Amicus Curiae Brief — Aetna Health Inc. v. Davila

Supreme Coun. U $7

FILED

| JAN22 005

Cy, M/ _OFFICE | F THE CLERK |

Nos. 02-1845 and 03-83 si

IN THE

SUPREME COURT OF THE UNITED STATES

AETNA HEALTH INC.

Petitioner,

v.-

JUAN DAVILA,

Respondent

CIGNA HEALTHCARE OF TEXAS, INC.

Petitioner,

v.

RUBY R. CALAD, ET AL.,

Respondent

On Writs of Certiorari To The

United States Court of Appeals

For the Fifth Circuit

BRIEF AMICI CURIAE OF AARP AND THE

NATIONAL PARTNERSHIP FOR WOMEN

AND FAMILIES IN SUPPORT OF RESPONDENTS

JUDITH L. LICHTMAN SARAH LENZ LOCK*

ALICE M. WEISS AARP FOUNDATION LITIGATION

NATIONAL PARTNERSHIP

FOR WOMEN AND FAMILIES MICHAEL SCHUSTER

AARP

1875 Connecticut Ave., NW

Suite 650 601 E Street, NW

Washington, DC 20009 Washington, DC 20049

(202) 986-2600 (202) 434-2060

Counsel for Amicus Curiae AARP

*Counsel of Record

TABLE OF CONTENTS

Page

INTERESTS OF AMICUS CURIAE ...........0..0-.

SUMMARY OF ARGUMENT ...............00-05. 3

ARGUMENT ............0.cececeecececeecuceees 4

I. ERISA DOES NOT PREEMPT STATE LAWS

REGULATING THE FAILURE TO EXERCISE

ORDINARY CARE IN MAKING MEDICAL

EE WFR 06 66s Kees kewl weadhuhe bees 4

A. The Proceedings Below ........csccceeses: 4

B. Petitioners’ Decisions Involved Medical

Ey ctivedekes Cabkih ed uhaese ne ene 6

C. Where Medical Judgment Is Used To

Determine Eligibility For ERISA Covered

Benefits, Liability Claims for Personal

Injuries Resulting From that Judgment

Should Go Forward in State Court ........... 8

ll. HOLDING HMOS RESPONSIBLE FOR

CAUSING PERSONAL INJURIES WILL

NOT JEOPARDIZE EMPLOYER BASED

MEAL Its CARE COVERAGE ... wc ccccecsees 12

A. Permitting Liability for Failure to

Exercise Appropriate Medical Judgment

Will Not Be Prohibitively Expensive or

Reduce Access to Health Care ............. 12

B. States Which Allow Managed Care Liability

Have Not Seen an “Explosion” of Litigation .. 18

C. Arguments that Costs Will Increase Due

to “Defensive” Spending are Unfounded .

Il. ALLOWING STATE LAW LIABILITY

MEANS INJURED PEOPLE HAVE AN

OPPORTUNITY TO OBTAIN REDRESS ...

CONCLUSION

"TV FFP SCSCPeseseseseseseesesesese eevee te Se Se

19

il

TABLE OF AUTHORITIES

CASES

Blue Cross of California v. Anesthesia Care

Associates Medical Group, Inc.,

PEGE, BEUOP cocccccccccccccecece 9

Boggs v. Boggs,

net ccc eeeseese genres 9,12

Cicio v. Does, 321 F.3d 83 (2d Cir. 2003) petition

for cert. filed, sub nom. Vytra Healthcare v. Cicio,

72 U.S.L.W. 3093 (U.S. Jul. 11, 2003)

joe cewseeceesceecce cs 10, 11, 16

Cipollone v. Liggett Group, Inc.,

iced ebeeceeeveseees 8

Custer v. Sweeney,

GLEE, BOUND cc cccccsccccccceccees )

Darcangelo v. Verizon Communications Inc.,

ee, MED ccccoccccccccscccess 10

Decker v. Saini,

No. 88-361768 NH, 1991 WL 277590

a UU By BODED coccccccccccccccens 16

Dishman v. UNUM Life Ins. Co. Of Am.,

250 F.3d 1272, reh’g en banc denied,

eG, SEED sccccccccccecceccoss 10

Dukes v. U.S. Healthcare,

57 F.3d 350 (3rd Cir. 1994) cert. denied,

Es dn ccc cceeesceoed ee 16

Egelhoff v. Egelhoff ex rel Breiner,

eee ess cosas esecesccesees 12

IV

Jones v. Chicago HMO Ltd. of Il,

730 N.E.2d 1119 (Il. 2000) .................005. 16

McClellan v. Health Maintenance Organization of Pa.,

604 A.2d 1053 (Pa. Super. Ct. 1992) .............. 16

Metropolitan Life Insurance Co. v. Massachusetts,

RRO RT LA ae 12,17

New York State Conference of Blue Cross & Blue

Shield Plans v. Travelers Insurance Co..,

ee 4,8,9,11,12

Pappas v. Asbel,

ae ae CO SEED occ ccccccceséccesceces 16

Pegram v. Herdrich,

530 U.S. 211 (2000)................ 2, 5, 6, 8, 11, 12

Pilot Life Insurance Co. v. Dedeaux,

Gee Ws oc ccauu deiseeuecsasteumancues 9

Rice v. Santa Fe Elevator Corp.,

Se DA Gb chedeviosacdiucesecedceaia 8

Roark v. Humana, Inc..,

307 F.3d 298 (Sth Cir. 2002) ................... 5,6

Rush Prudential HMO, Inc. v. Moran,

Se Seu nacesciknkensecebescaien 9, 10

Shaw v. Delta Air Lines, Inc.,

Sa Nas cacd snadensedaneununeaneius 9

Trustees of the AFTRA Health Fund v. Biondi,

PA ee ee 10

U.S. Healthcare Systems of Pa., Inc. v. Pa. Hospital

Insurance Co.,

Sees DNs 0044 cesuenesceeakuedsesuie 16

Vv

FEDERAL STATUTES

Employee Retirement Income Security Act (ERISA)

to protect their rights under those plans.

