IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
No. 98-20940
CORPORATE HEALTH INSURANCE, INC.;
AETNA HEALTH PLANS OF TEXAS, INC.;
AETNA HEALTH PLANS OF NORTH TEXAS, INC.;
AETNA LIFE INSURANCE COMPANY,
Plaintiffs - Appellees - Cross-Appellants,
versus
THE TEXAS DEPARTMENT OF INSURANCE,
Defendant - Cross-Appellee,
JOSE MONTEMAYOR, Commissioner of the
Texas Department of Insurance;
JOHN CORNYN, Attorney General, State of Texas,
Defendants - Appellants - Cross-Appellees.
Appeal from the United States District Court
For the Southern District of Texas
June 20, 2000
Before HIGGINBOTHAM and PARKER, Circuit Judges, and ATLAS, District
Judge.*
HIGGINBOTHAM, Circuit Judge:
Large changes in the delivery systems for medical services,
including the growth of health maintenance organizations (“HMOs”)
and managed care organizations (“MCOs”), came as rapid responses to
rising costs for medical services and to the growth of medical
*
District Judge of the Southern District of Texas, sitting by
designation.
expense reimbursement for employees. These new entities injected
an intermediary between doctor and patient in setting medical care
charges and making payments; at the same time, the insurance
industry began to offer administrative services to employers and to
contract with doctors for services at set rates. Billions of
dollars now flow through these structures, generating equally large
difficulties of governance and daily tensions between quality and
quantity.
Through much of this period, the preemptive reach of ERISA
made regulation of this market largely a federal enterprise, shared
with the states at its juncture points with insurance. Today we
decide questions regarding the ability of the State of Texas to
regulate the quality of health services when such efforts impose a
duty of care upon service providers to ERISA plans.
I
This suit is a preemption challenge to Texas’s Senate Bill
386.1 Through that legislation, Texas asserted its police power to
protect its citizens in regulating the new field of managed health
care in three ways. First, it created a statutory cause of action
against managed care entities that fail to meet an ordinary care
standard for health care treatment decisions (the “liability”
provisions). Second, it established procedures for the independent
1
Codified at TEX. CIV. PRAC. & REM. CODE § 88.001 et seq.; TEX.
INS. CODE art. 20A.09(e) (formerly (a)(3)), 20A.12(a) and (b),
20A.12A, 21.58A §6(b) and (c), 21.58A §6A, 21.58A §8(f) & 21.58C.
2
review of health care determinations to decide whether they were
appropriate and medically necessary (the “independent review”
provisions). Finally, it protected physicians from HMO-imposed
indemnity clauses and from retaliation by HMOs for advocating
medically necessary care for their patients.
The plaintiffs, Corporate Health Insurance, Inc., Aetna Health
Plans of Texas, Inc., Aetna Plans of North Texas, Inc. and Aetna
Life Insurance Company,2 are not ERISA plans. Aetna Health Plans
of Texas is an HMO licensed by the State of Texas that contracts
with more than 2,900 independent health care providers and 39
hospitals. Aetna Life Insurance Company sells various health
insurance products to employers, including programs available
through a preferred provider organization. In Texas, nearly one
million individuals participate in a managed care program of Aetna
or one of its affiliated entities.
Senate Bill 386 became effective on May 22, 1997. Aetna
promptly filed suit in the United States District Court, claiming
that the Act was preempted by ERISA’s general preemption clause,
section 514, which preempts “any and all state laws insofar as they
. . . relate to any employee benefit plan”3 and by the Federal
Employees Health Benefit Act (“FEHBA”).4 The plaintiffs named as
2
We will refer to the plaintiffs generally as “Aetna.”
3
29 U.S.C. § 1144(a).
4
5 U.S.C. § 8901 et seq.
3
defendants John Cornyn, the Attorney General of Texas, Jose
Montemayor, Commissioner of the Texas Department of Insurance, and
the Department of Insurance itself. The Commissioner remains a
party, but the Department of Insurance has been dismissed.5
The parties filed cross-motions for summary judgment, which
the district court granted in part and denied in part. The
district court found no FEHBA or ERISA preemption of the liability
provisions of Senate Bill 386 but found that ERISA preempted the
anti-retaliation, anti-indemnification, and independent review
provisions of the legislation. Both Aetna and Texas appeal.
