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ERISA Preemption

Aetna v. Davila/Cigna v. Calad, 542 U.S. 200 (2004)

Also under Managed care tort liability

Outcome:     Very unfavorable

Issue
The issue in these consolidated cases was whether federal ERISA law preempted the Texas Health Care Liability Act (THCLA), which allowed HMO beneficiaries to sue the HMOs for damages on non-contractual grounds because of an improper denial of benefits.

AMA interest
The AMA believes that HMOs should be liable for the injuries they cause patients on account of improper denials of medically necessary care.

Case summary

Davila
Juan Davila, an arthritic and diabetic post-polio patient, received Aetna HMO coverage through his employer's health plan.  His primary care physician had prescribed Vioxx for arthritic pain.  Before it would pay for the prescription, however, Aetna required Davila to enter its "step program," under which Davila first had to try two less expensive medications.  Only if he suffered a detrimental reaction to the medications or failed to improve would Aetna consider paying for Vioxx.

After three weeks on the cheaper medication, Davila was rushed to the emergency room, suffering from bleeding ulcers, which had nearly caused a heart attack.  The doctors kept him in critical care for five days.  Davila contended that, by requiring its step protocol, Aetna had failed to use ordinary care in making a "medical necessity" decision.

Calad
Through her husband's employer, Ruby Calad had received medical care from CIGNA Healthcare of Texas, Inc., also an HMO.  A CIGNA physician had performed a hysterectomy, with rectal, bladder, and vaginal repair.  A CIGNA nurse decided that Calad should be discharged after one day in the hospital and that the longer stay Calad's doctor had recommended was medically unnecessary under CIGNA's standard procedures.  Calad suffered complications from the early discharge and had to return to the emergency room a few days later.  She contended that CIGNA had failed to use ordinary care in determining that she should be discharged from the hospital.

Davila and Calad each sued in Texas state court, claiming violations of THCLA.  The HMOs removed their respective cases to federal court based on ERISA preemption.  Ultimately, their cases were appealed to the United States Supreme Court, where the issue was whether, by passing ERISA, Congress had intended to preclude state laws, such as THCLA, which provide remedies beyond those specified in ERISA.  The HMOs argued that the remedies enumerated in ERISA § 502 are intended to preclude all other possible remedies for an HMO's violation of its obligation to provide and pay for medically necessary treatment.  Thus, by implication ERISA "completely preempted" the THCLA remedies.

The Supreme Court, by a unanimous decision, held in favor of the HMOs.  It found that ERISA was intended to preclude state legislation that might provide additional monetary compensation to injured patients.  Two of the justices wrote a concurring opinion, in which they joined the "the rising chorus urging that Congress and [the Supreme] Court revisit what is an unjust and increasingly tangled ERISA regime."

Litigation Center involvement
The Litigation Center filed an amicus curiae brief to support patients' rights to secure their promised health insurance benefits under state law.  The brief argued that the explicit language of ERISA § 514 (b) contradicted the HMOs' position regarding preemption and that issues involving health care should be left to the separate states.

United States Supreme Court brief

America’s Health Insurance Plans v. Hudgens, 742 F.3d 1319 (11th Cir. 2014)

Also under Prompt payment laws

Outcome:    Very unfavorable

Issue

The issue in this case was whether portions of the Georgia Prompt Pay Amendment can be declared invalid, as preempted under the federal Employee Retirement Income Security Act (ERISA).

AMA interest

The AMA supports laws that require prompt payment of health insurance benefit claims, including claims made against self-funded health insurance plans and their third party administrators (TPAs).

Case summary

On May 23, 2011, Georgia amended its prompt payment law to cover self-funded health insurance plans and the TPAs of those plans.  As a result of the Prompt Pay Amendment, self-funded plans and TPAs can be subject to interest charges and monetary penalties if they fail to pay health insurance claims promptly.

America’s Health Insurance Plans (AHIP), a health insurance trade association, sued the Georgia Insurance Commissioner (currently, Ralph T. Hudgens) to have portions of the Prompt Pay Amendment declared invalid, as preempted under ERISA.  AHIP also moved for a preliminary injunction to prevent enforcement of the Prompt Payment Amendment during the pendency of the lawsuit.  The Insurance Commissioner, in turn, moved to dismiss the complaint.

