Amicus Curiae Brief — Vytra Healthcare v. Cicio, Individually and as Administratrix of the Estate of Cicio

ou SEP 1 1 2003

OFFICE OF THE CLERK

No. 03-69

IN THE

Supreme Court of the United States

VYTRAHEALTHCARE AND BRENT SPEARS, M.D.,

Petitioners,

Vv.

BONNIE CICIO,

Respondent.

On PETITION FOR A WRIT OF CERTIORARI TO THE

UnNitep STATES COURT OF APPEALS FOR THE SECOND CIRCUIT

Brier OF Amici CuRIAE THE AMERICAN ASSOCIATION OF HEALTH

PLANS, INc., THE HEALTH INSURANCE ASSOCIATION OF AMERICA,

THE AMERICAN BENEFITS COUNCIL AND THE NEw YORK

HEALTH PLAN ASSOCIATION IN SUPPORT OF PETITIONERS

RICHARD E. RAMSAY HAROLD N. ISELIN

Deputy General Counsel Counsel of Record

American Association of Henry M. GREENBERG

Health Plans CoucH Wuite, LLP

1129 Twentieth Street, N. W. 540 Broadway

Suite 600 P.O. Box 22222

Washington, D.C. 20036 Albany, New York 12201

(202) 778-3230 (518) 426-2600

Counsel for Amici Curiae

(Additional Counsel Listed on Inside Cover)

182926 ce

COUNSEL PRESS

(800) 274-3321 * (800) 359-6859

ANGELA J. FRANKLIN

HEALTH INSURANCE ASSOCIATION

OF AMERICA

1201 F. Street, N.W. Suite 500

Washington, D.C. 20004

(202) 824-1600

Lynn DUDLEY

AMERICAN BENEFITS COUNCIL

1212 New York Ave., N.W.

Suite 1250

Washington, D.C. 20005

(202) 289-6700

PAUL MACIELAK

New York HEALTH PLAN ASSOCIATION

90 State Street, Suite 825

Albany, New York 12207

(518) 462-2293

TABLE OF CONTENTS

Page

Table of Cited Authorities .............0 ee eee il

Statement of Interest ........... ccc eee eeenees l

Reasons for Granting the Petition ............-. 2

I. The Decision Below Undermines Congress’

Policy Of Inducing Employers To Offer

Health Benefits ..........cccccescseces 6

Il. The Decision Below Raises Immediate

Practical Problems For Administrators Of

Employee Benefit Plans That Will Ultimately

Harm Plan Participants .............-+5: 14

Conclusion ...... Or errr eT Tere 18

TABLE OF CITED AUTHORITIES

Cases

Bast v. Prudential Ins. Co. of Am.,

150 F.3d 1003 (9th Cir. 1998), cert denied,

328 UE GRGRIOED 05 s0khd darks

Caffey v. Unum Life Ins. Co.,

302 F.34 S76 GS Cae Bee ca daceee esi eeiiss

California Div. of Labor Standards Enforcement v.

Dillingham Constr., N.A., Inc.,

319 U.S. 386 (URGE osnceueeee ens ee es

Cannon v. Group Health Serv. of Oklahoma, Inc.,

77 F.3d 1270 (10" Cir.), cert. denied, 519 US.

S16 (1996) «00 cccnaeneeeeeee ees

Corcoran v. United Healthcare, Inc.,

965 F.2d 1321 (5" Cir.), cert. denied, 506 U.S.

1033 (1DRE) «accutane

Danca v. Private Health Care Sys.,

ISS F.36 8 CE" Cae We coos eee

Egelhoff v. Egelhoff,

332 U.S. 1463 GARE) cckascane eee

Fort Halifax Packing Co. v. Coyne,

462 U.S. 1 (9967) ciacdeeeee eee

Great-West Life and Annuity Ins. Co. v. Knudson,

534 U.S. 204 (GORD .diccciceeee ee ee

Page

15

12

10

10

il

Cited Authorities

Page

Haynes v. Prudential Health Care,

Se: 12

Howard y. Coventry Health Care of Iowa, Inc.,

Ce Tt a > | 12

Hull v. Fallon,

188 F.3d 939 (9" Cir. 1999), cert. denied, 528 U.S.

ES ey a ne eee ae 9-10

Ingersoll-Rand Co. v. McClendon,

8 Be Ee a eee 7, 11

Jass v. Prudential Health Care Plans, Inc.,

ee Oe OF A FOG) wc ccc eens 10

Land vy. Cigna Healthcare of Florida,

__ F.3d _, No. 02-15549, 2003 WL 21751247

gg 12

Marks v. Watters,

ee We Ow OO” Ce, ZOOS) cc cc cceanncs 12

New York State Conference of Blue Cross &

Blue Shield v. Travelers Ins. Co.,

RE.) 10

Pappas v. Asbel, 768 A.2d 1089 (Pa. 2001), cert.