II
Texas argues that Aetna lacks standing to challenge the Act’s
new standards for liability. Texas contends that Aetna has not
suffered the requisite injury under Article III because Aetna has
thus far been exposed to a duty of care and will have standing only
if it defends a private suit for the breach of that duty. Texas
concedes that Aetna has standing to challenge the other provisions
given the Commissioner’s oversight authority.
Aetna replies that it has standing because the liability
provisions expose it not only to private suits but also to the
regulatory reach of the Attorney General. We agree. This is not
5
We will refer to the defendants generally as “Texas.” The
United States Secretary of Labor is charged with interpreting and
enforcing all provisions of Title I of ERISA, see 29 U.S.C. 1001 et
seq., but not FEHBA. The Secretary filed an amicus brief and
participated in oral argument in this case. We will refer to the
Secretary as the federal government.
4
a case in which private suits are the only means of enforcing a
challenged statutory standard. The Attorney General can pursue
Aetna through an action under the Texas Deceptive Trade Practices
Act and the Insurance Code.6 This regulatory oversight is
sufficient to create the requisite imminent injury for standing.
III
We have repeatedly struggled with the open-ended character of
the preemption provisions of ERISA and FEHBA.7 We faithfully
followed the Supreme Court’s broad reading of “relate to”
preemption under § 502(a) in its opinions decided during the first
twenty years after ERISA’s enactment. Since then, in a trilogy8 of
cases, the Court has confronted the reality that if “relate to” is
taken to the furthest stretch of its indeterminacy, preemption will
never run its course, for “really, universally, relations stop
6
On the Attorney General’s right of action, see TEX. INS. CODE
ANN. art. 21.21 § 15(a); TEX. BUS. & COM. CODE ANN. § 17.47. Relevant
provisions imposing liability include TEX. INS. CODE ANN. art. 21.21-
2 §2(b)(5) (unfair and deceptive to compel policyholders to
institute suits to recover amounts due); art. 21.21 §4(10)(ii)
(prohibiting the failure to pay claims when liability has become
reasonably clear); id. at art. 21.21-2(B)(4) (same).
7
See, e.g., CIGNA Healthplan of La., Inc. v. Louisiana, 82
F.3d 642 (5th Cir. 1996); Corcoran v. United HealthCare, Inc., 965
F.2d 1321 (5th Cir. 1992).
8
De Buono v. NYSA-ILA Med. & Clinical Serv’s Fund, 117 S. Ct.
1747 (1997); California Div. of Labor Standards Enforcement v.
Dillingham Constr., N.A., Inc., 117 S. Ct. 832 (1997); New York
State Conference of Blue Cross & Blue Shield Plans v. Travelers
Ins. Co., 115 S. Ct. 1671 (1995).
5
nowhere.”9 Justice Souter, speaking for a unanimous court in
Travelers, acknowledged that “our prior attempt to construe the
phrase ‘relate to’ does not give us much help drawing the line
here.” Rather, the Court determined that it “must go beyond the
unhelpful text . . . 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.”10
In Travelers, a New York statute required hospitals to collect
surcharges from patients insured by a commercial carrier but not
from certain HMOs. The plain purpose of the surcharge was to
encourage the HMOs to provide open enrollment coverage. The Second
Circuit found that the surcharges “related to” ERISA plans because
they imposed economic burdens with an impermissible impact on plan
administration and structure. In rejecting the Second Circuit’s
approach, and in shifting its own approach, the Court observed that
such indirect economic influences “d[id] not bind plan
administrators to any particular choice,” but rather affected the
costs of benefits and the “relative costs of competing insurance to
provide them.”11 The Court grounded the “relate to” clause in the
complex realities of the market for medical services.
Dillingham, the second of the trilogy, came two terms later.
