# Amicus Curiae Brief — De Buono v. NYSA-ILA Medical and Clinical Services Fund > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385013_0707%3A16 ## Record - **Collection:** Supreme Court brief - **Document type:** Amicus Curiae Brief - **Published:** January 1, 1997 - **Citation:** 520 U.S. 806 ## Text NOV 29 1996 In THE Supreme Court of the Unite States OcToser TERM, 1996 | we BARBARA A. DeEBuONO, M.D., in her capacity as New York State Commissioner of Health; KAREN SCHIMKE in her capacity as New York State Executive Deputy Commissioner of Health; Deputy Director, Division of Health Care Financing, Office of Health Systems Management, New York State Department of Health, 7 Petitioners, NYSA-ILA MEDICAL AND CLINICAL SERVICES FUND, by its Trustees, JoHN Bowers, James Capo, FRANK LONARDO, WILLIAM P. LyncH, M. BRIAN MAHER JAMES P. MALIA, GERALD OWENS, and PETER VICKERS, Respondents. On Writ of Certiorari to the United States Court of Appeals for the Second Circuit BRIEF OF AMICI CURIAE HEALTHCARE ASSOCIATION OF NEW YORK STATE AND AMERICAN HOSPITAL ASSOCIATION IN SUPPORT OF PETITIONERS MARK THOMAS JEFFREY J. SHERRIN * HEALTHCARE ASSOCIATION PHILIP ROSENBERG OF NEw YORK STATE SHERRIN & GLASEL 74 North Pear! Street 74 North Pear! Street Albany, NY 12207 Albany, NY 12207-2710 FREDERIC J. ENTIN (518) 465-1275 JAMES A. HENDERSON AMERICAN HOSPITAL ASSOCIATION One North Franklin Chicago, IL 60606 * Counsel of Record Wison - Eras Pawrine Co., Inc. - 789-0096 - WASHINGTON, D.C. 20001 er a BO Ow ew HE - J I. THE DIRECT/INDIRECT DICHOTOMY IS AN IMPROPER TEST FOR DETERMINING ERISA PREEMPTION |. HOSPITALS OPERATED BY ERISA PLANS ARE SUBJECT TO THE SAME LAWS THAT APPLY TO ALL OTHER HOSPITALS .............. A. The Direct/Indirect Test Would Displace General Health Care Regulation B. Obtain & Wetbttel Te Met 0 Pian Fenction or Benefit lett ED diatetinensinmaitrecbindrintrunctenereecnpunsecs fi TABLE OF AUTHORITIES CASES Page Alessi v. Raybestos-Manhattan, Inc., 451 U.S. 604 (1981) 7,12 BFP v. Resolution Trust Corp., 114 8. Ct. 1757 (1994) 7 Chassin v. NYSA-ILA Med. & Clinical Servs. Fund, 115 S. Ct. 1819 (1995) 4 Cipollone v. Liggett Group, Inc., 505 U.S. 604 (1992) 5 District of Columbia v. Greater Washington Bd. of Trade, 506 U.S. 125 (1992) 7,12,17 FMC Corp. v. Holliday, 498 U.S. 52 (1990)... 12, 18 Fort Halifax Packing Co. v. Coyne, 482 U.S. 1 CRUD nwiteineeeten i” 12, 16, 18 Grove City College v. Bell, 465 U.S. 555 (1984)... 8 Ingersoll-Rand Co. v. McClendon, 498 U.S. 188 (1990) 6, 7,12 Mackey v. Lanier Collection Agency & Serv., 486 U.S. 824 (1988) ...... 7,18,17 Metropolitan Life Ins. Co. v. Massachusetts, 471 U.S. 704 (1985) 7 New York State Conference of Blue Cross & Blue Shield Plans v. Travelers Ins. Co., 115 8. Ct. 1671 (1995) NYSA-ILA Med. & Clinical Servs. Fund v. Azelrod, 27 F.3d 828 (2d Cir. 1994) .. 4, 16 NYSA-ILA Med. & Clinical Servs. Fund v. Azelrod, 74 F.3d 28 (2d Cir. 1996) ; 4 Rebaldo v. Cuomo, 749 F.2d 188 (2d Cir. 1984) ....... 14 Russello v. United States, 464 U.S. 16 (1988)... 6 Shaw v. Delta Air Lines, 468 U.S. 85 (19838) ....6, 12, 18 Varity Corp. v. Howe, 116 8. Ct. 1065 (1996) 17 CONSTITUTIONAL AND STATUTORY MATERIALS Employee Retirement Income Security Act of 1974 (“ERISA”), 29 U.S.C. §§ 1001-1461 (1994)... passim ERISA § 514(a), 29 U.S.C. § 1144(a) (1994)... passim Health Maintenance Organization Act of 1973, Pub. L. No. 98-222, 87 Stat. 914 § 2 sec. 1811 (codified at 42 U.S.C. § 300e-10 (1994) ) 19 N.Y. Const. art. XVII, §8.00.00000000002 N.Y. Epuc. Law § 6522 (McKinney 1985)... N.Y. Pus. HEALTH Law § 2801(1) (McKinney 1993) N.Y. Pus. HeaLtu Law § 2801-a (McKinney 1998 & Supp. 1996) N.Y. Pus. HEALTH Law § 2807-d (McKinney Supp. 1996) New York Health Care Reform Act of 1996, 1996 N.Y. Laws ch. 689, §112-b (codified at N.Y. Pus. HEALTH Law § 4408-a).. Cis : RBEGULA- TORY IssUEs For STATE PoLicy MATTERS (Na- tional Academy for State Health Policy, Feb. 1996) How one employer implemented on-site child care, Employee Benefits Mgmt. Directions (CCH) No. 109, July 11, 1995, at 1 Pn 19 iv TABLE OF AUTHORITIES—Continued In THE Page Supreme Court of the United States Leigh P. Perkins, Solo Wins Prepaid Contract, OctTosBer TERM, 1996 Creates Instant Firm, Law. WKLY. USA, May 22, 1995, at 7 10 James C. Robinson, Health Care Purchasing and | Market Changes in California, HEALTH AFFAIRS, No. 95-1594 Winter 1995, at 117 10 Bruce Shutan, Higher learning for K through 3, EMPLOYEE BENEFIT NEws, Feb. 1996, at 9 10 Respondents. ty i 4H it be aa" $: HH Est a de ly TEE een ea Ells i Hi Hite i; ij aie quis ia [ey baal; f it nade lit e3 okck tS g Reg egss set i if i dail thi adder Quit, (ete i a sift . eT : : if i FF . 