Amicus Curiae Brief — Rush Prudential HMO, Inc. v. Moran

—_

Supreme Court, U.S

“TILED

NOV § 290)

No. 00-1021 ed

3n the

Supreme Court of the United States

RUSH PRUDENTIAL HMO, INC.,

Petitioner,

Vv.

DEBRA C. MORAN AND STATE OF ILLINOIS,

Respondents.

On Writ of Certiorari to the

United States Court of Appeals

for the Seventh Circuit

BRIEF OF THE STATES OF TEXAS, ARIZONA,

CALIFORNIA, CONNECTICUT, DELAWARE, FLORIDA,

HAWAII, INDIANA, MAINE, MARYLAND,

MASSACHUSETTS, MICHIGAN, MINNESOTA, MISSISSIPPI,

MISSOURI, MONTANA, NEVADA, NEW JERSEY, NEW

MEXxICco, NEW YORK, NORTH CAROLINA, OHIO,

OKLAHOMA, PENNSYLV SOUTH CAROLINA,

TENNESSEE, UTAH, VERMONT, VIRGINIA, WASHINGTON,

WEST VIRGINIA, AND WYOMING, AND THE TERRITORY

OF PUERTO RICO

AS AMICI CURIAE IN SUPPORT OF RESPONDENTS

JOHN CORNYN * DAVID C. MATTAX

Attorney General of Texas Chief, Financial Litigation Div.

HOWARD G. BALDWIN, JR. CHRISTOPHER LIVINGSTON

First Assistant Attorney General Assistant Attorney General

JEFFREY S. BOYD P.O. Box 12548

Deputy Attorney General Austin, Texas 78711-2548

JULIE PARSLEY (512) 463-2018 Telephone

Solicitor General (512) 477-2348 Telecopier

*Counsel of Record COUNSEL FOR AMICI CURIAE

— re ee

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ELIOT SPITZER

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Roy Cooper

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BETTY D. MONTGOMERY

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CHRISTINE O. GREGOIRE

Attorney Gen of Washington

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DARRELL V. MCGRAW, JR.

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QUESTION PRESENTED

Whether Congress intended that the Employee

Retirement Income Security Act of 1974 (ERISA) preempt

state laws that provide for binding, independent review of an

HMO’s decision that the treatment recommended by a

patient’s treating physician is not medically necessary.

TABLE OF CONTENTS

Page

QUESTION PRESENTED ..... S ciusassdasdicese i

TABLE OF AUTHORITIES ..................... lil

INTEREST OF THE AMICI] CURIAE .............. l

SUMMARY OF ARGUMENT .................... 3

Ee nen Sesaneseene tend 6

1 This Court Should Clarify that Traditional

Preemption Principles Govern ERISA

Preemption Analysis. ...................... 6

Il. Section 4-10 is Not Within the Field of

ERISA’s Express Preemption Provision and Is

Within the Scope of the State Laws That

Congress Understood Would Survive ERISA

Cll ee oe a Cie et ees anes emis « 12

Ill. Congress Expressly Intended State Insurance

Statutes, Like Illinois’s Independent Review

Statute, to Survive Preemption Analysis ....... 17

IV. Section 4-10 Does Not Conflict With ERISA. .. 24

ET cs onasnasb ose Gueoueceeessndeens 30

TABLE OF AUTHORITIES

CASES Page

Alessi v. Raybestos-Manhatian, Inc..,

451 U.S. 504 (1981)... 2... eee 9

Boggs v. Boggs,

§20 U.S. 833 (1997) ................. 3, 8, 25

Cal. Div. of Labor Standards Enforcement v. Dillingham

Constr., N.A., Inc.,

519 U.S. 316 (1997) ..........0.... 3, 7, 8, 12

Cipollone v. Liggett Group, Inc.,

DEE dn va dSdccedeecececess 11

Corporate Health Ins., Inc. v. Tex. Dep't of Ins.,

215 F.3d 526, reh'g en banc denied,

220 F.3d 641 (Sth Cir. 2000), petition for

cert. filed sub nom Montemayor v. Corporate

Health Ins., Inc., 69 U.S.L.W. 3317

(U.S. Oct. 24, 2001) (No. 00-665) .... 15, 18, 19

De Buono v. NYSA-ILA Med. & Clinical Serv. Fund,

§20 U.S. 806 (1997)... eee eee. 11

District of Columbia v. Greater Wash. Bd. of Trade,

EE Corer rer ee ee 8

Egelhoff v. Egelhoff,

121 S.Ct. 1322 (2001) .... 0... 7, 8, 12, 17

FMC Corp. v. Holliday,

490 U.S. 52(1990) ................. 21

Fort Halifax Packing Co. v. Coyne,

482 U.S. 1 (1987) ..................... 9, 10

Franchise Tax Bd. v. Constr. Laborers Vacation Trust,

CS rs ee te 28

Gade v. Nat'l Solid Wastes Mem. Ass'n,

50S U.S. 88(1992) ...................... 24

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

471 U.S. 707(1985) ........ 24

Ingersoll-Rand Co. v. McClendon,

498 U.S. 133(1990) ................. passim

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

Bank

$10U.S.86(1993) ................, 7, 23

Lingle v. Norge Div. of Magic Chef, Inc.,

486 U.S. 133 (1998) ................ 6, 28, 29

Lorillard Tobacco Co. v. Reilly,

121 S.Ct. 2404(2001) .... 0... 20

iv

Mackey v. Lanier Collection Agency & Serv., Inc. :

486 U.S. 825(1988) ................ 8

Massachusetts v. Morash,

490 U.S. 107(1989) ......... 28

Massachusetts Mut. Life Ins. Co. v. Russell,

473 U.S. 134(1985) 6... 26, 27

Medtronic, Inc. v. Lohr,

518 U.S. 470 (1996) .......0.0000. 11

Metropolitan Life Ins. Co. v. Massachusetts,

471 U.S. 724(1985) ...... 6... 9, 20, 21, 23

Moran v. Rush Prudential HMO, Inc. :

230 F.3d 959 (7th Cir. 2000) ...... 6, 18, 19, 20

New York State Conference of Blue Cross & Blue Shield

Plans v. Travelers Ins. Co.,

514U.S.645(1995).............. Passim

Pegram v. Herdrich,

530 U.S. 211 (2000) .................. passim

Pilot Life Ins. Co. v. Dedeaux,

481 U.S. 41(1987)....... 19, 22, 27

Prudential Ins. Co. of Am. v. Nat'l Park Med Crr.,

154 F.3d 812 (8th Cir. 1998)................ 6

v

Shaw v. Delta Air Lines,

Es ss cin bh cd enieeaader 9, 25

Silkwood v. Kerr-McGee Corp.,

EE i es aetna ek ad eu teks a4

State Bd. for the Healing Arts v. Fallon,

41 S.W.3d 474 (Mo. 2001), cert. denied,

70 U.S.L.W. 3129 (U.S. Mo. Oct. 29, 2001)

DPE “UU veseevuceneeeseeeuseeeen 14

UNUM Life Ins. Co. of Am. v. Ward,

es a's 6s ob os a passim

U.S. Dep't of Treasury v. Fabe,

SE ob vas cava cneneaens 19, 21

U.S. v. South-East Underwriters,

na od 6 Weleda da ae 21

FEDERAL STATUTES

ep ED i cacy suena bce wessd anes 21

Labor Management Relations Act of 1942,

eae tt Pa Cr 27

Employée Retirement Income Security Act of 1974,

SP aes OF PROD oc ccc cccsccas passim

PS PUES Sah esvetasgsnaxeevans 25, 28

29U.S.C.§ 1104 000... eee eee 23

ae passim

S9US.C. GUIS ........ bach aeeeeods 26

29U.S.C.§ 1144 ......... celine 0: tad passim

McCarran-Ferguson Act, 15 U.S.C.§ 1012 ... 18, 19, 21

STATE STATUTES

ALASKA STAT. §21.07.050 .................0000.