On December 31, 2012, the court found that ERISA preempted the Prompt Pay Amendment.  It therefore denied the Insurance Commissioner’s motion to dismiss and preliminarily enjoined enforcement of sections of the Prompt Pay Amendment. 

The Insurance Commissioner appealed the preliminary injunction to the Eleventh Circuit, but the Eleventh Circuit affirmed on February 14, 2014.

AMA/Litigation Center involvement

The Litigation Center, along with the AMA and Medical Association of Georgia, asked the court for leave to intervene as defendants and to support the Prompt Pay Amendment.  The court never ruled on that motion.The Litigation Center attorneys have also advised the Insurance Commissioner on legal strategy.

The Litigation Center filed an amicus brief in the Eleventh Circuit, urging reversal of the preliminary injunction.  In addition, the Litigation Center participated in the oral argument.

United States Court of Appeals for the Eleventh Circuit brief

 

Cicio v. Vytra Healthcare, 385 F.3d 156 (2d Cir. 2004)

Also under Managed care tort liability

Outcome:     Very unfavorable

Issue
The primary issue in this case was whether the federal Employee Retirement Income Security Act (ERISA) preempted state laws that would otherwise hold HMOs liable when making improper coverage decisions based on “mixed” criteria of legal and medical analysis.

AMA interest
The AMA believes that ERISA should not preempt state laws that regulate medical decision making.

Case summary
Carmine Cicio received employer-sponsored health insurance coverage through Vytra Health Care, an HMO.  Mr. Cicio was diagnosed with multiple myeloma, a form of blood cancer.  His treating physician, Dr. Edward Samuel, asked Vytra to approve a double stem cell transplant for Mr. Cicio.  Dr. Samuel described this treatment as medically necessary and possibly life saving.  Vytra denied the request, stating that a double stem cell transplant was an “experimental/investigational” procedure and thus not covered under Mr. Cicio’s policy.  Mr. Cicio appealed Vytra’s decision, and Vytra ultimately approved a single stem cell transplant.  However, by that time the window of opportunity for an effective treatment had passed.  Mr. Cicio died approximately 6 weeks later.

Bonnie Cicio, Mr. Cicio’s widow, sued Vytra and its medical director in the New York Supreme Court.  She alleged 18 causes of action, mostly based in tort, under New York state law.  Defendants removed the case to the United States District Court for the Eastern District of New York, contending that ERISA preempted Mrs. Cicio’s claims .  The trial court found that ERISA preempted the state law claims and dismissed the case.  Mrs. Cicio then appealed to the United States Court of Appeals for the Second Circuit.

The Court of Appeals, by a two to one decision, reversed the dismissal of the medical malpractice claim, holding that Mrs. Cicio could potentially sue the HMO and its medical director.  The court did not rule on whether New York law actually recognizes a cause of action for medical malpractice in this situation but only that ERISA does not preempt such cause of action if it does exist.  It found that ERISA does not apply to, and therefore does not preempt, determinations of medical necessity or utilization review.

The Court of Appeals also affirmed the dismissal of all counts in the complaint other than the medical malpractice claims.  It remanded those claims to the District Court for further determination.  The defendants’ attorneys sought en banc review (i.e. by all members of the court), but the Second Circuit denied that request.

The defendants then asked the United States Supreme Court to hear the case.  Following its ruling in the Aetna v. Davila and CIGNA v. Calad cases, the United States Supreme Court vacated the Second Circuit judgment and remanded the case to the Second Circuit for further consideration.

On remand, the Second Circuit vacated its prior decision and affirmed the district court's dismissal of Mrs. Cicio's lawsuit.

Litigation Center involvement
The Litigation Center filed two amicus curiae briefs to support Mrs. Cicio in the Second Circuit.

United States Court of Appeals for the Second Circuit brief (on remand)

Corporate Health Insurance, Inc. v. Texas Department of Insurance, 314 F.3d 784 (5th Cir. 2002)

Also under Managed care tort liability

Outcome:     Very favorable

Issue
The issue in this case was whether the Employee Retirement Income Security Act (ERISA) preempted the Texas Health Care Liability Act (THCLA).

AMA interest
The AMA opposes preemption of state laws that regulate medical care and decision making.

