Amicus Curiae Brief — Pegram v. Herdrich

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De (71 no. 98-1919 "upreme Court, us

In THE

Supreme Court of the United States.

Lori PEGRAM, M.D., CARLE CLINIC ASSOCIATION,

AND HEALTH ALLIANCE MEDICAL PLANS, INC.,

Petitioners,

v.

CYNTHIA HERDRICH,

Respondent.

On Writ of Certiorari to the

United States Court of Appeals

for the Seventh Circuit

BRIEF OF HEALTH LAW, POLICY, AND

ETHICS SCHOLARS AS AMICI CURIAE

IN SUPPORT OF RESPONDENT

Louis R. COHEN

Counsel of Record

WILLIAM J. FLANAGAN

RuTH E. KENT

CAROL J. BANTA

WILMER, CUTLER & PICKERING

2445 M Street, N.W.

Washington, D.C. 20037

(202) 663-6000

Counsel for Amici Curiae

BBEST AVAILABLE COPY |

TABLE OF CONTENTS

TABLE OF AUTHORITIES

INTEREST OF AMICI

SUMMARY OF ARGUMENT

ARGUMENT

I. MANAGED CARE ORGANIZATIONS AND

PHYSICIANS ARE “ERISA FIDUCIARIES”

WHEN THEY (A) MAKE DECISIONS THAT

DETERMINE THE COVERAGE OF AN

ERISA PLAN OR (B) DELEGATE THE AU-

THORITY TO MAKE SUCH DECISIONS

A. MCOs (and Physicians) Are Fiduciaries

When They Exercise Discretion Over Plan

Coverage Determinations

. When an MCO Delegates Its Discretionary

Responsibility Over Plan Coverage Determi-

nations to Physicians, Both the MCO and

the Physicians Are ERISA Fiduciaries

. Plan Coverage Decisions and Medical Advice

Are Conceptually Distinct, Even Though in

an MCO Environment They Are Commonly

Inseparable; Failure To Distinguish Them,

and Apply ERISA to Plan Coverage Deci-

sions, Would Be Bad ERISA Law and Bad

Medicine

1. The Plan Coverage Decision ....................-. 11

2. The Health Care Decision

. THE INCENTIVE STRUCTURE AT ISSUE

IN THIS CASE CREATES AT LEAST A

TRIABLE ISSUE OF BREACH OF FIDUCI-

ARY DUTY

- iii

ii

: TABLE OF AUTHORITIES

TABLE OF CONTENTS—Continued nies CASES Page

III. THE HEALTH CARE MARKET IS CON- ee Se Mee OS OS OO

. > 0 1 RE A uitieeniendiones

pay ‘nuLae OP LAW SmOuLe Hae Un Corcoran v. United Healthcare, Inc., 965 F.2d 1321

FIXED FOR THE FUTURE BASED ON TO- enn OSE

DAY'S PRODUCTS .nnncnsinimansaeeee 21 (1988) oS jongen, - -

Rt | 24 “a oe CT

APPENDIX: Dukes v. U.S. Healthcare, Inc., 57 F.3d 350 (3d

ESS 4,6, 11

cousenveneteesnenticesenmnsenisesiiahisinaiannannnn la Edelen v. Osterman, 943 F. Supp. 75 (D.D.C.

LES TL 11

Firestone Tire & Rubber Co. v. Bruch, 489 U.S.

Semen 20

Frahm v. Equitable Life Assurance Society, 137

F.3d 955 (7th Cir.), cert. denied, 119 S. Ct. 155

EEE SE 7

Greenblatt v. Prescription Plan Services Corp.,

783 F. Supp. 814 (S.D.N.Y. 1992) ....................... 5

Herdrich v. Pegram, 154 F.3d 362 (7th Cir. 1998),

reh’g denied, 170 F.3d 683 (7th Cir.), cert.

granted, 120 S. Ct. 10 (1999) ............-..---ccceeeeceneee 8

Herdrich v. Pegram, 170 F.3d 683 (7th Cir.

EES A 13, 18, 19

Hughes Aircraft Co. v. Jacobsen, 525 U.S. 432

ES EL 18

Huss v. Green Spring Health Services, 18 F. Supp.

a 11

In re U.S. Healthcare, 193 F.3d 151 (3d Cir.

ce errrrereemenenneens 6, 11

John Hancock Insurance Co. v. Harris Trust &

Savings Bank, 510 U.S. 86 (1993) ..................... 6

Krohn v. Huron Memorial Hospital, 173 F.3d 542

EEE 8

6

9

List of Amici

Kuhl v. Lincoln National Health Plan of Kansas

City, Inc., 999 F.2d 298 (8th Cir. 1993) ............

Leigh v. Engle, 727 F.2d 113 (7th Cir. 1984) _...... 8,

Libbey-Owens-Ford Co. v. Blue Cross and Blue

Shield Mutual, 982 F.2d 1031 (6th Cir. 1993)... 5

iv

TABLE OF AUTHORITIES—Continued

Page

Lockheed Corp. v. Spink, 517 U.S. 882 (1996)... 18

Mertens v. Hewitt Associates, 508 U.S. 248

ane een ene ne TE 5

Moreno v. Health Partners Health Plan, 4 F. Supp.

ee eee Ge Cy Ee il tide, 1l

Pryzbowski v. U.S. HealthCare, Inc., 64 F. Supp.

ff fF Sse 11

Shaw v. Delta Air Lines, Inc., 463 U.S. 85 (1983).. 20

Spain v. Aetna Life Insurance Co., 11 F.3d 129

SE GUI: HEU cenreesesttitiontetenetininittienesiihidladehddt iia 6

State v. Perry, 610 So. 2d 746 (La. 1992)... 14

Varity Corp. v. Howe, 516 U.S. 489 (1996) _......... 7, 18, 20

STATUTES

ete ie SD ici cicnininiatintebianhiiniiilisiln -2,5

i ae ea 2

SP es Ur ITED snccoscicnesindenicsintaieiideeeseniniigteiainiiadeaibiabianiai 2

Be es a HTT iirsiccncsscrshinsinthteteitaittiaainicaataidadchaieetiiteina 20

ey Oe IID scccccsussreeccmnnpeniiitlinlasitibieeiaticions 20

NE ETS are nto cae 20

BP eats Ue EIT siscrrenniitcentictsnpemieinabatinndiiiamenbassieial 7

ee ne een oe 5, 8,9

73 Til. Comp. Stat. 5/8-B02 2.2... nnn cnnnneeneneee 14

REGULATIONS

eis MUI cccrtcssccisesentasinetnsesidtatibintiinaitiaichnadiaies 9

RR 5, 6, 20

LEGISLATIVE MATERIALS

H.R. Conf. Rep. No. 93-1280 (1974), reprinted in

RS ES EO ee 5, 9, 19, 20

BOOKS, ARTICLES & TREATISES

Arrow, Kenneth, Uncertainty and the Welfare

Economics of Medical Care, 53 Am. Econ. Rev.