ARIZ. REV. STAT. § 20-2537 .............----0 000.

CAL. [HEALTH & SAFETY] CODE § 1374.30 ..........

CAL. [INS.] CODE § 10169 ................000 0.

COLO. REV. STAT. § 10-16-113.5 ............-0....

CONN. GEN. STAT. §388-478n ........ oe eee eee eee.

D.C. CODE §32-571.7 0000 occ cece ccc cece cece. !

sc nknwedebeanen ented ses l

FL. STAT. §§ 641.51-641.511 .............0000005.

GA. CODE § 33-20A-32 2... eee eee cece e eee !

vii

Rs ii rec renatanaeeaneaes l N.M. ADM. Cope tit. 13, § 10.17.24 ................ l

215 ILL. Comp. STAT. 125/4-10 ............... passim NY. [INS.] LAW § 4224(a{1)) ... 6. eee eee eee 23

IND. INS. CODE § 27-13-10.1-1 2.0... eee eee. I N.Y. [INS.] LAW § 4904.00.00. eee eee l

ee viv ccd cusiow taeene nee’ l N.Y. (PUB. HEALTH] LAW § 4904 .................. l

i DS, 5. koko he cenccuanceesauss I 2001 N.C. Sess. LAWS 446(S.B.199)............--. l

ek RL ere rrrrerre ! OHIO REV. CODE § 1751.84 .............. eee, l

ve 8 A re l OKLA. STAT. tit. 63, § 2528.3 ...... 0... cece ee eee I

ME. REV. STAT. tit. 24-A,§ 4312 ................... 1 PPT Per eT Tree Trerre rrr Te 2

Mass. GEN. LAWS ch. 1760,§ 14 .................. 1 A ED Ss ced cdcccccccccecennenes 2

Mb. Cope [INS.] §§ 15-10A-03 .................... 1 BE Ge RIED onc ceccccccesccseess 2

MICH. Comp. LAWS §§ 550.1901-1929 .............. I S.C. CODE §§ 38-71-1910-2060 ................ ao

a I a ioc sock ces ¥ocdcvecdnes I TENN. CODE § 56-32-227 ........ 0... eee eee eee: 2

Mo. REV. STAT. § 376.1385... 0.0... 0.0 eee eee ee I TEX. INS. CODE ART. 21.58A...........-500555. 2, 15

MONT. CODE § 33-37-102 ... 0... cece 1 RIE 5c ccacboccconssesevsese 2

I og cook ccdccsvccenduiaseds I VT. STAT. ANN. tit. 8,§4089F ................-05-. 2

N.J. STAT. §§ 26:2S-11, 26:2S-12 ..............005. l VA. CODE §§ 38.2-5900-5905 ........ 0... eee 2

viii ix

WASH. REV. CODE § 48.43.535 .................... 2

2001 W. VA. ACTS 166 (H.B. 2216) (to be codified at

W. VA. CODE § 33-25C-6) .................. 2

OTHER AUTHORITIES

J. Scott Andresen, /s Utilization Review the Practice of

Medicine ?, Implications for Managed Care

Administrators,

19 J. LEGAL MED. 431 (Sept. 1998) .......... 14

William M. Acker, Jr., Can the Courts Rescue ERISA ?,

29 CUMB. L. REV. 285 (1999) ............... 7

Geraldine Dallek and Karen Pollitz, Institute for Health

Care Research and Policy, Georgetown University,

External Review of Health Plan Decisions: An

Update, May 2000, <http://www.kff org/content/

archive/3020/review_r.pdf> (prepared for the

Henry J. Kaiser Family Foundation) ........ 2, 25

The President’s Advisory Commission on Consumer

Protection and Quality in the Health Care Industry,

Quality First: Better Health Care for All

Americans, Final Report to the President of the

Ev os eo i ods Sa waked 25

INTEREST OF THE AMICI CURIAE

The state amici curiae, through their Attorneys

General, respectfully submit this brief in support of

Respondents Moran and State of Illinois asking the Court to

affirm the judgment of the Seventh Circuit. States have a vital

interest in ensuring that the scope of preemption by the

Employee Retirement Income Security Act of 1974 (ERISA)

is not extended beyond Congress’s intent. The text of ERISA

and decisions of this Court evidence that Congress intended to

reserve powers to the States. ERISA § 514(b\(2)(A)

preserves the States’s authority to regulate insurance and

nothing in ERISA evidences an intent to displace the States’s

historical role to regulate healthcare. New York State

Conference of Blue Cross & Blue Shield Plans v. Travelers

Insurance Co., 514 U.S. 645, 661 (1995).

The statute at issue in this case, § 4-10 of the Illinois

HMO Act is one of forty state independent review statutes!

' 215 ILL. Comp. STAT. 125/4-10; ALASKA STAT. § 21.07.050; ARiz.

REV. STAT. § 20-2537; CAL. [HEALTH & SAFETY] CODE § 1374.30; CAL.

[INs.] CODE § 10169; COLO. REV. STAT. § 10-16-113.5; CONN. GEN.

STAT. § 38a-478n; DEL.CODE tit. 16, § 9119; FL. STAT. §§

641.51-641.511; GA. CODE § 33-20A-32; Hi. REV. STAT. § 432E-; IND.

INS. CODE § 27-13-10.1-1; lowA CODE § 514J; KAN. STAT. § 40-22a13;

Ky. ST. § 304.17A-623; LA. REV. STAT. § 22:3081; ME. REV. STAT. tit.

24-A § 4312; MD. CODE [INS.] § 15-10A-03; MAss. GEN LAWs ch. 1760,

§ 14; MicH. Comp. Laws §§ 550.1901-1929; MINN. STAT. § 62Q.73;

Mo. REV. STAT. § 376.1385; MONT. CODE § 33-37-102; N.H. REV.

STAT. 420-J:5; N.J. STAT. §§ 26:2S-11, 26:2S-12; N.M. ADM. Cope tit.

13, § 10.17.24; N.Y. [INs.] Law § 4910; N.Y. [PuB. HEALTH] Law §

4910; 2001 N.C. Sess. Laws 446 (S.B. 199); OHIO REV. CODE § 1751.84;

OKLA. STAT. tit. 63, § 2528.3; Or. LeGis. ch. 266; 40 PA. STAT. §

that provide some form of independent review of a health

maintenance organization’s (HMO) reversal of a treating

physician’s medical-necessity decision. These statutes are

intended to improve the quality of care provided by HMOs.”

Although the particulars of independent review differ from

State to State, the laws all require an HMO to use an

independent reviewer. External Revire Update, p.1.

Differences among the States include the role of regulatory

agencies, and whether the insured, the physician, or another

individual may request the independent review. /d. But they

all “serve as a safety valve” to correct mistakes or ill-advised

decisions by HMOs. /d. This is all part of the States’s

traditional function of regulating healthcare and insurance.

