Amicus Curiae Brief — New York State Conference of Blue Cross & Blue Shield Plans v. Travelers Ins. Co.

wy 19: 15

Nos. 93-1408, 93-1414 and 93-1415

In the Supreme Court of thd i

OCTOBER TERM, 1994

BLUE SHIELD PLANS, e#-al.,

v. { Petitioners,

TRAVELERS INSURANCE Co., et ai.,

Respondents.

Mario M. Cuomo, et al.,

v. Petitioners,

TRAVELERS INSURANCE Co., et al.,

Respondents.

HOSPITAL ASSOCIATION OF NEW YORK,

y Petitioner,

TRAVELERS INSURANCE Co., et al.,

Respondents.

On Writ of Certiorari to the United States Court of Appeals

for the Second Circuit

BRIEF OF THE NATIONAL GOVERNORS’

ASSOCIATION, COUNCIL OF STATE GOVERNMENTS,

NATIONAL CONFERENCE OF STATE LEGISLATURES,

NATIONAL ASSOCIATION OF COUNTIES,

INTERNATIONAL CITY/COUNTY MANAGEMENT

ASSOCIATION, NATIONAL LEAGUE OF CITIES,

AND U.S. CONFERENCE OF MAYORS,

JOINED BY THE NATIONAL ASSOCIATION

OF INSURANCE COMMISSIONERS,

AS AMICI CURIAE IN SUPPORT OF PETITIONERS

D. BRUCE LA PIERRE RICHARD RUDA *

WASHINGTON UNIVERSITY Chief Counsel

SCHOOL OF LAW LEE FENNELL

One Brookings Drive STATE AND LOCAL LEGAL CENTER

St. Louis, MO 63130 444 North Capitol Street, N.W.

(314) 9385-6477 Suite 345

Washington, D.C. 20001

(202) 434-4850

* Counsel of Record

WILSON - Eres PrinTiIneG Co.. Inc. - 789-0096 - WASHINGTON, D.C. 20001

QUESTION PRESENTED

In three related statutes, New York State law imposes

different surcharges on the rates hospitals charge, depend-

ing on whether the charges are paid by commercial in-

surers, health maintenance organizations, self-insured funds,

or other specified payors. The question presented is

whether the surcharges, which apply to hospital care re-

gardiess of whether it is provided pursuant to an Em-

ployee Retirement Income Security Act (ERISA) pian,

are preempted by ERISA insofar as the hospital charges

are covered by an ERISA plan.

(i)

TABLE OF CONTENTS

Page

QUESTION PRESENTED 2.0..0..0..0....:c-cccccescoceesecseeceseeeees i

TABLE OF AUTHORITIES ....................--c0c-ccccseeceorsesseee v

INTEREST OF THE AMICI CURIAE .............. ecmihinds 2

SUMMARY OF ARGUMENT 200000.02...0....:.cccccccsecseeeseeseee- 8

PE SES: er a —_ 4

I. THE COURT OF APPEALS’ CONSTRUC-

TION OF SECTION 514(a) IS INCONSIST-

ENT WITH THE PRESUMPTION AGAINST

PREEMPTION OF TRADITIONAL STATE

Be ncidntintisiechinndentnenesitainanageeccsscesseee 4

A. The Presumption Against Superseding State

Police Power Regulations Applies To The In-

terpretation Of Express Preemption Provi-

sions Like Section 514(a) ~-......................... 4

B. Although The Language Of An Express Pre-

emption Provision Is The Best Evidence of

Congress’ Intent, The Presumption Against

Superseding State Law Determines The

Outer Limits Of Preemption .......................... 7

C. Congress Did Not Have A Clear And Mani-

fest Purpose To Supersede The States’ Tra-

ditional Power To Regulate Health Care

TEE RE RE SIS TS ET 10

D. Construed In Light Of The Presumption

Against Preemption, New York’s Generally

Applicable Hospital Rate Regulations Do

Not “Relate To” Employee Benefit Plans

Within Section 514(a) And Are Not Pre-

empted ........... 6 8 ARE Ch Sn i SR 12

iv

TABLE OF CONTENTS—Continued

Page

Il. THE COURT OF APPEALS’ STANDARD

IMPAIRS THE STATES’ ABILITY TO

DEVISE SOLUTIONS TO SIGNIFICANT

HEALTH CARE ISSUES AND CREATES A

REGULATORY VOID ................. sciiainiatteadl ees 14

A. The Court Of Appeals’ Standard Preempts

Traditional State Regulation Of Health Care 16

1. State Power To Regulate Rates Charged

By Hospitals And Other Health Care

0 ee 18

2. State Power To Tax Health Care Pro-

ERS CSL Ge RR es ee ee 20

8. State Power To Set Health Care Stand-

EE ee! DS NEL ST 21

B. Preemption Of Traditional Police Power

Regulations Will Leave Important Health

Care Matters Ungovernable By The States

And Ungoverned At The National Level........ 22

CONCLUSION ee ee ee. On ee | 25

Vv

TABLE OF AUTHORITIES

Cases Page

Alessi v. Raybestos-Manhattan, Inc., 451 U.S. 504

| EET Ce Ee AA Ce a ee 5, 7

Atascadero State Hosp. v. Scanlon, 4738 U.S. 234

EEE ee Sere a ee eee ee ee 6

Boyle v. Anderson, 849 F. Supp. 1307 (D. Minn.

EE SEL ee ae eee ee” A 19, 21, 22

Buildings & Trades Council v. Associated Builders,

OE Fe ae 5

Cipollone v. Liggett Group, Inc., 112 8. Ct. 2608

EE Ss ee ae eee ea eee passim

CSX Transportation, Inc. v. Easterwood, 118 8. Ct.

EE EE, ES OPCS en ee a ee passim

District of Columbia v. Greater Washington Bd. of

Trade, 118 S. Ct. 580 (1992) —.............................. 5, 8

FMC Corp. v. Holliday, 498 U.S. 52 (1990) —........... 4,5,7

Fort Halifaz ens Co., Inc. v. Coyne, 482 U.S. 1

(1987)... 5

Franchise Tax Ba. ' v. . Construction Laborers’ Vaca-

tion Trust, 468 U.S. 1 (1988) ............--..-------..----- 5

Hawaiian Airlines v. Norris, 114 8S. Ct. 22389

(1994) ... ' 5

Hewlett Packard Co. 1 v. . Barnes, 425 F. Supp. 1294

(N.D.Cal. 1977), aff'd, 571 F.2d 502 (9th Cir.),

cert. denied, 489 U.S. 881 (1978) —....................... 10, 11

Hillsborough County v. Automated Medical Lab.,

Inc., 471 U.S. 707 (1985) . 11

In re Estate of Medcare HMO, 998 F.2d 436 (7th

NR RE FS a a ee 12, 18

Ingersoll-Rand Co. v. McClendon, 498 U.S. 133

EE es SET ee 5, 7, 8, 24

John Hancock Mut. Life Ins. Co. v. Harrie Trust

& Sav. Bank, 114 8. Ct. 517 (1998) 5

Mackey v. Lanier Collection Agency and Serv.,

Inc., 486 U.S. 825 (1988) —...............---....--- 5, 8, 24

Malone v. White Motor Corp., 485 US. 497

BE Sy a Oe Y anne 6

Metropolitan Life Ins. Co. v. Massachusetts, 471

§ fl ewe passim

vi

TABLE OF AUTHORITIES—Continued

Page

Morales v. Trans World Airlines, Inc., 112 8S. Ct.