2 qs a ey iE ar ae etitag: Pept g ll all beta TEE ral i denen heh itt EE bse S25 f- £60 g8¢ fi fii, 2 tn it . inde Hai; ii TERRI AIL: Me Lt ae meen Ge EN peh Hat ni te Fe: jl Ft “ay Hae Hil iit, a FE : gglaag 32822 8tgig]gt#2 Hal feet GE Wied pialinniel val He a aiictiaeale i] iy We fee ie nae aie § egyik ey, | SERTES: ) if eae lf ay eee lee snveale S9edhuabuaeeal aad AUTH with or reference to” a plan. Shaw v. Delta Air Lines, 463 U.S. 85, 96-97 (1983). Under the “connection with” standard, this Court has cautioned that a state law may be preempted even if it is not specifically designed to affect ERISA plans. Ingersoll-Rand Co. v. McClendon, 498 U.S. 133, 139 (1990). Nevertheless, many laws of gen- eral application are not preempted where they have only a “tenuous, remote, or peripheral” connection with cov- ered plans. Shaw, 463 U.S. at 100 n.21. In Travelers, this Court recognized that prior attempts to construe the phrase “relate to” did not provide much help in drawing the preemption line, and that the phrases “relate to” and “connection with” cannot be interpreted too literally to define the measure of preemption. Travelers, 115 S. Ct. at 1676-77. Rather, the Court in Travelers stated that it must “look instead to the objectives of the ERISA statute as a guide to the scope of the state law that Congress understood would survive.” Jd. at 1677. This Court therefore conducted a comprehensive review of the purposes of the ERISA preemption provision and its legislative history, as well as congressional activity in the field of health care regulation, to determine the reach of ERISA preemption in connection with hospital rate regu- lation. Id. at 1677-82. Considering the surcharges at is- sue in Travelers, this Court distinguished laws with mere indirect economic impacts on plans from laws which man- date plan behavior. /d. at 1679. What the Supreme Court has never said, and what Con- gress also did not say, is that the determinative test for ERISA preemption was to be merely whether the impact of the state law was direct or indirect. It would have been easy for Congress to have said so, and just as easy for this Court to have so pronounced. Congress, however, simply “did not write the statute that way,” Russello v. United States, 464 U.S. 16, 23 (1983), and “{iJn a comprehen- sive regulatory scheme like ERISA, such omissions are 7 significant ones.” Mackey v. Lanier Collection Agency & Serv., 486 U.S. 825, 837 (1988). See also BFP v. Reso- lution Trust Corp., 114 S. Ct. 1757, 1761 (1994). In- stead, Congress used broad language, which this Court has held necessitates resort to traditional rules of preemption analysis to determine Congressional intent. This Court has held that the preemption line is to be drawn based on the compulsory nature of the law or its effect upon plan administration, not on the directness of its impact. In Mackey, for instance, the Court found that ERISA did not preempt the direct application of a state garnishment law to benefits earned under an ERISA wel- fare plan. The Court explained that Congress simply never intended to block the application of run-of-the-mill state laws, such as garnishment statutes, to ERISA plans. If direct economic impact were the test, the result in Mackey should have been different. The direct/indirect analysis employed by the Second Circuit must also be rejected because this Court has made clear that laws with indirect effects can also be preempted. In Alessi v. Raybestos-Manhattan, Inc., 451 U.S. 504, 