9
Travelers, 115 S. Ct. at 1677.
10
Id.
11
Id. at 1679.
6
The case challenged a California law which required public works
contractors to pay a prevailing wage but allowed lower wages to be
paid in qualified apprenticeship programs. A unanimous Court found
the law not preempted, holding that regulation of the underlying
industry of which the employers were members does not require
preemption. The Court began with 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.”12 Justice Scalia, in a concurring opinion joined by
Justice Ginsburg, urged the Court to acknowledge directly that it
had returned to traditional preemption analysis and that “relate
to” states no special test but rather identifies the field in which
ordinary field preemption applies.13
Four months later, the Court handed down De Buono, upholding
New York’s tax on gross receipts for patient services at health
care facilities. The Court again rejected the theory that the
effects of even a direct tax on an ERISA plan required a finding of
preemption. The Court was persuaded that the tax was not the type
of state law that Congress intended ERISA to preempt.14
In each of these three cases, the Court was returning to a
traditional analysis of preemption, asking if a state regulation
12
Dillingham, 117 S. Ct. at 838 (quoting Rice v. Santa Fe
Elevator Corp., 331 U.S. 218, 230 (1947)).
13
Id. at 843 (Scalia, J., concurring).
14
De Buono, 117 S. Ct. at 1752.
7
frustrated the federal interest in uniformity.15 This analysis is
similar to the Court’s approach in determining whether state law is
preempted by federal common law16 – even there, where the conflict
between federal policy and state law need not be as sharp as for
preemption when Congress legislates in a field that the states have
traditionally occupied, the Court has insisted on a significant
conflict with an “identifiable federal policy or interest.”17 And
significantly for our case, this return has included the
observation that a broader reading of “relates to” would sweep away
common state action with indirect economic effects on the costs of
health care plans, such as quality standards which may vary from
state to state.
IV
This brings us to the merits of the claim that Senate Bill 386
is preempted. We turn first to its liability provisions. In
Section 88.002, the bill provides:
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.18
15
See also Boggs v. Boggs, 117 S. Ct. 1754 (1997) (analyzing
whether state community property law frustrates federal interests
in determining ERISA preemption).
16
Boyle v. United Tech Corp., 487 U.S. 500 (1988).
17
Boyle, 487 U.S. at 507.
18
TEX. CIV. PRAC. & REM. CODE ANN. § 88.002(a) (1999).
8
The statute gives “health care treatment decision” a defined
meaning:
[A] determination made when medical services are actually
provided by the health care plan and a decision which
affects the quality of the diagnosis, care, or treatment
provided to the plan’s insureds or enrollees.19
The Act also defines the agents for whose health care decisions the
entities can be vicariously liable.20 Further, the Act includes a
disclaimer: it avoids imposing any obligation on the entity “to
provide to an insured or enrollee treatment which is not covered by
the health care plan of the entity.”21
Aetna argues that the liability provisions “relate to” an
ERISA plan and affect plan administration. Aetna contends that a
claim that medical services were negligently provided will
inevitably question the provider’s determinations of coverage under
an ERISA plan. Texas replies that Senate Bill 356 has avoided the
difficult genre of cases complaining of medical care and service
which were not provided by excluding a duty to provide treatment
not covered by a plan.
We agree with Texas’s interpretation of the Act. When the
liability provisions are read together, they impose liability for
a limited universe of events. The provisions do not encompass
claims based on a managed care entity’s denial of coverage for a
19
§ 88.001(5).
20
§ 88.002(b).
21
§ 88.002(d).
9
medical service recommended by the treating physician: that
dispute is one over coverage, specifically excluded by the Act.
Rather, the Act would allow suit for claims that a treating
physician was negligent in delivering medical services, and it
imposes vicarious liability on managed care entities for that
negligence.
This vicarious liability does not “relate to” the managed care
provider’s role as an ERISA plan administrator or affect the
structure of the plans themselves so as to require preemption.
