARTICLES THE CIRCUITOUS JOURNEY TO THE PATIENTS’ BILL OF RIGHTS: WINNERS AND LOSERS 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 IV. THE COURTS STRUGGLE TO OVERCOME THE OBSTACLE OF 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 V. THE TEXAS LEGISLATURE AND THE TEXAS STATE COURT 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. 17 REECEFINAL 10/16/01 10:27 PM 18 Albany Law Review [Vol. 65 APPENDIX C ........................................................................................ 84 APPENDIX D ........................................................................................ 85 APPENDIX E ........................................................................................ 87 APPENDIX F......................................................................................... 89 APPENDIX G ........................................................................................ 91 REECEFINAL 10/16/01 10:27 PM 2001] Journey to the Patients’ Bill of Rights 19 INTRODUCTION 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 plans.4 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, 1 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). 2 See BARRY R. FURROW ET. AL., HEALTH LAW: CASES, MATERIALS AND PROBLEMS 661 (2d 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 (GNP)). 3 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). 4 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). 5 See Kilcullen, supra note 4, at 25-26 (describing Preferred Provider Organizations (PPOs) that shape subscribers’ choice of physicians through “better reimbursement rates”). 6 See id. at 25 (indicating that managed care organizations indirectly impose limits on patients’ health care decisions). REECEFINAL 10/16/01 10:27 PM 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 7 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). 8 See id. (arguing that cost containment “place[s] physicians in a conflict of interest” between their patients and their own economic self-interests). 9 See McGraw, supra note 7, at 1836-37 (stating that patients have no protection against financial incentives imposed by HMOs on physicians). 10 Pub. L. No. 93-406, § 2, 88 Stat. 832 (1974) (codified at 29 U.S.C. § 1001 (1994)) [hereinafter ERISA]. 11 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). 12 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). 13 ERISA § 3, 29 U.S.C. § 1002(1). 14 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). REECEFINAL 10/16/01 10:27 PM 2001] Journey to the Patients’ Bill of Rights 21 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 15 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). 16 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). 17 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). 18 See infra notes 361-84 and accompanying text (illustrating how different courts have treated cases which assert medical malpractice claims against HMOs). 19 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. LANGBEIN & BRUCE A. WOLK, PENSION AND EMPLOYEE BENEFIT LAW, 428, 433 (2d ed. 1995) (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”). 20 See infra Parts III-VI. 21 See infra Parts IV-VI. REECEFINAL 10/16/01 10:27 PM 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 I. HEALTH CARE DELIVERY: THEN AND NOW 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 22 See infra notes 322 and accompanying text. 23 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 activities). 24 See infra notes 29-136 and accompanying text. 25 See infra notes 137-168 and accompanying text. 26 See infra notes 169-227 and accompanying text. 27 See infra notes 228-384 and accompanying text. 28 See infra notes 385-461 and accompanying text. 29 See infra notes 462-513 and accompanying text. 30 Stephen R. Latham, Regulation of Managed Care Incentive Payments to Physicians, 22 AM. J.L. & MED. 399, 400 (1996). REECEFINAL 10/16/01 10:27 PM 2001] Journey to the Patients’ Bill of Rights 23 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 31 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). 32 ANNE M. STOLINE ET AL., THE NEW MEDICAL MARKETPLACE: A PHYSICIAN’S GUIDE TO 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 service). 33 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”). 34 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 uncertainty”). 35 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). 36 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). 37 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). REECEFINAL 10/16/01 10:27 PM 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 38 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). 39 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”). 40 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). 41 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). 42 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 http://stats.bls.gov/opub/mlr/1994/03/contents.htm (describing that today, most preferred provider organizations employ a health plan official to control referrals made by physicians). 43 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). 44 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). REECEFINAL 10/16/01 10:27 PM 2001] Journey to the Patients’ Bill of Rights 25 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 decades.48 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 45 Id. at 411. 46 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). 47 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). 48 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). 49 Dunn v. Praiss, 656 A.2d 413, 415 (N.J. 1995). 50 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’”). 51 Managed Care-Health Maintenance Organizations (HMOs), 14 SMG MARKET LETTER (SMG Marketing Group), Jan. 2000, at 6. 52 See id. (discussing the structures and enrollment trends of the HMO industry, including membership information for the years 1995-1999). REECEFINAL 10/16/01 10:27 PM 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 organizations.54 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 53 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 www.horizonbcbs.com/members_rates.asp (last visited Oct. 6, 2001) (quoting rates for the listed parameters). 