FD USL. © 1GBE BOE 2 oc cccccccccccccccces Passim

ERISA § 2(b), 29 U.S.C. § 1001(b) ....... 2... ee eee 9

Fed. R. Civ. P. 12(b)(6) .........500--- ee eee eee ane

STATE STATUTES

Tex. Civ. Prac. & Rem. Code Ann. § 88.002(a) ........ 4

Tex. Civ. Prac. & Rem. Code Ann. § 88.001(5) ........ 4

MISCELLANEOUS

Amicus Brief of AAHP-HIAA, The Blue Cross Blue

Shield Association, And The American Benefits

Council As Amici Curiae Supporting Petitioners .... 12

Americans for Insurance Reform, Medical Malpractice

Insurance: Stable Losses/Unstable Rates 2003,

November 2003, at 8... nc ccc ccc ccccccccccces 14

Olena Berg, Assistant Secretary, Pension and Welfare

Benefit Admin., Dept. Of Labor, Testimony before

the Senate Subcomm. on Labor, Health and Human

Services, and Education, May 1998 .............-. 17

CBO, Limiting Tort Liability for Medical Malpractice,

January 8, 2004 (available at ftp://ftp.cbo.gow/49xx/

doc4968/01-08-MedicalMalpractice. pdf) .... 20,21, 22

Centers for Medicare and Medicaid Services,

http://www.cms.gov/media/press/release.asp?

Ce .. . . peuesenseesoesdss beeen 13

vi

Dan L. Crippen, Director, CBO, Letter to Senator Kennedy,

Chairman, Comm. on Health, Education,

Labor, and Pensions, United States Senate,

regarding Cost Estimate for S. 872, the Bipartisan

Patient Protection Act, (June 13,2001)

available at http://www.cbo.

gov/showdoc.cfm? index=2874&sequence=0 ....... 13

Bernard De Voto, ed., The Report of My Death,

Mark Twain in Eruption (1940). ................. 18

Daniel Kessler and Mark McClellan, The Effects

of Malpractice Pressure and Liability Reforms on

Physicians’ Perceptions of Medical Care, 60 Law

& Contemp. Probs. 81 (1997) ................ 19, 20

GAO, Medical Malpractice Implications of Rising

Premiums on Access to Health Care (GAO-03-836,

SEED 66 cn nsuctiveneccesueceentieuessat 20

Jon R. Gabel, Gail A. Jensen & Samantha Hawkins, Se/f-

Insurance in Times of Growing and Retreating

Managed Care, HEALTH AFF., March/April 2003 .... 16

Kaiser Family Foundation and Health Research and

Educational Trust, Employer Health Benefits 2003

Annual Survey, available at www.kff.org ....... 15, 16

Mark A. Hall and Gail Agrawall, The Impact of State

Managed Care Liability Statutes, Health Affairs,

September/October 2003, Vo.22,no.5 ........... 18

Albert Bigelow Paine, Mark Twain (1912) ........... 18

Suzy Platt, ed., Respectfully Quoted: A Dictionary of

Quotations Requested from the Congressional

Research Service. Washington: Library of Congress

DUE sateuuhesccecneecaneendscedeascodeuate 18

--—-——— ee

Vil

Travis Plunkett, Legislative Director

Consumer Federation of America, Regarding E

Medical Malpractice Insurance Rates: Hearings

Testimony Before the Subcomm. on Health of the

House Comm. on Energy and Commerce

(July 17, 2002) Exhibit B,

available at http://www.consumerfed.org/

Med_Mal_House_testimony.pdf. ...............- 13

U.S. Congress, Office of the Technology Assessment,

Impact of Legal Reforms on Medical Malpractice

Costs, OTA-BP-H-i 19 (Washington, DC: U.S.

Government Printing Office, October 1993 ........ 13

No. 02-1845

IN THE

Supreme Court of the United States

AETNA HEALTH INC.

Petitioner,

v.

JUAN DAVILA,

Respondent

CIGNA HEALTHCARE OF TEXAS, INC.

Petitioner,

v.

RUBY R. CALAD, ET AL..,

Respondent

ON WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

BRIEF AMICI CURIAE OF AARP -

IN SUPPORT OF PETITIONERS

BRIEF AMICI CURIAE OF AARP AND THE

NATIONAL PARTNERSHIP FOR WOMEN

AND FAMILIES

INTEREST OF AMICI CURIAE”

AARP is a nonpartisan, nonprofit membership

organization of over 35 million persons, age 50 or older,

dedicated to addressing the needs and interests of older

’’ No counsel for any party authored any portion of this brief. No persons

other than amici curiae, their members, or their counsel have made a

monetary contribution to the preparation and submission of this brief.

Petitioners and Respondents have consented to the filing of amicus briefs in

support of either party and that consent has been filed with the Clerk of the

Court.

2

Americans. AARP seeks through education, advocacy and

service to enhance the quality of life for all by promoting

independence, dignity, and purpose. In its efforts to promote

independence, AARP works to foster the health and economic

security of individuals as they age by attempting to ensure the

availability of quality and economical health coverage. As the

country’s largest membership organization, AARP has a long

history of advocating for access to affordable health care and

for controlling costs without compromising quality.

__ As additional means to foster the economic security of older

individuals, AARP seeks to increase the availability, security,

equity, and adequacy of public and private pension, health,

disability, and other employee benefits. Many employed and

retired AARP members participate in health care plans

sponsored by their employers. Participants and beneficiaries

in private, employer-sponsored employee benefit plans rely on

the Employee Retirement Income Security Act (ERISA) to

protect their rights under those plans. 29 U.S.C. § 1001 et seq.

However, ERISA, the statute that was designed to safeguard

employee benefits, has been applied by many courts to deprive

employees of rights and protections they would otherwise have

under state health care and insurance laws simply because an

employer sponsored health plan paid for their health care.

Thus, as part of its advocacy efforts to ensure, to the greatest

extent possible, that participants and beneficiaries receive the

benefits of ERISA’s protections, AARP has participated as

amicus curiae in numerous cases involving ERISA’s

preemption clause, and also filed an amicus brief in Pegram v.

Herdrich, 530 U.S. 211 (2000)(whether claims that a health

maintenance organization (HMO) limited care to save money

and increase physician compensation could constitute a breach

of ERISA’s fiduciary duties).