525 (1981), it was stated: it is of no moment that New Jersey intrudes in- directly, through a workers’ compensation law, rather than directly, through a statute called ‘pension regula- tion.” ERISA makes clear that even indirect state action bearing on private pensions may encroach upon the area of exclusive federal concern. See also Ingersoll-Rand Co. v. McClendon, 498 U.S. 133, 139 (1990); District of Columbia v. Greater Washington Bd. of Trade, 506 U.S. 125, 129-30 (1992). In Metro- politan Life Insurance Co. v. Massachusetts, 471 U.S. 704 (1985), this Court held that a mandated benefit law related to plans even though it only bore indirectly on such plans. And in Travelers, the decision concluded with the observation that laws with “acute, albeit indirect” economic effects might be preempted if they force plans to behave in a certain manner. Travelers, 115 S. Ct. at 1683. If, as these cases teach, laws which bear indirectly upon ERISA plans may relate to such plans, then the determinative factor in Travelers could not have been simply the indirectness of the economic impact. Likewise, the question of preemption in NYSA-ILA cannot turn simply on whether the law affects plans directly or indirectly.* B. The Test Is Impractical A direct/indirect distinction not only has no support in prior decisions of this Court, but it would also prove to be too impractical to justify its adoption. The difficulty in separating direct from indirect effects is evident from the fact that the test was misapplied by the Second Circuit in NYSA-ILA. The medical centers that are the subject of this action and upon which the health facilities assess- ment was imposed were incorporated as not-for-profit corporations under special acts of the New York State Legislature. (Joint Appendix at 98). These medical centers are legal entities separate from the self-insured plan that established them. The assessment was not imposed upon the ERISA fund, but upon a separate hos- pital. The impact upon the ERISA fund, therefore, was not a function of the law itself, but rather of the relation- ship voluntarily established between the fund and the hospital. There did exist, therefore, the very “middleman” between the tax and the Fund that the Second Circuit Stated to be absent. *In other contexts as well, this Court has refused to accept a direct/indirect distinction as having any legal significance in deter- mining congressional intent. Thus, in Grove City College v. Bell, 465 U.S. 555, 563-65 (1984), the Court rejected the argument that the characterization of federal assistance as direct or indirect would determine the application of a federal statute prohibiting sex dis- crimination in any education program or activity receiving Federal financial assistance. Instead, the Court in Grove City conducted a comprehensive review of congressional history and intent to discern the intended reach of the statute, much as this Court did in Travelers. 9 The line between direct and indirect impacts is far harder to discern than the Second Circuit perceived. As the health care system becomes more complex and payers sota, HEALTH CaRE Momrt. REV., Fall 1995, at 42-56. New York recently enacted the Health Care Reform Act of 1996, which will create a new category of managed care licensure known as Integrated Delivery Systems. 1996 N.Y. Laws ch. 639, § 112-b (codified at N.Y. Pus. HEALTH Law § 4408-a). As NYSA-ILA shows, ERISA plans, employers and in- surance companies are setting up their own health care ®In 1994, the Hospital Trustees of New York State reported that 45% of acute care facilities surveyed nationwide had formed an integrated delivery system in the preceding twelve months, and that another 25% indicated that they would enter into some form of integrated care in the coming six months. HOSPITAL TRUSTEES Or NEw YorK STATE, AN INTRODUCTION To HEALTH CARE NET- WORKS (1994). In New York City, hospital system and network formation has been so great that another 1994 survey conducted by the Greater New York Hospital Association reported that 82% of respondents were already in