54 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 regulations). 55 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”). 56 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” or “PPAS”. See MICHAEL G. MACDONALD ET AL., 2 TREATISE ON HEALTH CARE LAW, § 8A.04 [c] (1996) (discussing legislation pertaining to “preferred providers” and distinguishing between the entity (PPO) as opposed to the arrangement (PPA)). 57 See Chittenden, supra note 55, at 452-53 (indicating that the PPO is a newer “cost- containment innovation in the health care industry”). 58 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). REECEFINAL 10/16/01 10:27 PM 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 59 See Smith & Lamade, supra note 58 (discussing the characteristics of PPO’s). 60 See BARRY R. FURROW ET AL., THE LAW OF HEALTH CARE ORGANIZATION AND FINANCE (1991) 388 (describing the advantages of the more flexible form of preferred provider organizations). 61 See id. (noting the other three elements of PPO’s are utilization review, consumer choice of provider, and expedient settlement of claims). 62 Chittenden, supra note 55, at 452-53. 63 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. 64 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). 65 See Parise, supra note 3, at 982 (stating that “excessive costs,” such as extended hospitalizations and surgeries “can cause the HMO to lose money”). 66 See FURROW ET. AL, supra note 2, at 472 (pointing out that this fixed rate covers both office-based and hospital-based care). 67 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 services). REECEFINAL 10/16/01 10:27 PM 28 Albany Law Review [Vol. 65 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 68 See FURROW ET AL., THE LAW OF HEALTH CARE ORGANIZATION AND FINANCE, supra note 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). 69 Michael Kanute, Comment, Evolving Theories of Malpractice Liability for HMOs, 20 LOY. U. CHI. L.J. 841, 842-44 (1989). 70 Id. at 842. 71 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”). 72 Chittenden, supra note 55, at 452; Jordan, supra note 71, at 902; Kanute, supra note 69, at 842. 73 Kanute, supra note 69, at 843. 74 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”). 75 See Kanute, supra note 69, at 843 (contrasting the group model with the staff model HMO ). 76 See Jordan, supra note 71, at 903 (describing how the medical group and not the HMO administrators, “make selection decisions as to individual physicians”). 77 See id. (detailing the differences between the staff and group model HMO). REECEFINAL 10/16/01 10:27 PM 2001] Journey to the Patients’ Bill of Rights 29 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 78 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”). 79 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). 80 See Jordan, supra note 71, at 903 (stating that physicians practice in their own offices and use their own equipment). 81 See id. (explaining how group model like the staff model physicians use HMO owned facilities). 82 See Kanute, supra note 69, at 843 (describing the contractual relationship between the HMO, IPA and practicing physicians). 83 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). 84 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”). 85 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. REECEFINAL 10/16/01 10:27 PM 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 86 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). 87 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”). 88 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”). 89 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). 90 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”). 91 Id. 92 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). REECEFINAL 10/16/01 10:27 PM 2001] Journey to the Patients’ Bill of Rights 31 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 subscribers.94 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, 93 See McGraw, supra note 7, at 1827 (explaining how the capitated rate motivates doctors to only prescribe “medically necessary treatment”). 94 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). 95 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). 96 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). 97 See McGraw, supra note 7, at 1827 n. 38 (listing the methods HMOs employ to provide financial incentives). 98 See Hall, supra note 1, at 434 (noting that physicians “determine when, how long, how intensively, and in what environment to treat patients”). 99 See id. (stating that doctors, not hospitals, influence the majority of health care expenses). 100 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). 101 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 REECEFINAL 10/16/01 10:27 PM 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 role). 102 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). 103 Williams & Torrens, supra note 58, at 159. 104 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”). 105 See id. 1827-28 (noting that the motivation behind withholding the capitated payment is to encourage the physician to prescribe only medically necessary treatment). 106 Id. at 1828. 107 Id. 108 Ellyn E. Spragins, Beware Your HMO, NEWSWEEK, Oct. 23, 1995, at 54. 109 McGraw, supra note 7, at 1828. 110 See id. (explaining how bonuses operate similarly to target levels). REECEFINAL 10/16/01 10:27 PM 2001] Journey to the Patients’ Bill of Rights 33 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.116 111 “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). 112 See McGraw, supra note 7, at 1826 (indicating that different forms of utilization review are employed at different stages in treatment). 113 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). 