The National Partnership for Women & Families is a

national non-profit organization working to improve the lives

2/ —

= Patricia Butler & Karl Polzer, Nat. Health Policy Forum, Private Sector

Health Coverage: Variation in consumer protections under ERISA and State

Law (1996).

3

of women and families through public advocacy, public

education, and private partnerships. Founded in 1971 as the

Women's Legal Defense Fund, the National Partnership

promotes equal opportunity for women, access to quality health

care and policies that help women and men meet the competing

demands of work and family. The National Partnership has a

longstanding history of defending the interests of women in the

workplace and working to ensure that women have access to

the benefits they need to support themselves and their families.

The National Partnership firmly believes that strong and

enforceable patient protections are an essential component of

ensuring access to quality health care. In support of this goal,

the National Partnership has been a leading voice in promoting

and defending meaningful patient protections for individuals in

employer-sponsored health plans and public health programs.

SUMMARY OF ARGUMENT

ERISA does not preempt state law claims for damages

allegedly caused by managed health care organizations’ failure

to exercise ordinary care in making medical decisions. The

claims in both these cases arise out of the managed care entities

exercising medical judgment. States have the power to

regulate relationships between managed care entities and their

enrollees, just as they do all other health care relationships, in

order to protect the health and well being of the States’

residents, to hold those that benefit from providing health care

accountable for injuries they cause, and to provide a

mechanism to compensate those who are injured. Holding

managed care entities responsible will not undermine employer

based health care coverage, or make health care inaccessible.

Instead, permitting state courts to determine liability for

negligent medical judgment will maintain the balance of

equities between managed health care entities and patients, as

well as maintain the balance of federalism between federal and

state laws. For all of these reasons, the Court should affirm the

Fifth Circuit's decision that ERISA does not preempt the

plaintiffs’ claims under the Texas Health Care Liability Act

(THCLA).

ARGUMENT

I. ERISA DOES NOT PREEMPT STATE LAWS

REGULATING THE FAILURE TO EXERCISE

ORDINARY CARE IN MAKING MEDICAL

JUDGMENTS

A. The Proceedings Below

The plaintiffs in these consolidated cases filed claims in

state court under the state law known as the THCLA.* The

THCLA merely codifies the long standing ability of Texas, as

in other States, to protect the health and well being of its

residents by establishing that those who exercise medical

judgment affecting another person owe a duty of ordinary care

to that person. See New York State Conference of Blue Cross

& Blue Shield Plans v. Travelers Ins. Co., (Travelers) 514 U.S.

645, 661 (1995) (health care is an area of traditional state

regulation).

Ms. Calad sued her HMO, CIGNA, in state court under

THCLA after sustaining personal injuries following a

hysterectomy. She alleged that CIGNA failed to exercise

ordinary care when CIGNA’s hospital discharge nurse

determined that Ms. Calad should be discharged after a one day

» The statute provides:

A health insurance carrier, health maintenance

organization, or other managed care entity for a health

care plan has the duty to exercise ordinary care when

making health care treatment decisions and is liable for

damages for harm to an insured or enrollee proximately

caused by its failure to exercise such ordinary care.

Tex. Civ. Prac. & Rem. Code Ann. § 88.002(a). The THCLA defines

“health care treatment decision” as:

a determination made when medical services are actually

provided by the health care plan and a decision which

affects the quality of the diagnosis, care, or treatment

provided to the plan’s insureds or enrollees.

§ 88.001(5).

5

hospital stay although her doctor recommended a longer

period. Roark v. Humana, Inc. 307 F.3d 298, 302 (5" Cir.

2002). Similarly, Mr. Davila brought suit in state court against

his HMO, Aetna, under the THCLA alleging that his bleeding

ulcers and near death resulted from Aetna’s requirement that

Mr. Davila use a different medication than the physician

prescribed. Jd. at 303. Both plaintiffs alleged that their

respective HMOs failed to exercise ordinary care in making

medical necessity decisions which proximately caused their

injuries, and sought compensatory damages. (Joint Appendix,

JA-188, Calad Complaint; Aetna Petitioners Appendix, T0A,

Davila Complaint.)

CIGNA and Aetna each removed these actions to the United

State District Court for the Northern District of Texas, arguing

that they were completely preempted under ERISA section

502(a) because plaintiffs’ claims were, in essence, merely

claims for wrongful denial of benefits from their employer

sponsored health insurance. Roark, 307 F.3d at 302-303. The

district court denied plaintiffs’ motions to remand and ordered

that the claims be dismissed under Fed. R. Civ. P. 12(b)(6)

based upon Section 502 of ERISA. /d. at 305. In the

consolidated appeal, the Fifth Circuit stated “because we

conclude that § 502(a) does not displace Calad’s or Davila’s

claims, the district court should have remanded.” Jd.

The Fifth Circuit’s analysis of these cases turns on its

interpretation of Pegram v. Herdrich, 530 U.S. 211 (2000) that

mixed eligibility and treatment decisions made by HMOs are

not preempted. The Fifth Circuit held that because the HMOs’

decisions which plaintiffs challenge here are mixed eligibility

and treatment decisions, plaintiffs’ claims are not encompassed

by § 502(a)(2), and there is no preemption under that provision.

Roark, 307 F.3d at 308. The Fifth Circuit also determined that

ERISA § 502(a)(1)(B), which establishes a federal cause of

action for a claim for benefits under a plan, does not preempt

the plaintiffs’ THCLA claims. /d. The court reasoned that

plaintiffs are not seeking benefits under their employer

sponsored health care plan through the THCLA. Instead, they

are seeking tort damages for the alleged medical negligence of

the HMO in making health care treatment decisions.

6

Accordingly, their claims under the state statute do not conflict

with ERISA’s enforcement procedures for obtaining benefits

and are not preempted under that provision either.

Id. at 308-311.