Rt ree! ET ee ~

New England Health Care Employees’ Union, Dis-

trict 1199 v. Mount Sinai Hosp., 846 F. Supp.

190 (D. Conn. 1994), app. pending, Nos. 94-

- § gg Lk REEL SE Sees 4, 20

New State Ice Co. v. Liebmann, 285 U.S. 262

pS eS Sy OP Oa en 2,17

NYSA-ILA Med. & Clinical Serv. Fund v. Azelrod,

27 F.3d 828 (2d Cir. 1994), petition for cert.

filed, 68 U.S.L.W. 833871 (U.S. Oct. 21, 1994)

Fs OR eee eae ee aw 4, 20, 21

Pacific Gas & Electric Co. v. State Energy Re-

sources Conservation & Development Comm'n,

GE as Sa a ircicctitiarhaticieshicitinettactithiness 23

Park ’N Fly, Inc. v. Dollar Park and Fly, Inc., 469

FO 7

Pennhurst State School & Hosp. v. Halderman, 451

i By I edible ahh cctecnlatitiaieaindincliaaiintibiltabiiiaees 6

Pilot Life Ins. Co. v. Dedeauz, 481 U.S. 41 (1987) .. 5, 24

Retail Clerks Int'l Ass’n, Local 1625 v. Schermer-

horn, 875 U.S. 108 (1968) .............-.-..0..0...ccceccoeeeeees 6

Rice v. Santa Fe Elevator Corp., 331 U.S. 218

(1947) ........... Re OT SEE beh SSS eS TS PY OS 6,7

Shaw v. Delta Air Lines, Inc., 468 U.S. 85 (19838) ..passim

Silkwood v. Kerr-McGee Corp., 464 U.S. 288

IE SS ED CE ES 2 23, 24

Standard Oil v. Agsalud, 683 F.2d 760 (9th Cir.

1980), aff'd, 454 U.S. 801 (1981) —......00000...... 11

United Constr. Workers v. Laburnum Constr.

Corp., 347 U.S. 656 (1954) ..........----.--.22.....-cc-0-0--- 23

United States v. Bass, 404 U.S. 386 (1971) -............ 6

United Wire, Metal &2 Mach. Health & Welfare

Fund v. Morristown Memorial Hosp., 995 F.2d

1179 (3d Cir.), cert. denied, 114 S. Ct. 882

GED isccciniactncecosthtintadocenbitivibsbbeactbitbbcthacnabevanditiitheen 18, 14

Will v. Michigan Dept. of State Police, 491 U.S. 58

GUD chitbchiinettscescsecccnsncccnnincosnsictocemaminatatiasittinatistceentn 6

Wisconsin Public Intervenor v. Mortier, 501 U.S.

EE we eee oer aidinalaainn 5-6, 6

vii

TABLE OF AUTHORITIES—Continued

Statutes, Regulations, and Bills Page

Federal Provisions

Consolidated Omnibus Budget Reconciliation Act,

Pub. L. No. 99-272, § 9121, 100 Stat. 82, 164-67

(1986), codified as amended at 42 U.S.C.

§ 1896dd ................ peta Se at Maint. la «ial 17

Medicaid Voluntary Contribution and Provider-

Specific Tax Amendments of 1991, 42 U.S.C.

I a a 20

es tet AE. ediiaioiode 10

EE NO eR 10

29 U.S.C. § 1144 ...................... fees NT) AS eh 4

29 U.S.C. § 1144(a) _.................... a ei et passim

29 U.S.C. § 1144(b) (2) (A)........ sininmeaiaaandiann

29 U.S.C. § 1144(b) (2) (B). ~hcienadiiitematameaie 5, 15

8 5

SE il olen ie 16

H.R. 2870, 108d Cong., Ist Sess. (1993)... 16

H.R. 3618, 108d Cong., Ist Sess. (1993) 16

State Provisions

Cal. Code Regs. tit. 22, § 70401—657 21

Code of Maine Rules 90-460, ch. 372 ....... 18

Me. Rev. Stat. Ann. tit. 22, § 382(16-A) 18

Me. Rev. Stat. Ann. tit. 22,§ 396... é 18

Md. Health-Gen. Code Ann. §§ 19-216—19-219_._. 18

Md. Regs. Code tit. 10, § 10.87.10.08D 18

ile a ee

Minn. Stat. Ann. $§ 62P.01-62P.05 ...... i eS ee 19

New Jersey Department of Health, Licensing

Standards for Hospitals § 8:48G-17 (1993)... 21

N.Y. Comp. Codes R. & Regs. tit. 10, § 86-1.65 18

N.Y. Pub. Health Law § 2807-C (14)... 18

Wash. Rev. Code Ann. § 48.14.0201 . ~ chet E atbvel 21

W. Va. Code §§ 16-29B-19—16-29B-21 a ee 18

W. Va. Code Reg. § 65-5-5.9.7—5.9.9 00. 18

viil

TABLE OF AUTHORITIES—Continued

Miscellaneous

Gerald F. Anderson, All-Payer Rate-Setting: Down

But Not Out, Health Care Financing Review 35

ee a

M. Bobinski, Unhealthy Federalism: Barriers To

Increasing Health Care Access For The Unin-

sured, 24 U.C. Davis L. Rev. 255 (1990) .............

Patricia A. Butler, Roadblock to Reform: ERISA

Implications for State Health Care Initiatives

(National Governors’ Association, 1994) .............

Michael A. Dowell, Indigent Access to the Emer-

gency Room, 18 Clearinghouse Review 483

EIPEIIID ccciatiiacetcesecentetinmaticiadtinndiitiiacctiiiiatiiaialtily sities

D.M. Fox & D.C. Schaffer, Health Policy and

ERISA: Interest Groups and Semipreemption,

14 J. Health Pol., Pol’y & L., 289 (1989) ............

Intergovernmental Health Policy Project, The

George Washington University, Health Care Re-

Page

18

11

15

17

10

form: 50 State Profiles (3d ed. 1994) ....14-15, 21-22, 22

Medicare and Medicaid Guide (CCH) (1998) .......

Minnesota Department of Health, /mplementation

Plan and Recommendations for Integrated Serv-

ice Networks and a Regulated All-Payer Option

CH, FD cticteatinndenetn dictate dtlitiiantaniiinititiaiies

Frank A. Sloan, Rate Regulation for Hospital Cost

Control: Evidence from the Last Decade, 61 Mil-

bank Memorial Fund Quarterly 195 (1983).........

U.S. Bureau of the Census, Statistical Abstract of

The United States (114th ed. 1994) ....................

U.S. General Accounting Office, GAO/HRD-92-70,

Access to Health Care: States Respond to Grow-

i BS eee

U.S. General Accounting Office, GAO/HRD-94-26,

Health Insurance Regulation: Wide Variation In

States’ Authority, Oversight, and Resources

GO a er a ee en

17

In the Supreme Court of the United States

OCTOBER TERM, 1994

No. 93-1408

New York STATE CONFER“NCE OF BLUE Cross &

BLUE SHIELD PLANS, et al.,

” Petitioners,

TRAVELERS INSURANCE Co., et al.,

Respondents.

No. 93-1414

Mario M. Cuomo, et al.,

. Petitioners,

TRAVELERS INSURANCE Co., ef al.,

Respondents.