BD Ce eettcertetieinceinetieniaiiateiiaias 13, 14

Berenson, Robert A., A Physician’s View of Man-

aged Care, 10 Health Affairs 106 (1991) ............ 11

v

TABLE OF AUTHORITIES—Continued

Bloche, M. Gregg, Clinical Loyalties and the Social

Purpose of Medicine, JAMA, Jan. 20, 1999, Vol.

SERRE eee ae vee ea

Caplan, Arthur L., Am I My Brother’s Keeper?:

The Ethical Frontiers of Biomedicine (1998)...

Cooter, Robert & Freedman, Bradley J., The Fidu-

ciary Relationship: Its Economic Character and

Legal Consequences, 66 N.Y.U. L. Rev. 1045

PO i cteiecenei atcha tii tail ine cenit hates

Daniels, Norman, & Sabin, James, Accountability

for Reasonableness, Professionalism, and the

Ethics of Physician Incentives (unpublished

paper on file at the Tufts University Dep’t of

TET eT eee meer NENEN

Dartmouth Atlas of Health Care in the United

REESE Reena ae eevee eee

Frankel, Tamar, Fiduciary Law, 71 Cal. L. Rev.

nny IIIT asset sha thintnncteshbaesiataba buniedacnchabliabiatieeinasaianatabias

I tide iat asin tian diacetate

Ma, Ching-to Albert & McGuire, Thomas G., Net-

work Incentives in Managed Health Care (Oct.

1999) (unpublished paper on file at the Boston

University Dep’t of Economics) ..........................

Mechanic, David, Changing Medical Organization

and the Erosion of Trust, 74 Milbank Q. 171

RRR Re SER See ee eee ee

Mechanic, David, From Advocacy to Allocation:

The Evolving American Health Care System

Mechanic, David, The Functions and Limitations

of Trust in the Provision of Medical Care, 23

J. Health Pol., Pol’y & L. 661 (Aug. 1998)...

Parsons, Talcot, The Social System (1951) —...........

Relman, Arnold, The Impact of Market Forces on

the Physician-Patient Relationship, J. Royal

Soc’y Med. 1994; 87 Supp. 22: 22-4 ..............

Rice, Thomas, Physician Payment Policies: Im-

pacts and Implications, 18 Ann. Rev. Pub.

Health 549 (1997)

Page

7, 16

15

13

19

15

vi

TABLE OF AUTHORITIES—Continued

Rodwin, Mare A., Medicine, Money gfid Morals:

Physicians’ Conflicts of Interest (1993)..............

Rothman, David J., Strangers at the Bedside

ES NEE alee ne CL Se

Schlackman, Neil, Evolution of a Quality-Based

Compensation Model: The Third Generation, 8

Am. J. Med. Quality 103 (1993) 0.000.

Wennberg, J. & Gittelsohn, A., Small Area Varia-

tions in Health Care Delivery, 182 Science 1102

ree Ne nee a Heer EE

Wennberg, John E., Understanding Geographic

Variations in Health Care Delivery, New Eng.

= FF 4 5 See ee ee

Williamson, Oliver E., Transaction Cost Econom-

ics: The Governance of Contractual Relations,

22 J.L. & Econ. 233 (1979) ...2....c.eee eee eeeeeeeee

Page

In THE

Suprene Court of the United States

No. 98-1949

Lor! PeGRAM, M.D., CARLE CLINIC ASSOCIATION,

AND HEALTH ALLIANCE MEDICAL PLANS, INC.,

7 Petitioners,

CYNTHIA HERDRICH,

Respondent.

On Writ of Certiorari to the

United States Court of Appeals

for the Seventh Circuit

BRIEF OF HEALTH LAW, POLICY, AND

ETHICS SCHOLARS AS AMICI CURIAE

IN SUPPORT OF RESPONDENT

INTEREST OF AMICI

The amici are scholars working in the field of health

care policy. They are expert in such matters as the effect

of financial incentives on the quality of health care, the

operation of cost-containment measures developed by man-

aged care organizations, the ethics and dynamics of the

1 The amici are listed in the Appendix. Pursuant to Rule 37.6

of the Rules of this Court. emici state that no counsel for a party

authored any portion of this brief and no person or entity, other

than the amici and their counsel, made any monetary contribution

to the preparation or submission of this brief. This brief repre-

sents the views of amici individually and does not necessarily rep-

resent the views of institutions with which they are affiliated.

2

physician-patient relationship, and the workings of the

present health care market. Severa! of the amici were

cited in bricfs in this Court.

The amici have prepared this brief primarily to explain

(i) how decisions made by managed care organizations

and doctors can, in some circumstances, constitute exer-

cises of fiduciary duty governed by ERISA, and (ii) the

consequences for patients, physicians, employers, and

health benefit plans of failure to recognize the applicabil-

ity of ERISA fiduciary dutics in those cases to which

ERISA does apply.

Counsel for the parties have consented to the filing of

this brief. Copies of the consent letters have been filed

with the Clerk.

SUMMARY OF ARGUMENT

ERISA fiduciary duties apply, in some circumstances,

to health care related decisions made by managed care

organizations (MCOs) or the physicians who are their

employees and in some cases their shareholders. Specifi-

cally, employer-sponsored health benefit plans are gen-

erally “ERISA plans,” see 29 U.S.C. §§ 1003(1), 1004(a),

and any person who “has any discretionary authority or

discretionary responsibility in the administration” of an

ERISA plan is an ERISA fiduciary. 29 U.S.C. § 1002

(21)(A). When an ERISA plan covers “medically neces-

sary” or “medically appropriate” (or similarly defined)

health benefits, and grants an MCO the authority to deter-

mine whether particular services are within these medically

defined categories, the MCO may be making ERISA plan

coverage determinations at the very moment that it makes

“medical necessity” health care decisions. Such plan cov-

2 This brief uses the terms “medically necessary” and “medical

necessity” to refer to the plan coverage determination.

3.

erage decisions are covered by the language and policy

of ERISA.

Furthermore, the delegation of an ERISA fiduciary

duty to another person is itself a fiduciary act that may

not be taken disloyally or carelessly. When an MCO

delegates the “medical necessity” decision to a physician,

the MCO has a fiduciary duty, under ERISA, to assure

that its delegate does not have an impermissible conflict

of interest. A physician's substantial personal financial

interest in reducing the amount expended on serving plan

beneficiaries may constitute such a conflict of interest.

Failure to recognize the applicability of ERISA to the

MCO’s decisions in these circumstances would have at

least two severe adverse consequences for the health care

system. First, it would enable all concerned to immunize

many negative plan coverage decisions from legal attack:

if an employer plan can define coverage in terms of the

broadly discretionary category “medical necessity,” and if

determinations of medical necessity made by MCOs and

physicians are not regarded as fiduciary decisions gov-

erned by ERISA, there is no opportunity for legal review

either under state law (which is broadly preempted with

respect to plan coverage issues) or under ERISA—even

if the doctor determining that a patient docs not need a

particular treatment is directly benefiting from avoiding

this particular expense.