Case summary
Several insurance companies sued the Texas Department of Insurance for a declaration that the THCLA was preempted by ERISA and was therefore invalid.  The trial court held that certain portions of the THCLA were preempted while other portions were not.  Both sides appealed.

The United States Court of Appeals for the Fifth Circuit found that THCLA was partly preempted and partly not preempted by ERISA.  The court held that the following statutory provisions were not preempted because they implicated quality of medical practice, not insurance coverage: (1) the provision permitting suits against entities that failed to meet an ordinary care standard for treatment decisions; (2) the provision barring retaliation against physicians for advocating medically necessary care for patients; and (3) the provision proscribing indemnity clauses that would hold HMOs harmless for their own acts.  However, the court found that ERISA did preempt certain provisions for independent review of determinations by managed care entities.  The court also determined that the review provisions were severable from the remainder of the statute.

The State of Texas petitioned for rehearing en banc (i.e., by all the judges of the Fifth Circuit) and for a panel rehearing (i.e., by the some judges who had earlier ruled).  Those petitions were denied.  The Texas Attorney General filed a petition for certiorari with the United States Supreme Court, seeking to challenge that portion of the ruling that struck down the independent review provisions of the Texas statute.

In a two sentence order, the United States Supreme Court granted certiorari, reversed the Fifth Circuit judgment, and remanded the case to the Fifth Circuit for further consideration in light of its decision in Moran v. Rush-Prudential HMO, which had upheld the Illinois independent review law.  The Fifth Circuit then asked the parties for further briefing on how Moran should apply to the Texas independent review law, and it invited briefs from amici curiae.

Subsequently, the Fifth Circuit, modifying its earlier decision, held that ERISA does not preempt the THCLA independent review provisions as they apply to employees covered under insurance company-funded employee benefit plans, because the independent review law falls within the ERISA savings clause. 

Litigation Center involvement
The Litigation Center and the Texas Medical Association (TMA) filed two amicus briefs in the Fifth Circuit and an amicus brief in the Supreme Court, all of which argued for a narrow scope of ERISA preemption.

United States Court of Appeals for the Fifth Circuit brief (on remand)

Kentucky Association of Health Plans v. Miller, 538 U.S. 329 (2003)

Also under Any willing provider laws

Outcome:    Very favorable

Issue
The issue in this case was whether Kentucky’s “any willing provider” (“AWP”) law was preempted by the federal ERISA statute.

AMA interest
The AMA opposes federal preemption of state AWP laws.

Case summary
The Kentucky Health Care Reform Act included an AWP provision requiring that health insurers accept any providers willing and qualified to participate on the insurers’ managed care panels.   Plaintiffs, a trade association of health care plans and several managed care organizations, sued to have the Kentucky AWP laws declared invalid, as preempted by the federal ERISA statute. 

The trial court ruled against them, and the plaintiffs appealed.  The United States Court of Appeals for the Sixth Circuit affirmed, by a split decision.  Following this ruling, the plaintiffs again appealed, this time to the United States Supreme Court.

The Supreme Court upheld the Kentucky AWP laws, stating that it was making a “clean break” from earlier cases that analyzed whether state laws are saved from preemption because they “regulate insurance.”  Under the Court’s holding, a state law is deemed to regulate insurance under ERISA § 514(b) if it (1) is specifically directed toward entities engaged in insurance and (2) substantially affects the risk pooling arrangement between the insured and the insurer.

Litigation Center involvement
The Litigation Center joined the Kentucky Medical Association and several specialty medical societies in an amicus curiae brief that argued that the Kentucky AWP laws are valid, because they do not “relate to” employee benefit plans under ERISA § 514(a).

United States Supreme Court brief.

Pappas v. Asbel, 768 A.2d 1089 (Pa. S. Ct. 2001)

Also under Managed care tort liability

Outcome:     Very favorable

Issue

The issue in this case was whether the Employee Retirement Income Security Act (ERISA) preempted a state law under which a managed care organization was liable to its insured for negligent denial of medically necessary care.

AMA interest

The AMA believes that managed care organizations should be held liable for the injuries they cause patients on account of improper denials of medically necessary care.