at least one network or system, more than 1 in 8 reported being in two or more networks, and almost half were part of a system in which they had equity or ownership in a managed care organization. Jd. at 6. While there are many reasons for the formation of networks, “the most pressing is the clear indication that the healthcare reform discussions will result in some financing system that will reward the efficiencies suggested by streamlining and integrating care through networks.” Id. at i. Just two years later, virtually all hospitals in New York State are now integrated with other hospitals, providers or payers in health care networks. See also PATRICIA A. BUTLER & ELIZABETH MITCHELL, HEALTH CARE PROVIDER NETWORKS; REGULATORY ISSUES FoR STATE POLICY MATTERS (National Academy for State Health Policy, Feb. 1996). 10 delivery systems. Recently reported examples include an occupational health clinic being built by Delta Air Lines in cooperation with its health insurer, CIGNA Health Care Inc., to be staffed by Emory University doctors. Robert Kazel, Onsite clinic expected to cut Delta comp tab, Bus. Ins., Jan. 29, 1996, at 6. Deere & Co. has set up its own clinics and opened them to other companies. Louise Ker- tesz, Employers, insurers center attention on primary care, Mop. HEALTHCARE, June 19, 1995, at 136 (describing the “rush” of companies to build their own facilities). Quad/ Graphics Inc. is planning to build its second onsite medi- cal facility in five years, this time jointly with a Milwau- kee-based system of 1,500 doctors, four hospitals and var- ious other medical facilities. Robert Kazel, Lowering costs onsite, Bus. INs., October 23, 1995, at 2, 104.° It is also common for bospitals and unions to be establishing their own health maintenance organizations, or for insur- ance companies, HMOs, hospitals and other providers to form partnerships, sharing capital investments and finan- cial risks." The implications of the Second Circuit decision in light of the revolutionary changes in health care are profound. If the impact of the HFA in NYSA-ILA was direct upon the plan because the plan owned the medical center, there should be no reason that the same result would not be * Employers are also setting up their own child care centers (see, é.g., Bruce Shutan, Higher learning for K through 3, EMPLOYEE BENEFIT NEws, Feb. 1996, at 9; How one employer implemented on-site child care, Employee Benefits Mgmt. Directions (CCH) No. 109, July 11, 1995, at 1, 4; Robert N. Kazel, New York Life sets up backup care center, Bus. INS. Nov. 18, 1995, at 58), and legal services plans (see, ¢.g., Leigh P. Perkins, Solo Wins Prepaid Con- tract, Creates Instant Firm, LAW. WKLY. USA, May 22, 1995, at 7-9), two of the other benefits that ERISA plans may provide in kind. tSee James C. Robinson, Health Care Purchasing and Market Changes in California, HEALTH AFFAIRS, WINTER 1995, at 117-30 (describing how previously autonomous organizations are consoli- dating into complex networks). 11 reached if the plan was a 75%, 50% or just 25% owner —the tax would still fall directly on the plan. A hospital, indeed an entire integrated delivery system, could im- munize itself from state taxes and other costly regulation merely by transferring a minority ownership or operational interest to an ERISA plan. Similarly, it would appear that the 9% assessment in Travelers would have been pre- empted if the HMOs had been established by ERISA plans, or if the plans were part owners of the HMO. The entanglement between plans and providers can occur in numerous other ways. If a hospital has a con- tract to provide care to a plan’s members, and the plan agrees to share in the hospital’s costs, would the HFA on the hospital be preempted as having a direct impact on the plan?