denied sub nom. U.S. Healthcare Sys. of Pa.,

Inc. v. Pa. Hosp. Ins., Co.,

Re 4 12

Pegram v. Herdrich,

IS ee ee ee ee

iv

Cited Authorities

Page

Pilot Life Ins. Co. v. Dedeaux,

Rie ee Gi, eer rrr errr rere ere or passim

Pryzbowski v. U.S. Healthcare, Inc.,

DOS FOG DOG C96 Ct. BOOED voces ccvcsncccce 12

Roark v. Humana, Inc.,

307 F.3d 298 (5" Cir. 2002), petition for cert. filed,

71 U.S.L.W. 3791 (U.S. June 3, 2003) (No. 02-

1826), and petition for cert filed sub nom. Aetna

Health Inc. v. Davila, _U.S.L.W. __ (U.S. June

BE, BOs le. TE 8 kc kace ce istiadeees 12

Rush Prudential HMO, Inc. v. Moran,

SOR ee Ree eee 10, 11

Tolton v. American Biodyne,

ee bore a er err 10

Villazon v. Prudential Health Care Plan, Inc.,

ew. Bea 2) 12

Federal Statutes

ERISA (29 U.S.C.)

of of Peerrerrrerr re errr rr re ere ]

2 Peet ree ce eT Cee Pere eee 6

Bb errr rrr er eer er rr 3,9, 11

Bi TT CTT Eee eT Tere TET T Cy passim

Cited Authorities

Other Authorities

Employee Benefit Research Institute, Special Report

and Issue Brief, EBRI Research Highlights: Health

Damas OGY BONG) osc cccsiennsacdosncans

Matthew J. Binette, Comment: Patients’ Bill of

Rights: Legislative Cure-All or Prescription for

Disaster?, 81 N.C. L. Rev. 653 (2003) ........

The Business Council of the State of New York,

Compensation Data New York 2003 (2003) ....

Shannon P. Duffy & Randall J. Peach, Split

Decisions, The Legai Intelligencer (April 6,

BOOED 2 6000b0055 50s eeeateeeee

Milt Freudeinheim, Employees Paying Ever-Bigger

Share for Health Care, N.Y. Times, September 10,

Be TRS 06.0844 ke teehee

Michael S. Gordon, Overview: Why Was ERISA

Enacted?, U.S. Senate, Special Comm. On Aging,

The Employee Retirement Income Security Act of

1974: The First Decade (Comm. Print 1984) ...

The Kaiser Family Foundation and Health Research

and Educational Trust, Employer Health Benefits:

2002 Annual Survey (2002) ............20005.

William J. Kilberg & Paul D. Inman, Preemption of

State Laws Relating to Employee Benefit Plans:

An Analysis of ERISA Section 514, 62 Tex. L. Rev.

ee Pe Pre ee he ne

Page

14

17

12

17

v1

Cited Authorities

Patricia C. Kuszler, Financing Clinical Research and

Experimental Therapies: Payment Due, But From

Whom?, 3 DePaul J. Health Care L. 441 (2000)

eoonoe uu eeo+Qgeget8t@ ee Oe eee Cece ee Cee eecan es 8 2484 28'S 8 2

Thomas A. Moore & Matthew Gaier, Recent Second

Circuit Decision on HMO Liability, N.Y.L.J.

(Daw. 80, DD noi cs ccvunecudeaverc enue

“Small Business Health Fairness Act”: Hearing on

HR. 660 Before the Subcom. On Employer-

Employee Rel. of the House Comm. On Educ. &

the Workforce, 108" Cong. (Mar. 13, 2003) ....

120 Cong. Ree. F9,900 CIPI ocak eases vv ankeds

120 Cong. Ree. 4295 €1974E) «05 ccc ccceccvcctnas

H.R. Rep. No. 93-533, at 12 (1974), reprinted in

1974 USCC. SRO osckysaaecinsdaseve

Page

16

11

er

l

STATEMENT OF INTEREST'

The American Association of Health Plans, Inc. (““AAHP”’),

the Health Insurance Association of America (“HIAA”), the

American Benefits Council (the “Council’’) and the New York

Health Plan Association, Inc. (““NYHPA’’) (collectively “Amici’’)

submit this brief in support of the Petitioners, Vytra Health Plans

Long Island, Inc. and Brent Spears, M.D.

AAHP is the national association for the managed health

care community. AAHP’s mission is to advance health care

quality and affordability through leadership in the health care

community, advocacy and the provision of services to member

health plans. Its membership includes health maintenance

organizations (“HMOs”), preferred provider organizations, third

party health plan administrators, health care utilization review

organizations, prepaid limited health service plans, and other

integrated health care delivery systems. AAHP represents more

than 1000 managed health care organizations serving nearly 160

million Americans, the majority of whom are participants or

beneficiaries of employee benefit plans covered by the Employee

Retirement Income Security Act of 1974 (“ERISA”), 29 U.S.C.

§§ 1001, et seq.