Case summary

Basile Pappas was insured by U.S. Healthcare.  He sought treatment at Haverford Community Hospital for an epidural abscess.  Despite the treating physician’s recommendation that he be transferred to a university hospital, U.S. Healthcare refused to pay for the transfer.  As a result, he was not transferred, and he suffered permanent spinal damage.

Basile and his wife, Theodora Pappas, filed a medical malpractice action against David Asbel, D.O. and Haverford Community Hospital.  The defendants, in turn, sued U.S. Healthcare, alleging that U.S. Healthcare bore sole responsibility for Basile’s injury under Pennsylvania law.  U.S. Healthcare moved to dismiss the complaint filed by Asbel and Haverford, claiming that the action “related to” a health benefits plan governed by and was therefore preempted by ERISA.

The Pennsylvania Supreme Court ruled that ERISA did not preempt the claim against U.S. Healthcare.  Congress did not intend to preempt state laws that govern the provision of safe medical care, the court held.  The United States Supreme Court reversed and then remanded the case to the Pennsylvania Supreme Court for further consideration.

On remand, the Pennsylvania Supreme Court confirmed its earlier decision.

Litigation Center involvement

The Litigation Center and the Pennsylvania Medical Society filed amicus briefs to the Pennsylvania Supreme Court in the original appeal and upon remand from the U.S. Supreme Court.  Their briefs argued that ERISA should not preempt claims derived from substandard care.

Pegram v. Herdrich, 530 U.S. 211 (2000)

Also under Managed care tort liability 

Outcome:     Very favorable

Issue
The issue in this case was whether mixed treatment and eligibility decisions by HMO physician-employees are “fiduciary” decisions under the federal Employee Retirement Income Security Act (ERISA).

AMA interest
The AMA believes that physicians should not be deemed ERISA fiduciaries simply by rendering clinical care to ERISA plan participants.

Case summary
Patient Cynthia Herdrich sued Lori Pegram, a physician-owner of Carle Clinic and Carle (an HMO) for malpractice and fraud in an Illinois court, based on Dr. Pegram’s having determined that Herdrich, who had an inflamed mass in her abdomen, would have to wait eight days for an ultrasound at a Carle-staffed facility more than fifty miles away, instead of being treated more promptly at a local hospital.  Before the eight days elapsed, Herdrich’s appendix ruptured, causing peritonitis. 

Pegram and Carle removed the case from state to federal court, claiming that ERISA preempted the fraud counts.  Herdrich amended her complaint to allege that the provision of medical services at Carle, which rewarded physician owners for limiting medical care, entailed an inherent or anticipatory breach of an ERISA fiduciary duty, since the physicians were in effect incentivized to make medical decisions in their own interest, rather than in the exclusive interest of their patients.

The trial court dismissed the ERISA count, based on a determination that Pegram’s decision had not been made as an ERISA fiduciary. (A jury awarded Herdrich $35,000 on her original malpractice claims, however.)  Herdrich appealed the dismissal of the ERISA claim to the Seventh Circuit Court of Appeals, which reversed, holding that Herdrich had adequately stated a claim in that incentives to physicians can rise to the level of a breach of fiduciary duty.

Pegram and Carle appealed to the United States Supreme Court, which reversed the Seventh Circuit.  The Supreme Court held that mixed treatment and eligibility decisions by HMO physicians are not fiduciary decisions under ERISA, and therefore Herdrich had not stated on ERISA claim.

Litigation Center involvement
The Litigation Center filed an amicus brief arguing that physicians should not be deemed ERISA fiduciaries.

Roark v. Humana, 307 F.3d 298 (5th Cir. 2002)

Also under Managed care tort liability

Outcome:     Neutral

Issue
The issue in this case, which originally comprised four consolidated lawsuits, was whether the federal Employee Retirement Income Security Act (ERISA) preempted a claim under the Texas Health Care Liability Act (THCLA) for negligence by a health maintenance organization (HMO).  In each of the separate lawsuits, the plaintiffs alleged that their physicians had recommended necessary medical treatment, but the HMOs had negligently refused to cover them.  They claimed tort (i.e., non-contractual) damages.

AMA interest
The AMA supports a narrow, interpretation of the preemptive scope of ERISA in cases involving state laws that regulate medical decision making.