114 See supra notes 86-90 and accompanying text (reporting studies that show how managed care organizations were reducing health care costs). 115 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). 116 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”). REECEFINAL 10/16/01 10:27 PM 34 Albany Law Review [Vol. 65 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 117 Note, The Impact of Managed Care on Doctors Who Serve Poor and Minority Patients, 108 HARV. L. REV. 1625, 1628 & n.14 (1995) 118 See Wethly, supra note 111, at 818 (describing incentive programs and how they could affect a patient’s treatment and well being). 119 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”). 120 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). 121 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). 122 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). 123 See Spragins, supra note 108, at 55 (noting that some HMO contracts require physicians to provide services outside their expertise). REECEFINAL 10/16/01 10:27 PM 2001] Journey to the Patients’ Bill of Rights 35 not the forum to settle the problems associated with utilization review. 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 judgment.”130 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 124 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 system). 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. Id. 125 239 Cal. Rptr. 810 (Ct. App. 1986). 126 Id. at 813. 127 Id. at 814. 128 Id. at 816. 129 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). 130 Id. at 820. 131 271 Cal. Rptr. 876 (Ct. App. 1990). 132 Id. at 877-78. REECEFINAL 10/16/01 10:27 PM 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 133 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”). 134 160 Cal. Rptr. 392 (1979). 135 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. 136 431 N.W.2d 855 (Minn. 1988). 137 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). 138 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). 139 BLACK’S LAW DICTIONARY 971 (7th ed. 1999). 140 Bardessono v. Michels, 478 P.2d 480, 484 (Cal. 1970). REECEFINAL 10/16/01 10:27 PM 2001] Journey to the Patients’ Bill of Rights 37 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 141 Bahr v. Harper-Grace Hospitals, 497 N.W.2d 526, 528 (Mich. Ct. App. 1993). 142 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). 143 Bahr, 497 N.W. 2d at 528. 144 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”). 145 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). 146 BLACK’S LAW DICTIONARY 927 (7th ed. 1999). 147 “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”). 148 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”). REECEFINAL 10/16/01 10:27 PM 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.156 149 See id. at 454 & n.16 (discussing the factors that courts consider to determine the nature of a doctor’s relationship with a hospital). 150 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”). 151 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). 152 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). 153 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”). 154 876 F.2d 174, 177 (D.C. Cir. 1989). 155 Id. at 177-78. 156 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 REECEFINAL 10/16/01 10:27 PM 2001] Journey to the Patients’ Bill of Rights 39 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). 157 BLACK’S LAW DICTIONARY 1100 (6th ed. 1990). 158 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). 159 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). 160 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). 161 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). 162 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). REECEFINAL 10/16/01 10:27 PM 40 Albany Law Review [Vol. 65 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,166 163 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”). 164 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). 165 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). 166 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). REECEFINAL 10/16/01 10:27 PM 2001] Journey to the Patients’ Bill of Rights 41 negligent misrepresentation/nondisclosure or breach of contract,167 emotional distress,168 and breach of fiduciary duty.169 III. THE PRINCIPAL OBSTACLE: PREEMPTION 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.174 167 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). 168 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). 169 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 information). 170 Fort Halifax Packing Co., Inc. v. Coyne, 482 U.S. 1, 8 (1986). 171 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”). 172 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). 173 Id. at § 1144 (a), (c). 174 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 REECEFINAL 10/16/01 10:27 PM 42 Albany Law Review [Vol. 65 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”). 175 Id. § 1144 (b)(2)(A). 176 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 benefits”). 177 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’”). 178 ERISA § 3, 29 U.S.C. § 1002(1) (defining an employee welfare benefit plan as a plan that provides “its participants” with medical benefits). 179 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). 180 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). 181 See Meghrigian, supra note 176, at 9 (noting that “employers perceive that health coverage can be provided less expensively if paid for by themselves”). REECEFINAL 10/16/01 10:27 PM 2001] Journey to the Patients’ Bill of Rights 43 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 182 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. 183 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”). 184 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). 185 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”). 186 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”). 