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,
v.
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.
Appeals from the United States District Court
For the Southern District of Texas
July 27, 2000
ON PETITION FOR REHEARING
(Opinion June 20, 2000, 5th Cir., 2000 ____F.3d____)
Before HIGGINBOTHAM and PARKER, Circuit Judges.*
PATRICK E. HIGGINBOTHAM, Circuit Judge:
The State of Texas petitions for panel rehearing, urging
reconsideration of that portion of our opinion in which we
concluded that the Independent Review Organization (IRO) provisions
appearing in the Texas Insurance Code were preempted. Texas
contends that the panel factually misunderstood the IRO provisions
*
This matter is being decided by a quorum, 28 U.S.C. 46(d).
and that the recent Supreme Court decision in Pegram v. Herdrich1
cast doubt on both the panel opinion in this case and this court’s
prior decision in Corcoran v. United HealthCare, Inc.2
In Pegram, the Court held that mixed eligibility and treatment
decisions that were made by an HMO acting through its physicians
were not fiduciary acts under ERISA, and therefore no federal claim
under ERISA for breach of fiduciary duty based on such decisions
was stated.3 Texas points to the Court’s observation that such a
claim would duplicate state malpractice liability.4
The Court’s holding in Pegram comports with our holding that
certain liability provisions were not preempted, specifically
direct liability for physicians’ malpractice when making “health
care treatment decisions” and the ensuing vicarious liability for
the HMOs.5 However, we do not read Pegram to entail that every
1
120 S. Ct. 2143 (2000).
2
965 F.2d 1321 (5th Cir. 1992).
3
120 S. Ct. at 2158.
4
See id. at 2157-58.
5
Corporate Health v. Texas Dep’t of Ins., No. 98-20940, 2000
WL 792345, at *4, *5 (5th Cir. June 20, 2000); see also id. at *5
n.34. But see Jass v. Prudential Health Care Plan, Inc., 88 F.3d
1482 (7th Cir. 1996). In Jass, the Seventh Circuit held that
vicarious liability claims against an HMO based on the malpractice
of a treating physician were preempted because the necessary agency
determination would require an analysis of the underlying health
care benefit plan and thus would “relate to” the benefit plan. Id.
at 1493.
The alleged negligence at issue in Jass, however, was not the
treating physician’s negligent provision of services but rather the
physician’s failure to provide care once coverage had been denied.
While that distinction was not the only basis for the court’s
holding, it was found to be significant. See id. In our panel
opinion, we expressly distinguished that situation and held only
2
conceivable state law claim survives preemption so long as it is
based on a mixed question of eligibility and treatment,6 and
Corcoran held otherwise.7
In our panel opinion, we concluded that the IRO provisions
allowed review of “adverse determinations” which included
“determinations by managed care entities as to coverage, not just
negligent decisions by a physician.”8 We held, however, that the
IRO provisions “create[d] 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 savings clause.”9
Texas insists that the IRO provisions do not create an
alternative mechanism for seeking benefits and do not improperly
review coverage decisions. According to Texas, the IRO merely
implements “a procedural right to obtain medical care . . . by
imposing a mandatory insurance contract term that goes to the heart
that direct and vicarious liability claims were not preempted when
based on the actual negligent provision of medical services. See
Corporate Health, 2000 WL 792345, at *4-5.
6
It may be that state causes of action persist only for
actions based in some part on malpractice committed by treating
physicians. If so, state causes of actions against HMOs for the
decisions of their utilization review agents would still be
preempted, as Corcoran held. Because Pegram did not exhaustively
discuss the specific kinds of state causes of action that it
implied were not preempted, we make no additional inferences.
7
See 965 F.2d at 1332-33, 1326.
8
See Corporate Health, 2000 WL 792345, at *6.
9
Id. at *7.
3
of the insured-insurer relationship.”10 The distinction is a fine
one: the IRO provisions reflect Texas’s effort to mandate and
regulate the quality of medical care for a covered condition, but
do not detail or provide a mechanism for determining or receiving
benefits.
Under this view, the IRO provisions are alleged to be akin to
the state law at issue in Metropolitan Life Ins. Co. v.