Courts have observed that HMOs and MCOs typically perform two
independent functions -- health care insurer and medical care
provider.22 A managed care entity can provide administrative
support for an insurance plan, which may entail determining
eligibility or coverage. At the same time, a managed care entity
can act as an arranger and provider of medical treatment.
Although state efforts to regulate an entity in its capacity
as plan administrator are preempted,23 managed care providers
operate in a traditional sphere of state regulation when they wear
their hats as medical care providers. ERISA preempts malpractice
suits against doctors making coverage decisions in the
administration of a plan, but it does not insulate physicians from
22
See Dukes v. U.S. Healthcare, Inc., 57 F.3d 350, 360-61 (3d
Cir. 1995); Lancaster v. Kaiser Found. Health Plan of Mid-Atlantic
States, Inc., 958 F. Supp. 1137, 1139 n.2 (E.D. Va. 1997).
23
Fort Halifax Packing Co., Inc. v. Coyne, 482 U.S. 1, 9
(1987).
10
accountability to their state licensing agency or association
charged to enforce professional standards regarding medical
decisions.24 Such accountability is necessary to ensure that plans
operate within the broad compass of sound medicine. We are not
persuaded that Congress intended for ERISA to supplant this state
regulation of the quality of medical practice.25 While it may
impose some indirect costs on ERISA plans, the Court has considered
such effects too tenuous to require preemption.
We also are not persuaded that the liability provisions are
preempted as “referring to” ERISA plans. Under this strain of
preemption analysis, we examine whether the law acts immediately
and exclusively upon ERISA plans or whether the existence of an
ERISA plan is essential to the law’s operation.26 A law does not
24
This distinction is consistent with Corcoran’s holding that
medical decisions involving coverage determinations are preempted.
25
The Second, Third, and Seventh Circuits have held that
medical negligence claims against HMOs for vicarious and direct
liability are not within the scope of § 502(a) and, therefore, are
not completely preempted because they involve conduct by the HMO in
its capacity as a provider and arranger of health services and not
as plan administrator. See Rice v. Panchal, 65 F.3d 637, 646 (7th
Cir. 1995) (vicarious claims); Dukes, 57 F.3d at 356 (vicarious and
direct claims); Lupo v. Human Affairs Int’l, Inc., 28 F.3d 269, 272
(2d Cir. 1994) (direct claims). District courts have also allowed
suit for vicarious liability. See Ray v. Value Behavioral Health,
Inc., 967 F. Supp. 417, 423-24 (D. Nev. 1997); Yanez v. Humana
Medical Plan, Inc., 969 F. Supp. 1314, 1316 (S.D. Fla. 1997);
Schachter v. Pacificare of Okla., Inc., 923 F. Supp. 1448, 1451
(N.D. Okla. 1995); Chaghervand v. CareFirst, 909 F. Supp. 304, 311
(D. Md. 1995); Smith v. HMO Great Lakes, 852 F. Supp. 669, 671-72
(N.D. Ill. 1994).
26
See Dillingham, 117 S. Ct. at 837-38.
11
“refer to” ERISA plans if it applies neutrally to ERISA plans and
other types of plans.27 Aetna asserts that the definitions of
“health care treatment decision” and “health care plan” refer to
ERISA plans because they make reference to “plans.”28 We disagree.
The provisions are indifferent to whether the health care plan
operates under ERISA and do not rely on the existence of ERISA
plans for their operation.29
We see nothing to take the liability provisions from the
regulatory reach of states exercising their traditional police
powers in regulating the quality of health care. A suit for
medical malpractice against a doctor is not preempted by ERISA
simply because those services were arranged by an HMO and paid for
by an ERISA plan. Likewise, the vicarious liability of the
entities for whom the doctor acted as an agent is rooted in general
principles of state agency law. Seen in this light, the Act simply
27
Id. at 839; see also District of Columbia v. Greater Wash.
Bd. of Trade, 506 U.S. 125, 127 (1992) (holding law referred to
ERISA plans because it targeted employers to provide certain health
insurance coverage to their employees, an obligation under law by
reference to ERISA). Our decision in CIGNA is distinguishable:
there, the statute contained an explicit reference to employers.