Rush Prudential’s claim of a right to engage in medical

decisionmaking without regard for state law cannot be

squared with congressional intent, this Court’s jurisprudence,

and federalism concerns. The state amici curiae ask the Court

to affirm the Seventh Circuit’s judgment, which held that § 4-

10 of the Illinois HMO Act is not preempted by ERISA.

991.2162; RI. GEN. Laws § 23-17.12-10; S.C. CopE §§ 38-71-

1910-2060; TENN. CODE § 56-32-227; TEX. INS. CODE art. 21.58A;

UTAH CODE § 31A-22-629; VT. STAT. tit. 8, § 4089f; Va. CODE §§

38.2-5900-5905; WASH. REV. CODE § 48.43.535; 2001 W. Va. Acts 166

(H.B. 2216) (to be codified at W. VA. CODE § 33-25C-6). The District of

Columbia also has enacted an independent review statute. D.C. CODE §

32-571.7.

* Geraldine Dallek and Karen Pollitz, Institute for Health Care Research

and Policy, Georgetown University, External Review of Health Plan

Decisions: An Update, May 2000, p.l,

<hitp://www. kff org/contenVarchive/3020/review_r.pdf> (prepared for

the Henry J. Kaiser Family Foundation) (“External Review Update”).

2

SUMMARY OF ARGUMENT

The circuit courts have often taken such an expansive

view of ERISA’s “relate to” preemption clause that “for all

practical purposes pre-emption would never run its course.”

Travelers, 514 U.S. at 655. Consequently, this Court ruled

that absent the express intent of Congress to preempt,

traditional state powers can and should coexist with federal

regulation. /d. at 661. Again, in 1997, the Court applied

traditional preemption analysis, rather than relying on the

enigma of ERISA’s express preemption clause, to determine

whether ERISA preempted state law. Boggs v. Boggs, 520

U.S. 833 (1997). The circuits, however, continue to employ

myriad “relate to” tests and, as a result, ERISA preemption

analysis is mired in a jurisprudentiai quagmire. This Court

should clarify that ERISA’s express preemption provision,

including the “relate to” clause, is essentially a reference to

traditional preemption jurisprudence.

Under traditional preemption principles, as well as the

test for ERISA preemption enunciated in cases such as

California Division of Labor Standards Enforcement v.

Dillingham Construction, N.A., Inc., 519 U.S. 316 (1997),

independent review statutes, like § 4-10, are not preempted by

ERISA. This Court noted in Pegram v. Herdrich, 530 U.S.

211 (2000), that medical-necessity decisions are mixed-

eligibility decisions consisting of aspects of both medicine and

coverage, but reserved the question of what standards would

govern a claim by a patient who was denied reimbursement for

medical care. Pegram, 520 U.S. at 229 n.9 (citing 29 U.S.C.

§ 1132(a)(1B)). This case places that unresolved question

squarely before this Court.

In order to answer that question, the Court must first

determine whether the coverage aspect of a mixed-eligibility

decision predominates over the medical aspect. The state

amici believe the medical aspect must necessarily predominate

in a medical-necessity decision, as the very terms imply. The

question is one of medical necessity—a decision involving the

exercise of medical judgment. Because regulation of the

exercise of medical judgment is historically a matter of State

concern, there must be some evidence that Congress intended

to preempt the States’s ability to regulate these decisions. The

State amici maintain that there is no evidence of such

congressional intent and thus independent review laws—the

process the States have chosen to regulate these medical-

necessity decisions—are not preempted by ERISA.

Even if, on the other hand, the Court concludes the

coverage aspect of a medical-necessity decision predominates,

then independent review laws are nevertheless not preempted

for two reasons. First, independent review laws do not

impinge on plan administration in a way that requires

preemption because medical-necessity decisions are

necessarily unique, fact-specific decisions involving medical

judgment, rather than uniform coverage decisions involving

interpretation of plan documents. Second, if medical-necessity

decisions are construed as coverage decisions, then they

should be considered insurance coverage decisions, and

Congress expressly partitioned the power to regulate

insurance from ERISA’s preemptive reach. Although the

regulation of mixed-eligibility decisions may not appear to be

traditional insurance regulation, that is because of the medical

nature of the decisions. If the decisions do not fall under the

purview of medical regulation because of the coverage aspect

4

of the decision, that cannot mean the coverage aspect is not

under the purview of insurance regulation because of the

medical aspect of the decision. To hold otherwise allows

HMOs to evade state regulation entirely by couching their

coverage decisions in terms of medical necessity. The state

amici believe there is no evidence that Congress intended to

grant HMOs this unique exemption from all state regulation.

Although Rush Prudential asserts that Illinois’s

independent review law is preempted as an alternate

enforcement mechanism that conflicts with ERISA § 502(a),

an analysis of this Court’s decisions construing § 502(a)

demonstrates that Congress did not intend for § 502(a) to

preempt state independent review laws. If medical-necessity

decisions are viewed as medical in nature and Congress did

not intend for ERISA’s express preemption provision to

preempt state healthcare regulation, it could not have intended

for § 502(a) nevertheless to preempt that very same state

regulation. If these decisions are considered only coverage

decisions involving payment, then independent review laws

would come within ERISA’s saving clause, and § 502(a)

should not be construed contrary to the express language of

the saving clause to preempt state insurance laws.

Finally, in any event, the concerns underlying this

Court’s decisions that § 502(a) preempts alternate

enforcement mechanisms are not at issue in medical-necessity

decisions because the very nature of these decisions involve

questions of medical judgment, not plan interpretation. The

questions raised are not whether a plan has chosen to cover a

particular treatment. The questions are whether a covered

treatment is medically necessary. These are fact-specific

questions as this Court noted in Pegram. Even though those

fact-specific questions may be the basis of both an independent

review and a § 502(a) action, that does not give rise to

preemption under this Court’s decision in Lingle v. Norge

Division of Magic Chef, Inc., 486 U.S. 133 (1988), a case

underpinning this Court’s alternate enforcement mechanism

preemption decisions.

ARGUMENT

The Seventh Circuit held that ERISA did not preempt

§ 4-10 of the Illinois HMO Act. Moran v. Rush Prudential

HMO, Inc., 230 F.3d 959 (7th Cir. 2000). The court thought

that § 4-10 could subject ERISA plans to conflicting state

regulations and, therefore, had a “connection with” ERISA.

Id. at 968. But the court held that § 4-10, as a law regulating

insurance, becomes part of the insurance contract. /d. at 970.

Additionally, because § 4-10 could only be enforced in an

ERISA § 502(a) proceeding, the court held that there was no

conflict. Jd. This analysis is consistent with this Court’s prior

decisions, but the state amici think there are distinct and more

fundamental reasons why § 4-10 is not preempted.

I. This Court Should Clarify that Traditional

Preemption Principles Govern ERISA Preemption

Analysis.

Whether ERISA preempts § 4-10 of the Illinois HMO

Act necessarily involves the text of § 514 of ERISA and its

“relate to” clause. 29 U.S.C. § 1144(a). Because this clause

lacks any discernable content, “ERISA preemption of state

law has left courts, including the Supreme Court, deeply

troubled.” Prudential Ins. Co. of Am. v. Nat'l Park Med.