* If not, how is that substantively different from the facts in NYSA-ILA? And if it is not substantively dif- ferent, then a very easy solution has been found for pro- viders to avoid state regulation—simply affiliate with an ERISA plan. If the NYSA-ILA hospitals establish a wholly-owned nursing home as a subsidiary, would the HFA applied against this nursing home be considered a direct or indirect assessment on the NYSA-ILA Fund? The health care delivery and payer systems that are developing could not have been envisioned by Congress when it enacted ERISA in 1974. At that time, HMOs were in their infancy, managed care was a concept for the future, and integrated delivery systems and alliances were nonexistent. Health care delivery systems have been revolutionized since 1974, and the distinctions between employers, payers and providers are rapidly disappearing. Union, pursuant simply to a contract between the PPGU’s E - covered plan and the Fund. nee 12 If a direct/indirect test could have had viability in 1974, it cannot now. C. The Proper Analysis The proper inquiry is not whether a state law that causes an economic impact upon plans does so directly or indirectly, but whether the law mandates an employee benefit plan’s structure or administration. If it does, it does not matter whether it does so directly or indirectly. It is now well-established that Congress’s purpose in enact- ing ERISA’s preemption provision was to ensure that the field of employee benefit plans would be exclusively a federal concern. Alessi v. Raybestos-Manhattan, Inc., 451 U.S. 504, 523 (1981). Specifically, Congress in- tended to eliminate the threat of conflicting and inconsist- ent state or local regulation of ERISA plans so that such plans could be structured and operated under a uniform set of rules. Fort Halifax Packing Co. v. Coyne, 482 U.S. 1, 9 (1987). See also Ingersoll-Rand Co. vy. McClendon, 498 U.S. 133, 142 (1990) (ERISA’s pre- emption provision “was intended to ensure that plans and plan sponsors would be subject to a uniform body of benefits law”); FMC Corp. v. Holliday, 498 U.S. 52, 60 (1990) (ERISA ensures that plan providers would not have “to design their programs in an environment of dif- fering state regulations [thereby] complicat[ing] the ad- ministration of nationwide plans.” ) This Court, therefore, has distinguished state laws that impair an ERISA plan’s ability to maintain a uniform structure and/or administration from other types of state laws that merely brush against such plans. In Alessi, supra, this Court ruled that ERISA preempted a New Jer- sey law that prohibited pension plans from offsetting workers’ compensation benefits because it interfered with a plan’s right to determine its pension benefits. Similarly, in Greater Washington Bd. of Trade, supra, and Shaw, supra, the Court found the respective state laws at issue anti-subrogation law could not prevent ERISA plans from being structured to seek reimbursement of certain medical benefits it pays to participants who recover from a third Party. . . at 1678), the Court explained that the economic nature of the impact was a “far cry” from the conflicting state direc- tives that Congress was concerned about when it enacted as a regulation of an ERISA plan itself.” Id. Similarly, the mandatory nature of a law, and not the directness of it, impact, was the concern of the Court when it cautioned t: irs SUSU tertagid: 4 Whi EE 3443 ee ile i ith i isi : =f a HE . i: 2 Lea a) rr THE - - = OE : THT H. i: ele eH| “fi at i relat Hl g . s | errr ; ™ HIG HTH TH Tet EB te HE gezgagycgenag sj 244 u iS aay ny Hit : ti . i 7 nue tah al * ‘eft Hf papas iF Waites 533: + Sir i HAE Hide bail ie nln: THiLe fle EPH diye =37 . Aditi Hate a Hy Hh . 4 4 if it ie are simply “too tenuous, remote and peripheral” to re to a plan’s ERISA functions. District of Columbia vy. Greater Washington Bd. of Trade, 506 U.S. 125, 130 n.1 (1992). gueie Scayuagyy 1 uta tl a Heel HE Ta ata Bu “isa is HAI rit TILA UTH SAT HI pang punt nH AT itll Ley | He le i feline fel eb ade Wah esta Salhi hh ecu ae a leh le ea ii Haier erg no different from how the surcharges in Travelers affected, but did not determine, the coverage decision. The judgment of the United States Court of Appeals for the Second Circuit should be reversed. ¢ --- Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385013_0707%3A16. Public record. Not legal advice.