CIGNA, 82 F.3d at 648.
28
See § 88.001(2) and (5).
29
We also decline to hold the entire Act preempted on the basis
that some of its independent review provisions are codified in a
statute that includes an explicit exclusion of ERISA plans. Even
if such mention required preemption of the exclusionary provision
itself (a provision not challenged in this suit), or of other
statutory provisions which it affected, it could have no preemptive
effect on the Act’s provisions codified elsewhere in the Texas
Code.
12
codifies Texas’s already-existing standards regarding medical care.
These standards of care are at the heart of Texas’s regulatory
power.
V
We turn to the anti-retaliation and anti-indemnification
provisions under sections 88.002(f) and (g) of the Act. The anti-
retaliation provision forbids a managed care entity from dropping
or refusing to renew a doctor or health care provider for
advocating medically necessary treatment.30 The anti-
indemnification provision prohibits a managed care entity from
including an indemnification clause in its contracts with doctors
and other health care providers that would hold it harmless for its
own acts.31 Aetna contends that these provisions improperly mandate
the structure and administration of ERISA plan benefits because
ERISA plans are forced to contract with doctors only on those
terms.
We are not persuaded that these provisions mandate the
structure and administration of plans. Our analysis again stems
from our recognition that HMOs and MCOs perform functions both as
health care insurers and as medical care providers. The anti-
indemnity and anti-retaliation rules govern the managed care
entities as health care providers by regulating the terms on which
30
See TEX. CIV. PRAC. & REM. CODE § 88.002(f).
31
See § 88.002(g).
13
the provider contracts with its agents. The rules do not compel
the entities to provide any substantive level of coverage as health
care insurers.
Our past cases addressing “any willing provider” statutes are
consistent with this analysis. In those cases, the state statutes
at issue required managed care entities to contract with any
pharmacy willing to do business on the entity’s terms.32 Because
those state laws essentially mandated that plan beneficiaries could
choose from a larger pool of providers, they affected substantive
plan benefits in a way that the provisions at issue here do not.33
The anti-retaliation and anti-indemnity provisions complement
the Act’s liability provisions by realigning the interests of
managed care entities and their doctors. The liability and
indemnity provisions force the managed care entity to share in its
doctors’ risk of tort liability; the anti-retaliation provision
avoids the situation in which the doctor must choose between
satisfying his professional responsibilities and facing retaliatory
action by the managed care entity. Together, the provisions thus
better preserve the physician’s independent judgment in the face of
the managed care entity’s incentives for cost containment. Such a
32
See Texas Pharmacy Ass’n v. Prudential Ins. Co., 105 F.3d
1035, 1036 (5th Cir. 1997); CIGNA, 82 F.3d at 645.
33
In addition, those cases were decided before Dillingham and
DeBuono. The Texas Pharmacy court noted that its holding was only
valid pending further guidance from the Supreme Court. See Texas
Pharmacy, 105 F.3d at 1039-40.
14
scheme is again the kind of quality of care regulation that has
been left to the states.34
VI
We come to the statute’s provisions for independent review of
determinations by managed care entities. The authorization for
such review is codified at several locations in the Texas Code.
The first set of provisions, codified in section 88, allows
suit against an entity only after the patient has followed an
independent review procedure.35 The provision describes the
patient’s complaint as “the claim,” which refers back to the basis
of the cause of action.36 This language allows independent review
only of claims for which patients may bring suit under the
liability provisions. As such, the review provisions are not
preempted. Any duty imposed on managed care entities by the
independent review provisions extends no further than that imposed
by the liability provisions. Moreover, because the 1999 amendments
to the section make such review voluntary on the entity’s part,37
34
The Supreme Court’s most recent discussion of ERISA confirms
this analysis. In Pegram v. Herdrich, the Court held that ERISA
confers no cause of action against HMOs for providing incentives to
their doctors for limiting the costs of testing and treatment.
Part of the Court’s reasoning was that states are currently allowed
to impose malpractice liability on HMOs for such action. 530 U.S.