B. Petitioners’ Decisions Involved Medical Judgments.

In Pegram, the Court unanimously held that “mixed

eligibility decisions by HMO physicians are not fiduciary

decisions under ERISA.” 530 U.S. at 237. In determining

whether the allegations in Pegram could constitute a claim

under ERISA for breach of fiduciary duty, and thus fell within

the kind of claims Congress intended ERISA to cover, the

Court examined the facts in that case to determine how the

claims should characterized. The opinion recognized that most

managed care coverage decisions are mixed decisions

involving when-and-how type questions, with no practical way

to untangle eligibility from treatment decisions, and that the

decisions in Pegram were mixed in nature. /d. at 228-29.

Pegram was not a preemption case, but the opinion

nevertheless distinguished eligibility decisions, which would

be subject to ERISA‘s fiduciary duties, from treatment

decisions, which were not fiduciary in nature and not

something Congress contemplated would fall under ERISA

regulation. Jd. at 231 (“We begin with doubt that Congress

would ever have thought of a mixed eligibility decision as

fiduciary in nature.”) The Court implied that mixed decisions

would not be preempted because allowing a plaintiff to

challenge an HMO’s mixed eligibility and treatment decision

under ERISA’s fiduciary standards would have presented a

“puzzling issue of preemption,” seeming “to be a prescription

for preemption of state malpractice law” which the Court did

not countenance. /d. at 236.

Because these cases present themselves in the posture of a

review of removal petitions, the facts have not been fully

developed below. But an examination of the available facts

lead AARP and the National Partnership to conclude that these

cases present the sorts of mixed decisions which Pegram

indicated should not preempted because they are not the sort of

7

decisions which Congress intended to fall within ERISA’s

purview.

The facts clearly indicate that CIGNA made a mixed

medical/eligibility determination in Ms. Calad’s case.

CIGNA’s nurse decided Ms. Calad did not need another night

in the hospital. CIGNA, although it disputes the relevance of

the issue, acknowledges that the decision to discharge her

earlier than her treating physician recommended was a benefits

determination which involved the exercise of medical

judgment. CIGNA, Brf. at 27. .

Aetna asserts its denial was strictly a benefit decision which

did not involve a medical decision, and that there was nothing

“mixed” about it. Aetna Brf. at 15. The record suggests

otherwise. The facts in the record surrounding Aetna’s denial

of Vioxx for Mr. Davila which would have been before the

lower courts are contained in the Davila Complaint and its

attachments reproduced in Aetna Petitioner’s Appendix (Pet.

App.), at 64a-8la. The Complaint states that coverage for

Vioxx was refused despite Dr. Lopez’s protests. (Pet. App.

68a.) Dr. Lopez’s affidavit attached to the Complaint states

that he contacted Aetna after Aetna refused “to fill the

prescription.” (Pet. App. 77a.) Dr. Lopez also stated that

“frjeducing the likelihood of gastrointestinal toxicity was one

of my chief concerns I had with respect to prescribing Vioxx

for Mr. Davila.” Jd.

Without citation to the record, Aetna asserts that Dr. Lopez

did not represent to Aetna that Mr. Davila had a

contraindication, intolerance or allergy to the other drugs on

Aetna’s formulary. (Aetna Brf. at 9.) These would be the

conditions precedent for Vioxx to be covered without a trial of

two other drugs on the formulary. (Pet. App. 80a.) The record

does not indicate if Aetna’s decision maker asked Dr. Lopez

whether the other drugs were contraindicated or not. But Aetna

unequivocally sent a letter to Dr. Lopez stating that “based on

the review of information submitted to us, your request to

authorize payment for the Formulary excluded medication has

been denied.” (Jd.) This demonstrates that Aetna was

weighing whether there was sufficient medical evidence to

8

demonstrate Vioxx was medically necessary in Mr. Davila’s

case, or whether the other drugs on its formulary were as likely

to be equally effective, and therefore, Vioxx was not medically

necessary. There may be a factual question over what

information was exchanged between the treating physician and

the decision maker at Aetna, but from the facts we have in the

record, it can be determined that Aetna’s denial was based, at

least in part, upon its decision of a medical question.

C. Where Medical Judgment Is Used To Determine

Eligibility For ERISA Covered Benefits, Liability

Claims for Personal Injuries Resulting From that

Judgment Should Go Forward in State Court.

These cases present an extension of the question facing the

Court in Pegram. In Pegram, the question was whether

Congress meant for challenges to managed health care

decisions blending medical judgment and _ eligibility

determinations to come within ERISA’s fiduciary obligations

and provide for federal jurisdiction. Determining the answer

to be no, the Court held the challenge did not state an ERISA

claim. Pegram, 530 U.S. at 237. In these cases. the question

is whether Congress intended federal jurisdiction under ERISA

over these mixed decisions to be so complete that it meant to

deprive states of their jurisdiction to regulate them — even

where ERISA does not provide redress for a similar claim.

Congressional purpose is the ultimate touchstone of

preemption analysis. Cipollone v. Liggett Group, Inc., 505

U.S. 504, 516 (1992). This Court has stated that the historic

police powers of the States are not to be superseded by federal

law unless Congress’ intent to do so is clear. Travelers, 514

U.S. at 655 (quoting Rice v. Santa Fe Elevator Corp., 331 U.S.

218, 230 (1947)). Under the THCLA, the State of Texas is

regulating in an area of traditional state concern — liability for

medical negligence -- thereby raising the presumption against

preemption. To overcome that presumption, Petitioners would

have to show that in enacting ERISA, Congress clearly meant

to strip States of their historic function of regulating health

care. This seems improbable because Congress’ primary

purpose behind enactment of ERISA was to ensure that

9

ceived the retirement pension benefits to which

son waco ensided: health plans were not the focus of ay

concem. ABA Section of Labor and a —

EMPLOYEE BENEFITS LAW Ixviii-lxix (2d ed. 2000). :

declared principal purpose is “to protect plan ew. a

beneficiaries.” Boggs v. Boggs, 520 — ua bs

(1997)(citing Shaw v. Delta Air Lines, Inc., 463 U.S. 85,

(1983)); ERISA § 2(b), 29 U.S.C. § 1001(b).

a al be

Among the ways participants and beneficiaries were to

sustented Wes by ERISA providing ~ st ry

ions, and ready access to the Federal courts. USA

xb), 29 USC. § 1001(b). While Congress was a

what were appropriate remedies for wrongful denial ~

employee benefits, if it intended to take the ae ae

prohibiting state liability - —_ sy — ~ ~~~

ly it would have said so directly. |

liability for persona! injury caused by a HMO’s ——

medical decision in addition to providing federal reme _ ;

benefit determinations does not — = hd se : .