Ctr., 154 F.3d 812, 815 (8th Cir. 1998). A federal judge has

opined that “the words ‘relate to’ stretch and contract like a

rubber band” as courts wrestle with the inequities of ERISA

ion. William M. Acker, Jr., Can the Courts Rescue

ERISA?, 29 CUMB. L. REV. 285, 289 (1999). But in 1993, the

Court held that “we discern no solid basis for believing that

Congress, when it designed ERISA, intended to fundamentally

alter traditional preemption analysis.” John Hancock Mut.

Life Ins. Co. v. Harris Trust & Sav. Bank, 510 U.S. 86, 99

(1993). This Court should clarify that the “relate to”

provision in ERISA is not a unique species of preemption

peculiar to ERISA, but should be interpreted in accordance

with traditional preemption principles.

Nearly six years ago, the Court held that “relate to”

preemption analysis must go beyond ERISA’s unhelpful text

and look to “the objectives of the ERISA statute as a guide.”

Travelers, 514 U.S. at 656. This Court admonished the lower

courts for interpreting ERISA § 514(a) with an “uncritical

literalism” that only results in “infinite connections” that

Congress did not intend. /d. Nevertheless, the confusion

persists in the lower courts and the threat remains that the

“relate to” clause will be incorrectly applied to displace state

regulations Congress never intended to preempt.

Last term, Justice Scalia cautioned that the only way

to give this statute a “plausible and precise content” that

“would not pick up every ripple in the pond” is to interpret

ERISA’s “relate to” clause “as a reference to our ordinary

pre-emption jurisprudence.” Egelhoff v. Egelhoff, 121 S.Ct.

1322, 1331 (2001) (Scalia, J., concurring); see also

Dillingham, 519 U.S. at 336 (1997) (Scalia, J., concurring).

Likewise, Justice Breyer wrote that “[I]ike Justice Scalia, |

believe that we should apply normal conflict pre-emption and

field pre-emption principles where, as here, a state statute

covers ERISA and non-ERISA documents alike.” Egethoff,

121 S.Ct. at 1331 (Breyer, J., dissenting). Employing

traditional preemption analysis to § 4-10 of the Illinois HMO

Act would clarify this Court’s past holdings and offer the

lower courts much needed guidance.

This Court’s past holdings examining ERISA’s express

preemption provision can be reconciled with traditional

preemption analysis. The “relate to” clause has been construed

as a two-part test, which asks whether the law: (i) expressly

“refers to” or acts exclusively on ERISA plans; or (ii) has an

impermissible “connection with” ERISA. Dillingham, 519

U.S. at 324-25. The state amici suggest that the “connection

with” analysis be considered field preemption analysis

encompassing “whether the state law intrudes into an area

Congress—given ERISA’s basic objectives—would have

wanted to reserve exclusively for federal legislation.” Boggs,

520 U.S. at 860 (Breyer, J., dissenting).

The areas Congress wanted to reserve exclusively for

federal regulation are an employer's decision to provide

benefits and a multistate employer's ability to administer and

to pay for those benefits in a uniform fashion.’ Accordingly,

. State laws that are dependent on the existence of an ERISA plan for an

clement of the state-law cause of action or expressly refer to ERISA plans

can also be said to fall within the field Congress intended to ;

See District of Columbia v. Greater Wash. Bd of Trade, $06 U.S. 125

(1992); Ingersoll-Rand Co. v. McClenden, 498 U.S. 133 (1990); Mackey

v. Lanier Collection Agency & Serv., Inc., 486 U.S. 825 (1988).

this Court has held that state mandated benefit laws are

preempted. Metropolitan Life Ins. Co. v. Massachusetts, 47\

U.S. 724, 739 (1985); Shaw v. Delia Air Lines, 463 U.S. 85,

97 (1983). In both Shaw and Metropolitan Life, however, the

Court held that specific provisions in ERISA saved the state

laws, i.e., removed them from the field of preemption. Shaw,

463 U.S. at 108; Metropolitan Life, 471 U.S. at 746-47. The

Court has also held that States cannot require multistate plans

to calculate benefits in different ways.‘

The concept of uniformity of benefits and plan

administration is only relevant to multistate ERISA plans. An

ERISA plan operating only within one State cannot, by

definition, be subject to different state laws.’ Also, many

ERISA plans purchase insurance or use third parties to

administer their self-funded plans. The fact that these insurers

and third-party administrators may operate nationally and offer

the same benefits and administration in different States is not,

* See FMC Corp. v. Holliday, 490 U.S. $2, 60 (1990) (Pennsylvania law

could not be enforced against self-funded plans because “[i}t requires

plan providers to calculate benefit levels in Pennsylvania based on

expected liability conditions that differ from those in States that have not

enacted similar anti-subrogation legislation.”); Fort Halifax Packing Co.

v. Coyme, 482 U.S. 1, 14 (1987) (Maine's severance pay law was not

preempted because requiring a one-time payment of a benefit did not

create the potential for conflicting regulation of benefit plans); Alessi v.

Raybestos-Manhattan, Inc., 451 U.S. 504, 524 (1981) (New Jersey law

preempted by ERISA “because it eliminates one method for calculating

pension benefit—integration—that is permitted by federal law”).

* The record does not reflect whether the employer in this case was a

multistate employer with a multistate ERISA plan.

9

however, of any consequence. As this Court recognized in

Coyne, “ERISA’s preemption provision does not refer to state

laws relating to ‘employee benefits,’ but to state laws relating

to ‘employee benefit plans.” 482 U.S. at 7. Accordingly,

state laws regulating intrastate ERISA plans do not effect plan

uniformity. Moreover, uniformity is only an issue in a

multistate plan where the procedure effected by the state law

is uniform in nature, such as a method for calculating benefits.

If the plan procedure by its nature does not produce uniform

results, Congress’s concern with uniformity is not implicated.

Plan uniformity is also the basis of this Court’s finding

that state laws that provide alternate enforcement mechanisms

are preempted by ERISA § 514(a). 7ravelers, 514 US. at

658 (“we have held that state laws providing alternate

enforcement mechanisms also relate to ERISA plans,

triggering preemption” (citing /nmgersoli-Rand Co. v.

McClendon, 498 U.S. 133 (1990))). In /ngersoll-Rand, the

Court held that a wrongful discharge action under Texas law

for terminating an employee to avoid paying benefits was

preempted because ERISA § 510 provided an identical claim

that could be enforced under § 502(a). The Court explained

that the state action related to an ERISA plan because state

courts might develop different substantive standards applicable

to wrongful discharge actions and “[s]uch an outcome is

fundamentally at odds with the goal of uniformity that

Congress sought to implement.” 498 U.S. at 142.

Even where state laws are construed as effecting plan

administration and uniformity, however, that is not the end of

the inquiry. As this Court recognized, a state law that effects

plan administration only because it increases costs to the plan

10

is insufficient to result in preemption.® If any law that effected

plan administration was preempted, then ERISA preemption

would be just as expansive as an unfettered “relate to”

analysis—an analysis rejected by this Court in 7ravelers.

Moreover, in areas of traditional state regulation, there must

be more than simply an impact on plan administration, there

must be some evidence that Congress intended to place such

state laws within ERISA’s preemptive reach.

When a party challenges an exercise of the States’s

historic police powers, then that party “bear[s] the

considerable burden of overcoming ‘the starting presumption

that Congress does not intend to supplant state law.’” De

Buono, 520 U.S. at 814 (citing Travelers, 514 U.S. at 654;

Dillingham, 519 U.S. at 325). This reluctance to find

preemption applies “with equal force where Congress has

spoken, though ambiguously.” Cipollone v. Liggett Group,

Inc., 505 U.S. 504, 533 (1992) (Blackmun, J., concurring).