Second, a physician who has a systematic incentive to

determine that particular services are not “medically neces-

sary” within the meaning of the coverage provisions of a

particular ERISA plan will have the same systematic

incentive to distort her medical advice to the patient,

because the plan coverage determination and the medical

advice to the patient occur in the same breath. In tradi-

tional fee-for-service medicine, the physician was expected

4

to give medical advice essentially independent of the pa-

tient’s ability to pay. Managed care plans have brought

the medical advice and the payment decision together, and

the real tragedy of awarding the ERISA immunity peti-

tioners seek will be its effect on candor with which doctors

advise their patients and the lack of trust this engenders.

Absence of judicial oversight would be particularly trou-

bling at a time when the market is rapidly changing.

Finally, amici urge the Court not to accept arguments

made on the petitioner side that the only way to contain

medical costs is to give physicians a clear and substantial

incentive to recommend fewer and less expensive services

and that no such incentives can constitute an impermissi-

ble conflict of interest or a breach of fiduciary duty. There

are other means of dealing with costs (and managed-care

plans have virtues besides cost-containment). Moreover,

the structure of this market is evolving rapidly and that

evolution should not be distorted by a broader than neces-

sary ruling about the potential application of ERISA.

ARGUMENT

I. MANAGED CARE ORGANIZATIONS AND PHYSI-

CIANS ARE “ERISA FIDUCIARIES” WHEN THEY

(A) MAKE DECISIONS THAT DETERMINE THE

COVERAGE OF AN ERISA PLAN OR (B) DELE-

GATE THE AUTHORITY TO MAKE SUCH DECI-

SIONS

A managed care organization (MCO) or physician does

not become an ERISA fiduciary merely by giving medical

advice or providing medical services that are paid for by

an ERISA plan. See Dukes v. U.S. Healthcare, Inc., 57

F.3d 350, 356-57 (3d Cir. 1995); Corcoran v. United

Healthcare, Inc., 965 F.2d 1321, 1329-34 (Sth Cir.

1992). State regulation of medical practice, including

State tort law, applies to such acts. However, an MCO

5

or physician is an ERISA fiduciary to the extent that it or

she has discretionary authority to determine the coverage

of the ERISA plan itself. Moreover, if an MCO has such

authority and delegates it to a physician, both the MCO

and the physician are ERISA fiduciaries. Any other rules

would contravene both the text and the purposes of

ERISA and would effectively immunize plan coverage

decisions in these commonplace situations and distort the

provision of medical advice.

A. MCOs (and Physicians) Are Fiduciaries When They

Exercise Discretion Over Plan Coverage Determi-

nations

A person acts as an ERISA fiduciary to the extent that

it or she exercises “any discretionary authority or discre-

tionary responsibility in the administration” of an ERISA

plan. including determinations of entitlement to benefits.

29 U.S.C. § 1002(21)(A). The statute thus defines

ERISA fiduciary status not merely in formalistic terms,

but “in functional terms of control and authority” over

the plan and benefits. Mertens v. Hewitt Assocs., 508

U.S. 248, 262 (1993) (citing 29 U.S.C. § 1002(21)(A)):;

H.R. Conf. Rep. No. 93-1280, at 323 (1974), reprinted

in 1974 U.S.C.C.A.N. 5038, 5103.

Employer-sponsored ERISA health care plans often

designate MCOs as fiduciaries responsible for plan admin-

istration. See, e.g., Libby-Owens-Ford Co. v. Blue Cross

and Blue Shield Mut., 982 F.2d 1031 (6th Cir. 1993);

Corcoran, 956 F.2d at 1329; Greenblatt v. Prescription

Plan Servs. Corp., 783 F. Supp. 814 (S.D.N.Y. 1992).

Insofar as these express responsibilities include discre-

tionary determination of what services a plan covers, the

MCO is an ERISA fiduciary. See 29 U.S.C. § 1105(c);

29 C.F.R. § 2560.503-1. This is true whether the MCO

assigns responsibility for such determinations to adminis-

6

trative personnel or to physicians in its employ. Moreover,

even where the MCO is not formally designated a fidu-

ciary, it is a fiduciary under ERISA insofar as it has the

practical authority to make such determinations. See 29

C.F.R. § 2560.503-1. To take a common example, if the

employer’s ERISA plan provides coverage for all “med-

ically necessary” services and gives the MCO the authority

to decide what is covered in a particular case, the MCO

is exercising discretionary responsibility in the adminis-

tration of the plan itself (i.e., determining the extent of its

coverage) and is an ERISA fiduciary. See id.; Kuhl v.

Lincoln Nat’l Health Plan of Kansas City, Inc., 999 F.2d

298, 302 (8th Cir. 1993). See also Spain v. Aetna Life

Ins. Co.. 11 F.3d 129, 131 (9th Cir. 1993); Corcoran,

965 F.2d at 1332.3

3 Amici’s argument does not mean that state medical malpractice

law is preempted. Where a single action by a physician constitutes

both a clinical decision and a determination that a test or procedure

is not covered by an ERISA plan, the action is potentially subject

to challenge both under state law as professional negligence and

substandard care (insofar as it constitutes a clinical decision) and

under ERISA as a breach of fiduciary duty (insofar as it consti-

tutes a discretionary plan coverage determination). See, e.g.,

Dukes, 57 F.3d at 356-57; In re U.S. HealthCare, 193 F.3d 151

(3d Cir. 1999). There is nothing anomalous about this: the in-

tertwining of clinical decisions and plan coverage determinations is

an artifact of the way managed care arrangements like the one

under review are structured. In a traditional fee-for-service ar-

rangement, if a physician advised, for example, whether a tonsillec-

tomy was necessary and an insurance company administrator de-

termined whether a tonsillectomy was covered under an employer-

sponsored insurance plan, the physician could be subject to suit

under state law and the administrator under ERISA. If the two

decisions are combined in a single decision made by one individual,

both state and federal law may apply to different aspects of the

decision. “ERISA leaves room for complementary or dual federal

and state regulation ....” John Hancock Ins. Co. v. Harris Trust

& Sav. Bank, 510 U.S. 86, 98 (1993); see also Cipollone v. Liggett

Group, Inc., 505 U.S. 504 (1992) (different aspects of the same

cigarette advertising are governed by state and federal law).

7

The Solicitor General has explained that MCOs become

ERISA fiduciaries to the extent that they make discretion-

ary decisions regarding eligibility for access to services

and facilities of an ERISA plan. See U.S. Br. at 26-27.

The determination of “medical necessity” is of course

a highly discretionary action, since different benefits ad-

ministrators or physicians often reach different conclu-

sions about appropriate diagnostic and therapeutic meas-

ures for similarly situated patients.* “[A]ppraisal of med-

ical necessity is an uncertain enterprise, fraught with

ignorance about the comparative efficacy of clinical op-

tions and veiled conflict over the balancing of benefits and

costs.” >

Makers of medical plan coverage decisions owe fiduciary

duties under ERISA to plan participants and beneficiaries

both individually and as a group. These duties include

the duty of loyalty, which requires an ERISA fiduciary

to exercise its responsibility “solely in the interest of the

participants and beneficiaries” and “for the exclusive pur-

pose of . . . providing benefits to participants and their

beneficiaries.” 29 U.S.C. §§ 1104(a)(1), (a)(1)(A) (i).