187 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”). REECEFINAL 10/16/01 10:27 PM 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 188 See LANGBEIN & WOLK, supra note 19, at 686 (describing that Congress has “‘exclusive jurisdiction . . . to enforce or clarify benefit rights’”). 189 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 character”). 190 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)). 191 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”). 192 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”). 193 Taylor, 481 U.S. at 63-64. 194 Id. at 64-65 (recognizing that ERISA preemption alone does not warrant automatic removal to federal court). 195 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). 196 See Rice, 65 F.3d at 640 (noting that state law claims subject to conflict preemption are REECEFINAL 10/16/01 10:27 PM 2001] Journey to the Patients’ Bill of Rights 45 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). 197 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”). 198 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. 199 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)). 200 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”). 201 ERISA § 502, 29 U.S.C. § 1132 (1994). 202 McAuliffe, supra note 191, at 82. REECEFINAL 10/16/01 10:27 PM 46 Albany Law Review [Vol. 65 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. 203 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”). 204 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”). 205 See id. (noting that courts have supplemental jurisdiction over complaints that raise complete-preempted claims and conflict-preempted claims). 206 See Sullivan, supra note 43, at 254 (discussing a plaintiff’s limited remedies under ERISA). 207 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”). 208 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”). 209 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). 210 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. REECEFINAL 10/16/01 10:27 PM 2001] Journey to the Patients’ Bill of Rights 47 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). 211 See Pilot Life Ins. Co. v. Dedeaux, 481 U.S. 41, 53-54 (1987). 212 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). 213 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). 214 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). 215 Chaghervand v. Carefirst, 909 F. Supp. 304, 309-10 n.4 (D. Md. 1995). 216 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). REECEFINAL 10/16/01 10:27 PM 48 Albany Law Review [Vol. 65 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 217 See id. at 723-24 (noting that judicial decisions have reshaped ERISA, depriving beneficiaries of remedies they enjoyed prior to the statute’s enactment). 218 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”). 219 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). 220 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 . . . “). 221 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 variables”). 222 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). 223 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). 224 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 employess). REECEFINAL 10/16/01 10:27 PM 2001] Journey to the Patients’ Bill of Rights 49 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. IV. THE COURTS STRUGGLE TO OVERCOME THE OBSTACLE OF PREEMPTION IN THE MANAGED CARE CONTEXT 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 225 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”). 226 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). 227 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”). 228 JOSEPH S. PIACENTINI & JILL D. FOLEY, EMPLOYEE BENEFIT RESEARCH INSTITUTE DATABOOK ON EMPLOYEE BENEFITS 220 (2d ed. 1992). 229 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 n.19. 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 REECEFINAL 10/16/01 10:27 PM 50 Albany Law Review [Vol. 65 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 context. 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)). 230 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 statute). 231 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”). 232 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. Id. REECEFINAL 10/16/01 10:27 PM 2001] Journey to the Patients’ Bill of Rights 51 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 233 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). 234 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). 235 482 U.S. 1 (1987). 236 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. Id.at 4. 237 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. 238 Id. at 12. 239 Id. at 16. 240 Id. at 17. REECEFINAL 10/16/01 10:27 PM 52 Albany Law Review [Vol. 65 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.251 241 See id. at 12, 23 (noting further that an administrative scheme is not necessary for the possibility of a one-time obligation). 242 490 U.S. 107 (1989). 243 See id. at 109 (questioning whether payment of “unused vacation time” was a plan within the meaning of ERISA). 244 See id. at 110 (claiming that two bank vice presidents were not compensated for their accrued vacation time after they had been discharged). 245 Id. at 109. 246 Id. 247 Id. at 115. 248 Id. 249 Id. at 116 (differentiating between vacation benefit funds that could fall under ERISA from this one which did not). 250 See id. at 120 (discussing a greater need to protect employees whose vacation benefits come from a different fund than their wages). 251 Id. at 121. REECEFINAL 10/16/01 10:27 PM 2001] Journey to the Patients’ Bill of Rights 53 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 252 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). 253 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). 254 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. REECEFINAL 10/16/01 10:27 PM 54 Albany Law Review [Vol. 65 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 preemption.257 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 255 514 U.S. 645 (1995). 256 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”). 