Healthcare regulation is an exercise of police power

traditionally left to state regulation. Travelers, 514 U.S. at

654-55. See also Pegram, 530 U.S. at 237 and Medtronic,

Inc. v. Lohr, 518 U.S. 470, 475 (1996) (holding that

healthcare regulation is a traditionally reserved state power).

Independent review laws, depending on how the Court

interprets a mixed-eligibility decision, involve either healthcare

* De Buono v. NYSA-ILA Medical & Clinical Services Fund, $20 U.S.

806, 816 (1997) (“Any state law, or other law, that increases the cost of

providing benefits to covered employees will have some effect on the

administration of ERISA plans, but that simply cannot mean that every

state law with such an effect is pre-empted by the federal statute.”).

or insurance—both traditional areas of state regulation.

Therefore, state independent review laws are presumptively

not preempted absent evidence of legislative intent that

preemption was the “clear and manifest purpose” of Congress.

Travelers, 514 U.S. at 654. ERISA preemption analysis in

this case must begin and end with that premise.

i. Section 4-10 is Not Within the Field of ERISA’s

Express Preemption Provision and Is Within the

Scope of the State Laws That Congress

Understood Would Survive ERISA Preemption.

Section 4-10 addresses healthcare issues outside the

field of ERISA preemption. Moreover, even if § 514(a)

“connection with” analysis is given a discrete meaning, § 4-10

would likewise survive ERISA preemption because

independent review laws are within “the scope of the state law

that Congress understood would survive” and the “nature and

effect” of independent review laws do not require

preemption.’ As this Court noted in Pegram, utilization

review contains a medical component. 530 U.S. at 229 (a

medical-necessity decision “cannot be untangled from

physicians’ judgments about reasonable medical treatment”).

It is this medical component that the States seek to regulate.

State independent review statutes review the medical

judgment exercised in a mixed-eligibility decision. The

purpose of these statutes is to decide whether the HMO

correctly determined the “appropriate medical response” to a

’ See Egethoff, 121 S.Ct. at 1327 (quoting Dillingham, $19 U.S. at 325

and Travelers, $14 U.S. at 656).

12

given “patient's constellation of symptoms.” Pe

U.S. at 228. A er omay og toe pall queer

condition necessitates. Even though treatment and coverage

become inextricably mixed because of the nature of managed

care, that does not change the medical nature of the decision.

Independent review statutes address the central issue

of healthcare regulation—is medical treatment necessary? If

Congress did not intend to impose ERISA fiduciary

obligations on HMOs for medical-necessity decisions, see

Pegram, 530 U.S. at 231, then there is no reason to think, nor

is there any legislative history to show, that Congress

nevertheless intended ERISA to preempt the States’s

regulation of medical-necessity decisions. Although not

explicitly decided in Pegram, the Court's analysis in Pegram

indicates that a mixed-eligibility decision made by a treating

physician is not within the field of ERISA preemption. The

question then arises, are mixed-eligibility decisions made by an

HMO within the field of ERISA preemption?

ba When a medical director of an HMO makes a mixed-

eligibility decision, can a state discipline that physician when

the exercise of that medical judgment does not comply with

the state standard of medical care? The state amici believe the

answer is yes, as does the Missouri Supreme Court," because

* “The determinations at issue in this case fall outside the

administration. ie. Riiendbendastypteheogmbauntas tion

covered procedures to arrive at his conclusions. He used medical training

and judgment to make a decision about the ‘medical necessity’ of surgical

treatment for a particular pauient. This medical judgment is analytically

distinct from the coverage policies adopted by the employee benefit plan

Though the choice to cover a patient's expenses is an administrative

13

the only issue being addressed is whether the appropriate

medical standards were used. Although the review of a

medical-necessity decision by a medical review board can be

distinguished from the independent review of that decision, at

their heart, both involve a review of the medical judgment

exercised by a physician—a role historically left to the States.

HMOs may claim that there is a distinction between a

treating physician making a mixed-eligibility decision and an

HMO making a mixed-eligibility decision, but that is a

distinction without a practical difference, at least with respect

to review of prospective and concurrent mixed-eligibility

decisions. Whether it is the treating physician or the HMO

deciding that treatment is not medically necessary, the result

is the same. The patient will likely not receive medical care.

J. Scott Andresen, /s Utilization Review the Practice of

Medicine?, Implications for Managed Care Administrators,

19 J. LEGAL MED. 431, 434 (Sept. 1998)

While it is true that this case involves retrospective

review for reimbursement, not concurrent or prospective

review effecting patient care,” that does not render the medical

choice, a physician's finding of ‘medical necessity is purely a medical

decision... Whether such medical judgment is exercised by a physician

providing direct treatment or by a physician during utilization review is

merely coincidental to the Board's review power.” State Bd. for the

Healing Arts v. Fallon, 41 §.W.3d 474, 477 (Mo. 2001), cert. denied, 70

U.S.L.W. 3129 (U.S.Mo. Oct. 29, 2001)(No. 01-241).

* IIlinois’s statute provides retrospective review for denial of payment

based on the medical necessity of a physician's treatment decision Other

States, such as Texas, have enacted statutes that only provide prospective

14

component of a mixed-eligibility decision any less a question

of the exercise of medical judgment. That in this case Illinois

chose to regulate the exercise of that medical judgment

through an independent review should not strip Illinois of its

authority merely because a plan chose to define coverage in

medical terms. There is no evidence that Congress intended

this and state regulation of medical-necessity decisions should

thus be considered outside the scope of ERISA preemption.

or concurrent review. See, e.g, TEX. INS. CODE art. 21.58A. Indeed,

Texas's petition for review is still pending before this Court. See Corp.

Health Ins., Inc. v. Tex. Dep't of Ins., 215 F.3d $26, reh'g en banc

denied, 220 F.3d 641 (Sth Cir. 2000), petition for cert. filed sub nom

Montemayor v. Corporate Health Ins., Inc.,69U.S.L.W. 3317 (U.S. Oct.

24, 2001) (No. 00-665). In Corporate Health, Texas seeks reversal of

the Fifth Circuit's judgment, which held that Texas's independent review

statute is preempted by ERISA. If the Court affirms the Seventh

Circuit's judgment in Moran, it should grant Texas's petition for

certiorari in Corporate Health and reverse the Fifth Circuit's judgment,

since the Fifth Circuit's ERISA preemption analysis conflicts with

Moran. See Moran, 230 F.3d at 973 (Posner, J. dissenting) (noting the

a gga aaa o : fay noe: the Court should grant Texas's

i vacate t ifth Circuit's judgment, and remand for

reconsideration in light of this Court’ s decision in Moran.

Moreover, the Court should grant Texas's petition even if it

reverses Moran, because Texas's statute can survive ERISA preemption

even if the Court determines that Illinois’s statute cannot. The state

amici believe that neither statute is preempted by ERISA, but if the Court

disagrees as to the Illinois provision at issue in Moran, that holding

would not necessarily apply to other state independent review

provisions—like Texas’s—that provide for only prospective or

concurrent review. That distinct issue can be squarely resolved by

granting Texas's petition for review in Corporate Health.

15

Moreover, HMO complaints that independent review

laws interfere with plan administration are overwrought. An

ERISA plan is free to include any benefits or exclude any

benefits it desires. Section 4-10 only operates once a plan has

determined what benefits it will provide and then only when a

plan defines its payment obligations in medical terms.