No. 93-1415

HOSPITAL ASSOCIATION OF New YORK,

7 Petitioner,

TRAVELERS INSURANCE Co., ef ai.,

Respondents.

On Writ of Certiorari to the United States Court of Appeals

for the Second Circuit

= -_ a —— ee a

— _

2

BRIEF OF THE NATIONAL GOVERNORS’

ASSOCIATION, COUNCIL OF STATE GOVERNMENTS,

NATIONAL CONFERENCE OF STATE LEGISLATURES,

NATIONAL ASSOCIATION OF COUNTIES,

INTERNATIONAL CITY/COUNTY MANAGEMENT

ASSOCIATION, NATIONAL LEAGUE OF CITIES,

AND U.S. CONFERENCE OF MAYORS,

JOINED BY THE NATIONAL ASSOCIATION

OF INSURANCE COMMISSIONERS,

AS AMICI CURIAE IN SUPPORT OF PETITIONERS

INTEREST OF THE AMICI CURIAE

Amici, organizations whose members include state,

county, and municipal governments and officials through-

out the United States, have a compelling interest in legal

issues that affect state and local governments. They~ have

a special responsibility to ensure that the States and their

political subdivisions have adequate authority to control

health care costs and to expand access to health insur-

ance. Given the national government’s inability, for

more than twenty years, to adopt comprehensive health

care reforms, it is crucial that amici retain the latitude to

devise solutions for our nation’s health care problems.

New York imposed surcharges on hospital rates to spread

costs and to promote the availability of health care cover-

age. The court of appeals’ determination that these state

rate regulations are preempted will sharply limit the abil-

ity of New York and other States “to try novel social and

economic experiments without risk to the rest of the

country.” New State Ice Co. v. Liebmann, 285 U.S. 262,

311 (1932) (Brandeis, J. dissenting). Amici accordingly

submit this brief to assist the Court in its resolution of

this case.’

1 The parties have consented to the filing of this brief amicus

curiae. Letters indicating their consent have been filed with the

Clerk of the Court.

3

SUMMARY OF ARGUMENT

1. Section 514(a) of ERISA expressly preempts state

laws “relate[d] to any employee benefit plan.” 29 U.S.C.

§ 1144(a). Section 514(a) does not, however, reflect an

unambiguous intent to preempt state regulation of health

care. The statutory language does not on its face estab-

lish the extent to which national power to protect em-

ployee benefit plans displaces the States’ traditional

power to regulate public health. The court of appeals’

determination that state hospital rate regulations are pre-

empted under section 514(a) is inconsistent with the pre-

sumption against preemption of the States’ police powers,

and it extends the preemptive effect of the statute far

beyond the bounds intended by Congress.

The presumption against preemption promotes the im-

portant policy of avoiding unintended intrusions on state

authority by requiring that Congress express a “clear and

manifest purpose” to preempt the States’ police powers.

See CSX Transportation, Inc. v. Easterwood, 113 S. Ct.

1732, 1737 (1993); Cipollone v. Liggett Group, Inc.,

112 S. Ct. 2608, 2617 (1992). This presumption applies

fully to the interpretation of the scope of an express pre-

emption provision like section 514(a). The court of

appeals erred in holding that state hospital rate regula-

tions are preempted under section 514(a). Congress did

not have a “clear and manifest purpose” to supersede the

States’ traditional power .o regulate health care providers.

2. The court of appeals’ holding that New York’s

hospital rate regulations are preempted under section

514(a) because they “substantially” or “significantly” ir-

crease costs of providing health care services for ERISA

plan beneficiaries is an unwarranted limitation of the

States’ traditional power to regulate health care. The

court of appeals’ preemption standard deprives the States

of the power to explore rate regulation as a means of

controlling costs, and it threatens many other important

state health care initiatives. Federal courts, for example,

4

have already invoked the decision of the court of appeals

to preempt state taxes on health care providers. NYSA-

ILA Med. & Clinical Serv. Fund v. Axelrod, 27 F.3d

823, 827 (2d Cir. 1994), petition for cert. filed, 63

U.S.L.W. 3371 (U.S. Oct. 21, 1994) (No. 94-745); New

England Health Care Employees’ Union, District 1199 v.

Mount Sinai Hosp., 846 F. Supp. 190, 196 (D. Conn.

1994), app. pending, Nos. 94-7264, 94-7906 (2d Cir.).

The court of appeals’ unduly broad interpretation of the

preemptive reach of section 514(a) leaves important health

care matters ungovernable by the States and ungoverned

at the national level.

ARGUMENT

I. THE COURT OF APPEALS’ CONSTRUCTION OF

SECTION 514(a) IS INCONSISTENT WITH THE

PRESUMPTION AGAINST PREEMPTION OF TRA-

DITIONAL STATE POLICE POWERS

A. The Presumption Against Superseding State Police

Power Regulations Applies To The Interpretation

Of Express Preemption Provisions Like Section

514(a)

In section 514 of ERISA, 29 U.S.C. § 1144, Con-

gress explicitly allocated regulatory authority over em-

ployee benefit plans between the national government

and the States. However, the relevant provisions of this

section “are not a model of legislative drafting.” FMC

Corp. v. Holliday, 498 U.S. 52, 58 (1990) (quoting

Metropolitan Life Ins. Co. v. Massachusetts, 471 U.S.

724, 739 (1985)). Section 514(a) is an express pre-

emption clause which is “conspicuous for its breadth”

and “establishes as an area of exclusive federal concern

the subject matter of every state law that ‘relate[s] to’

an employee benefit plan governed by ERISA.” FMC

Corp., 498 U.S. at 58 (quoting 29 U.S.C. § 1144(a)).

This express preemption provision is qualified by a “sav-

ings clause” that restores the States’ power to enforce laws

5

that “regulat[e] insurance,” 29 U.S.C. § 1144(b)(2)(A),

except as in turn further qualified by a “deemer clause.”

Under the deemer clause, an employee benefit plan regu-

lated by ERISA is not “deemed” an insurer subject to

state insurance regulation.*? 29 U.S.C. § 1144(b)(2)(B);

FMC Corp., 498 U.S. at 58.

Although this Court has developed a specialized body

of law interpreting and applying section 514,’ nothing

in ERISA alters traditional preemption analysis. John

Hancock Mut. Life Ins. Co. v. Harris Trust & Sav. Bank,

114 S. Ct. 517, 526 (1993). The rules that courts have

developed in interpreting section 514, like other bodies

of specialized preemption case law, must be understood

as elaborations of traditional preemption principles. See

Hawaiian Airlines v. Norris, 114 §. Ct. 2239, 2243,

2247 n.6 (1994); Buildings & Trades Council v. Asso-

ciated Builders, 113 S. Ct. 1190, 1194 (1993) (both

recognizing that particularized labor law preemption doc-

trines must be viewed against background of basic pre-

emption principles).

Congressional intent is, of course, the key to any deter-

mination that state law is supplanted by federal law.

Wisconsin Public Intervenor v. Mortier, 501 U.S. 597,

2In addition to these three »rovisions, other subsections also

allocate authority between the ates and the national government.

See, e.g., 29 U.S.C. § 1144(b) (4) (saving generally applicable state

criminal laws from preemption under subsection (a) ).

3 John Hancock Mut. Life Ins. Co. v. Harris Trust & Sav. Bank,

114 §. Ct. 517 (1998) ; District of Columbia v. Greater Washington

Bd. of Trade, 118 8.Ct. 580 (1992); Ingersoll-Rand Co. v. Me-

Clendon, 498 U.S. 188 (1990); FMC Corp., 498 U.S. 52; Mackey v.