____, [24] (June 12, 2000).
35
See TEX. CIV. PRAC. & REM. CODE § 88.003.
36
See id.
37
See § 88.003(a) and (c).
15
the entity cannot complain that the provision is at odds with its
duties under ERISA.
Another set of provisions, codified at various sections of the
Insurance Code,38 does not appear to so limit independent review.
The Act adds procedures through which patients may appeal “adverse
determinations” --
[A] determination by [an HMO] or utilization review agent
that the health care services furnished or proposed to be
furnished to an enrollee are not medically necessary or
are not appropriate.39
The Act further requires that a utilization review agent “comply”
with the independent review organization’s determination of medical
necessity.40
It is apparent that “adverse determinations” include
determinations by managed care entities as to coverage, not just
negligent decisions by a physician. The provisions allow a patient
who has been denied coverage to appeal to an outside organization.41
38
See TEX. INS. CODE art. 20A.09(e) (codified in 1997 at
20A.09(a)(3)) and 20A.12A (amendments to the Texas Health
Maintenance Organization Act); 21.58A §6(b) and (c) and §6A
(amendments to the Utilization Review Agent Act).
39
Art. 20A.12A(a)(1) (codified in 1997 in slightly amended form
at 20A.12(c)(1)).
40
Art. 21.58A §6A(3). The provision refers specifically to
“utilization review agents” for insurers and administrators. HMOs
are directed to follow the rules applicable to utilization review
agents. See art. 20A.12A(b).
41
Texas notes that the provisions of the Act codified in the
state’s utilization review agent (“URA”) statute, Tex. Ins. Code
art. 21.58A, may not even apply to ERISA plans. The URA statute
includes an exclusion for ERISA plans – “This article shall not
16
Such an attempt to impose a state administrative regime governing
coverage determinations is squarely within the ambit of ERISA’s
preemptive reach.42
VII
Texas and the federal government urge that the preempted
independent review provisions are saved under ERISA’s saving clause
for laws regulating insurance.43 The Supreme Court has interpreted
the clause as designed to preserve Congress’s reservation of the
business of insurance to the states under the McCarran-Ferguson
Act.44 In determining whether the clause applies, the Supreme Court
considers whether the rule regulates insurance as a commonsense
matter, looking as well to the three McCarran-Ferguson factors as
“guideposts:” (1) whether the practice has the effect of
transferring or spreading the policyholder’s risk; (2) whether it
is an integral part of the policy relationship between the insured
apply to the terms or benefits of employee welfare benefit plans as
defined in . . . [ERISA].” § 14(e). Texas states that its
Insurance Commissioner generally treats such provisions as
excluding self-funded ERISA plans, not insured ERISA plans. To the
extent the provisions regulate insurers for ERISA plans, they still
“relate to” ERISA plans and are preempted.
42
This preemption does not reach three provisions of the Act
codified in the Insurance Code which do not create a right to
independent review: TEX. INS. CODE art. 21.58C (setting forth
general standards and rules for independent review organizations);
21.58A §8(f) (confidentiality provision); and 20A.12(a) and (b)
(making minor changes to preexisting provision).
43
29 U.S.C. § 1144(b)(2)(A) (1999).
44
See Metropolitan Life Ins. v. Massachusetts, 471 U.S. 724,
744 n.21 (1985).
17
and the insurer; and (3) whether the practice is limited to
entities in the insurance industry.45 The law need not satisfy each
of these tests.46
The common sense test measures whether the law is specifically
directed toward the insurance industry.47 A law is so aimed when
the state has developed a specific scheme governing insurance, as
opposed to a flexible rule used in many legal contexts.48 Here, the
independent review provisions create a regulatory scheme governing
health benefit determinations. They do not rely on general legal
rights used in other areas of law.
That the provisions apply to managed care entities as well as
to traditional insurers does not exclude them from the saving
clause. In determining whether a statute regulates the insurance
industry, courts have examined whether a statute governs only
entities acting as insurers. A statute may regulate insurance if
it applies to insurers, health care service contractors, and HMOs.49
If the law sweeps more broadly, however, covering employers and
45
See UNUM Life Ins. Co. v. Ward, 119 S. Ct. 1380, 1386 (1999).