HIAA is based in Washington, D.C., and is one of the largest

associations of health insurance companies in the world. HIAA

is the nation’s most prominent trade association representing

the private healthcare system. Its nearly 300 members provide

health, long-term care, dental, disability, and supplemental

coverage to more than 100 million Americans. It is the nation’s

premier provider of self-study courses on health insurance and

1. Pursuant to this Court’s Rule 37.3(a), letters of consent from all

parties to the filing of this brief have been filed with the Clerk of the

Court. Pursuant to this Court’s Rule 37.6, Amici state that this brief was

not authored in whole or in part by counsel for any party, and that no

person or entity other than Amici, their members, or their counsel made

a monetary contribution to the preparation or submission of this brief.

2

managed care. HIAA advocates a private, market-based health

insurance system and is dedicated to promoting federal and state

health care policies that maximize the quality, affordability,

accessibility, and responsiveness of medical services provided

to the nation’s health care consumers.

The Council is a broad-based, non-profit trade association

founded in 1967 to protect and foster the growth of this nation’s

privately sponsored employee benefit plans. The Council’s

members include both small and large employer-sponsors of

employee benefit plans, including many Fortune 500 companies.

Its members also include employee benefit plan support

organizations, such as actuarial and consulting firms, insurers,

banks, investment firms, and other professional benefit

organizations. Collectively, its more than 250 members sponsor

and administer plans covering more than 100 million plan

participants and beneficiaries.

NYHPA is the New York State association for the vast

majority of health plans offering coverage to residents of New

York State. Its membership consists of HMOs, health insurers

and prepaid health service plans that serve more than six million

New Yorkers, as well as residents of neighboring states, the

majority of whom are participants or beneficiaries of employee

benefit plans under ERISA. NYHPA has worked closely with

public policy officials to develop balanced and innovative

approaches that increase health plan accountability for coverage

decisions while maintaining affordable health care coverage.

REASONS FOR GRANTING THE PETITION

The foundation of this country’s health insurance system is

employer-sponsored health care coverage. See Employee Benefit

Research Institute, Special Report and Issue Brief, EBRI

Research Highlights: Health Benefits 5 (May 2003) (“Currently,

employment-based health insurance is the most common form

3

of health coverage in the United States.”’). “Employer-sponsored

healthcare reaches nearly two out of every three Americans,

including active workers, retirees, and their dependents.”

The Kaiser Family Foundation and Health Research and

Educational Trust, Employer Health Benefits: 2002 Annual

Survey 1 (2002). Employers do not sponsor this coverage

because of a government mandate. Rather, employers voluntarily

undertake the obligation to administer and pay for their

employees’ health benefits. The voluntary nature of employer-

sponsored health care coverage, and the extent and continued

vitality of this system, are a direct result of the policy choices

Congress made when it adopted ERISA.

Indeed, Congress enacted ERISA in 1974 in large measure

to induce employers to offer and maintain benefit plans for their

employees. Congress recognized that uniform federal rules and

oversight would encourage the growth of employee benefit

plans. To allow employers to provide uniform benefits across

all states without having to conform to varying state regulatory

environments, Congress included two crucial provisions in

ERISA: § 514(a) and § 502(a). 29 U.S.C. §§ 1144(a), 1132(a).

The former is a broad preemption statute; the latter a civil

enforcement provision that is the “exclusive vehicle for actions

by ERISA-plan participants and beneficiaries asserting improper

processing of a claim for benefits.” Pilot Life Ins. Co. v. Dedeaux,

481 U.S. 41, 52 (1987).

For years following this Court’s decision in Pilot Life,

employers made benefit decisions with the knowledge

that ERISA ‘preempted state law claims against benefit plans.

Courts held that § 514(a) and/or § 502(a) preempted virtually

all state claims, including those against plan administrators

for making alleged medically-based eligibility determinations.

As a consequence, employers were able to provide health care

coverage to their employees without having to comply with fifty

sets of state laws. Multi-state employee benefit plans were able

4

to treat similarly situated employees the same regardless of their

state of residence. The environment was one in which incentives

existed for employers to provide health benefits to their

employees. In fact, by 2001, the percentage of workers covered

by employment-sponsored health insurance grew to 73.7%.

Employee Benefit Research Institute, supra 14.

But the stability and predictability in the law that existed

since Pilot Life — and served the needs of both employers and

employees (including union benefit plans) — is eroding because

of decisions such as that of the court below in Cicio v. Vytra,

321 F.3d 83 (2d Cir. 2003). The Second Circuit’s decision has

created a cloud of uncertainty over the countless decisions that

plan administrators must make every year and undermines the

national uniformity of employee benefits plans. This is true not

only for medical necessity decisions — whether an otherwise

covered service is medically necessary for a given patient —

but also for interpretations concerning explicit contract

exclusions of experimental treatments, which, by definition, are

not clinically proven and may even be dangerous.

Allowing state claims against plan administrators, even in

cases where it is alleged that a decision reflects medical

judgment, will now inject the ever-changing law of fifty different

States into an area that has been governed exclusively by federal

standards. Faced with different state liability rules, employee

benefit plans will be forced to treat similarly situated employees

differently based on the state in which the participant resides.