articipants and beneficiaries. ;

Prlikely that Denes would have considered it necessary to

usurp state court jurisdiction on this issue.

in Pi 481 US.

urt in Pilot Life Insurance Co. v. Dedeaux,

41 1987) held that ERISA prohibits any remedy for mp

in addition to those specifically enumerated in — S =

enforcement provisions apo § 502(a). ~~ ee ad = _

not seeking plan benefits and so are no’ oo boner om

i btain those benefits. A finding of liability

THCLA would not result in an award of the benefits, so it _

not provide an alternative enforcement mechanism. Trave ~

514 U.S. at 657-60; Rush Prudential HMO, Inc. v. veeme

U.S. 355 (2002); Blue Cross of pnegrT : — | oa

. Med. Group, Inc., 187 F. |

ao v. Sweeney, 89 F.3d 1156 (4th Cir. 1996).

A number of Circuit Courts have found that ERISA —

completely preempt state tort claims for = 0 =

privacy and other rights simply because the allege 4 ~~

arose from the investigation of an employee's eligibility

10

benefits. See Dishman v. UNUM Life Ins. Co. of Am., 250 F.3d

1272, reh’g en banc denied, 269 F.3d 974 (9th Cir. 2001)

(ERISA does not preempt a state tort claim alleging that health

insurer's private investigators violated claimant's privacy rights

when investigating claimant for claim fraud). Accord,

Darcangelo v. Verizon Communications Inc., 292 F.3d 181

(4th Cir. 2002) (no preemption of state claims for invasion of

privacy, negligence, unfair and deceptive trade practices and

medical privacy violations where complaint alleges wrongful

conduct on the part of employer and plan administrator

unrelated to their duties under the plan); Trustees of the AFTRA

Health Fund v. Biondi, 303 F.3d 765 (7th Cir. 2002) (no

preemption of common law fraud claims against participant

who failed to inform the fund that he had divorced his wife in

order to maintain her as an insured dependent in the plan so she

could receive benefits). The claims of Davila and Calad are no

different. They make claims separate and different from

merely a claim for benefits.

Not every mixed eligibility and treatment claim will provide

a state cause of action. If participants complain about the

failure to receive benefits, and seek those benefits as opposed

to seeking damages based upon a claim that a negligent

medical necessity determination resulted in their injury, then

the participants will have to sue under ERISA for failure to

receive their benefits. Cf Rush Prudential HMO, Inc. v.

Moran, 536 U.S. 355 (2002) (even where independent review

finds HMO’s denial based on medical necessity was wrong,

participant still must sue under ERISA to receive benefit). But

where the claim is that the HMO did not exercise care in

making the medical judgment, state law should survive

preemption under the logic of Pegram, 530 U.S. at 237 (refusal

to federalize medical malpractice suits).

Thus, in Cicio v. Does, 321 F.3d 83 (2d Cir. 2003), petition

for cert. filed, sub nom. Vytra Healthcare v. Cicio, 72 U.S.L.W.

3093 (U.S. Jul. 11, 2003)(No. 03-69), where medical judgment

was exercised in the denial of health benefits as demonstrated

by the exchange between the treating physician and the HMO’s

medical director, the Second Circuit found no preemption. In

that case, Mr. Cicio was diagnosed with multiple myeloma. His

ll

treating physician asked for approval to treat Mr. Cicio with

“high dose chemotherapy supported with peripheral blood stem

cell transplantation, in a tandem double transplant, for a

diagnosis of multiple myeloma.” Cicio, 321 F.3d at 87. This

request was denied by the HMO. There then ensued a exchange

of letters between the doctors, resulting in approval of “a single

stem cell transplant”, but still denying “tandem stem cell

transplant.” Jd. at 88. There was no question that Mr. Cicio

needed treatment for his cancer or that he was eligible for

treatment. The exchange between the doctors indicated the

discussion was over which was the appropriate treatment for

his cancer — single stem or double stem transplant. The Second

Circuit, applying Pegram, held that an HMO medical director’ s

decision denying an HMO participant one form of treatment as

experimental and approving another was both a medical

treatment decision and a contract interpretation decision, and

that the state medical malpractice claim was therefore not

preempted because it was based upon a mixed eligibility and

treatment decision.

Although ERISA’s § 514 “relates to” conflict preemption

analysis is not controlling here because removal was based

upon complete preemption under § 502, that analysis also

supports Respondents’ position. The Court has maintained

Congress intended to preempt only state laws which refer to or

have a significant connection with an ERISA plan. In

Travelers, the Court recognized that three types of state laws

will always be preempted: (1) state laws that mandate

employee benefit structures or their administration, (2) state

laws that bind employers or plan admunistrators to particular

choices or preclude uniform administrative practice, thereby

functioning as regulations of ERISA plans themselves; and (3)

state laws providing alternate enforcement mechanisms for

employees to obtain ERISA plan benefits. 514 U.S. at 645.

These types of state laws are certainly within the field that

Congress intended to occupy when it enacted ERISA and will

always have a connection to an ERISA plan. See id. at 657-60.

The THCLA does not mandate the distribution, payment or

receipt of benefits. The THCLA does not mandate benefit

structures or their administration because it does not address

who will receive benefits, the kind of benefits to be paid, or

12

how those benefits will be paid. Nor does THCLA even

purport to provide an additional means of getting plan benefits.

Compare Egelhoff v. Egelhoff ex rel Breiner, 532 U.S. 141

(2001); Boggs, 520 U.S. 833 (1997); Metropolitan Life

Insurance Co. v. Massachusetts, 471 U.S. 724 (1985). The

THCLA does not bind the employer or the plan administrator

to any particular choice concerning benefits or administrative

practices. Instead it is limited to providing for a claim of

liability against a medical entity which fails to exercise

ordinary care in making medical necessity decisions, an area of

traditional state concern, which this Court has recognized is not

preempted. See Travelers, 514 U.S. at 654-55, 661; Pegram,

530 U.S. at 237. The Fifth Circuit’s decision that the cases

should have been remanded to state court should be affirmed.