Lanier Collection Agency and Serv., Inc., 486 U.S. 825 (1988) ;

Fort Halifax Packing Co., Inc. v. Coyne, 482 U.S. 1 (1987); Pilot

Life Ins. Co. v. Dedeauz, 481 U.S. 41 (1987); Metropolitan Life,

471 U.S. 724; Shaw v. Delta Air Lines, Inc., 463 U.S. 85 (1983) ;

Franchise Taz Bd. v. Construction Laborers’ Vacation Trust, 463

U.S. 1 (1988); Alessi v. Raybestos-Manhattan, Inc., 451 U.S. 504

(1981).

6

604-05 (1991); see also Malone v. White Motor Corp.,

435 U.S. 497, 504 (1978); Retail Clerks Int'l Ass'n,

Local 1625 v. Schermerhorn, 375 U.S. 96, 103 (1963).

Congress’ intent to supersede state law may be stated

expressly in statutory terms or it may be implicit in the

decision to occupy a particular field of regulation.‘ Wis-

consin Public Intervenor, 501 U.S. at 604-05. Whether

Congress’ intent is explicit or implicit, the Court starts

with a presumption against preemption of the States’ his-

toric police powers. Federal law thus will not supersede

state law unless that result is “‘the clear and manifest

purpose of Congress.’” Id. at 605 (quoting Rice v. Santa

Fe Elevator Corp., 331 U.S. 218, 230 (1947)).

Indeed, in two recent cases, this Court has construed

express preemption provisions narrowly in light of the

presumption against preemption of the States’ police pow-

ers." In Cipollone v. Liggett Group, Inc., Justice Stevens

noted that the “strong presumption” against preemption

of state police powers requires a “narrow” construction of

an express preemption provision. 112 S. Ct. 2608, 2618,

2621 (1992). Subsequently, in CSX Transp., Inc. v.

Easterwood, this Court emphasized that the construction

of express preemption provisions in light of the presump-

* Preemption may also occur in a third way, “to the extent that

state and federal law actually conflict.” Wisconsin Public Inter-

venor *01 U.S. at 605.

5 Narrow construction of an express preemption provision in

light of the presumption against preemption is consistent with the

familiar principle that congressional intrusions on state authority

are construed narrowly. See, ¢.g., Will v. Michigan Dept. of State

Police, 491 U.S. 58, 65 (1989) (clear statement required to subject

States to damages suits in state courts) ; Atascadero State Hosp. v.

Scanlon, 473 U.S. 234, 242 (1985) (Congress must make its intent

to abrogate State’s Eleventh Amendment immunity “unmistakably

clear in the language of the statute”); Pennhurst State School v.

Halderman, 451 U.S. 1, 16 (1981) (condition of federal grant im-

posing costs on States must be stated clearly). Cf. United States v.

Bass, 404 U.S. 336, 349 (1971) (federal criminal statutes construed

narrowly to avoid displacing state power).

7

tion against superseding state law rests on “the interest

of avoiding unintended encroachment on the authority of

the States.” 113 S. Ct. 1732, 1737 (1993). The Court

also restated its exacting standard for preemption: “pre-

emption will not lie unless it is ‘the clear and manifest

purpose of Congress.” Jd. (quoting Rice, 331 US.

at 230).

These basic preemption principles apply with full force

here. Congressional intent is the key to determining

whether a state law is preempted by ERISA. See, e.g.,

Ingersoll-Rand, 498 U.S. at 137-38; FMC Corp., 498

U.S. at 56-57. In interpreting the language of ERISA’s

express preemption provision and the insurance saving

clause, this Court “must presume that Congress did not

intend to preempt areas of traditional state regulation.”

Metropolitan Life, 471 U.S. at 740; see also Alessi, 451

U.S. at 522. Under the standard employed in Cipollone

and CSX Transp., the narrow question in this case is

whether Congress had a “clear and manifest purpose” to

preempt New York’s surcharges on hospital rates.

B. Although The Language Of An Express Preemp-

tion Provision Is The Best Evidence of Congress’

Intent, The Presumption Against Superseding State

Law Determines The Outer Limits Of Preemption

Analysis of the preemptive effect of section 514 “ ‘be-

gin[s] with the language employed by Congress and the

assumption that the ordinary meaning of that language

accurately expresses the legislative purpose.’” Metropoli-

tan Life, 471 U.S. at 740 (quoting Park ’N Fly, Inc. v.

Dollar Park and Fly, Inc., 469 U.S. 189, 194 (1985)).

If “Congress’ command is explicitly stated in the statute’s

language,” preemption of state law is compulsory to the

extent of that statement. Shaw, 463 U.S. at 95 (internal

quotations and citations omitted). When a statute con-

tains an express preemption clause like section 514(a),

“the task of statutory construction must in the first in-

stance focus on the plain wording of the clause, which

necessarily contains the best evidence of Congress’ pre-

emptive intent.” CSX, 113 S. Ct. at 1737; see also Cipol-

lone, 112 S. Ct. at 2618 (preemptive scope governed by

express language).

This Court, focusing on the language of the express

preemption, insurance saving, and deemer clauses of sec-

tion 514, has created a large body of ERISA preemption

case law. In particular, the Court has construed section

514(a) broadly and has held repeatedly that “ERISA

preempts any state law that refers to or has a connection

with covered benefit plans.” Gr. Wash. Bd. of Trade,

113 S. Ct. at 583 (collecting cases). This broad reading

of section 514 effectuates Congress’ purpose of ensuring

a uniform body of benefits law and “minimiz[ing] the

administrative and financial burdens of complying with

conflicting directives .. . .” Ingersoll-Rand, 498 U.S. at

142.

Although the Court has interpreted section 514(a)

broadly, ERISA preemption is not without limits. Certain

generally applicable state laws are not preempted. See,

e.g., Mackey, 486 U.S. at 830-41 (garnishment law); Gr.

Wash. Bd. of Trade, 113 S. Ct. at 583 n.1. Moreover,

as a general matter, the Court has also recognized that

section 514(a) does not preempt state regulations that

have only a “tenuous, remote, or peripheral” effect on

employee benefit plans. Gr. Wash. Bd. of Trade, 113

S. Ct. at 583 n.1; Shaw, 463 U.S. at 100 n.21; see also

Morales v. Trans World Airlines, Inc., 112 §. Ct. 2031,

2040 (1992) (express preemption of state laws “relating

to” subject matter of Airline Deregulation Act does not

extend to laws that uffect the subject of the federal statute

in a tenuous, remote, or peripheral manner). Thus, not-

withstanding the explicit preemptive language of section

514(a), it does not unambiguously require preemption

of all state laws that can in any sense be said to be “re-

late[d] to” an employee benefit plan governed by ERISA.

g

The presumption against preemption does not call into

question either the central importance of the language

of section 514(a) or this Court’s judgments giving it

broad preemptive effect. Nonetheless, because section

514(a) does not unambiguously call for preemption in

all circumstances, the presumption against preemption

plays a significant role in determining the extent to which

State law is preempted.