46
See Ward, 119 S. Ct. at 1389.
47
See id. at 1387-88.
48
See id. (law met the common sense test because the state had
developed a specific scheme governing the rights of an insured);
Pilot Life Ins. Co. v. Dedeaux, 481 U.S. 41, 51 (1987) (the state’s
common law of bad faith, developed from tort and contract law
generally, was not an integral part of the policy relationship).
49
See Washington Physicians Serv. Ass’n v. Gregoire, 147 F.3d
1039, 1045 (9th Cir. 1998).
18
others not engaged in insurance practices, it cannot be said to be
regulating insurance.50 Our own cases are consistent with this
distinction.51 Here, the preempted provisions apply to HMOs52 and
to utilization review agents for insurers, administrators, and non-
ERISA health benefit plans.53 In making benefit determinations,
these entities are functioning as insurers.
The common sense test also considers whether the law plays an
integral part in the policy relationship between the insured and
the insurer. Laws that create a mandatory contract term between
the parties, including procedural requirements, go to the core
insured-insurer relationship.54 Here, the independent review
provisions create a procedural right of the insured against the
entity. As the independent review provisions are aimed at insuring
entities and regulate the insured-insurer relationship, they meet
the common sense test of the saving clause.
For the same reasons, the provisions satisfy the second and
third prongs of the McCarran-Ferguson test: they are integral to
50
See Prudential Ins. Co. of America v. National Park Med.
Ctr., Inc., 154 F.3d 812, 825 (8th Cir. 1998) (distinguishing
Gregoire based on scope of statute).
51
See Texas Pharmacy, 105 F.3d at 1039 (not insurance
regulation where law applied to employers and pharmacy groups as
well as HMOs); CIGNA, 82 F.3d at 650 (not regulation where rule
applied to self-funded organizations and employers).
52
See TEX. INS. CODE art. 20A.12A.
53
See 21.58A § 2(21); § 14(e) (excluding ERISA plans).
54
See Ward, 119 S. Ct. at 1390 & n.5.
19
the policy relationship and regulate the insurance industry. While
the provisions probably do not meet the first factor of
reallocating the risk between the insured and insurer, that failure
is not fatal to Texas’s saving clause claim.
Our analysis does not end here, however, because even if the
provisions would otherwise be saved, they may nonetheless be
preempted if they conflict with a substantive provision of ERISA.55
In Pilot Life v. Dedeaux, the Supreme Court held that “our
understanding of the saving clause must be informed by the
legislative intent concerning [ERISA’s] civil enforcement
provisions.”56 The Court interpreted Congress’s intent regarding
the exclusivity of ERISA’s enforcement scheme very broadly,
concluding that the scheme preempts not only directly conflicting
remedial schemes, but also supplemental state law remedies.57 Thus,
the saving clause does not operate if the state law at issue
creates an alternative remedy for obtaining benefits under an ERISA
plan.58
Here, the independent review provisions do not create a cause
55
See id. at 1390.
56
Pilot Life, 481 U.S. at 52. ERISA’s enforcement provisions
are set out at 29 U.S.C. § 1132.
57
Id. at 56.
58
See Kanne v. Connecticut Gen. Life Ins. Co., 867 F.2d 489,
493-94 (9th Cir. 1988); In re Life Ins. of North America, 857 F.2d
1190, 1194-95 (8th Cir. 1988). But see Franklin H. Williams Ins.
Trust v. Travelers Ins. Co., 50 F.3d 144, 151 (2d Cir. 1995).