257 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). 258 451 U.S. 504 (1981). 259 Id. at 524. 260 Id. at 523-24. 261 Id. at 525. 262 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”). REECEFINAL 10/16/01 10:27 PM 2001] Journey to the Patients’ Bill of Rights 55 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 borderline.269 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 263 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”). 264 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). 265 463 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”). 266 Id. at 96-97. 267 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”). 268 Id. at 98 & n.18. 269 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). 270 471 U.S. 724 (1985). 271 Id. at 739-40 (concluding that the law was not preempted because the law regulates insurance). REECEFINAL 10/16/01 10:27 PM 56 Albany Law Review [Vol. 65 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 272 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). 273 481 U.S. 41 (1987). 274 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). 275 Id. at 43. 276 Id. at 47-48. 277 See id. (noting the Court’s past interpretations of “relates to” and the “broad common- sense meaning” of the phrase). 278 Id. at 47. 279 486 U.S. 825 (1988). 280 Id. at 830. 281 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). 282 498 U.S. 133 (1990). 283 See id. at 138-39 (reaffirming previous interpretations of section 514’s “‘deliberately expansive’ language” in the key phrase “‘relate to’”) (citations omitted). 284 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). REECEFINAL 10/16/01 10:27 PM 2001] Journey to the Patients’ Bill of Rights 57 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 appropriate.293 285 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]”). 286 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). 287 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”). 288 498 U.S. 52 (1990). 289 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). 290 Id. at 59. 291 506 U.S. 125 (1992). 292 Id. at 130-31. 293 Id. at 130 n.1. REECEFINAL 10/16/01 10:27 PM 58 Albany Law Review [Vol. 65 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 ERISA.298 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 294 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. 295 965 F.2d 1321 (5th Cir. 1992). 296 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). 297 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 case). 298 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”). 299 Id. at 1338. REECEFINAL 10/16/01 10:27 PM 2001] Journey to the Patients’ Bill of Rights 59 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 300 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 cases). 301 N.Y. PUB. HEALTH LAW § 2807-c(1)(b) (McKinney 1993 & Supp. 2001) (repealed 2001). 302 Id. 303 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”). 304 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). 305 Cuomo, 813 F. Supp. 996, 999 (S.D.N.Y. 1993). 306 See Cuomo, 14 F.3d at 724 (stating that certain sections specially reference an employee benefit plan). 307 N.Y. State Conf. of Blue Cross & Blue Shield Plans v. Travelers Ins. Co., 514 U.S. 645, 649 (1995). 308 Id. at 655 (quoting Rice v. Sante Fe Elevator Corp., 331 U.S. 218, 230 (1947) (citation omitted). REECEFINAL 10/16/01 10:27 PM 60 Albany Law Review [Vol. 65 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 survive.”309 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 309 Id. at 656. 310 Id. at 656-57 (concluding that uniform regulation of employee benefit plans would relieve those burdens). 311 Id. at 665. 312 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”). 313 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”). 314 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”). REECEFINAL 10/16/01 10:27 PM 2001] Journey to the Patients’ Bill of Rights 61 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 context.317 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 315 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). 316 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). 317 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”). 318 See supra notes 251-56, 299-314 and accompanying text (discussing the Court’s decision in Travelers and its impact on other cases). 319 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. 320 For a list of cases preempted after Travelers, see Appendix C. For a list of cases not preempted after Travelers, see Appendix D. 321 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 REECEFINAL 10/16/01 10:27 PM 62 Albany Law Review [Vol. 65 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”). 322 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 plan”). 323 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). 324 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”). 325 ERISA § 302, § 1002(21)(A)(i) (1994). 326 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”). REECEFINAL 10/16/01 10:27 PM 2001] Journey to the Patients’ Bill of Rights 63 few courts attempted this approach and viewed the HMO as a fiduciary.327 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 operate.329 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.”332 327 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. 328 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). 329 Id. at 629 (stating that the plaintiff had stated a cause of action). 330 Neade v. Portes, 710 N.E.2d 418, 429 (Ill. App. 2 Dist. 1999), rev’d, 739 N.E.2d 496, 506 (Ill. 2000). 331 Id. at 429. 332 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 REECEFINAL 10/16/01 10:27 PM 64 Albany Law Review [Vol. 65 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”). 333 530 U.S. 211 (2000). 334 See id. at 214 (holding that treatment decisions of HMOs carried out through its employed physicians are non-fiduciary acts under ERISA). 335 Id. at 215. 336 See id. at 216 n.3 (outlining the specific allegations). 