In Cipollone, seven members of this Court agreed that

an express preemption provision must be construed nar-

rowly in light of the strong presumption against preemp-

tion. See 112 S. Ct. at 2618, 2621. Justice Blackmun,

joined by Justices Kennedy and Souter, wrote separately

to explain why the presumption against preemption ap-

plies fully to the construction of an express preemption

provision. See id. at 2625-32 (Blackmun, J., concurring

in part and dissenting in part). Where Congress has

spoken directly, albeit ambiguously, to the issue of pre-

emption, “the question is not whether Congress intended

to preempt state regulation, but to what extent.” Id.

at 2626 (Blackmun, J., concurring in part and dissent-

ing in part). In determining the extent of preemption,

the presumption against preemption means that in the

absence of unambiguous evidence, the Court will not

“infer a scope of preemption beyond that which clearly

is mandated by Congress’ language.” /d. (footnote

omitted ).

In short, the presumption against preemption of tradi-

tional state police powers guides the Court’s determina-

tion of “borderline” preemption questions where it cannot

be said that the express preemptive language of section

514(a) unambiguously dictates supplanting state law. See

Shaw, 463 U.S. at 100 n.21. It helps determine whether

the outer limits of ERISA preemption have been exceeded.

10

C. Congress Did Not Have A Clear And Manifest

Purpose To Supersede The States’ Traditional

Power To Regulate Health Care Providers

The presumption against preemption of traditional state

police power regulations provides important guidaice in

determining the scope of an express preemption provision

where, as in this case, explicit statutory language simply

does not address the question whether Congress intended

to displace the States’ power to regulate the delivery of

health care. Congress did devote “considerable attention

to the question of preemption,” and Congress did adopt

in section 514 a somewhat opaque set of provisions

explicitly allocating power between the national govern-

ment and the States. Hewlett Packard Co. v. Barnes, 425

F. Supp. 1294, 1298 (N.D. Cal. 1977), aff'd, 571 F.2d

502 (9th Cir.), cert. denied, 439 U.S. 831 (1978). Con-

gress, however, did not establish in the express terms of

section 514(a) the extent to which national power to

protect employee benefit plans displaces state power to

regulate public health. See Hewlett Packard, 425 F. Supp.

at 1298-1300 (analyzing legislative history of section

514(a)).

Congress focused on pension benefit plans in drafting

ERISA and devoted little attention to welfare benefit

plans. See D.M. Fox & D.C. Schaffer, Health Policy and

ERISA: Interest Groups and Semipreemption, 14 J.

Health Politics, Policy and Law, 239, 240-44 (1989).

Nonetheless, section 514(a) is drafted in broad terms

that apply to both employee pension benefit plans and

employee welfare benefit plans. See 29 U.S.C. § 1144(a);

id. § 1002(3). Because employee welfare plans are de-

fined to include health care plans, see 29 U.S.C.

§ 1002(1), the Court has given full effect to the language

of section 514(a) and held that States cannot regulate

directly the terms and conditions of employee health plans

or require employers to offer or pay for health benefits.

Metropolitan Life, 471 U.S. at 739; cf. Shaw, 463 U.S. at

-— |

11

96-100. See also Standard Oil Co. v. Agsalud, 633 F.2d

760, 765-66 (9th Cir. 1980), aff'd, 454 U.S. 801 (1981).

Nothing in the statutory language, however, suggests

any purpose to displace the States’ traditional power to

regulate health care. There is simply no evidence that

Congress, in determining the preemptive effect of ERISA,

considered state health care rate regulation—much less

the effect, if any, of such rate regulation on any type of

employee welfare plans. See Hewlett Packard, 425 F.

Supp. at 1298-1300 (analyzing the legislative history of

section 514(a)). The statute illustrates Congress’ pre-

occupation with pension plan reform and regulation.*

Any inference that Congress intended section 514(a) to

prohibit state health care regulation is far-fetched, espe-

cially because Congress did not consider any substantive

federal regulation of health care plans and did not make

any provision for substantive federal regulation of state

health care providers to be substituted for preempted state

regulation. M. Bobinski, Unhealthy Federalism: Barriers

To Increasing Health Care Access For The Uninsured, 24

U.C. Davis L. Rev. 255, 274-77 (1990); see Fox &

Schaffer, 14 J. Health Politics, Policy & Law at 240.

The New York hospital rate regulations at issue in this

case are designed to control hospital costs and to promote

availability of health care coverage. Pet. App. 7-8. These

regulations are undoubtedly a legitimate exercise of the

State’s power to regulate public health and safety. See

Hillsborough County v. Automated Medical Lab., Inc.,

471 U.S. 707, 715, 719 (1985). There is no evidence

that it was the “clear and manifest purpose” of Congress

to preempt such a traditional exercise of the State’s police

power.

* ERISA imposes both substantive requirements and procedural

standards on pension plans, and although it also establishes some

limited standards for welfare plans, “[j;t does not regulate the

substantive content of welfare-benefit »lans.” Metropolitan Life,

471 U.S. at 732.

12

D. Construed In Light Of The Presumption Against

Preemption, New York’s Generally Applicable Hos-

pital Rate Regulations Do Not “Relate To” Em-

ployee Benefit Plans Within Section 514(a) And

Are Not Preempted

In this case, the court of appeals held that three sur-

charges imposed on hospital rates as part of New York's

comprehensive regulation of in-patient hospital rates are

preempted under section 514(a)." Pet. App. 22-25. The

7 After holding that New York’s 18% and 11% surcharges were

preempted under section 514(a), the court of appeals held that

these two surcharges were not saved from preemption under the

insurance savings clause, section 514(b) (2) (A), 29 U.S.C, §1144

(b) (2) (A). Pet. App. 26-27. If, contrary to the argument here,

this Court determines that the surcharges are preempted under

section 514(a), amici adopt petitioners’ argument that these two

surcharges are properly viewed as insurance regulation and saved

from preemption.

The court of appeals also held that the 9% surcharge on HMOs

is preempted because “HMOs. . . do not engage in the ‘business of

insurance’ as a matter of law.” Pet. App. 29 n.6 (quoting opinion

of district court); see also id. at 26 n.5. Amici submit that this

conclusory holding was in error.

While New York has a separate statutory scheme for the regula-

tion of HMOs which is partially, but not fully, integrated with its

regulation of commercial insurers, the triggering of the ERISA

“savings clause” is not conditioned upon a State’s having fully

integrated insurance regulation within a single statutory scheme.

Many States have separate statutory schemes for HMOs which

parallel and are significantly, but not totally, integrated with the

States’ insurance codes. These separate regulatory structures are

designed to reflect operating characteristics of HMOs which differ

from those of commercial insurance companies. Although set forth

in separate statutory provisions, such state regulatory requirements

for HMOs reflect the fact that the regulated function is the as-

sumption of a third party’s risk in return for a fixed payment—

in other words, insurance. See In re Estate of Medcare HMO,

998 F.2d 436, 443-45 (7th Cir. 1993). Moreover, contrary to the

assumption of the court of appeals, see Pet. App. 26 n.5, the func-

tions of traditional commercial insurers and HMOs are not clearly

distinct. Many commercial insurers provide coverage through

managed care arrangements which deliver services through pro-

13

court found that the surcharges “relate to” employee heaith

care benefit plans governed by ERISA because they “sub-

stantially increase the cost to ERISA plans of providing

beneficiaries with a given level of health care benefits” and

“force ERISA plans to increase either plan costs or reduce

plan benefits.” Jd. at 23-24.

In holding that the New York rate regulations are pre-

empted simply because they have an indirect economic

impact on ERISA plans, the court of appeals relied al-

most exclusively on this Court’s general directive that sec-

tion 514(a) should be construed broadly. See Pet. App.