Additionally, benefit plans will be forced to engage in costly

risk management as they weigh the language of the benefits

plan and the judgment of plan administrators against the risk of

state law claims. Law suits will proliferate and employer costs

will increase as benefit plans absorb increased litigation

expenses.

5

Most importantly, a fifty-state patchwork scheme of ERISA

enforcement will harm the people who Congress sought to

protect —- the 131 million Americans who participate in group

health plans governed by ERISA, all of which are voluntarily

sponsored. See “Small Business Health Fairness Act”: Hearing

on AR. 660 Before the Subcom. On Employer-Employee Rel. of

the House Comm. On Educ. & the Workforce, 108" Cong.

(Mar. 13, 2003) (statement of Ann. L. Combs, Ass’t. Sec’y. for

Employee Benefits Sec., U.S. Dep’t of Labor) (stating that

ERISA protects “approximately 2.5 million private, job-based

health plans and 131 million workers, retirees and their

families”). The cost of health care coverage will increase while

its availability will decrease. Co-payments, co-insurance and

deductibles will rise and plan benefits will be reduced or

eliminated. See Egelhoff v. Egelhoff, 532 U.S. 141, 149-50

(2001) (“Requiring ERISA administrators to master the relevant

laws of 50 states and to contend with litigation would undermine

the congressional goal of ‘minimizing the administrative and

financial burdens on plan administrators’ — burdens ultimately

borne by the beneficiaries.’’).

The disuniformity created by the decision below is

compounded by the confusion that now exists in the lower courts

regarding the impact of this Court’s decision in Pegram v.

Herdrich, 530 U.S. 211 (2000) on state-law claims such as the

one at issue here. Like some other courts, the court below

mistakenly relied upon the dicta regarding “mixed” treatment

and eligibility decisions in Pegram. However, Pegram was not

a preemption ruling and nowhere in that decision did this Court

imply it was overruling Pilot Life and its progeny, which is

controlling in this case.

Accordingly, this Court’s review is needed to clarify its

decision in Pegram and restore Congress’ policy of inducing

employers to provide voluntarily health care coverage to

employees by ensuring the uniform administration of health

benefits and the exclusivity of ERISA’s remedy scheme.

ee

6

I. THE DECISION BELOW UNDERMINES

CONGRESS’ POLICY OF INDUCING EMPLOYERS

TO OFFER HEALTH BENEFITS

This Court’s immediate review is necessary to settle the

law in an area where uniformity and predictability are

imperative. Congress intended that ERISA preemption would

enable plan administrators to make eligibility determinations

without having to refer to fifty sets of state laws. All this has

now changed with the recent decisions of the court below and

other lower courts. Such decisions undermine Congress’ policy

choice in ERISA of inducing employers to offer health benefits

by ensuring the uniform administration of health benefits and

the exclusivity of ERISA’s remedy scheme.

After more than a decade of debate, Congress enacted

ERISA in 1974 in large measure to encourage employers to

offer and maintain benefit plans for their employees. See Michael

S. Gordon, Overview: Why Was ERISA Enacted?, U.S. Senate,

Special Comm. On Aging, The Employee Retirement Income

Security Act of 1974: The First Decade, at 25 (Comm. Print

1984). Although ERISA comprehensively regulates such plans,

it leaves in place the voluntary nature of plan sponsorship.

Compare Great-West Life and Annuity Ins. Co. v. Knudson,

534 U.S. 204, 209 (2002) (noting that ERISA is a

“comprehensive and reticulated statute’), with 29 U.S.C.

§ 1003(a) (“this subchapter shall apply to any employee benefit

plan if it is established or maintained’) (emphasis added).

The existence of employee benefits — such as a health care

program — is dependent upon employers’ willingness to create

employee plans.

Congress was mindful that, to the extent government

regulation increased benefit plan costs, the result would be to

encourage termination of existing plans and discourage

7

formation of new benefit plans. See, e.g., 120 Cong. Rec. 4295

(1974) (remarks of Rep. Ullman) (“Generally, it would appear

that the wider or more comprehensive the coverage, vesting,

and funding, the more desirable it is from the standpoint of

national policy. However, since these plans are voluntary on

the part of the employer and both the institution of new pension

plans and increases in benefits depend upon employer

willingness to establish or expand a plan, it is necessary to take

into account additional costs from the standpoint of the

employer.”). In order to further the “public interest in

encouraging the formation of employee benefit plans,” ERISA

established uniform regulation and imposed federal oversight

in this area. Pilot Life, 481 U.S. at 54; see Egelhoff, 532 U.S. at

148 (“One of the principal goals of ERISA is to enable employers

‘to establish a uniform administrative scheme which provides a

set of standard procedures to guide processing of claims and

disbursement of benefits.’’’).

Congress also recognized that plans and their sponsors faced

fifty sets of complex and conflicting state laws and regulations.