20
of action for the denial of benefits. They do, however, establish
a quasi-administrative procedure for the review of such denial and
bind the ERISA plan to the decision of the independent review
organization. This scheme creates an alternative mechanism through
which plan members may seek benefits due them under the terms of
the plan – the identical relief offered under § 1132(a)(1)(B) of
ERISA. As such, the independent review provisions conflict with
ERISA’s exclusive remedy and cannot be saved by the saving clause.59
VIII
Aetna argues that all of the provisions at issue are preempted
by the terms of plans operating under FEHBA, the statute governing
federal employee health insurance. The preemption language of that
statute reads:
The terms of any contract under this chapter . . . which
relate to the nature, provision, or extent of coverage or
benefits (including payment with respect to benefits)
shall supersede and preempt any State or local law, or
any regulation issued thereunder, which relates to health
insurance or plans.60
The statute was amended in 1998 to add a “relate to” clause like
that in ERISA.
The provisions of the Texas Act that we have held do not
59
In Ward, the Supreme Court noted the federal government’s
change in position since Pilot Life on the issue of whether a
provision in conflict with ERISA’s enforcement provision is
nevertheless saved by the saving clause. Because the issue was not
necessary to the resolution of the case, however, the Court
declined to revisit it. See Ward, 119 S. Ct. at 1390 n.7.
60
5 U.S.C. § 8902(m)(1) (1999).
21
“relate to” ERISA plans similarly would not “relate to” any FEHBA
plans because they do not concern coverage or benefits.61 As we
have construed those provisions, they address only managed care
entities’ duties as health care providers, not as insurers. While
Congress has an identifiable federal interest in providing uniform
benefits to government employees,62 there is no significant conflict
here between that interest and Texas’s regulation of quality of
medical care. And we decline to require FEHBA preemption simply
because state regulation might indirectly increase the costs of
managed care.
As to the independent review provisions which would be ERISA-
preempted, we find that FEHBA plans would preempt such review under
general conflict principles. The independent review provisions
specifically conflict with the administrative remedy provided by
the Office of Personnel Management concerning benefits disputes.63
IX
As we have found some of the Act’s provisions preempted, we
must consider whether they are severable from the remainder of the
statute. Severability turns on the intent of the state
61
See also Negron v. Patel, 6 F. Supp.2d 366, 371 (E.D. Pa.
1998) (vicarious liability claim not preempted by FEHBA).
62
See Caudill v. Blue Cross & Blue Shield of N.C., 999 F.2d 74,
78 (4th Cir. 1993).
63
5 U.S.C. § 8902(j); 5 C.F.R. § 890.105 - 890.107; see also
Bryan v. Office of Personnel Management, 165 F.3d 1315, 1318 (10th
Cir. 1999) (FEHBA creates only one remedy for the administrative
review of benefit denials).
22
legislature; we examine whether the provisions are so independent
that the legislature would have passed the remaining statute
without the disallowed provisions.64
After the district court’s determination holding the IRO
provisions preempted, the Texas Legislature passed a bill making
those procedures optional as to the liability provisions.65
Although that amendment does not apply to the independent review
provisions we have held preempted, we find it instructive as to the
legislature’s intent regarding independent review generally. As
the district court noted, it appears that the legislature was
concerned both with the quality of care and with denials of care.
While the review provisions regarding the denial of care are
preempted under ERISA and FEHBA, we find that the legislature would
nonetheless wish to give effect to those provisions targeting the
quality of care.
We sever articles 20A.12A, 21.58A § 6(c), and 21.58A §6 A, as
well as those portions of 20A.09(e) and 21.58A § 6(b) amended by
the Act, from the remainder of the Act and hold them preempted. We
conclude that the liability provisions of the Texas statute, and
the independent review provisions insofar as they are merely a
prerequisite to the filing of suit, are preempted neither under
ERISA nor FEHBA because they allow suit only for health services
64
See Association of Tex. Educators v. Kirby, 788 S.W.2d 827,
830 (Tex. 1990).
65
See Tex. S.B. 1884, 76th Leg., R.S. (1999), Bill Analysis.
23
actually delivered, not for coverage disputes. We also find that
the anti-indemnity and anti-retaliation provisions are not
preempted: they too address traditional state concerns regarding
the quality of health care.
AFFIRMED IN PART; REVERSED IN PART.
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