This duty “has bite . . . it imposes . . . an obligation to

act in the participants’ interest.” Frahm v. Equitable Life

Assurance Soc’y, 137 F.3d 955, 959 (7th Cir.), cert.

denied, 119 S. Ct. 155 (1998).6 See also Donovan vy.

4See John E. Wennberg, Understanding Geographic Variations

in Health Care Delivery, New Eng. J. Med., Jan. 7, 1999, at 52-53;

Dartmouth Atlas of Hec'th Care in the United States (1998);

J. Wennberg & A. Gittelsohn. Small Area Variations in Health

Care Delivery, 182 Science 1102-08 (1973).

5M. Gregg Bloche, Clinical Loyalties and the Social Purpose of

Medicine, JAMA, Jan. 20, 1999, Vol. 281, No. 3, p. 268, 269.

6 This Court has already rejected the argument by petitioners’

amici (Brief of Amici Curiae American Association of Health

Plans, et al., in Support of Petitioners at 26) (“AAHP Br.”) that

ERISA’s fiduciary standards protect only plans’ financial integrity,

not individual beneficiaries. See Varity Corp. v. Howe, 516 U.S.

489, 507 (1996).

8

Bierwirth, 680 F.2d 263, 271 (2d Cir. 1982) (fiduciary

must make all plan-related decisions “with an eye single

to the interests of the participants and beneficiaries”)

(citations omitted); accord Krohn v. Huron Mem'l Hosp.,

173 F.3d 542, 547 (6th Cir. 1999).

B. When an MCO Delegates Its Discretionary Re-

sponsibility Over Plan Coverage Determinations to

Physicians, Roth the MCO and the Physicians Are

ERISA Fiduciaries

MCOs are also acting in an ERISA fiduciary capacity

when they delegate discretionary responsibility in the ad-

ministration of an ERISA plan to another person, such

as a physician. 29 U.S.C. § 1105(c). In such cases, the

MCO is subject to ERISA fiduciary duties both in the

initial making of such delegation decisions and in con-

tinuing those delegations. See 29 U.S.C. §§ 1105(c)(2)

(A)(i), (iii); see also Leigh v. Engle, 727 F.2d 113,

135 (7th Cir. 1984).7 ERISA applies by its terms not

only to the exercise of authority over benefits determina-

tions, but also to the delegation of such authority to

others. A fiduciary’s decisions about how it delegates its

7In this ease, petitioners themselves asserted their fiduciary

status. In their memorandum opposing Herdrich’s motion to

remand this case to state court, they stated that Health Alliance

“was the administrator and fiduciary of the Plan within the mean-

ing of ERISA,” and that Herdrich’s claims against Health Alliance

and Carle Clinic arose from her participation in the plan and

Health Alliance’s role as the fiduciary. Resp’t’s App. C at 24a,

.86a-37a. The district court, in its order granting petitioners’

motion for summary judgment based on preemption, relied on

petitioners’ prior representations that Health Alliance, Carle Clinic,

and Carle Clinic HMO all functioned as fiduciaries. See id. at 9a-

10a. After Herdrich amended her complaint to assert an ERISA

claim, petitioners changed their tack and now insist that they cannot

be subject to fiduciary liability for exactly the same alleged conduct

that they had argued was shielded from state law. See Herdrich

v. Peyram, 154 F.3d 362, 369 n.5 (7th Cir. 1998). Compare Resp’t’s

App. C at 6a-10a with Pet’r’s. Br. 24-26.

9

authority, and to whom, and under what circumstances,

are themselves subject to the same duties of loyalty and

prudence as other fiduciary decisions with respect to an

ERISA plan. See 29 U.S.C. § 1105(c)(2)(A); 29 C.F.R.

§ 2509.75-8 at FR-13, FR-14; H.R. Conf. Rep. No. 93-

1280, at 301 (1974), reprinted in 1974 U.S.C.C.A.N.

5038, 5082. For example, if a fiduciary allocated discre-

tionary authority to a person whom it knew to have an

impermissible conflict of interest, the fiduciary itself could

be liable for breach of its duties. See, e.g., Leigh, 727

F.2d at 135-36.

Petitioners argue (Br. 43-46) that an MCO’s delegation

of its plan administration discretion to physicians, together

with the creation of a financial incentive structure that

may affect the exercise of that discretion, has nothing to

do with ERISA. But that cannot be right: if an MCO

delegates discretionary authority to physicians to deter-

mine what services are “medically necessary” and there-

fore covered under an ERISA plan, and also creates a

structure that rewards physicians for denying medical care,

it may well have breached its duty of loyalty to the

employee-beneficiaries. ERISA attaches because of the

delegation, and a possible claim of fiduciary breach arises

because of the incentive system. The breach is the deliber-

ate placement of discretionary authority in individuals

whose loyalty to plan beneficiaries is compromised.

C. Plan Coverage Decisions and Medical Advice De-

cisions Are Conceptually Distinct, Even Though in

an MCO Environment They Are Commonly In-

separable; Failure To Distinguish Them, and Apply

ERISA to Plan Coverage Decisions, Would Be Bad

ERISA Law and Bad Medicine

In traditional fee-for-service medicine, health care deci-

sions and payment decisions were in principle separate

10

matters. The physician giving health care advice was

expected to consider only the best interests of the patient.

How the patient would pay for the recommended services

was a distinct question: he might do so through personal

resources, or through insurance, or through an employer

health plan. The service also might be “financed” through

the physician’s own charity, but physicians were of course

not obligated to provide services without charge merely

because they recommended them.

Two features of this traditional system are pertinent

to the present case. First, the medical advice and any

“plan coverage” decision were distinct. Patients and phy-

sicians assumed that the physician’s advice about the med-

ical desirability of a particular service did not depend on

whether the patient could afford it or his employer’s plan

covered it. Second, whoever made the plan coverage deci-

sion was an ERISA fiduciary.

Under many current ERISA plan arrangements, includ-

ing the arrangement at issue in this case, the health care

decision and the coverage decision—though conceptually

distinct—have become one decision. The employer adopts

a health plan that offers care by an MCO. The extent of

care provided under the plan is defined by terms like all

“medically necessary” or “medically appropriate” services.

The plan then provides that the determination of “med-

ical necessity” (or “appropriateness”) will be made by

the MCO itself. The MCO may in turn, like the MCO

in this case, delegate that responsibility to the individual

physicians.

In such a case, it is very important, for two quite dif-

ferent reasons, to maintain the conceptual distinction be-

tween the health care decisions and the plan coverage

decisions, and to hold the MCO and the physicians to

11

ERISA fiduciary standards with respect to the latter.’