See Ingersoll-Rand Co. v. McClendon, 498 U.S. 133, 142 (1990)

(stating that Congress’ goal in enacting a preemption provision

was to minimize “the administrative and financial burden of

complying with conflicting directives among State or between

States and the Federal Government ... , [and to prevent] the

potential for conflict in substantive law . . . requiring the tailoring

of plans and employer conduct to the peculiarities of the law of

each jurisdiction”). Finding that inconsistencies in laws and

regulations resulted in administrative inefficiencies and costs

that ultimately hurt plan participants, Congress concluded that

“employee benefit plans would prosper best if regulated by the

federal government without state involvement.” William J.

Kilberg & Paul D. Inman, Preemption of State Laws Relating

to Employee Benefit Plans: An Analysis of ERISA Section 514,

62 Tex. L. Rev. 1313, 1313-14 (1984); see H.R. Rep. No.

8

93-533, at 12 (1974), reprinted in 1974 U.S.C.C.A.N. 4639,

4650 (“The uniformity of decision which the act is designed to

foster will help administrators, fiduciaries and participants to

predict the legality of the proposed actions without the necessity

of reference to varying state laws.”’). That policy judgment has

been aptly summarized by this Court:

An employer that makes a commitment

systematically to pay certain benefits undertakes a

host of obligations, such as determining the

eligibility of claimants ... [and] making

disbursements. .. . The most efficient way to meet

these responsibilities is to establish a uniform

administrative scheme, which provides a set of

standard procedures to guide processing of claims

and disbursement of benefits. Such a system is

difficult to achieve, however, if a benefit plan is

subject to differing regulatory requirements in

differing States. A plan would be required to ...

process claims in a certain way in some States but

not in others... .

Fort Halifax Packing Co. v. Coyne, 482 U.S. 1, 9 (1987).

See also Egelhoff, 532 U.S. at 148 (“{u]niformity is impossible

...1f plans are subject to different legal obligations in different

states”).

Congress sought to achieve the goal of creating a uniform

body of benefits law through a broad preemption clause.

See California Div. of Labor Standards Enforcement v.

Dillingham Constr. N.A., Inc., 519 U.S. 316, 324 (1997)

(reviewing the Court’s many previous acknowledgements that

ERISA’s preemption provision is “clearly expansive,” has a

“broad scope,” an “expansive sweep,” is “broadly worded,”

deliberately expansive” and “conspicuous for its breadth”).

Section 514(a) of ERISA preempts “‘any and all” state laws that

“relate to” an employee benefit plan. 29 U.S.C. § 1144(a).

Se eed

9

ERISA’s legislative history highlights the intended broad

scope of § 514(a) and Congress’ concern with the negative effect

that litigation would have on employee benefit plans. For

example, Senator Jacob Javits, one of ERISA’s authors,

expressed concern that a narrow preemptive scope would

increase the “possibility of endless litigation over the validity

of State action that might impinge on Federal regulation,” and

that “(t]he emergence of a comprehensive and pervasive Federal

interest and the interests of uniformity with respect to interstate

plans . . . required the displacement of State action in the field

of private employee benefit programs.” 120 Cong. Rec. 29,942

(1974). Congress hoped to avoid “opening the door to multiple

and potentially conflicting State laws” by preempting them. /d.

Also, in lieu of a multiplicity of state remedies, Congress

included a civil enforcement provision in § 502(a) of ERISA.

29 U.S.C. § 1132(a). Sixteen years ago, in Pilot Life, this Court

held that the provisions of § 502(a) are the “exclusive vehicle

for actions by ERISA-plan participants and beneficiaries

asserting improper processing of a claim for benefits.” 481 U.S.

at 52. The Court thus established a categorical rule: § 502(a)

preempts any state-law claim that purports to provide

different or additional judicial remedies for a wrongful denial

of benefits. /d. at 54. Applying this rule, the Court found that

§ 502(a) preempted state-law contract and tort claims filed

against an insurer for the “‘bad faith” denial of disability benefits.

Id. at 55-56.

In the wake of Pilot Life, employee benefit plans were able

to make health benefit decisions confident that they would not

be subject to alternative state law remedies. Time and time again,

the circuit courts recognized that ERISA sections 514(a) and/or

502(a) preempt state law claims that challenge an ERISA plan’s

claims decisions, including claims determinations based on plan

provisions that limit coverage to medically necessary treatments

or condition coverage on pre-certification. See, e.g., Hull v.

LL eT aT eee

10

Fallon, 188 F.3d 939 (8" Cir. 1999), cert. denied, 528 U.S. 1189

(2000); Danca v. Private Health Care Sys., 185 F.3d 1 (1* Cir.

1999): Jass v. Prudential Health Care Plans, Inc., 88 F.3d 1482

(7" Cir. 1996); Cannon v. Group Health Serv. Of Oklahoma,

77 F.3d 1270 (10® Cir.), cert. denied, 519 U.S. 816 (1996); Tolton

v. American Biodyne, 48 F.3d 937 (6" Cir. 1995); Corcoran v.

United Healthcare, Inc., 965 F.2d 1321 (5" Cir.), cert. denied,

506 U.S. 1033 (1992). For years, this stability in the law provided

plan administrators with the certainty and predictability they

needed to plan and administer health benefits budgets.