Massachusetts,11 which required certain insurers to provide a set
level of mental health care as part of their plan policies.12
Unlike the mandatory benefit provisions in Metropolitan Life, the
IRO provisions allegedly regulate the minimal level of care not
through a previously defined set of rules but through an
interactive procedure involving independent review of proposed
courses of treatment.
A determination by an IRO that a particular treatment is
“medically necessary” for a diagnosed condition, however, entails
that the treatment must be provided by the HMO – so long as the
underlying condition is a covered condition under the plan –
because that level of care has become, in some sense
retrospectively, a mandatory term of the health plan. This is so
10
Petition for Panel Rehearing, at 13-14 (internal quotation
marks omitted).
11
471 U.S. 724 (1985).
12
See id. at 731, 758 (holding that a state law mandating the
provision of a particular level of mental health care – viz., “60
days of coverage for confinement in a mental hospital, coverage for
confinement in a general hospital equal to that provided by the
policy for nonmental illness, and certain minimum outpatient
benefits” – was saved from preemption).
4
because Texas requires HMOs through their utilization review agents
to “comply” with the results of the IRO review.13 According to
Texas, however, IRO determinations result in a practical
determination of coverage only because the HMO elected to define
obligations under its plan in terms of “medical necessity,” a
standard uniquely within the province of Texas to regulate.
This ambitious spin on the IRO provisions is accented in
Texas’s petition for panel rehearing. While it is not without some
persuasive force, it does not comport with our view of the record,
which reflects that the IRO process binds HMOs to pay for treatment
the IRO mandates and in so doing substitutes the medical judgment
of a third party physician for the HMO’s, or treating physician’s,
judgment as to medical necessity.
Our panel opinion does not hold or suggest that when
implementing its police power, Texas cannot deploy an independent
review mechanism to regulate the minimal quality level of medical
care provided for covered conditions. Indeed, we explicitly
approved an exhaustion requirement prerequisite to the filing of
malpractice suits. At the same time, the law is clear that Texas
cannot provide a supplementary claims process by binding the HMO to
pay for a treatment that is simply a second opinion on medical
necessity about which reasonable doctors might reach differing
conclusions.
13
See Corporate Health, 2000 WL 792345, at *6 & n.40 (citing
TEX. INS. CODE art. 21.58A § 6A(3)).
5
We acknowledge that there is a powerful argument in support of
an IRO procedure in which the only inquiry is whether a proposed
treatment meets the standard of care demanded by Texas of
physicians – i.e., whether any reasonably prudent physician in the
relevant community could have made the medical decision or
prescribed the course of treatment. The argument is that Texas can
demand this level of care as a mandated term of insurance for
covered conditions regardless of whether an HMO chooses to define
the scope of its coverage in terms of its own definition of medical
necessity.14
Under this view, what Texas can regulate through malpractice
suits, Texas could also administratively regulate as a mandated
term of insurance. The independent review would not be a second
opinion about which reasonable physicians might disagree. Rather
the inquiry would be confined to whether providing the medical
services found to be necessary would constitute medical
malpractice. The ultimate contention is that Congress never
intended to preempt a state’s power to regulate the quality of
medicine; that so confined the IRO is the natural companion of the
provision authorizing suits for medical malpractice by treating
physicians and brings symmetry to the structure.
Because the IRO provisions here are plainly a state regime for
reviewing benefit decisions and not a system for implementing a
14
Cf. UNUM Life Ins. Co. of Am. v. Ward, 119 S. Ct. 1380, 1390
(1999) (declining to find that an insurer can “displace any state
regulation simply by inserting a contrary term in plan documents”).
6
mandated term of insurance regulating a minimal standard of care,
we have no occasion to decide whether that form of regulation could
be saved, and, if so, implemented by regulations limiting the
standard of review to the question of whether it will be medical
malpractice to deliver the services determined to be necessary in
the decision being reviewed. We remain persuaded that the original
panel decision is sound and panel rehearing is DENIED.
The Petition for Rehearing is DENIED and no member of this
panel nor judge in regular active service on the court having
requested that the court be polled on Rehearing En Banc (FED. R.
APP. P. and 5TH CIR. R. 35), the Petition for Rehearing En Banc is
also DENIED.
MOTION FOR PANEL REHEARING and PETITION FOR REHEARING EN BANC
DENIED.
7