20-21. The Second Circuit did not thoroughly review this

Court’s ERISA preemption cases; it did not justify its

holding in terms of the policies served by ERISA’s express

preemption provision; and it completely ignored the pre-

sumption against preemption in determining the outer

limits of the preemptive effect of section 514(a). See Pet.

App. 19-25.

Amici adopt, without repeating, petitioners’ arguments

that the Second Circuit’s extravagant reading of section

514(a) is inconsistent with this Court’s ERISA preemp-

tion cases. See also United Wire, Metal & Mach. Health

& Welfare Fund v. Morristown Memorial Hospital, 995

F.2d 1179, 1191, 1193 (3d Cir.), cert. denied, 114 S. Ct.

382 (1993). Moreover, as petitioners explain, New

York’s hospital rate regulations are completely consistent

with the purposes of ERISA preemption. The national

interests in a uniform body of benefits law and in avoiding

conflicting administrative directives are not implicated

simply because the costs of hospital services, which vary

for economic reasons from State to State, may also vary

because some States have decided to control health care

vider networks, as do HMOs. Furthermore, HMOs indemnify their

insureds for 20% to 60% of covered expenses in addition to pro-

viding benefits through direct delivery of services. See Estate of

Medcare, 998 F.2d at 446 (under Illinois law “HMOs are... the

substantial equivalents of domestic insurance companies”).

a ee ee ee Cs ee

-_|-— _—

14

costs. See United Wire, 994 F.2d at 1194 (national in-

terests in preemption not compromised by similar New

Jersey hospital rate regulations).

The court of appeals’ rule extends the preemptive effect

of section 514(a) far beyond the bounds intended by

Congress. The court of appeals failed to construe the

express preemptive language of section 514(a) in light

of the presumption against preemption.* Consequently,

its judgment is an “unintended encroachment on the au-

thority of the States.” CSX, 113 S. Ct. at 1737. If left

undisturbed, the court of appeals’ judgment would displace

important state health care regulations and initiatives, and

it would cast a wide range of health care matters into a

regulatory void—ungovernable by the States and ungov-

erned by the national government.

II. THE COURT OF APPEALS’ STANDARD IMPAIRS

THE STATES’ ABILITY TO DEVISE SOLUTIONS

TO SIGNIFICANT HEALTH CARE ISSUES AND

CREATES A REGULATORY VOID

While health care reform has failed to materialize at

the national level, the States have taken the lead “in devis-

ing strategies to expand access to health insurance and

contain the growth of health care costs.” U.S. General

Accounting Office, GAO/HRD-92-70, Access to Health

Care: States Respond to Growing Crisis 2 (June 1992).

The States have attacked “[t]he problems of dwindling

access to care and escalating health care costs” because

“many state lawmakers . . . conclude[d] that it would be

®In contrast to the Second Circuit, the Third Circuit took the

presumption against preemption into account in upholding a set

of New Jersey hospital rate regulations that are analogous to. the

regulations at issue in this case. See United Wire, 995 F.2d at

1196 (“{Wle are unwilling to attribute to Congress and § 514 an

intent to frustrate the efforts of a state, under its police power, to

regulate health care costs.”). The New Jersey rate regulation

scheme was superseded by new legislation on January 1, 1993.

See id. at 1190.

ie

15

risky, if not irresponsible, to do nothing and hope that

the Congress and the President [would] resolve the health

care crisis.” Intergovernmental Health Policy Project,

The George Washington University, Health Care Reform:

50 State Profiles 1 (3d ed. 1994). See generally id.

(comprehensive survey of current and proposed state ef-

forts te control health care spending, improve quality of

care, and expand access to medical care).

ERISA, however, imposes significant constraints on

State reform efforts because vast numbers of Americans

obtain health care benefits under ERISA plans.’ See gen-

erally Patricia A. Butler, Roadblock to Reform: ERISA

Implications for State Health Care Initiatives (National

Governors’ Association, 1994). Section 514(a) limits the

States’ power to implement health care reforms because it

prohibits direct state regulation of the terms and condi-

tions of health care plans. Under the “insurance savings”

clause, 29 U.S.C. § 1144(b)(2)(A), ERISA does permit

the States to achieve some health care reforms indirectly

by regulating insurance. State insurance regulations, how-

ever, apply only to “insured plans” (ERISA plans that

purchase insurance) and, under the “deemer clause,” 29

U.S.C. § 1144(b)(2)(B), state insurance regulations do

not apply to “self-insured” ERISA plans. “[A]bout 24

percent of health care is paid for by private health insur-

ance that is regulated by state insurance departments.”

U.S. General Accounting Office, GAO/HRD-94-26, Health

Insurance Regulation: Wide Variation In States’ Author-

ity, Oversight, and Resources 2 (Dec. 1993).

Amici recognize that ERISA places significant limita-

tions on the States’ power to reform their health care

systems. The States have long undertaken the daunting

task of health care reform with a full understanding of

* The great majority of the almost 220 million Americans who

have health insurance receive their benefits through public and

private employer-sponsored health plans. U.S. Bureau of the Cen-

sus, Statistical Abstract of the United States 118 (114th ed. 1994).

—————

16

these limitations. Amici also recognize that many of these

limitations must be addressed by Congress.” Nonetheless,

the court of appeals’ expansive interpretation of section

$14(a) creates serious and unwarranted barriers to state

regulation. Amici accordingly submit that affirmance of

the decision below would preclude meaningful state health

care reform, a result never intended by Congress.

A. The Court Of Appeals’ Standard Preempts Tradi-

tional State Regulation Of Health Care

The court of appeals held that New York’s hospital rate

regulations are preempted under section 514(a) because

they “substantially” or “significantly” increase costs of

providing health care services for ERISA plan benefici-

aries. Pet. App. 23-24. This ERISA preemption stand-

ard places many important state health care regulations

and initiatives in jeopardy simply because they have an

indirect economic effect on ERISA health care plans.

The court of appeals’ rationale would require invalida-

tion of state hospital rate regulation and prevent state

experimentation with hospital rate regulation as a means

of providing hospital care for indigent persons. Many

States impose taxes on health care providers as a means

of funding their share of medical care under the Medicaid

program. The court of appeals’ rationale would, however,

prohibit these state taxes and deny the States the power

to use taxes on health care providers as a component of

their comprehensive health care reform programs. Finally,

the decision calls into question a broad array of tradi-

tional state health care regulations, including licensing

requirements for hospitals and physicians, for they, too,

1° Some limitations on the States’ powers to reform health care

are necessarily addressed by congressional amendments to ERISA.

See 29 U.S.C. § 1144(b) (5) (exemption for Hawaii’s law requir-

ing employers to provide health insurance for full-time workers).

Washington and Oregon have sought similar congressional relief.

See H.R. 2870, 103d Cong., Ist Sess. (1993) ; H.R. 3618, 108d Cong.,

ist Sess. (1998).

17

have the inevitable effect of increasing costs for ERISA

plans.

These restrictions on the States’ traditional police powers

go to the heart of our federal system. The States have

long served as laboratories for the exploration of alterna-

tive solutions to complex social and economic problems.

In the oft-quoted words of Justice Brandeis,

To stay experimentation in things social and eco-

nomic is a grave responsibility. Denial of the right

to experiment may be fraught with serious conse-

quences to the nation. It is one of the happy inci-

dents of the federal system that a single courageous

State may, if its citizens choose, serve as a labora-

tory; and try novel social and economic experiments

without risk to the rest of the country.