Il. HOLDING HMOS RESPONSIBLE FOR CAUSING

PERSONAL INJURIES WILL NOT JEOPARDIZE

EMPLOYER BASED HEALTH CARE

COVERAGE.

A. Permitting Liability for Failure to Exercise

Appropriate Medical Judgment Will Not Be

Prohibitively Expensive or Reduce Access to

Health Care

CIGNA posits that “it can hardly be disputed that imposing

. . . medical malpractice . . . on employee health benefit

coverage decisions will vastly increase the costs of providing

benefits, al] but guaranteeing that less coverage and thus less

health care overall — will be provided to the nation’s employees

and union members.” CIGNA Brf. at 48. Petitioners’ amici

argue that permitting state suits will cause plan sponsors to

restrict benefits, increase employee cost sharing, replace

“discretionary decisions with categorical exclusions,” or

“discontinue, or decline to institute health benefits.” Amicus

brief of AAHP-HIAA, ef al., at 5. These dire predictions are

overstated.

The direct costs of medical malpractice, measured by

insurance premiums paid by physicians, hospitals, HMOs, and

other providers, account for less than | percent of national

13

health care expenditures. U.S. Congress, Office of the

Technology Assessment, /mpact of Legal Reforms on Medical

Malpractice Costs, OTA-BP-H-1 19 (Washington, pe: U.S.

Government Printing Office, October 1993), at 5 (OTA). OTA

was reporting on data from the early 1990s, but these costs

have been consistent over time, even declining in the last ten

years. Malpractice premiums accounted for six-tenths of one

percent of total U.S. Health Care costs in 2000, a decline from

nearly one percent in 1988." For 2001, it was 0.43% of total

national health care expenditures.~

Holding managed care entities accountable for the injuries

which they proximately cause will not substantially increase

the costs of health care, and any rise in employer sponsored

premiums as a result would likely be minimal. The

Congressional Budget Office (CBO) estimated the rise in

premiums for employers sponsored health care if Congress had

passed the patient protection legislation, S.872, the Bipartisan

Patient Protection Act introduced in June 2001 which included

a provision allowing for civil liability. The increase was

estimated to be a modest 0.8%.*

¥ Testimony of Travis Plunkett, Legislative Director Consumer Federation

of America, Regarding Medical Malpractice Insurance Rates: Hearings

Before the Subcomm. on Health of the House Comm. on Energy and

Commerce (July 17, 2002) Exhibit B, available at

http://www.consumerfed.org/Med_Mal_House_testimony pdf.

¥ This is based upon comparing $1.4 trillion in total health care costs in

2001as reported by the Centers for Medicare and Medicaid Services (see,

http://www.cms. gov/media/press/release asp ?Counter=935 with AM. Best

figures of approximately $6 billion for medical malpractice premmums.

© Letter from Dan L. Crippen, Director, CBO, to Senator Kennedy,

Chairman. Comm. on Health, Education, Labor, and Pensions, United States

Senate. Cost Estimate for S. 872, the Bipartisan Patient Protection

Act, (June 13,2001) available at

http://www.cbo.gov/showdoc.cfm?index=2874&sequence=0. CBO also

estimated current federal legislative proposals to limit tort liability for

physician malpractice would “ lower health care costs by only about 0.4

percent to 0.5 percent, and the likely effect on health insurance premiums

14

Moreover, a recent evaluation of medical malpractice

insurance premiums and their relationship to what liability

insurers actually pay out in losses disputes the notion that

increased liabilities have made health care unaffordable.” The

study found that while insurer payouts for jury awards,

settlements and other costs over the last thirty years directly

tracked the rate of medical inflation, medical insurance

premiums rose and fell in relationship with the state of the

economy. The study concluded that insurance companies

raised physician’s malpractice premium rates not because of an

“explosion” in payouts, but because they sought ways “to make

up for Coctining interest rates and market-based investment

losses.”

Petitioners and their amici are incorrect when they argue that

allowing health plans and insurers to be liable for medical error

would drive up health care costs to the point where it will

undermine Congress’s goal of encouraging employer based

coverage and employers will reflexively stop providing

coverage. While there is no doubt that rising health care costs

pose threats to the availability of sources of health care

coverage, both public and private, liability for medical

negligence simply does not drive the availability of health care.

For example, while the United States General Accounting

Office (GAO) found that malpractice premiums for health care

providers were rising, they concluded that those increases “did

not affect access to health care on a widespread basis” even in

states where they confirmed instances of reported problems.”

would be comparably small.” CBO, Limiting Tort Liability for Medical

Malpractice, January 8, 2004, at 6.

”’ Americans for Insurance Reform, Medical Malpractice Insurance: Stable

Losses/Unstable Rates 2003, November 2003, at 8.

¥ Id.

2? GAO, Highlights of GAO-03-386, Medical Malpractice, Implications of

Rising Premiums on Access to Health Care, August 2003.

15

While insurers have ‘raised the cost for employers to

purchase health benefit coverage, employers do not attribute

the increase to liability for medical negligence or to other costs

associated with liability. Nor are employers drastically cutting

health benefits in response to the increases. On average

insurers increased premiums for employer based health

insurance by 13.9% between 2002 and 2003. The researchers

at the Kaiser Family Foundation explain:

The high rate of premium growth in 2003 appears to have

been driven by a combination of rapid inflation in the

costs for health care services and insurers efforts to

emphasize profitability in their pricing. Premium

equivalents for self-insured plans (a proxy estimate for

medical claims expenses) grew by a lower amount

(12.4%) than premiums for fully insured plans, which

increased 15.6% this year. This finding may indicate that

part of the rise in health care premiums is due to insurers

expanding their underwriting gains.

Employers reported that the major factors contributing to the

increases were higher prescription drug spending and nigher

hospital costs — with no mention of malpractice insurance Or

other costs associated with liability. The other factors reported

were higher spending for physicians, higher insurance

company profits, better medical technology, and an aging

pulation” And although there have been three consecutive

years of double digit premium increases, “many employers say

_. . that they will increase contributions and cost sharing next

year, but very few say they will reduce eligibility or drop

coverage.” Changes in the percentage of employers offering

coverage have more to do with conditions in the general

19 Kaiser Family Foundation and Health Research and Educational Trust,

(Kaiser) Employer Health Benefits 2003 Summary of Findings, Employer

Health Benefits 2003 Annual Survey, at 3, available at www.kff.org.