Rush Prudential also heralds uniformity as @ reason for

allowing it to avoid state regulation of its medical-necessity

decisions and such purported uniformity is the basis for

claiming § 4-10 relates to an ERISA plan as an alternate

enforcement mechanism. See /ngersoll-Rand, 498 US. at

142. But every medical-necessity decision is, by definition,

devoid of uniformity since it is particular to the patient whose

health is at issue. As this Court has recognized:

[a]lthough coverage for many conditions will be clear

and various treatment options will be indisputably

compensable, physicians still must decide what to do

in particular cases. The issue may be, say, whether

one treatment option is so superior to another under

the circumstances, and needed so promptly, that a

decision to proceed with it would meet the medical

necessity requirement that conditions the HMO’s

obligation to provide or pay for that particular

procedure at that time.

Pegram, 530 U.S. at 228-29 (emphasis added).

While at first blush retrospective independent review

laws appear to govern the payment of benefits, that is

incidental to the review of the exercise of medical judgment

inherent when a plan conditions payment for coverage in terms

16

of medical necessity. Unlike a situation in which a state law

dictates who a beneficiary is, or requires payment contrary to

the terms of plan documents," independent review laws

review an HMO’s exercise of medical judgment, not an

HMO's interpretation of plan documents. Every time an

HMO determines whether a physician's recommended

treatment is medically necessary, it is making a unique

decision based on the specific symptoms of a specific patient

These decisions, by definition, are made on a case-by-case

basis, not by reference to plan documents, but by reference to

the beneficiary's medical condition Rush Prudential’s

argument that Illinois's independent review law is preempted

because it interferes with plan administration is, therefore,

inapposite in the medical-necessity context, because medical

judgment, not plan interpretation, is in question and

“uniformity” is a practical impossibility.

Ill. Congress Expressly Intended State Insurance

Laws, Like § 4-10, to Survive Preemption Analysis.

If mixed-eligibility decisions, despite the fundamental

medical nature of the decisions, are considered coverage

decisions, then laws regulating the making of these coverage

decisions by HMOs should be considered insurance laws

expressly saved from preemption. Indeed, because of the

mixed nature of the decisions, it is conceivable that a mixed-

eligibility decision can be construed as both an exercise of

medical judgment that implicates state healthcare regulation

* See, Egethoff, 121 S.Ct. at 1327 (“the administrators must pay benefits

to the beneficiaries chosen by state law, rather than those identified in

plan documents.”)

17

and a coverage issue of payment that implicates traditional

insurance regulation. Although the Fifth Circuit differed from

the Seventh Circuit on the whether ERISA § 502(a) requires

preemption of independent review laws, both circuit courts

had no difficulty concluding that independent review laws

were laws regulating insurance within the ambit of ERISA’s

saving clause because they met the common-sense definition

of insurance and at least two of the three McCurran-Ferguson

Act factors. Moran, 230 F.3d at 969, Corporate Health, 215

F.3d at 538.

The Fifth Circuit's reasoning that independent review

laws are laws regulating insurance is telling.

Independent review provisions create a regulatory

scheme governing health benefit determinations. They

do not rely on general legal rights used in other areas

of law. That the provisions apply to managed care

entities as well as to traditional insurers does not

exclude them from the saving clause... . In making

benefit determinations, these entities are functioning as

insurers.

Corporate Health, 215 F.3d at 538 (internal citations

omitted). Independent review laws also “go to the core of the

insured-insurer relationship” because they “create a procedural

right of the insured against the entity” and accordingly “they

meet the common sense test of the saving clause.” /d., accord

Moran, 230 F.3d at 969-70. “For the same reasons, the

provisions satisfy the second and third prongs of the

McCarran-Ferguson test: they are integral to the policy

relationship and regulate the insurance industry.” Corporate

Health, 215 F.3d at 538. Accordingly, “Section 4-10 clearly

satisfies the second and third McCarran-Ferguson factors.”

Moran, 230 F.3d at 970. Although both circuits found it

unnecessary to find that the first McCarran Ferguson factor

was met—the spreading of risk—§ 4-10 does meet this factor

Independent review laws spread risk by requiring the

equivalent of a binding arbitration mechanism to determine

which risks will be spread between the HMO and the enrollee

needing medical care. Risk is spread by effectuating the terms

of the insurance contract, without which there would be no

risk transfer at all. U.S. Dept. of Treasury v. Fabe, $08 U S.

491, $04 (1993).

. The Fifth and the Seventh Circuits correctly held that

independent review laws are laws regulating insurance within

the meaning of ERISA’s saving clause. Those courts

disagreed, however, on whether a saved state independent

review law is nevertheless preempted by §502(a). The

Seventh Circuit reasoned that a claim to enforce the

independent review decision “cannot be characterized as

creating an alternative remedy scheme that conflicts with §

502(a),” because they are “not tantamount to the relief offered

under § 502(a)(1)(B).” Moran, 230 F.3d at 971. Rather,

independent review “simply adds to the contract, by operation

of law, an additional dispute resolving mechanism.” /d_ at

972. The Seventh Circuit recharacterized Moran’s claim as a

benefits claim under ERISA §502(a) and distinguished Pilot

Life Insurance Co. v. Dedeaux, 481 U.S. 41 (1987). Id

(citing UNUM Life Ins. Co. of Am. v. Ward, $26 U.S. 358,

375-76 (1999)). By recharacterizing the claim, the court

determined that Pilot Life did not require preemption. /d

Thus, the Seventh Circuit held the Illinois independent review

law provided the rule of decision in Moran’s ERISA §502(a)

19

claim for reimbursement. /d_ This analysis is consistent with

this Court’s decision in Ward."'

Although the state amici concur in the Seventh

Circuit’s reasoning and result, there is an additional, and more

fundamental, reason why § 502(a) cannot preempt a saved

state insurance law. When Congress has spoken, the “task is

to identify the domain expressly pre-empted, because ‘an

express definition of the pre-emptive reach of a statute . . .

supports a reasonable inference . . . that Congress did not

intend to pre-empt other matters.” Lorillard Tobacco Co. v.

Reilly, 121 S.Ct. 2404, 2414 (2001) (internal citations

omitted). Appitcation of this principle to ERISA confirms that

§ 4-10 of the Illinois HMO Act is expressly “saved” because

it is a law regulating insurance.

Section 514(a) of ERISA provides, in pertinent part,

that: “Except as provided in subsection (b) of this section, ...

this chapter shall supersede any and all State laws insofar as

they may now or hereafter relate to any employee benefit

plan.” 29 U.S.C. § 1144(a). In subsection (b), Congress

expressly saves from preemption “any law of any State which

regulates insurance.” Id. § 1144(b)(2)(A). This Court has

in a §502(a) suit. Thus, to the extent the independent review is relied

upon in a §502(a) enforcement action, under Ward, it is not preempted.

20

The ERISA saving clause, with its similarly worded

protection of “any law of any State which regulates

insurance,” appears to have been designed to preserve

the McCarran-Ferguson Act’s reservation of the

business of insurance to the States. The saving clause

and the McCarran-Ferguson Act serve the same

federal policy and utilize similar language to define

what is left to the States.