New State Ice Co. v. Liebmann, 285 US. 262, 311

(1932) (Brandeis, J., dissenting ).

In accordance with this tradition, States have long en-

gaged in innovation in health care financing, delivery, and

regulation. New Jersey, for example, pioneered the con-

cept of paying hospitals on a per case or diagnosis re-

lated (“DRG”) basis, a state innovation that preceded the

federal Medicare program’s “Prospective Payment Sys-

tem.” See 1 Medicare and Medicaid Guide (CCH)

€ 4200 (1993). Similarly, state laws requiring hospitals

to provide emergency care to indigent persons predated

the Medicare “anti-dumping” provisions of the 1986 Con-

solidated Omnibus Budget Reconciliation Act, Pub. L.

No. 99-272 § 9121, 100 Stat. 82, 164-67, codified as

amended at 42 U.S.C. § 1395dd. See Michael A. Dowell,

Indigent Access to the Emergency Room, 18 Clearing-

house Review 423, 485 (1984). The court of appeals’

holding severely compromises the States’ ability to con-

tinue to explore innovative health care policies.

18

1. State Power To Regulate Rates Charged By

Hospitals And Other Health Care Providers

States have experimented with hospital rate regulation

for over thirty-five years. Frank A. Sloan, Rate Regula-

tion for Hospital Cost Control: Evidence from the Last

Decade, 61 Milbank Memorial Fund Quarterly 195, 197

(1983). While the States’ programs have varied substan-

tially in their details, mandatory rate-setting programs

have reduced hospital and overall health care expendi-

tures, improved hospital efficiency, diminished cross-subsi-

dies across payors, and expanded access for people lacking

health insurance. See Gerald F. Anderson, All-Payer Rate-

Setting: Down But Not Out, Health Care Financing Re-

view 35 (Supp. 1991). Today, in addition to New York,

three other States—Maine, Maryland, and West Virginia

—have mandatory hospital rate-setting laws." The ration-

ale of the court of appeals would lead to invalidation of

these laws to the extent that they increase the costs of

hospital services purchased by an ERISA plan.

The adverse impact of the court of appeals’ preemption

standard on the States’ power to regulate health care

through rate regulation is illustrated by considering hos-

pital rate-setting as a means of financing “uncompensated

care” for uninsured, low-income persons. The States of

Maine, Maryland, West Virginia, and New York include

the cost of each hospital’s uncompensated care in the

rates charged to all private payors, including ERISA

plans.” These four schemes vary in detail, but share the

goals of maintaining hospital solvency and ensuring equit-

able access to hospital care by spreading the cost of

1) Me. Rev. Stat. Ann. tit. 22, §§ 382(16-A), 396; Md. Health-

Gen. Code Ann. §§ 19-216—19-219; W. Va. Code §§ 16-29B-19—

16-29B-21.

12 See Code of Maine Rules, 90-460, ch. 8372; Md. Regs. Code tit.

10, § 10.37.10.083D; W.V. Code St. Reg. §§ 65-5-5.9.7—5.9.9; N.Y.

Pub. Health Law § 2807-C(14); N.Y. Comp. Codes R. & Regs. tit.

10, § 86-1.65.

19

uncompensated care across all purchasers of hospital

services.

The New York, Maine, Maryland, and West Virginia un-

compensated care rate regulations are vulnerable under

the rationale of the court of appeals. In each State, the

cost of providing care to indigent persons will be passed

on to all purchasers of hospital services, including ERISA

plans. These increased costs will then force health care

plans governed by ERISA either to increase plan costs or

to reduce plan benefits. Under the reasoning of the court

below, this indirect economic impact on ERISA plans is

sufficient to preempt these traditional police power

measures.”

In addition to circumscribing the States’ power to regu-

late hospital rates, the court of appeals’ decision could

also be applied to preempt state rate regulation of other

types of health care providers. For example, it could in-

terfere substantially with proposals in Minnesota and

other States to regulate rates charged by all health care

providers. Minnesota, for example, has enacted a compre-

hensive health care act. See Boyle v. Anderson, 849 F.

Supp. 1307, 1309 (D. Minn. 1994). Rate regulation is

an integral part of this reform program, and the State

will regulate rates paid to health care providers who are

not part of integrated plans. Minn. Stat. Ann. §§ 62P.01-

62P.05; see Commissioner, Minnesota Department of

Health, Implementation Plan and Recommendations for

Integrated Service Networks and a Regulated All-Payer

Option 2 (Feb. 1994). State officials have determined

that rate regulation of health care providers is necessary

to implement an efficient and effective health care fi-

nancing and delivery system, but the reasoning of the

13 New York’s provisions for funding uncompensated care are

the subject of a pending preemption challenge. Trustees of the

Pension, Hospitalization, and Benefit Plans v. Cuomo, No. 92-CV-

5589 (E.D.N.Y.).

20

court of appeals would preempt this exercise of state rate-

setting authority to the extent that it imposes substantial

costs on ERISA plans.

2. State Power To Tax Health Care Providers

Under the court of appeals’ standard, section 514(a)

could also prohibit state taxes on hospitals and other

health care providers. Another panel of the Court of

Appeals for the Second Circuit recently held that a 0.6%

tax on the gross receipts of hospitals and other medical

facilities is not de minimis. NYSA-ILA Med. & Clinical

Serv, Fund v. Axelrod, 27 F.3d 823, 828 (2d Cir. 1994),

petition for cert. filed, 63 U.S.L.W. 3371 (U.S. Oct. 21,

1994) (No. 94-745). In direct reliance on the reasoning

of the court of appeals in this case, the panel held that the

State tax was preempted because it increased the costs of

providing health care to beneficiaries of ERISA plans. /d.

at 827-28.

Most state taxes on health care providers are imposed

under authority explicitly granted by Congress in the

Medicaid Voluntary Contribution and Provider-Specific

Tax Amendments of 1991, codified at 42 U.S.C. 1396b

(w).* Although these taxes are an important part of state

efforts to fund their share of Medicaid costs, a federal

court has already invoked the court of appeals’ decision in

this case to hold that a Connecticut hospital tax is pre-

empted. New England Health Care Employees’ Union,

District 1199 v. Mount Sinai Hosp., 846 F. Supp. 190,

192, 196-98 (D. Conn. 1994), app. pending, Nos. 94-

7264, 94-7906 (2d Cir.).

In addition, Washington and Minnesota have estab-

lished provider taxes as integral parts of their compre-

hensive health care reform programs. See Minn. Stat.

14 Many States impose taxes on hospitals under this statute. See

Br. Am. Cur. State of Connecticut et al. at 18 n.9.

21

Ann. § 295.52; Wash. Rev. Code Ann. § 48.14.0201.

A district court has held that the Minnesota tax on health

care providers did not have a substantial economic impact

was based on the opinion below in this case. Boyle, 849

F. Supp. at 1315-17. However, the economic impact

standard may now be a significant barrier to this state tax

because Boyle was decided before the Second Circuit con-

cluded that there is no de minimis exception to its pre-

emption standard. Compare Boyle, 849 F. Supp. at 116

with NYSA-ILA, 27 F.3d at 828.