Petitioners’ effort to immunize the plan coverage decision

from ERISA (or any other) liability is both bad law and

bad medicine.

1. The Plan Coverage Decision

Failure to recognize the dual role played by gatekeeper

physicians effectively immunizes an important category

of plan administrative decisions from any legal review

whatever. The person who decides whether a particular

employer health plan, applied to a particular patient in

particular circumstances, covers a particular diagnostic

test or procedure (or covers a swifter or more sophisti-

8 When a physician who is responsible for the patient’s care also

makes gatekeeping and “medical necessity” determinations, he nec-

essarily makes some decisions that constitute both the practice

of medicine and, under ERISA, the discretionary administration

of plan benefits. In the former role, the physician is subject to

professional standards and state regulation but is not an ERISA

fiduciary. See, e.g., Dukes v. U.S. HealthCare, Inc., 57 F.3d 350,

356-57 (3d Cir. 1995). However, when the physician exercises dis-

cretion with respect to plan administration by, for example, inter-

preting plan provisions, denying claims, and determining access to

benefits and services promised under the plan, he is an ERISA

fiduciary and is subject to liability under ERISA’s fiduciary duty

provisions. See id. See also In re U.S. HealthCare, 193 F.3d 151

(3d Cir. 1999) ; Pryzbowski v. U.S. HealthCare, Inc., 64 F. Supp. 2d

361 (D.N.J. 1999); Huss v. Green Spring Health Servs., 18 F.

Supp. 2d 400 (D. Del. 1998); Moreno v. Health Partners Health

Plan, 4 F. Supp. 2d 888, 892 (D. Ariz. 1998): Edelen v. Oster-

man, 943 F. Supp. 75, 76-77 (D.D.C. 1996). Different MCOs em-

ploy different combinations of centralized administrative review

and contractual delegation of benefits decisions to gatekeeping

clinicians. These two mechanisms are alternative means of per-

forming the same function—administration of health benefits pur-

suant to the open-ended contractual standard of medical necessity.

Robert A. Berenson, A Physician's View of Managed Care, 10

Health Affairs 106 (1991). Centralized administrative review and

physician gatekeeping in the clinic and at the bedside are thus both

fiduciary functions under ERISA.

12

cated approach than might be warranted under other cir-

cumstances) is acting as an administrator of the ERISA

plan, but his actions, according to petitioners, fall into a

legal limbo. He is not liable under state law because his

actions constitute the interpretation of an ERISA plan,

not the practice of medicine, and state law is therefore

preempted. The MCO also cannot be held liable under

state law for decisions interpreting an ERISA plan, or for

the manner in which it delegated responsibility for such

decisions. But, according to petitioners, the physician and

the MCO cannot be held liable under federal law either,

because the decision whether a particular test or procedure

was “medically necessary” is a medical decision, not an

ERISA decision.®

One obvious consequence of this view of the law

would be to distort the structure of the provision of med-

ical services. The desire of employers, MCOs, and physi-

cians all to escape legal responsibility for the interpreta-

tion of the benefits provisions of ERISA plans would

create a strong incentive to establish arrangements in

which benefits provisions are effectively subsumed within

the term “medically necessary” and the highly discretion-

ary decision as to what is medically necessary is immu-

nized from state law liability as an ERISA decision and

from federal law liability as a medical decision.

The irony is that the decisions at issue are exactly the

sort to which fiduciary standards are traditionally thought

to apply. The determination of what tests or treatment is

appropriate for a particular patient in a particular situa-

tion is an inherently discretionary decision—i.e., one for

which the relevant parties, the employee-patient, the em-

9 Both halves of this are wrong. The decision is subject to state

law as a medical decision and to ERISA as a plan coverage deci-

sion. See supra note 3.

13

ployer, the MCO, and the physician, cannot satisfactorily

provide in advance by contract, no matter how detailed a

contract they try to write."° That is precisely the kind of

situation in which the traditional solution is to hold the

persons who will make the discretionary decisions to a

fiduciary standard of responsibility... The potential for

self-serving in the making of discretionary decisions is a

central problem in health care economics precisely be-

cause contracts for medical care and coverage are neces-

sarily incomplete—they cannot avoid conferring great dis-

cretion on physicians and other administrators to deter-

mine medical necessity **—and because purchasers of med-

ical care and coverage (those with the incentive to detect

misappropriation) know less about diagnosis and treat-

ment of disease than do physicians.’*

2. The Health Care Decision

Allowing ERISA plan coverage decisions to be im-

munized from liability by coupling them with health care

decisions under the blanket of “medical necessity” also has

10 See generally Oliver E. Williamson, Transaction Cost Eco-

nomics: The Governance of Contractual Relations, 22 J.L. & Econ.

233 (1979) (arguing that in contractual situations in which all

possibilities cannot be anticipated, one needs to develop workable

governance mechanisms to address ongoing uncertainty in order to

instill trust on the part of the parties).

11 See Tamar Frankel, Fiduciary Law, 71 Cal. L. Rev. 795 (1983) ;

Robert Cooter & Bradley J. Freedman, The Fiduciary Relation-

ship: Its Economic Character and Legal Consequences, 66 N.Y.U.

L. Rev. 1045 (1991).

12In his dissent below (on petition for rehearing), Judge

Easterbrook acknowledges that “[f]iduciary duties are vital when

contracts are incomplete,” 170 F.3d at 686, but he then ignores the

discretionary nature of medical care contracts when he claims that

there is no question about whether the contract here was incom-

plete.

13 Kenneth Arrow, Uncertainty and the Welfare Economics of

Medical Care, 53 Am. Econ. Rev. 941 (1963).

14

an even more serious consequence: it creates a strong in-

centive for the physician to distort his health care advice

to his patient. If the physician has a personal economic

incentive to deny ERISA plan coverage, and his vehicle

for doing so is a discretionary determination that a par-

ticular test or procedure is not “medically necessary,”

there is an obvious risk that the patient will be denied not

only the economic benefit promised by the plan, but

candid health advice.

Patients’ expectations when they seek medical care de-

rive from the 2500 year old Hippocratic ethic of physician

loyalty to patients. This ideal is deeply embedded in both

patients’ understanding '* and the law applicable to medi-

cine.* Moreover, as explained in a now-classic article

by Nobel laureate economist Kenneth Arrow, this ethic

is essential if patients are to trust medical judgment and

such trust is in turn essential to the operation of health

care systems because most patients lack the medical knowl-

edge to evaluate physicians’ recommendations. There

is a large body of scholarly commentary to the effect that

patient trust and physician trustworthiness make diag-

14 See Talcot Parsons, The Social System 428-447 (1951). “As

late as 1969, the philosopher Hans Jonas could assert that ‘the

physician is obligated to the patient and to no one else... . We

may speak of a sacred trust; strictly by its terms, the doctor is,

as it were, alone with his patient and God.’” David J. Rothman,

Strangers at the Bedside 1 (1991) (internal citation omitted).