337 Id. at 231 (expressing doubt that “Congress would ever have thought of a mixed eligibility decision as fiduciary in nature”). 338 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). 339 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). 340 Id. REECEFINAL 10/16/01 10:27 PM 2001] Journey to the Patients’ Bill of Rights 65 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 preemption.343 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 Court.346 “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 341 Id. at 237. 342 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). 343 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). 344 Orin, supra note 233, at 21, 25. 345 50 Pa. D. & C.4th 1 (Ct. Com. Pl. 2000). 346 Id. at 18, 24 (finding that a negligence complaint allegedly resulting in kidney failure was not preempted because it was a “mixed eligibility decision”). 347 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 preempted). 348 724 A.2d 889 (Pa. 1998), vacated and remanded, 530 U.S. 1241 (2000). 349 United States Healthcare Sys., Inc. v. Pa. Hosp. Ins. Co., 530 U.S. 1241 (2000). REECEFINAL 10/16/01 10:27 PM 66 Albany Law Review [Vol. 65 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.358 350 724 A.2d 889 (Pa. 1998), rev’d sub nom. United States Healthcare Sys., Inc. v. Pa. Hosp. Ins. Co., 530 U.S. 1241 (2000). 351 Pappas, 724 A.2d. at 893. 352 See Rosoff, supra note 343, at 72 (stating that the court’s opinion was terse, surprising and unsigned). 353 See Pappas v. Asbel, 768 A.2d 1089, 1091 (Pa. 2001) (stating that the Supreme Court wanted them to reconsider their decision under Pegram). 354 Id. 355 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). 356 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). 357 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 providers). 358 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 REECEFINAL 10/16/01 10:27 PM 2001] Journey to the Patients’ Bill of Rights 67 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 available. 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). 359 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). 360 See supra notes 315-28, 344-49 (illustrating cases that have tried to sue HMOs on the basis of a vicarious liability theory). 361 David L. Trueman, HMO Liability: Narrowing the ERISA Preemption, N.Y.L.J., Nov. 22, 1999, at 4. REECEFINAL 10/16/01 10:27 PM 68 Albany Law Review [Vol. 65 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 362 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). 363 481 U.S. 58 (1987) rev’g Taylor v. Gen. Motors Corp. 763 F.2d 216 (6th Cir. 1985). 364 See id. at 64 (noting that the claim was preempted by ERISA despite only having state law causes of action). 365 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). 366 28 F.3d 269 (2d Cir. 1994). 367 Id. at 272, 274. 368 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)). 369 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). REECEFINAL 10/16/01 10:27 PM 2001] Journey to the Patients’ Bill of Rights 69 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 370 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). 371 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 claims). 372 57 F.3d 350 (3d Cir. 1995). 373 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 test). 374 Id. (stating that a timely blood test would allegedly have diagnosed the deadly condition). 375 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). 376 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 plan.’”). 377 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). REECEFINAL 10/16/01 10:27 PM 70 Albany Law Review [Vol. 65 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.382 378 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 preempted). 379 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). 380 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. 381 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, stating: 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. 382 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). REECEFINAL 10/16/01 10:27 PM 2001] Journey to the Patients’ Bill of Rights 71 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 preemption. 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. V. THE TEXAS LEGISLATURE AND THE TEXAS STATE COURT RESPOND 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 vital. 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 383 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). 384 No. 98-6055, 1999 WL 225885, at *1 (E.D. Pa. Apr. 16, 1999). 385 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”). 386 FAMILIES USA FOUNDATION, HIT & MISS: STATE MANAGED CARE LAWS 5 (July 1998), [hereinafter HIT & MISS], available at http://www.familiesusa.org/media/pdf/hitmiss.pdf. REECEFINAL 10/16/01 10:27 PM 72 Albany Law Review [Vol. 65 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 preemption.391 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.394 387 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. 388 See id. at 329 (stating that “the only state laws which survive preemption are those relating to plans that are themselves exempted from ERISA”). 389 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 preemption). 390 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 administration). 391 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). 392 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. 393 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”). 394 See Hyman, supra note 392, at 230 (noting “these [state] initiatives quickly broadened from the targeting of particularly offensive practices to more comprehensive regulatory frameworks”). REECEFINAL 10/16/01 10:27 PM 2001] Journey to the Patients’ Bill of Rights 73 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 physicians.397 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 395 TEX. CIV. PRAC. & REM. CODE ANN. §§ 88.001 to .003 (Vernon Supp. 2001)). 396 See id. § 88.003(c) (outlining the procedure and time limitations for independent review of claims). 