To be sure, this Court has revisited the scope of ERISA

preemption since deciding Pilot Life. At no time, however, has

the Court departed either from the core principle that § 514(a)

preempts state laws and remedies that disrupt the uniform

administration of an employee benefit plan or “Pilot Life's

categorical preemption rule” under § 502(a). Rush Prudential

HMO, Inc. v. Moran, 536 U.S. 355, 379-80 (2002). For example,

in New York State Conference of Blue Cross and Blue Shield

Plans, Inc. v. Travelers Ins. Co., 514 U.S. 645 (1995), the Court

narrowed the reach of preemption but, importantly, reaffirmed

that “(t]he basic thrust of [ERISA’s] preemption clause. . . was

to avoid a multiplicity of regulation in order to permit the

nationally uniform administration of employee benefit plans.”

Id. at 657. Whatever the outer limits of ERISA preemption might

be, the Court reaffirmed that ERISA preempts state laws or

causes of action that would undermine the uniform application

of benefits. Jd. at 668 (a state law that would “force an ERISA

plan to adopt a certain scheme of substantive coverage” would

likely be preempted under ERISA).

Travelers is of a piece with all of this Court’s preemption

decisions which have consistently emphasized the importance

of uniformity and the preeminence of ERISA’s enforcement

mechanisms. Most recently, in Rush Prudential HMO, Inc. v.

Moran, this Court again stated that ERISA preempts state laws

or causes of action which supplement or add to the remedies

11

available under ERISA, holding that a law that “provided a form

of ultimate relief in a judicial forum that added to the judicial

remedies provided by ERISA ... patently violates ERISA’s

policy of inducing employers to offer benefits by assuring a

predictable set of liabilities, under uniform standards of primary

conduct.” 536 U.S. at 379.

But the goals of predictability and uniformity that Congress

sought to implement by broad preemption — and which this

Court accomplished in Pilot Life —— have been severely

undermined by the decision of the court below. By permitting

state law claims concerning alleged medically-based eligibility

determinations, the Second Circuit has authorized the

application of substantive state law to the administration of plans

providing health care benefits. “[T]he significance of the holding

by the Second Circuit cannot be overstated. . . . [I]ts protection

of state law causes of action regarding medical practice and

health care are monumental.” Thomas A. Moore & Matthew

Gaier, Recent Second Circuit Decision on HMO Liability,

N.Y.L.J., Mar. 10, 2003, at 3. If applied everywhere, plan

administrators would be required to make eligibility

determinations under common law regimes that vary from one

state to the next. The impact will be particularly acute on regional

or national plans whose beneficiaries reside in different states.

These plans will be subject to different and potentially

conflicting liability laws, thereby “requiring the tailoring of plans

and employer conduct to the peculiarities of the law of each

jurisdiction” — exactly the result Congress sought to prevent

through the enactment of § 514(a) and § 5U2(a). Jngersoll-Rand

Co., 498 U.S. at 142.

The disuniformity created by the Second Circuit’s decision

is compounded by the confusion that now exists in the lower

courts regarding the impact of this Court’s decision in Pegram

v. Herdrich, 530 U.S. 211 (2000) on state-law claims such as

the one at issue here. Since Pegram was decided, at least seven

federal circuit courts and two state courts of last resort have

aa te trace ear eee

12

addressed whether state law claims challenging alleged

medically-based eligibility determinations are preempted by

ERISA, and have handed-down conflicting decisions based on

conflicting rationales. See Land v. Cigna Healthcare of Florida,

__ F3d_, No. 02-15549, 2003 WL 21751247 (11" Cir. July

30, 2003), Marks v. Watters, 322 F.3d 316 (4" Cir. 2003); Haynes

v. Prudential Health Care, 313 F.3d 330 (5" Cir. 2002); Roark

v. Humana, Inc., 307 F.3d 298 (5" Cir. 2002), petition for cert.

filed, 71 U.S.L.W. 3791 (U.S. June 3, 2003) (No. 02-1826),

and petition for cert. filed sub nom. Aetna Health Inc. v. Davila,

— US.L.W. — (US. June 20, 2003) (No. 02-1845); Caffey v.

Unum Life Ins. Co., 302 F.3d 576 (6" Cir. 2002); Howard v.

Coventry Health Care of Iowa, Inc., 293 F.3d 442 (8" Cir. 2002);

Pryzbowki v. U.S. Healthcare, Inc., 245 F.3d 266 (3d Cir. 2001);

Villazon vy. Prudential Health Care Plan, Inc., 843 So.2d 842

(Fla. 2003); Pappas v. Asbel, 768 A.2d 1089 (Pa. 2001),

cert. denied sub nom. U.S. Healthcare Sys.of Pa., Inc. v. Pa.

Hosp. Ins. Co., 536 U.S. 938 (2002).