15 See, e.g., 73 Ill. Comp. Stat. 5/8-802 (Ilinois evidence statute

provides testimonial privilege for physician-patient communica-

tions); State v. Perry, 610 So. 2d 746, 751-53, 769 (La. 1992)

(relying on ethical duty to act only for patient’s well-being in

holding that involuntary medication to render inmate competent

for execution violated state constitutional proscription of cruel and

unusual punishment).

16 Arrow, supra note 13.

15

nosis and treatment more effective’ and enable the

sick to take comfort and draw strength from their

doctors during their most anxious and fearful moments.”*

Arrangements that create incentives for physicians to

declare tests or procedures not “medically necessary” in

order to save the cost of providing them have the poten-

tial to compromise that trust and should be subject to

review under ERISA to determine whether they are

permissible.'®

Because patients typically form deeper, more enduring

relationships with their primary care physicians than with

other health care providers, the dual loyalties of “gate-

keeping” primary caretakers are especially troublesome:

The more powerful the message of fidelity conveyed

within a clinical relationship, the more compelling a

social purpose should be to justify departure from the

17 See, e.g., David Mechanic, Changing Medical Organization and

the Erosion of Trust, 74 Milbank Q. 171, 176 (1996); David Me-

chanic, The Functions and Limitations of Trust in the Provision

of Medical Care, 23 J. Health Pol., Pol’y & L. 661 (Aug. 1998);

Mare A. Rodwin, Medicine, Money and Morals: Physicians’ Con-

flicts of Interest (1993); Arthur L. Caplan, Am I My Brother's

Keeper?: The Ethical Frontiers of Biomedicine (1998); Arnold

Relman, The Impact of Market Forces on the Physician-Patient

Relationship, J. Royal Soc’y Med. 1994; 87 Supp. 22: 22-4.

18 E.g., Jay Katz, The Silent World of Doctor and Patient (1984).

19 There is also, of course, a disclosure problem. When physi-

cians are acting in a dual role, as both medical caregivers and

benefits gatekeepers, their patients may not be aware of both roles.

Absent clear communication from a health plan to its subscribers

that plan physicians will not be held to the Hippocratic ethic of

loyalty to patients, and indeed will be encouraged to depart from

it for the sake of frugal stewardship of plan resources, subscribers

are entitled to expect their physicians to adhere to this ethic—and

to expect the plan to administer benefits in a manner that does not

suborn its breach. A health plan’s promise of “medically necessary”

treatment does not even hint at the scheme of dual clinical loyalties

introduced by financial incentives to gatekeeping physicians to

withhold plan benefits.

16

ethic of undivided loyalty. Health plans that make

primary care physicians into gatekeepers, with strong

incentives to deny access to beneficial care, pose a

special problem in this regard.

* * * *

These concerns bear greatly on the legal controversies

that have marked the rise of managed care. . . .

[T]hey merit judicial recognition of professional du-

ties of loyalty and patient advocacy vis-a-vis health

plans.”

The loss of patient-physician trust is of course not the

direct concern of ERISA, but it is a consequence of mis-

interpreting ERISA. Medical advice and health plan

coverage are both inherently discretionary functions. It

is not necessarily wrong to combine them and apply a

standard of “medical necessity” to both. What is essen-

tial is to remember that the combined decision contains

a plan determination decision, and if an MCO creates a

Structure (particularly a structure not necessarily dis-

closed to patients) that gives physicians a strong personal

economic incentive to make one decision rather than

another, that structure must be subject to testing under

ERISA fiduciary standards.

II. THE INCENTIVE STRUCTURE AT ISSUE IN THIS

CASE CREATES AT LEAST A TRIABLE ISSUE

OF BREACH OF FIDUCIARY DUTY

This case is in this Court following the defendants’

successful motion to dismiss for failure to state a claim.

Whether the plaintiff will be able to prove her claim is not

at issue at this point, and amici take no position on that

question. The incentive structure described in the com-

plaint, however, clearly creates a triable issue as to

20 Bloche, supra note 5, at 273.

17

whether the defendants have breached their fiduciary

duty.

As described in the complaint, the structure created

by the defendants (i) delegates to physicians the authority

to make certain health care related decisions and, at the

same time, (ii) gives the same physicians a substantial

financial incentive, in the form of year-end cash distribu-

tions, for minimizing the use of diagnostic tests, facilities

not owned indirectly by the MCO, and referrals to inde-

pendent physicians. Although the complaint is not art-

fully pleaded, it appears to make out a claim that the

MCO has delegated its ERISA fiduciary responsibility for

determining the tests and other services available to an

employee-patient, such as respondent, to physicians to

whom the MCO has itself offered a financial incentive that

is inconsistent with the ERISA duty of loyalty to the

employee. If these allegations are correct, the MCO may

have violated ERISA fiduciary duties by delegating them

to persons with a clear and substantial conflict of interest,

and the physicians may have violated ERISA fiduciary

duties by exercising such responsibilities despite the con-

flict. Respondent should be given an opportunity to prove

that claim.

Amici are not suggesting that either health care deci-

sions or plan coverage decisions can—or even that they

should—always be made without consideration of cost and

without any economic incentive influencing the physician.

The problem of how to contain health care costs is real,

and amici support ongoing creative efforts to solve it in

ways that are fair to employee-patients. But there is a dif-

ference between general, widely shared, structural incen-

tives to cut costs and an incentive that is so pointed and

substantial that it would plausibly influence the “medical

necessity” judgment in an individual case.

18

Petitioners argue (Br. 46-47) that some conflicts of

interest are inevitable in any method of providing and

financing health care.*4 For example, Judge Easterbrook’s

dissent below noted (170 F.3d at 684) that in traditional

fee-for-service medicine the physicians had an incentive

to recommend marginal or unneeded services in hopes of

earning a fee. But such abuses were, in principle, subject

to challenge as malpractice. The kind of incentive alleged

in this case, where the “gatekeeper” physician assertedly

received economic benefits specifically tied to decisions

of the kind at issue—is inconsistent with the duty of

loyalty imposed by ERISA.

Petitioners also argue (Br. 39-40) that physician eco-

nomic participation is essential to effective cost-contain-

ment,”* but that is not true. Risk-sharing incentives are

21 Petitioners also contend that ERISA allows a single entity to

have “dual loyalties” and that ERISA’s fiduciary duties do not

preclude decisionmaking based on business factors. Br. 43-45.

But Petitioners rely on a series of cases dealing solely with the

role of employers in establishing and designing benefit plans. See,

e.q., Hughes Aircraft Co. v. Jacobsen, 525 U.S. 482 (1999). Lock-

heed Corp. v. Spink, 517 U.S. 882 (1996); Curtiss-Wright v.