Metropolitan Life, 471 U.S. at 744 0.21." Thus, “{i}fa plan

is insured, a State may regulate it indirectly through regulation

of its insurer and its insurer’s insurance contracts.” Holliday,

498 US. at 64.

Illinois’s independent review statute regulates

insurance, therefore, pursuant to the saving clause, it is not

preempted by ERISA. Rush Prudential erroneously argues,

however, that §4-10 is nevertheless preempted because under

Pilot Life, § 502(a) trumps the saving clause. The Court

should reject Rush Prudential’s sweeping reading of Pilot Life,

because that case did not involve a state law regulating

insurance and did not address the plain meaning of the saving

clause.

" Promptly after this Court held in U.S. v. South-East Underwriters, 322

U.S. 533 (1944), that insurance was interstate commerce, Congress

passed the McCarran-Ferguson Act to return insurance regulation to the

States. See Fabe, 508 U.S. 491 (1993). Since then, the business of

insurance has been subject to state regulation. Federal deference to state

regulation of insurance is so strong that it extends to an exemption found

in the Bankruptcy Code. See 11 U.S.C. § 109(b\2).

21

The plaintiff in Pilot Life sought extra-contractual

damages for emotional distress and punitive and exemplary

damages under Mississippi common law for failure to pay a

claim. Pilot Life, 481 U.S. at 43. After finding that the cause

related to ERISA, this Court held that Mississippi's common

law tort of bad faith extended to “[a]ny breach of contract and

not merely breach of an insurance contract.” /d. at 50. Thus,

the law could not be considered an insurance law subject to

ERISA’s saving clause. /d Consequently, Pilot Life's

exclusive-remedy discussion has no application to state

insurance laws, because no such laws were before the Court.

Indeed, the Court recognized this in Ward, 526 US. at 376

n.7. Ward observed that Pilot Life must be read in the context

of a “law not specifically directed to the insurance industry

and therefore not saved from ERISA pre-emption.”"’ Ward

forecloses Rush Prudential's argument that Pilot Life requires

preemption of Illinois’s independent review statute.

The plain meaning of the saving clause reflects

Congress's express rejection of Rush Prudential’s argument

that § 502(a) preempts Illinois’s independent review statute.

Congress stated that “nothing in this subchapter shall be

construed to exempt or relieve any person from any law of any

State which regulates insurance.” 29 U.S.C. § 1144(b)(2)(A)

(emphasis added). The saving clause and § 502(a) are in the

same part, the same subtitle, and the same subchapter of

ERISA. It is inconceivable that Congress intended the saving

'> Jd. The Court also noted that the Solicitor General's brief asserted

that “the insurance saving clause... saves state law conferring causes of

action or affecting remedies” and that reliance on Pilot Life for a contrary

result was without merit. /d.

22

clause to have no effect on laws implicating § 502(a). To the

contrary, the text of ERISA demonstrates Congress's intent to

create an exception from preemption for state insurance laws.

The Court’s construing the saving clause as excluding

insurance remedies from § 502(a) preemption would also be

consistent with the Court’s decision in John Hancock. 510

U.S. at 86. In John Hancock, the plaintiff asserted that

ERISA’s requirement that a fiduciary act “solely in the interest

of. . . participants and beneficiaries and . . . for the exclusive

purpose of . . . providing benefits,” must yield to conflicting

state-law requirements that an insurer managing genezal

account assets consider the interests of, and maintain equity

among, all of its contractholders, creditors, and shareholders.

Id. at 97 (contrasting 29 U.S.C. § 1104(a) and N_Y. [INs.]

LAW § 4224(a)(1)). The Court noted that “[nJo decision of

this Court has applied the saving clause to supersede a

provision of ERISA itself.” 510 U.S. at 99 n.9 (citations

omitted). Here, § 4-10 does not supercede a provision of

ERISA, it complements one The Court recognizes that

complementary, dual regulation is permitted under ERISA.

Id. at 100. To hold otherwise “would virtually read the saving

clause out of ERISA.” Ward, 526 US. at 376.

Independent review statutes, such as § 4-10 of the

Illinois HMO Act, survive ERISA preemption because they

complement ERISA. Insurance regulation serves one basic

purpose—to ensure that promised benefits are provided when

needed. This is done through regulation of solvency and

regulation of claims practices to insure that claims can and will

be paid. See Metropolitan Life, 471 U.S. at 729 n.2. It would

defeat a fundamental purpose of state insurance law to accept

23

Rush Prudential’s argument that any state insurance law that

has the effect of requiring payment of a claim cannot be saved

from preemption. Although subsection (a) of ERISA’s

express preemption provision is not a model of clarity,

subsection (b) is. Congress explicitly excluded state insurance

laws from ERISA preemption and this intent should be given

effect by finding that a state independent review law such as

§ 4-10 is saved from preemption.

IV. Section 4-10 Does Not Conflict With ERISA.

State statutes providing independent review of the

medical necessity of physicians’s treatment decisions do not

conflict with ERISA whether they are treated as saved

insurance laws or state regulation of medical necessity that

Congress did not intend for § 514(a) to preempt. Traditional

conflict preemption principles require conflict preemption of

state law only “to the extent it actually conflicts with federal

law, that is, when it is impossible to comply with both state

and federal law, or where the state law stands as an obstacle

to the accomplishments of the full purposes and objectives of

Congress.” Silkwood v. Kerr-McGee Corp., 464 U.S. 238,

248 (1984) (citations omitted); accord Gade v. Nat'l Solid

Wastes Mgmt. Ass'n, 505 U.S. 88, 98 (1992). A conclusion

that Congress intended to preempt independent review laws

requires finding that Congress “has left no room” for state

regulation or that the federal interest requires that the federal

system dominate state laws of the same subject. Hillsborough

County v. Automated Med. Lab., Inc., 47\ U.S. 707 (1985).

No substantive provision in ERISA governs the

provision of medically-necessary care to participants or

beneficiaries. Accordingly, there is no direct conflict.

24

Moreover, these independent review statutes, far from

standing as an obstacle to ERISA’s objectives, actually further

the protection of plan participants and beneficiaries by

providing a check on an HMO’s incentive to provide less care

than a plan participant or beneficiary needs. See Pegram, 530

U.S. at 218-20 (discussing the structure of HMOs and their

cost-controlling measures).

ERISA’s principal objective is to protect plan

participants and beneficiaries. See, e.g., Boggs, 520 US. at

845 (quoting Shaw, 463 US. at 90 (“ERISA is a

comprehensive statute designed to promote the interests of

employees and their beneficiaries.”)). The text of ERISA

states that its policy is “to protect .. . the interests of

participants in employee benefit plans and their beneficiaries.”

29 USC. § 1001(b). Similarly, the purpose of independent

review statutes is to protect the quality of HMO participants’ s

healthcare. External Review Update, supra n.2 at |.

Importantly, they impose a measure of accountability on

HMOs."* Rather than standing as an obstacle to congressional

intent, state independent review statutes actually further

ERISA’s primary purpose.

. Specifically, there is no conflict with § 503 of ERISA,

which provides that participants are entitled to “a full and fair

review by the appropriate named fiduciary” of a benefit denial

under “regulations of the Secretary [of the Treasury].” 29

'* See The President's Advisory Commission on Consumer Protection

and Quality in the Health Care Industry, Quality First: Better Health

Care for All Americans, Final Report to the President of the United

Siates (1998).

25

U.S.C. § 1133(2). This internal, administrative review is not

the independent, external review contemplated by § 4-10 and

thus the Illinois statute “complements rather than contradicts

ERISA and the regulation” Ward, 526 US. at 377.