397 See id. § 88.002(a), (b) (setting forth health insurance carriers’ duties including duties owed by its employees and agents). 398 Id. 399 See infra note 417 and accompanying text (quoting the pertinent language of the statute). REECEFINAL 10/16/01 10:27 PM 74 Albany Law Review [Vol. 65 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 400 § 88.002(d). 401 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). 402 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 received). 403 Roark v. Humana, Inc., No. CIV.A. 3:00-CV-2368-D, 2001 WL 585874, at *1, *5 (N.D. Tex. May 25, 2001). 404 See supra Part III, notes 169-227 and accompanying text (discussing the formidable obstacle of preemption). 405 See, e.g., Patients’ Bill of Rights act of 2001, H.R. 2315, 107th Cong. (2001), available at http://thomas.loc.gov/; Bipartisan Patients’ Bill of Rights Act of 2001, S. 889, 107th Cong. (2001) available at http://thomas.loc.gov/; Bipartisan Patient Protection Act, s. 872, 107th Cong. (2001) available at http://thomas.loc.gov/; Bipartisan Patient Protection Act of 2001, H.R. 256, 107th Cong. (2001), available at http://thomas.loc.gov/; Patients’ Bill of Rights Act, S. 6, 107th Cong. (2001), available at http://thomas.loc.gov; see also Hyman supra note 392, at 222-23 & n.2 (noting that Congress has produced a plethora of patient bills of rights). 406 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). REECEFINAL 10/16/01 10:27 PM 2001] Journey to the Patients’ Bill of Rights 75 “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.416 407 See Bipartisan Patient Protection Act, S. 1052, 107th Cong. (2001), available at http://thomas.loc.gov/ (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. 408 See Bipartisan Patient Protection Act, H.R. 2563, 107th Cong. § 402(a) (2001), available at http://thomas.loc.gov/ (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 http://thomas.loc.gov/ (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”). 409 See John Whiteside, Battle Lines Drawn for Congress Health Fight, REUTERS, Aug. 5, 2001, http://www.britannica.com/news/reuters/article?story_id=188787 (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). 410 See id. (expecting that negotiations would be time consuming and difficult). 411 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). 412 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). 413 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). 414 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). 415 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). 416 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). REECEFINAL 10/16/01 10:27 PM 76 Albany Law Review [Vol. 65 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 417 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). 418 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). 419 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). 420 See id. (allowing federal civil remedies for those who were denied health benefits in cases where there were no medically reviewable decisions present). 421 See id. § 402(a)(1) (discussing the allowable damages for failing to provide “contract benefits”). 422 Id. 423 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 decision”). 424 See id. § 402(a)(1) (describing the civil remedies and limits for federal causes of action). State causes of action are not mentioned. Id. 425 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). REECEFINAL 10/16/01 10:27 PM 2001] Journey to the Patients’ Bill of Rights 77 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.435 426 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). 427 See Bipartisan Patient Protection Act, H.R. 2563, 107th Cong. § 402(a) (2001), available at http://thomas.loc.gov/ (setting forth the limitations for recovering non-economic damages while declining to mention any restrictions or limitations on monetary damages). 428 Id. 429 Id. 430 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). 431 See H.R. 2563, § 402(a) (stating that claims against health plans, for claims of benefits, “shall be maintained exclusively under” federal law”). 432 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). 433 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 ERISA). 434 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 REECEFINAL 10/16/01 10:27 PM 78 Albany Law Review [Vol. 65 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). 435 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). 436 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 remedies”). 437 See H.R. 2563 § 152(a)(1) (explaining that State law is only pre-empted when required by the bill and “amendments made thereby”). 438 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)”). 439 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). 440 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”). 441 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). 442 See Dana Bash, Debate Begins on the Patients’ Bill of Rights, http://fyi.cnn.com /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). REECEFINAL 10/16/01 10:27 PM 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 443 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”). 444 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). 445 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). 446 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). 447 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. 448 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). 449 McAuliffe, supra note 191, at 106. REECEFINAL 10/16/01 10:27 PM 80 Albany Law Review [Vol. 65 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 patient. 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. 450 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”). 451 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). 452 CONGRESSIONAL BUDGET OFFICE, 107TH CONG., COST ESTIMATE OF S. 1052 (2001), http://www.cbo.gov/showdoc.cfm?index=2936&sequence=0&from=5. 