Schoonejongen, 514 U.S. 73 (1995). These cases are inapposite

because the “dual loyalties” permitted to employers do not come

into play here. Recognizing that employers necessarily consider

business factors when making basic decisions regarding plan estab-

lishment and design, this Court has held that ERISA’s fiduciary

duty pro isions do not apply to employer decisions to establish.

amend or terminate plans. See Hughes Aircraft Co., 525 U.S. 482:

Lockheed, 517 U.S. at 893-94; Curtiss-Wright, 514 U.S. 73. Here,

the relevant employer, State Farm (which is not a defendant),

established the ERISA plan in this case, and petitioners cannot rely

on the special allowance for employers’ dual loyalties. Moreover, the

“dual loyalties” cases do not exempt employers from potential

ERISA fiduciary liability for conflicts of interest. See, ¢.g., Varity

Corp. v. Howe, 516 U.S. 489 (1996).

22 See also AAHP Br. 8, 8, 17.

19

only one of many ways MCOs achieve their savings. Net-

work development, management and coordination of prac-

tice, review of whether physicians are making appropriate

decisions and referrals, the integration of group practices,

and other techniques of managed care also reduce costs.*

MCOs are developing more sophisticated physician com-

pensation methods to incorporate measures of quality,

patient satisfaction, and efficiency (achieving the same

result at less cost), rather than simply reward reduced

costs.** Thus, MCOs will have a variety of means to con-

trol their spending even if limits are placed on the use of

some kinds of physician risk-sharing incentives.

The reason why MCOs create financial incentives for

physicians to reduce levels and expenses of service is that

they do indeed reduce costs. But they achieve this by in-

ducing physicians to make intertwined coverage and

health care decisions different from those they would

make if their only concern were the employee-patient. As

Judge Easterbrook noted, “The HMO structure differs sub-

stantially from traditional fee-for-service medicine in giv-

ing the HMO an incentive to skimp on care once an

illness is discovered.” 170 F.3d at 684.

The very purpose of ERISA is to assure that persons

making discretionary benefits decisions act under a duty

of loyalty to the beneficiary. See H.R. Conf. Rep. No. 93-

1280, at 297, reprinted in 1974 U.S.C.C.A.N. at 5078 (the

23 Development of provider networks both empowers health plans

to win price concessions from providers and creates incentives for

providers to conform their clinical practice styles to network

norms (in order to sustain or increase flows of patients). Ching-to

Albert Ma & Thomas G. McGuire, Network Incentives in Managed

Health Care (Oct. 1999) (unpublished paper on file at the Boston

University Dep’t of Economics).

24 Neil Schlackman, Evolution of a Quality-Based Compensation

Model: The Third Generation, 8 Am. J. Med. Quality 103 (1993).

20

written plan must identify the named fiduciary with ulti-

mate authority over and liability for plan administration,

including the making of payments from the plan).*” The

Statute was enacted “to promote the interests of employ-

ees and their beneficiaries in employee benefit plans.”

Shaw v. Delta Air Lines, Inc., 463 U.S. 85, 90 (1983)

(citations omitted); accord Firestone Tire & Rubber Co.

v. Bruch, 489 U.S. 101, 113 (1989). It protects em-

ployee and beneficiary interests “ “by establishing standards

of conduct, responsibility, and obligation for fiduciaries

... and... providing for appropriate remedies . . . and

ready access to the Federal courts.’” Varity Corp. v.

Howe, 516 U.S. 489, 513 (1996) (quoting ERISA

§ 2(b)) (alterations in original). This Court has said

that Congress expected the courts to interpret ERISA’s

fiduciary standards “bearing in mind the special nature

and purpose of employee benefit plans.” Jd. at 497 (cita-

tion omitted). See also Firestone Tire & Rubber Co.,

489 U.S. at 113-14. Contrary to petitioners’ sugges-

tion (Br. 34) that ERISA narrowed the scope of tradi-

tional fiduciary obligations, Congress determined that

the common law of trusts did not offer enough protec-

tions. See Varity, 516 U.S. at 497; H.R. Conf. Rep.

No. 93-1280, at 295, 302 (1974), reprinted in 1974

U.S.C.C.A.N. 5038, 4650. This Court should not accept

petitioners’ invitation to immunize an important mecha-

nism for determining the coverage of an ERISA health-

care plan from review under ERISA fiduciary standards.

25 See also 29 U.S.C. § 1103(2) (“appropriate named fiduciary”

must be in charge of final benefits claims decisions); id. § 1102(a)

(each plan must specify its named fiduciaries in writing); id.

§ 1102(b)(4) (each plan must specify in writing the method for

making payments out of the plan); 29 C.F.R. § 2560.503-1(g) (ap-

peals of benefit denials must be made to a named fiduciary).

21

Ill. THE HEALTH CARE MARKET IS CONTINUOUSLY

AND RAPIDLY CHANGING, AND RULES OF LAW

SHOULD NOT BE FIXED FOR THE FUTURE

BASED ON TODAY’S PRODUCTS

Neither the majority nor the dissent in the court below

correctly described the role of financial incentives in man-

aged care and cost-containment or the effect of financial

incentives on physician behavior. If the Court considers

the implications of such incentives in health policy in

analyzing the legal issues in this case it should do so on

a sound basis:

Many policies that give physicians incentives to with-

hold services originate from private institutions and

government agencies as responses to the distortions

of fee-for-service medical practice. A simple syllogism

has governed policy: giving physicians incentives to

perform services produces undesirable effects. Ergo,

eliminate these problems by giving physicians incen-

tives to refrain from performing services. Only one

thing was overlooked: rewarding physicians for using

resources frugally does not eliminate financial conflicts

of interest. It creates new conflicts with different

effects.

Physicians have generally been compensated for their

work and thus financial incentives have always been part

of health care. Until early in the 20th century most doc-

tors, hospitals, and other medical providers were paid a

fee for each service they provided, except when providing

charity care. This form of payment encouraged doctors

to increase the services provided. Starting in the 1930s,

experiments with prepaid group practice, a precursor of

HMOs, paid doctors a salary in part to counter the per-

26 Rodwin, supra note 17, at 135 (internal citations omitted).

22

verse effect of fee-for-service payment, in part to reduce

the cost of providing medical care. Pre-paid group prac-

tice and HMOs that paid physicians a salary reduced the

performance of unnecessary services, particularly surgery,

and cut health care spending.2” More recently, MCOs

have introduced newer forms of incentives including phy-

sician risk-sharing. Risk-sharing is achieved by paying

physicians per capita for providing all services necessary

to a particular patient and through a wide array of finan-

cial reductions and bonuses. A common feature of risk-

sharing is that it makes doctors bear some of the financial

cost for the services they themselves provide; more re-

cent risk-sharing models make doctors financially respon-

sible also for the services they recommend or order

through referrals, tests, or use of hospitals.

The aim of risk-sharing incentives for physicians under

managed care is undisputed: to make physicians consider

the financial implications of the clinical choices they make.

In using this approach MCOs hope to enlist physician

help in controlling health care spending. Quite explicitly,

risk-sharing incentives ask doctors to consider their own

financial interest in making diagnoses, choosing what tests

or medications to prescribe and evaluating competing

treatments. MCOs use such incentives because the dis-

cretionary judgments of doctors in providing patient care

have an enormous influence on resource use and thus af-

fect the financial status of organizations that contract to

provide services for a set premium.