Case summary
The plaintiffs originally filed their lawsuits in state court, but the HMOs removed those cases to federal court.  The HMOs pointed out that each plaintiff received HMO coverage through an employer-sponsored plan.  Therefore, the HMOs argued, the federal courts had jurisdiction to hear these cases by virtue of “complete preemption” under ERISA § 502.  They further argued that, due to “conflict preemption” under ERISA § 514, the THCLA liability provisions were invalid and the cases should be dismissed.

After various rulings in the lower courts, all four cases were appealed to the Fifth Circuit.  A panel of the Fifth Circuit ruled that ERISA § 502 did not completely preempt three of the four lawsuits.  The federal courts therefore lacked jurisdiction to hear those cases, and the panel did not reach the ERISA § 514 conflict preemption issue in those suits. 

As to the fourth case, brought by Mrs. Roark and then, after she died, by her estate, the panel noted that the pleadings had raised legal theories different from those of the other three cases.  Accordingly, the panel held that the federal courts did have jurisdiction over the fourth suit by virtue of complete preemption under ERISA § 502.  The panel further held that ERISA § 514 conflicted with and therefore preempted the THCLA liability provisions. Ultimately, it ruled, the case had been properly dismissed.

Following the Fifth Circuit panel decision, Mrs. Roark's estate petitioned for en banc review by the entire Fifth Circuit.  So did the HMO defendants in the first three cases, which had been consolidated with her appeal.  The Fifth Circuit denied the petition.

Mrs. Roark's estate then petitioned the United States Supreme Court for further review.  Ultimately, the Roark case settled and the Supreme Court dismissed the petition for certiorari.

Litigation Center involvement
The Litigation Center, acting on behalf of the AMA and the Texas Medical Association, filed an amicus curiae brief to support the Roark petition for en banc review by the Fifth Circuit. 

The Litigation Center, acting through the AMA and the Texas Medical Association, also filed an amicus curiae brief to support the estate's certiorari petition to the United States Supreme Court.

United States Court of Appeals for the Fifth Circuit brief

United States Supreme Court brief

Rush Prudential HMO, Inc. v. Moran,536 U.S. 355 (2002)

Also under Independent review and Patient rights

Outcome:     Very favorable

Issue
The issue in this case was whether the federal ERISA statute preempted the “independent review” provision of the Illinois HMO Act.

AMA interest
The AMA supports state laws that require managed care organizations to treat beneficiaries fairly.

Case summary
Moran sought reimbursement for the expense she incurred in having microneurolysis surgery.  Rush, her HMO, contended that her treatment was not medically necessary and denied her claim.  The Illinois HMO Act requires that, in such disputes, the matter be submitted to an independent reviewer for a binding determination.  Rush refused to provide the independent reviewer, so Moran obtained a court order compelling the independent review.  The trial court denied Rush’s objection that ERISA preempted the Illinois HMO Act’s independent review requirement.

The independent reviewer found that the microneurolysis surgery was medically necessary, but Rush still refused to pay.  When Moran sought a court order requiring Rush to pay, however, the same court that had ordered the independent review now found for Rush.  It held that, although ERISA did not preempt the HMO Act’s requirement of independent review, it did preempt that portion of the Act which required the HMO to comply with the findings of the independent reviewer.

Moran appealed to the United States Court of Appeals for the Seventh Circuit.  The Seventh Circuit reversed, holding that the independent review provision of the Illinois HMO Act fell within ERISA’s “savings clause” and thus was not preempted by ERISA.  The United States Supreme Court granted Rush’s request to hear the case, and, by a five to four decision, held in Moran’s favor.  The case was remanded to the trial court to ascertain whether the HMO was liable for Moran’s attorneys fees and, if so, for how much.

Litigation Center involvement
The Litigation Center and the Illinois State Medical Society (ISMS) filed an amicus curiae brief on the plaintiff’s behalf in the Seventh Circuit.  The Litigation Center and ISMS argued that the Illinois law addressed matters of health care regulation, which the federal government never intended to be governed by the ERISA statute.

The Litigation Center and ISMS (along with the American Psychiatric Association) also filed an amicus curiae brief on behalf of Moran and the Illinois HMO Act in the United States Supreme Court. 

United States Court of Appeals for the Seventh Circuit brief

United States Supreme Court brief