453 CONGRESSIONAL BUDGET OFFICE, 107TH CONG., COST ESTIMATE OF S. 889 (2001), http://www.cbo.gov/showdoc.cfm?index=2875&sequence=0&from=5. 454 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. 455 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 http://www.consumerwatchdog.org /healthcare/ (last visited Sept. 31, 2001) (featuring a Casualty of the Day section that lists different individuals along with their personal HMO horror stories). 456 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). REECEFINAL 10/16/01 10:27 PM 2001] Journey to the Patients’ Bill of Rights 81 CONCLUSION 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 patient/plaintiff. 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. REECEFINAL 10/16/01 10:27 PM 82 Albany Law Review [Vol. 65 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. REECEFINAL 10/16/01 10:27 PM 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 REECEFINAL 10/16/01 10:27 PM 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 REECEFINAL 10/16/01 10:27 PM 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. REECEFINAL 10/16/01 10:27 PM 86 Albany Law Review [Vol. 65 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 REECEFINAL 10/16/01 10:27 PM 2001] Journey to the Patients’ Bill of Rights 87 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 REECEFINAL 10/16/01 10:27 PM 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 REECEFINAL 10/16/01 10:27 PM 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 REECEFINAL 10/16/01 10:27 PM 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). REECEFINAL 10/16/01 10:27 PM 2001] Journey to the Patients’ Bill of Rights 91 APPENDIX G Arkansas 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 California 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. 457 ARK. CODE ANN. § 23-99-201 to 209 (Michie 1999). 458 Id. § 23-99-207. 459 154 F.3d 812, 832 (8th Cir. 1998). 460 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 act). 461 CAL. HEALTH & SAFETY CODE §§ 1399.900 to 1399.970 (West 2000) (rejected by electors on Nov. 5, 1996). 462 1999 Cal. Stat. C. 536 (S.B.21), § 3 (codified at CAL. CIV. CODE § 3428 (West Supp. 2001)). 463 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”). 464 Id. § 3428(d), (f) (explaining that such attempts would be contrary to the provisions set forth as well as public policy, and therefore, void). REECEFINAL 10/16/01 10:27 PM 92 Albany Law Review [Vol. 65 Florida 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 Georgia 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 litigation. 465 S.B. 984, 2001 Leg., 103d Reg. Sess. § 1 (Fla. 2000), LEXIS FL-BILLS. 466 Id. § 2(4). 467 Id. § 3(3)(c)-(d). 468 Id. § 4(1). 469 Id. § 4(2). 470 Patient Protection Act of 1996 § 1, GA. CODE ANN. §§ 33-20A-1 to –41 (2000). 471 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”). 472 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). 473 See AMA Member Communications, HMOs Continue to Spread Myths, Patients’ Bill of Rights Continues to Move Forward, http://www.ama-assn.org/ama/pub/article/1611-4991 (last updated June 29, 2001). REECEFINAL 10/16/01 10:27 PM 2001] Journey to the Patients’ Bill of Rights 93 Hawaii 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 standards.478 Illinois 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 474 HAW. REV. STAT. §§ 432E-1 to -13 (Supp. 2000). 475 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). 476 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). 477 See id. § 432E-9(a)-(d) (requesting the establishment of procedures to assess quality assurance mechanisms). 478 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”). 479 Health Maintenance Organization Act, 215 ILL. COMP. STAT. ANN. 125/1-1 to 6-19 (West & Supp. 2000). 480 230 F.3d 959 (7th Cir. 2000), cert. granted, 121 S. Ct. 2589 (June 29, 2001). 481 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”). 482 Corporate Health Ins., Inc. v. Texas Dep’t of Ins., 215 F.3d 526 (5th Cir. 2000). 483 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). REECEFINAL 10/16/01 10:27 PM 94 Albany Law Review [Vol. 65 Seventh Circuit in Moran determined the independent review was actually part of the plan and not subject to section 502 preemption.484 Maine 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 mechanisms.490 Massachusetts 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 Michigan In 2000, Michigan enacted the “Patient’s Right to Independent Review Act.”494 The act entitles enrollees to request external review 484 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). 485 Health Plan Improvement Act, ME. REV. STAT. ANN. tit. 24-A, §§ 4301-4313 (West Supp. 2000). 486 Id. § 4313(9) (setting forth the limitations on awards of damages). 487 Id. § 4313(1)(A)-(B) (explaining when a cause of action may be maintained by an enrollee). 488 Id. § 4313(9)(A)-(B). 489 Id. § 4313(9)(C). 490 Id. § 4303(3-B). 491 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). 492 Id. at § 35. 493 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). 494 MICH. COMP. LAWS. §§ 550.1901 to 550.1929 (Supp. 2001). REECEFINAL 10/16/01 10:27 PM 2001] Journey to the Patients’ Bill of Rights 95 of health carriers’ adverse determinations.495 The reviewing organization may evaluate the “necessity” or “appropriateness” of the denied health care procedure.496 Oklahoma 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 residents.”497 Washington 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.500 495 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). 496 See id. §§ 550.1903(z), 550.1911 (13) (setting forth the definition of “utilization review” and establishing decision making strides for external reviewing organizations). 497 Oklahoma Health Plans Challenge State’s Right to Sue Law, Mealey’s Managed Care Liab. Rep., at 4 (Sept. 8, 2000). 498 WASH. REV. CODE ANN. § 48.43.500 (West Supp. 2001). 499 2000 Wash. Leg. Serv. Ch. 5, § 17(1)(a), (West 2000), WL WA- LEGIS-OLD. 500 See id. § 17(5) (shifting liability to the governmental entity that was established to provide the requisite health insurance to it’s employees).