Thus, plan administrators must now divine not only the

applicable federal law, but also the underlying state law in those

jurisdictions that, like the Second Circuit, have subjected benefit

decisions to state law causes of action. The difficulty of

this task cannot be underestimated. Consider, for example,

Pennsylvania, where the Third Circuit is at loggerheads with

the Pennsylvania Supreme Court. In 2001, the Third Circuit

held that ERISA preempts a state law claim for negligent delay

in providing treatment, concluding that Pegram did not change

the preemption analysis. Pryzbowski, 245 F.3d at 273. That same

year, by contrast, the Pennsylvania Supreme Court invoked

Pegram in holding that ERISA did not preempt a state law claim

for medical malpractice where the benefit plan administrator

makes a “mixed eligibility and treatment decision.” Pappas v.

Asbel, 768 A.2d at 1095-96. This situation has now become

untenable for plan administrators in Pennsylvania. See Shannon

P. Duffy & Randall J. Peach, Split Decisions, The Legal

Intelligencer, April 6, 2001, at 1 (““What’s a Pennsylvania lawyer

13

to do now that two of the highest courts in the land ...

have issued conflicting back-to-back opinions on the

issue of when [a plan administrator] can be hit with a medical

malpractice suit?”’).

Similarly, the court below was divided over the meaning

of the dicta in Pegram that “mixed eligibility and treatment

decisions” made by HMOs acting through their physician

employees are not fiduciary acts within the meaning of ERISA.

Pegram, 530 U.S. at 229. Seizing on that language, the majority

held that if a state law malpractice action against an HMO is

based on a “mixed eligibility and treatment decision,” it is not

subject to ERISA preemption so long as the state law cause of

action involves allegations of faulty medical judgment. Cicio,

321 F.3d at 102. This was a significant misreading of Pegram,

which was not a preemption ruling, as this Court itself

recognized. 530 U.S. at 236-37. As Judge Calabresi’s dissent

points out:

[Pegram ’] well intentioned dicta can only make

sense where the underlying negligence also plausibly

constitutes medical maltreatment by a party who can

be deemed a treating physician or such a physician’s

employer, as was the case in Pegram. Where, as here,

no such relationship existed, there is no apparent

reason, in state or federal law, for treating the

unlawful coverage decision any differently from any

other unlawful coverage that is not based on medical

error.

Cicio, 321 F.3d at 109 (Calabresi J., dissenting).

In sum, an employee benefit plan can no longer maintain a

nationally uniform administration of employee benefit plans

because in many states the plan administrators must now

reference state law rules. This Court’s immediate review is

necessary to restore the stability and consistency in the law that

Congress found necessary to encourage employers to offer health

benefits to their employees.

wan ew al

14

II. THE DECISION BELOW RAISES IMMEDIATE

PRACTICAL PROBLEMS FOR ADMINISTRATORS

OF EMPLOYEE BENEFIT PLANS THAT WILL

ULTIMATELY HARM PLAN PARTICIPANTS

The decision below creates real and immediate operational

issues for multistate employee benefit plans that will ultimately

harm plan participants. Requiring plan providers to design their

programs in an environment of differing state standards will

complicate the administration of plans and increase the cost of

health care coverage. In response, many employers will have

no alternative but to reduce coverage to plan participants.

Likewise, permitting state law claims will result in increased

lawsuits arising out of benefit determinations that will drive-up

the cost of administering and providing health care coverage

and further undermine employers’ willingness to provide

coverage voluntarily. As one commentator has noted:

Removal of ERISA preemption and adoption of

more state liability laws could lead to an environment

where HMOs and managed care plans are defending

a number of lawsuits against a number of different

plaintiffs in a number of different states arising under

a number of different types of causes of action.

This is exactly the environment from which

Congress was trying to protect employee benefit

plans generally when it enacted ERISA in 1974.

See Matthew J. Binette, Comment: Patients’ Bill of Rights:

Legislative Cure-All or Prescription for Disaster?, 81 N.C.L.

Rev. 653, 693-94 (2003).

Such practical problems are illustrated by the very type of

procedure at issue in this case. Vytra denied coverage of the

double cell stem transplant on the grounds that it was an

experimental treatment and, as such, was excluded from

coverage under the express terms of the insurance contract.

I _E-

15

Cicio, 321 F.3d at 88. In essence, the employee benefit plan had

determined that there was insufficient clinical research or

experience demonstrating that the treatment was efficacious or

even safe for patients. Prior to the decision below, Vytra’s

determination would have been the same regardless of the

jurisdiction in which a plan beneficiary resided; it would not

cover this type of procedure. Now, Vytra must consider a range

of factors. It first must determine what the law is in the

jurisdiction in which the employee resides. If the employee

resides outside the Second Circuit — for example in New Jersey

— Vytra then may be able to administer the plan as contracted.

If the employee resides in New York, however, Vytra must

consider the applicability of the underlying state law and the

degree to which state law claims might exist.

The situation is further complicated by the difficulty of

assessing the applicability of state law to experimental treatments

or other new medical technology developments. In effect, a plan

administrator must speculate as to how state law judges and

juries will evaluate experimental treatments and new medical

technology for which there will exist no precedent. No reliable

standards exist for a plan administrator to gauge how state law

will apply to such determinations.