LY Kaiser, Cost of Health Insurance, Secton 1, Employer Health Benefits

2003 Annual Survey, at 29, Exhibit 1.11.

i supra, note 10, at 1.

16

economy than increas«s in malpractice insurance rates. Kaiser

reports “the weakened economy and escalating premiums do

not appear to have caused a drop in the percentage of

employers offering health insurance coverage from last year,

but the percentage of firms offering coverage is lower than its

pre-recession high (69%) in 2000. In 2003, 66% of all firms

offered” health benefits.

Aetna argues: “affirmance of the decision below would deal

a severe blow to the American economy.” Aetna Brf. at 44. It

argues that permitting managed care entities to be subject to a

state law duty of ordinary care when making health care

treatment decisions would “decree an end” to managed care.

Id. But the American economy has long been used to the

notion that parties are liable for causing the injuries of others;

it is one of the primary reasons the insurance industry exists.”

Managed care is the dominant health care delivery mode, a

healthy, profitable business model unlikely to wither because

of an increased liability potential.”

Id. at 5. :

43’ It further seems likely that HMOs have already undertaken to insure

themselves against such liabilities as at least two Federal Circuits have

found ERISA does not preempt state laws regulating medical negligence of

managed care entities. Cicio v. Does, supra at 10; Dukés v. U.S. Healthcare,

57 F.3d 350 (3” Cir. 1994) cert. denied, 516 U.S. 1009 (1995); Pappas v.

Asbel, 768 A.2d 1089 (Pa. 2001 )(or remand for reconsideration in light of

Pegram v. Herdrich), cert. denied sub nom, U.S. Healthcare Systems of Pa.,

Inc. v. Pa. Hosp. Ins. Co., 536 U.S. 938 (2002). Some state courts have

found also managed care entities vicariously liable under several different

theories. Jones v. Chicago HMO Lid. of Ill., 730 N.E. 2d 1119, 1128 (Ill.

2000); McClellan v. Health Maint. Org. of Pa., 604 A.2d 1053 (Pa. Super.

Ct. 1992); Decker v. Saini, No. 88-361768 NH, 1991 WL 277590 at 3-4

(Mich. Cir. Ct. Sept. 1, 1991).

+ As of 2001, 93% of employees with employer-sponsored health care

received that care through some form of managed care: 48% are in preferred

provider organizations (PPOs), 23% are enrolled in health maintenance

organizations (HMOs) and 22% are in point of service (POS) plans. Jon R.

Gabel, Gail A. Jensen & Samantha Hawkins, Self-/nsurance in Times of

ee

17

In testimony before the Senate, the Assistant Secretary of the

then named Pension and Welfare Benefits Administration of

the Department of Labor, the federal agency responsible for

administering ERISA, discussed the cost implications of

allowing state law remedies for injuries caused by improper

denial of health benefit coverage by ERISA health plans.

The best evidence regarding cost impact exists in those

markets where expanded remedies already exist. There

is nothing in these markets to show that these remedies

result in larger premium costs. For example, participants

in group health plans covering State and local employees

are outside ERISA and often have access to full State law

remedies for injuries that result from improper delay and

denial of benefit claims. Yet insurers and HMOs compete

aggressively for State and local group business, and there

is no evidence that insurers charge higher prices to these

groups because of the greater liability exposure associated

with them. Thus, it seems highly unlikely that the

availability of additional remedies would force employers

to retreat from offering health coverage.

Testimony of Olena Berg, before the Senate Subcommittee

on Labor, Health and Human Services, and Education, in May —

1998.

Growing and Retreating Managed Care, HEALTH AFF., March/April 2003,

at 202. Employer-sponsored health insurance covers “159 million active

workers and their dependents as well as sixteen million retirees.” /d.

Approximately half of these employees are covered by self-insured plans

not subject to state insurance regulation, but half have been subject to state

regulation of their businesses through insurance laws. /d. at 203. This

Court has recognized dual federal and state regulation of ERISA plans for

years, and those plans subject to state insurance regulation have not

disappeared. See, e.g., Metropolitan Life Insurance Co. v. Massachusetts,

471 U.S. 724 (1985) (states may mandate benefits in insured ERISA plans).

18

In short, the ominous pronouncements of those urging

preemption remind one of the statement attributed to Mark

Twain, “reports of my death have been greatly exaggerated."

B. States Which Allow Managed Care Liability Have

Not Seen an “Explosion” of Litigation.

Ten states have enacted laws creating managed care liability

since 1997, with Texas having its statute in place longest. A

study of these laws reported that there was little in the way of

litigation under these statutes in any of the states, and the

authors concluded that this was not principally due to “ERISA

preemption, but, rather, to the costs and complexities of suing

a health plan, which deter lawyers from including this

additional defendant in medical malpractice cases.”

ool Many different sources have slightly different versions of the quotation.

The foilowing information comes from: Respectfully Quoted: A Dictionary

of Quotations Requested from the Congressional Research Service. Suzy

Platt, ed. Washington: Library of Congress. p. 76 (1989):

In 1897, Twain was living in London where a cousin, Dr.

Jim Clemens, fell ill. The newspapers, believing Twain

was near death, sent reporters to investigate. Twain made

his remark when the correspondent for the Evening Sun

told him his death had been reported in New York, and

asked what he should cable in reply. Mark Twain

(Samuel L. Clemens), "The Report of My Death,” Mark

Twain in Eruption, ed. Bernard DeVoto, pp. 252-53

(1940). Albert Bigelow Paine, Mark Twain, vol. 2,

chapter 197, p. 1039 (1912), gives a slightly different

version of the story, ending, "Just say the report of my

death has been grossly exaggerated.”

Often heard "...greatly exaggerated.”