Although benefit packages for MCO and indemnity in-

surance typically exclude a few benefits, they generally

state that they will cover all medical care that is “medi-

cally necessary” or “medically appropriate.” As discussed

27 See generally David Mechanic, From Advocacy to Allocation:

The Evolving American Health Care System (1986).

-

p

23

above in Section I.C.1., such terms are not clearly defined

in contracts (and cannot be because medical standards

change). Like legal principles, terms like “medical neces-

sity” must be applied to facts to yield specific results. It

is doctors who make such determinations on a case-by-case

basis, and it is to influence such decisions with the hope

of preserving resources for the organization or its owners

that doctors are given financial incentives.

A substantial body of research demonstrates that fee-

for-service payment of physicians correlates closely with

higher utilization of hospital and other clinical services

and that capitation and other incentives to withhold care

correlate closely with lower utilization.28 It is not known

at what point such incentives lead to undertreatment of

patients or whether or to what extent MCO quality assur-

ance programs can ensure quality and prevent under-

treatment, but there is rcason to be concerned that such

incentives will produce effects at least as perverse as fee-

for-service payment.?9

Managed care does have several desirable goals inde-

pendent of containing medical costs, including promoting

the use of evidence-based medicine, improving medical

care, and coordinating medical services more rationally.

Limits on physician incentives that MCOs use might affect

the way managed care is practiced today, but the managed

care of today is quite different from the managed care of

a decade and a half ago and the managed care of to-

morrow will be different again. Managed care is not now

and has never been one distinct idea or method but rather

a variety of approaches to managing medical care. And it

28 See Thomas Rice, Physician Payment Policies: Impacts and

Implications, 18 Ann. Rev. Pub. Health 549 (1997).

29 See Norman Daniels & James Sabin, Accountability for Rea-

sonableness, Professionalism, and the Ethics of Physician Incen-

tives (unpublished paper on file at the Tufts University Dep’t of

Philosophy).

24

is rapidly changing in response to markets, legislation,

and the intervention of private and public payers of medi-

cal services that are setting constraints on how managed

care operates. The Court has been invited by the opinions

below to legislate bright-line rules about fiduciary status

and fiduciary breaches under managed care. The Court

need not draw bright lines excluding all cost-containment

measures and all physician decision-making from judicial

review in order to preserve the ability to control health

care costs.

CONCLUSION

The judgment of the Court of Appeals for the Seventh

Circuit should be affirmed.

Respectfully submitted,

Louis R. COHEN

Counsel of Record

WILLIAM J. FLANAGAN

RuTH E. KENT

CAROL J. BANTA

WILMER, CUTLER & PICKERING

2445 M Street, N.W.

Washington, D.C. 20037

(202) 663-6000

Counsel for Amici Curiae

APPENDIX

la

Appendix: List of Amici

In the following list, titles and affiliations are for purposes

of identification only. This brief represents the views of

amici individually and does not necessarily represent the

views of institutions with which they are affiliated.

M . Gregg Bloche, M.D., J.D.

Georgetown University Law Center, Johns Hopkins

University School of Public Health

Marc A. Rodwin, J.D., Ph.D.

School of Public and Environmental Affairs,

Indiana University

Peter P. Budetti, M.D., J.D.

Professor and Institute Director, Institute for Health

Services Research and Policy Studies,

Northwestern University

Norman Daniels, Ph.D.

Department of Philosophy, Tufts University

Carola Eisenberg, M.D.

Harvard Medical School, Department of Social Medicine

Leslie Pickering Francis, J.D., Ph.D.

University of Utah (College of Law and Department of

Philosophy )

Eliot Freidson, Ph.D.

New York University

Ruth D. Gaare, J.D., MPH

University of Virginia and Johns Hopkins Bioethics

Institute

Eli Ginzburg, Ph.D.

Director, Eisenhower Center, Columbia University

Eugene C. Grochowski, Ph.D., M.D., FACP

Associate Professor, The Johns Hopkins University

School of Medicine, The Bioethics Institute of the

Johns Hopkins University

2a

Michael A. Grodin, M.D.

Boston University Schools of Medicine and Publjc Health

Alan L. Hillman, M.D., M.B.A.

University of Pennsy!vania

Joel D. Howell, M.D., Ph.D.

University of Michigan

Patricia Illingsworth, J.D., Ph.D.

Northeastern University, Department of Philosophy and

Religion

Peter D. Jacobson, J.D., MPH

University of Michigan School of Public Health

Timothy Stoltzfus Jost, J.D.

Newton D. Baker, Baker & Hostetler Professor, Ohio State

University Colleges of Law and of Medicine and Public

Health

Jeffrey P. Kahn, Ph.D., MPH

Director, Center for Bioethics, Associate Professor of

Medicine, Public Health, and Philosophy,

University of Minnesota

Sheldon F. Kurtz, J.D.

Percy Bordwell Distinguished Professor of Law,

University of Iowa College of Law

Wendy K. Mariner, J.D., L.L.M., MPH

Boston University School of Public Health

Thomas Wm. Mayo, J.D.

Southern Methodist University School of Law

Jonathan D. Moreno, Ph.D.

Kornfeld Professor and Director, Center for Biomedical

Ethics, University of Virginia

Thomas R. Oliver, Ph.D., MHA

Johns Hopkins University

3a

Edmund D. Pellegrino, M.D., M.A.C.P.

John Carroll Professor of Medicine and Medical Ethics,

Center for Clinical Bioethics,

Georgetown University Medical Center

Mark A. Peterson, Ph.D.

UCLA School of Public Policy and Social Research

Thomas Rice, Ph.D.

UCLA School of Public Health

John A. Robertson, J.D.

University of Texas School of Law

Andrew W. Siegel, J.D., Ph.D.

Bioethics Institute (Core Faculty and Associate Director

for Academic Programs), Johns Hopkins University

Anita Silvers, Ph.D.

Professor of Philosophy, San Francisco State University

Alan A. Stone, M.D.

Touroff-Glueck Professor of Law and Psychiatry in the

Faculty of Law and Faculty of Medicine,

Harvard University

Richard Scott Stuart, M.D.

Johns Hopkins University and Hospital (Cardiac surgery/

Ethics committee/Bioethics Institute)

Walter Wadlington, LL.B.

University of Virginia Law School

Susan M. Wolf, J.D.

Professor of Law and Medicine, University of Minnesota

Law School and Center for Bioethics

Lawrence O. Gostin, J.D., LL.D. (Hon.)

Professor of Law and Public Health, Georgetown

University, The Johns Hopkins University, Co-Director,

Georgetown/Johns Hopkins Program on Law and Public

Health

Roy G. Spece, Jr., J.D.

University of Arizona College of Law

Marjorie M. Shultz, J.D.

Boalt Hall School of Law, University of California at

Berkeley