This is especially problematic because medical

professionals often make claims regarding the efficacy of

unproven, risky therapies only to see such claims eventually

disproven by clinical trials. Instructive, on this point, is Bast v.

Prudential Ins. Co. of Am., 150 F.3d 1003 (9" Cir. 1998),

cert denied, 528 U.S. 870 (1999), which involved a state law

claim against a plan administrator that denied as experimental

autologous bone marrow transplant (“ABMT”’) procedures to

treat a woman’s breast cancer. The Ninth Circuit concluded that

the state law claim was preempted by ERISA, notwithstanding

that an oncologist had recommended ABMT procedures.

Id. at 1005, 1007-08. Notably, clinical trials subsequently

16

demonstrated that ABMT does not confer any greater chance of

survival than conventional therapy. Patricia C. Kuszler,

Financing Clinical Research and Experimental Therapies:

Payment Due, But From Whom?, 3 DePaul J. Health Care L.

441, 457-462 (2000) (recounting history of ABMT). By that

time, as many as 30,000 women had received the treatment, at

considerable risk to their health — in fact, the treatment carried

a death rate as high as 7.4%. Jd. at 460-61.

Further, requiring benefit plan administrators to apply

varying statutes and common law definitions of “experimental

treatments” — to the extent such definitions exist — will limit

the flexibility now enjoyed by benefit plan administrators to

tailor plans to meet employers’ and employees’ needs and

budgets. It also may result in one state being able to dictate plan

designs on a nationwide basis.

In any event, the decision below and the more general

confusion of the law in this area forces plan administrators to

treat similarly situated employees differently. Although most

employee benefit plans seek to provide the same coverage to

all similarly situated employees, plan administrators must now

consider whether to allow some employees to receive

certain treatments out of fear of litigation even though a

similar employee in a different state is not allowed the very

same treatment.

For example, the employee benefit plan at issue in this case

had an exclusion for experimental treatments. Prior to the

Second Circuit’s decision, an employee benefit plan in the

downstate New York region could apply that exclusion

uniformly regardless of whether its employees lived in

New York, New Jersey or Connecticut. Under the Second

Circuit’s decision, however, an employer will have to abide by

a new set of rules, which are based on different state common

law causes of action and different state standards as to what is

appropriate medical care. Employers must therefore do precisely

17

what Congress sought to prevent: predict the legality of a

proposed action by referring to varying state laws.

Employers subject to the Second Circuit’s jurisdiction will

likely respond in two ways — both harmful to employees. Some

employers may discontinue health care coverage rather than face

the uncertain rules, litigation and higher costs that now apply to

coverage determinations. Other employers may increase

employee contributions or restrict benefits to counter-balance

the higher risks employers now face. See Milt Freudeinheim,

Employees Paying Ever-Bigger Share for Health Care, N.Y.

Times, September 10, 2003, at Al (reporting on authoritative

study showing that almost 2/3 of large employers with employer-

sponsored health plans raised the amounts that employees are

contributing to the cost of their health plans this year, and 79%

say they will do so again in 2004); The Business Council of the

State of New York, Compensation Data New York 2003 (2003)

(survey of New York employers reflects that, in a

12-month period ending in April 2003, more than 1/3 of

employers increased the employee portion of health insurance

premiums, and nearly 1/3 increased deductible levels). In either

case, the decision below will undermine Congress’ goal of

encouraging employer-sponsored health coverage.

Every day plan administrators must make benefits decisions.

These decisions are now being made under a cloud of uncertainty

and risk of second guessing by state judges and juries.

The situation is unworkable for plan administrators and their

inevitable reaction may well have profound and unintended

consequences for beneficiaries. Accordingly, Amici respectfully

request that the Court grant the petition for certiorari to

reestablish clear guidance not only for lower courts, but also

for the plan administrators now confronted with the uncertainty

and disuniformity Congress sought to avoid.

18

CONCLUSION

The petition for certiorari should be granted.

\

RICHARD E. RAMSAY

Deputy General Counsel

American Association of

Health Plans

1129 Twentieth Street, N.W.

Suite 600

Washington, D.C. 20036

(202) 778-3230

Lynn DUDLEY

AMERICAN BENEFITS COUNCIL

1212 New York Ave., N.W.

Suite 1250

Washington, D.C. 20005

(202) 289-6700

Respectfully submitted,

HAROLD N. ISELIN

Counsel of Record

~ Henry M. GREENBERG

Coucu Wuire, LLP

540 Broadway

P.O. Box 22222

Albany, New York 12201

. (518) 426-2600

ANGELA J. FRANKLIN

HEALTH INSURANCE ASSOCIATION

OF AMERICA

1201 F. Street, N.W. Suite 500

Washington, D.C. 20004

(202) 824-1600

PAUL MACIELAK

New York HEALTH PLAN

ASSOCIATION

90 State Street, Suite 825

Albany, New York 12207

(518) 462-2293

Counsel for Amici Curiae