2! Mark A. Hall and Gail Agrawall, The Impact of State Managed Care

Liability Statutes, Health Affairs, September/October 2003, Vo. 22, no. 5,

138, 141. Professors Hall and Agrawal wrote that the primary drivers of

concerns about liability were pending large federal class actions brought

under RICO and ERISA and large punitive damage awards in a few state

cases prior to enactment of the MCO liability statutes. Jd at 140.

19

But perhaps most interesting, this study found that the

statutes did positively impact health plans’ behavior by

“focusing more attention on the potential for being sued when

personal injury results from managed care restrictions. This

heightened attention prompted many health plans to review

their managed care practices from a legal risk-management

perspective.” ““ Most health plans interviewed said that

“liability is one of the factors that has caused them to improve

their procedures for making coverage determinations.” This

suggests that liability for managed care entities will effectively

reduce personal injuries because HMOs will have better

practices, which should actually save the HMOs and ERISA

plans money in the long run.

C. Arguments that Costs Will Increase Due to

“Defensive” Spending are Unfounded.

CIGNA argues that if this Court decides ERISA does not

preempt plaintiffs’ state claims, that HMOs will engage in

granting “defensive” coverage, authorize unnecessary care and

drive up the cost of benefits. CIGNA Brf. at 49. Lamenting

the “enormous pressure medical malpractice litigation is

imposing on the delivery of health care in this country,”

CIGNA says “at least five to nine percent of total medical

expenditures”can be attributed to physicians’ defensive

behavior to avoid litigation, citing, Daniel Kessler and Mark

McClellan, The Effects of Malpractice Pressure and Liability

Reforms on Physicians’ Perceptions of Medical Care, 60 Law

& Contemp. Probs. 81, 83 (1997). CIGNA Brf. at 48.

Kessler and McClellan were studying if state tort reforms

such as caps on damages reduced defensive medical practice.

They concluded it did because they saw evidence of slower

growth in health care expenditures in the range of from 5 to

18 Id. at 142.

Id.

20

9%. However, their study does not support Petitioners’

point. First of all, the study evaluated limiting liability for

physicians, not state law immunity for HMOs. Moreover, in

August 2003, the General Accounting Office (GAO) examined

the data used in the Kessler and McClellan study and found

that because their work was limited to a review of hospital

costs for elderly Medicare patients with two types of heart

disease, these costs could not be generalized across all services,

populations, and health conditions, and the study’s analysis

was also flawed because it did not fully consider the range of

other factors that can influence medical spending.

In fact, the GAO criticized the Department of Health and

Human Services (HHS) for using these same Kessler and

McClellan figures in its recent reports to estimate total national

health care spending on defensive medicine saying these

estimates were “not reliable.” The GAO determined that

while most empirical published studies addressing the issue

indicate that physicians do practice some defensive medicine

in response to perceived malpractice pressures, it was

impossible to use these studies to estimate the extent and cost

to the health care system as a whole, given the low response

rates and imprecise nature of measurements used.

When the Congressional Budget Office (CBO) replicated

and expanded the scope of the Kessler and McCllelan studies

to include a broader set of conditions “it found no evidence that

restrictions on tort liability reduce medical spending.

Moreover, using a different set of data, CBO found no

Statistically significant difference in per capita health care

spending between states with and without limits on malpractice

2) Kessler and McClellan, at 83.

2 GAO, Medical Malpractice Implications of Rising Premiums on Access

to Health Care (GAO-03-836, August 2003), at 29. Kessler and McClellan

did a follow-up study in 2000 and concluded that when they controlled for

managed care penetration, estimated savings fell to about 4 percent. /d.

2 Id. at 26.

21

torts.” CBO pointed out that “so-called defensive medicine

may be motivated less by liability concerns than by income It

_ generates for physicians or by the positive (albeit small)

benefits for patients” and concluded, based on its own research

and other studies it reviewed, that any savings from defensive

medicine by limiting liability would be very small.=

Studies have simply not established that holding HMOs

accountable in state courts will significantly drive up health

care costs, or conversely, that immunizing HMOs from state

law liability will result in substantial health care savings.

Ill. ALLOWING STATE LAW LIABILITY MEANS

INJURED PEOPLE HAVE AN OPPORTUNITY TO

OBTAIN REDRESS

Affirming the right of states to ensure that those who

exercise medical judgment do so with ordinary care means that

as a practical matter, insurers would have to insure themselves

against the unlikely event that they would lose malpractice

litigation under similar state laws. This is a marginal cost

compared to the catastrophic losses any given individual with

significant personal injuries could face when those injuries

arise from an HMO’s negligent treatment decision but the

person is deprived of any remedy or redress.

In the end, it comes down to a question of equity. The

CBO’s recent statement regarding limiting liability for

physicians is equally applicable to the question of whether

HMOs should be liable for state law damages.

2¥ CBO, Limiting Tort Liability for Medical Malpractice, January 8, 2004,

6-7 (available at ftp://ftp.cbo.gov/49xx/doc4968/0 1 -08-MedicalMalpractice.

pdf)

24 Id, at 6.

2 Only about 30% of medical malpractice litigation claims result in an

insurance payout. /d. at 4.

22

[T]he evidence available to date does not make a strong

case that restricting malpractice liability would have a

significant effect, either positive or negative, on economic

efficiency. Thus, choices about specific proposals may

hinge more on their implications for equity—in

particular, on their effects on health care providers,

patients injured through malpractice, and users of the

health care system in general.

CBO, Limiting Tort Liability for Medical Malpractice, January

8, 2004, at 7. State courts have always balanced these equities

and there is no logical reason to strip them of this power just

because the health care happened to be paid for primarily by

the employer rather than the employee.

CONCLUSION _

For the above reasons, amici urge the Court to affirm the

Fifth Circuit’s decision that ERISA does not preempt the

THCLA.

January 22, 2004 Respectfully submitted,

Judith L. Lichtman Sarah Lenz Lock*

Alice M. Weiss (Counsel of Record)

National Partnership for AARP Foundation Litigation

Women and Families

Michael R. Schuster

1875 Connecticut Avenue, AARP

N.W., Suite 650

Washington, DC 20009 601 E Street, NW

(202 )986-2600 Washington, DC 20049

(202) 434-2060

Counsel for Amici Curiae

AARP

*Counsel of Record