3. State Power To Set Health Care Standards

Many traditional state health care regulations, like

information reporting requirements and quality of care

Standards, increase costs of providing medical care. See,

e.g., Cal. Code Regs. tit. 22, §§ 70401-657 (setting stand-

ards for a wide range of specialized hospital services such

as burn, cardiac surgery, and newborn care units); New

Jersey De>artment of Health, Licensing Standards for

Hospitals § 8:43G-17 (1993) (minimum nursing staff

levels for hospitals). Hospitals, pharmacists, doctors, and

other health care providers ordinarily pass these increased

costs on to health care consumers, including participants

ERISA plans of providing beneficiaries with a given level

of health care benefits,” they, too, would be preempted

under the court of appeals’ reasoning.“ Pet. App. 23.

State health care data reporting laws illustrate that

there is no apparent stopping point to the court of ap-

peals’ theory of preemption based on indirect adverse

economic impact. Many States have enacted laws requir-

ing health care providers to report information such as

“type of services provided, charges, patient information

Indeed, the subsequent opinion of the court of appeals in

NYSA-ILA suggests that substantiality may no longer be an issue

in the Second Circuit. See 27 F.8d at 827-28.

22

and outcomes, and type of insurance coverage.” Health

Care Reform: 50 State Profiles, at 15. These data col-

lection laws “play a key role in [States’] cost containment

and reform initiatives.” Id. Nevertheless, collecting, ana-

lyzing, and reporting information may impose substantial,

if not easily quantifiable, costs on health care providers,

and the parties subject to these data reporting require-

ments may well try to pass the costs of compliance on to

ERISA plans and other health care consumers. A recent

attack on the data reporting requirements of Minnesota’s

new health care reform act suggests that concerns about

the impact of the court of appeals’ preemption standard

on traditional state health care regulations are not un-

warranted. See Boyle, 849 F. Supp. at 1311-12.

B. Preemption Of Traditionai Police Power Regula-

tions Will Leave Important Health Care Matters

Ungovernable By The States And Ungoverned At

The National Level

Carried to its logical conclusion, the reasoning of the

court of appeals would give rise to a regulatory void.

As shown above, the court of appeals’ decision has al-

ready led to legal challenges asserting that section 514

(a) preempts the States’ power to regulate hospital rates

and to provide charitable or “uncompensated” medical

care for indigent persons. Moreover, if left to stand, the

court of appeals’ interpretation of section 514(a) will

undoubtedly prompt additional challenges to other exer-

cises of the States’ traditional power to regulate health

care. This expansive judicial interpretation of section

514(a)’s preemptive effect is particularly troubling be-

cause ERISA makes no provision for substantive regula-

tion of employer health plans.”

16 See Health Care Reform: 50 State Profiles, at 3 n.1 (“Although

ERISA preempts state regulation, there is no parallel federal regu-

lation of employer health plans at this time.”).

23

Given Congress’ long-standing inability to enact com-

prehensive federal health care regulation, the Court

should reject any interpretation of section 514(a) that

would lead to the creation of a regulatory void.” In a

closely analogous case, the Court interpreted several statu-

tory provisions explicitly allocating regulatory authority

between the States and a federal regulatory agency in

order to avoid creating a regulatory void and to preserve

from preemption a traditional area of state regulation.

Pacific Gas & Electric Co. v. State Energy Resources

Conservation & Development Comm'n, 461 U.S. 190

(1983). The Court first found that the Atomic Energy

Acts of 1946 and 1954 gave the national government ex-

clusive authority over radiological safety standards for

commercial nuclear power plants and that Congress had

left “no role . . . for the States.” 461 U.S. at 206-07.

After noting that Congress had not given the national

government any authority over the economic aspects of

nuclear power generation, the Court, in keeping with the

presumption against preemption, concluded that the States

must retain this type of regulatory authorit, because “[i]t

is almost inconceivable that Congress wou'd have left a

regulatory vacuum.” Jd. at 207-08.

Although the Court found that this interpretation of

the statute was reinforced by other sections o* the statute

expressly saving state authority, see id. at 208-12, it

construed the national government's exclusive power over

radiological safety narrowly for the specific purpose of

preserving the States’ traditional power to regulate the

economic aspects of the operation of electric utilities.

This Court has consistently rejected any interpretation of

federal law that could create a regulatory void. For example, the

Court has often refused to hold that state law remedies are pre-

empted where federal law provides no comparable or alternative

remedy. See, e.g., Silkwood v. Kerr-McGee Corp., 464 U.S. 238, 251

(1984); United Constr. Workers v. Laburnum Constr. Corp., 347

U.S. 656, 663-64 (1954); see also Cipollone, 112 S. Ct. at 2630

(Blackmun, J., concurring in part and dissenting in part).

24

Indeed, the principle of avoiding a regulatory vacuum

with regard to the economic aspects of nuclear power

plant construction was so important that the Court was

willing to tolerate some risk that the States would exer-

cise their authority over economic matters to accomplish

radiological safety objectives that are the exclusive respon-

sibility of the national government. Cf. Silkwood v. Kerr-

McGee Corp., 464 U.S. 238, 256 (1984) (noting “ten-

sion between the conclusion that safety regulation is the

exclusive concern of the federal law and the conclusion

that a State may nevertheless award damages based on

its own law of liability” ).

State regulation of health care is at least as important

as state regulation of the economic aspects of electric

power generation. There is no reason why this Court

should construe section 514(a) to create a regulatory

vacuum with regard to important health care issues.

A narrow construction of section 514(a) is required by

the presumption against preemption. It is also consistent

with this Court’s cases holding that state laws are super-

seded where “the bite of pre-emption” has been eased by

congressional provision of a substitute for the pre-

empted state laws. Cipollone, 112 S. Ct. at 2630 (Black-

mun, J., concurring in part and dissenting in part); see

Ingersoll-Rand Co. v. McClendon, 498 U.S. 133, 142-45

(1990) (comprehensive federal civil enforcement scheme

fills void created by preemption of state common law

claim); Pilot Life Ins. Co. v. Dedeaux, 481 U.S. 41,

54-56 (1987) (same); see also Mackey v. Lanier Col-

lection Agency and Service, Inc., 486 U.S. 825 (1988)

(preemption of one state garnishment law does not create

a regulatory void because a second state garnishment law

is not preempted ).

In this case, there are no substitute national regulations

to fill the void that is created by the court of appeals’

construction of section 514(a). There is no basis for

believing that Congress, in enacting ERISA, intended to

25

leave hospital rates, doctors’ fees, medical care for indi-

gent persons, and similarly vital health care matters un-

governed until such indefinite time in the future that

Congress chooses to fill the regulatory void. Although

there undoubtedly are some adjustments of state and

national power that require congressional attention, it

would stand the presumption against preemption of tra-

ditional state police powers on its head to insist that the

States must overcome the inertia of the national legislative

process and secure statutory relief from the court of

appeals’ interpretation of section 514(a). To the con-

trary, the burden should be on Congress to make an

explicit decision displacing the States’ traditional power

to regulate the delivery of health care. Congress did not

make that decision in the language of section 514(a).

CONCLUSION

The judgment of the court of appeals should be

reversed.

Respectfully submitted,

D. BRUCE LA PIERRE RICHARD RUDA *

WASHINGTON UNIVERSITY Chief Counsel

SCHOOL OF LAW LEE FENNELL

One Brookings Drive STATE AND LOCAL LEGAL CENTER

St. Louis, MO 63130 444 North Capitol Street, N.W.

(314) 985-6477 Suite 345

Washington, D.C. 20001

(202) 434-4850

* Counsel of Record for the

November 16, 1994 Amici Curiae