Moreover, HMOs could comply with both regulations. Since

this Court holds that “ERISA leaves room for complementary

or dual federal and state regulation,” there is no preemption of

§ 4-10 of the Illinois HMO Act due to a direct conflict. John

Hancock, 510 U.S. at 98.

Nor does § 4-10 conflict with ERISA § 502(a) Rush

Prudential maintains there is a conflict relying on Pilot Life,

and arguing that Congress intended to preempt all civil

remedies. First, the state amici contend that Congress would

not have intended to preempt an independent review law

under § 502(a) that is not preempted by ERISA’s express

preemption clause. See supra, Parts II and III. Second, Rush

Prudential misconstrues this Court's holding in Pilot Life.

This Court's analysis in Pilot Life was informed by the

decision in Massachusetts Mutual Life Insurance Co. v.

Russell, 473 U.S. 134 (1985)."* In Russell, this Court held

that Congress did not intend to allow the federal judiciary to

imply a cause of action for extra-contractual damages caused

by improper or untimely processing of benefit claims. /d. at

'* Russell concerned a claim that an insurance company administering an

ERISA plan breached its fiduciary duty under ERISA by failing to

promptly process the ERISA beneficiary's claim for disability benefits.

The Ninth Circuit held the insurer's actions violated ERISA fiduciary

duties giving rise to a federal cause of action that included compensatory

damages for mental or emotional distress and punitive damages against

the fiduciary. Russe//, 473 U.S. at 138.

26

148. Similarly, Pilot Life concerned a state-law cause of

action for extra-contractual damages against an ERISA plan

for failure to pay benefits. The claims in Pilot Life were

tortious breach of contract, breach of fiduciary duties, and

fraud in the inducement. The plaintiff was seeking damages

for failure to pay benefits, general damages for mental and

emotional distress, other incidental damages, and punitive and

exemplary damages. This Court held that the federal remedy

provided in ERISA § 502(a) displaced these state causes of

action. Pilot Life, 481 U.S. at 57, see also Ingersoll-Rand,

498 US. at 486 (holding that a state cause of action for

wrongful discharge that duplicated a cause of action under §

502(a) for violating ERISA § 510 was preempted). Unlike the

statutes in Pilot Life and Russell, however, the independent

review laws do not provide a cause for action for extra-

contractual damages. Nor does § 4-10 provide for any state

cause of action as was the case in Pilot Life and Ingersoll-

Rand. These cases, therefore, are not controlling here.

In Pilot Life, the Court analogized § 502(a) of ERISA

to § 301 of the Labor Management Relations Act of 1942, 29

U.S.C. §§ 141-187 (LMRA)."* The Court reasoned’ that

since the LMRA provides federalized remedies for violation of

= Pilot Life, 481 U.S. at 56 (citing 2 Senate Committee on Labor and

Public Welfare, Legislative History of ERISA, 94* Cong, 2d Sess., 2359

(Comm. Print 1976)(“All such actions in Federal or State Court are to be

regarded as arising under the laws of the United States in similar fashion

to those brought under section 301 of the [LMRA].”).

” The Court was influenced by the brief of the United States advocating

that § 502(a) be considered an exclusive remedy. The Solicitor General

subsequently repudiated that analysis in Ward, $26 U.S. at 376 n.7.

27

collective bargaining agreements, so too should ERISA. In

Ingersoll-Rand, the Court noted the parallel between § 502(a)

and § 301, and held that a state cause of action was preempted

because it purported “to provide a remedy for a violation of a

right expressly guaranteed by § 510 and exclusively enforced

by § 502(a).” /ngersoll-Rand, 498 U.S. at 145 (citing Magic

Chef, 486 U.S. at 409 n8). A closer examination of

Ingersoll-Rand, the LMRA and the Magic Chef decision,

however, reveals the flaw in Rush Prudential’s argument that

§ 502(a) preempts § 4-10.

First, in /ngersoll-Rand, the state claim duplicated an

express right guaranteed in ERISA. There is, however, no

right to an independent review in ERISA. Accordingly, §4-10

does not duplicate an ERISA right and concomitant remedy

and thus there is no conflict preemption.

Second, a holding that § 4-10 is preempted by §

$02(a) would not comport with Congress's intent, as it

thwarts Congress's fundamental purpose in enacting ERISA.

The necessity for uniform interpretation of collective

bargaining agreements provides the foundation for this

Court’s determination that the LMRA provides exclusive

remedies. Franchise Tax Bd. v. Constr. Laborers Vacation

Trust, 463 U.S. 1, 25 n.28 (1983). Congress's principal

purpose in enacting ERISA was “to insure against the

possibility that the employee’s expectation of the benefit

would be defeated through poor management by the plan

administrator.” Massachusetts v. Morash, 490 U.S. 107, 115

(1989). ERISA’s stated purpose is “to protect . . . the

interests of participants in employee benefit plans and their

beneficiaries." 29 U.S.C. § 1001(b). Accordingly,

28

interpreting ERISA as synonymous with the LMRA to

frustrate the legitimate expectations of beneficiaries to receive

—" medical care does not comport with congressional

intent.

Third, even if § 502(a) was patterned after t

LMRA, this Court has held that state hay claims that do -

require interpretation of collective bargaining agreements are

not preempted under the LMRA. Magic Chef, 498 US. at

409-10 (state tort suit for retaliatory discharge was not

preempted because “even if dispute resolution pursuant to a

collective-bargaining agreement, on the one hand, and state

law, on the other, would require addressing precisely the same

set of facts, as long as the state-law claim can be resolved

without interpreting the agreement itself, the claim is

independent’ of the agreement for § 301 pre-emption

purposes”). A similar analysis of independent review laws

reveals they should likewise be considered independent of an

ERISA plan document for § 502(a) preemption purposes.

Independent review laws do not ire int

of benefit plans, nor do they result indie deetinenn of

differing substantive law standards applicable to ERISA plans.

The issues are unique questions of medical necessity rather

than plan interpretation and, thus, the concerns expressed in

Ingersoll-Rand are not at issue. Instead, the Magic Chef case

is more on point and § 4-10 does not run afoul of any

exclusive enforcement concerns underlying this Court’s

decisions, even though the same set of facts may be the basis

for both an independent review and a § 502(a) action.

. Moreover, medical decisionmaking becomes an issue

in both an independent review and a § 502(a) action only

29

because plans couch their coverage in terms of medical

necessity. A plan cannot create ERISA preemption, however,

by clever draftsmanship of a plan. Medical necessity is a

question of what the “appropriate medical response” to a

given “patient’s constellation of symptoms.” Pegram, 530

U.S. at 228. That appropriate medical response is not

dependent on the language in a plan document, it is dependent

on medical judgment. Accordingly, Rush Prudential’s

arguments that § 4-10 conflicts with ERISA should be

rejected.

CONCLUSION

The Court should affirm the judgment of the Seventh

Circuit.

Respectfully submitted,

JOHN CORNYN

Attorney General of Texas

HOWARD G. BALDWIN, JR.

First Assistant Attorney General

JEFFREY S. BOYD nae

Deputy Attorney General for Litigation

JULIE PARSLEY

Solicitor General

DAVID C. MATTAX

Chief, Financial Litigation Division

Counsel of Rec

CHRISTOPHER D. LIVINGSTON

Assistant Attorney General

Financial Litigation Division

Counsel for Amici Curiae

30