# Petition for Writ of Certiorari — Rebaldo v. Cuomo > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385017_2442%3A1 ## Record - **Collection:** Supreme Court brief - **Document type:** Petition for Writ of Certiorari - **Published:** January 1, 1985 - **Citation:** 472 U.S. 1008 ## Text ~ October Term, 1984 SEBASTIAN REBALDO, as Chairperson of the Board of Trustees of the UNITED OPTICAL WORKERS INSURANCE FUND, Petitioner, vs. MARIO CUOMO, GOVERNOR OF THE STATE OF NEW YORK; and DAVID AXELROD, COMMISSIONER OF HEALTH OF THE STATE OF NEW YORK, Respondents. PETITION FOR A WRIT OF CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE SECOND CIRCUIT I. PHILIP SIPSER SIPSER, WEINSTOCK, HARPER, DORN & LEIBOWITZ Attcrneys for Petitioner 380 Madison Avenue New York, New York 10017 (212) 867-2100 BELLE HARPER RICHARD DORN JEROME TAUBER SUSAN MARTIN Of Counsel QUESTION PRESENTED Whether a state statute that prohibits the continuation. or negotiation of discount rate agreements between self-insured employee benefit plans and hospitals, while mandating discount rates for state regulated not-for-profit health insurance corporations, ‘‘relates to’’ an employee benefit plan within the meaning of Section 514(a) of the Employee Retirement Income Security Act of 1974, 29 U.S.C. §1144(a) and is therefore pre- empted by that Act.* * The caption of the case in this Court contains the names of all parties in the United States Court of Appeals for the Second Circuit. Blue Cross and Blue Shieid of Greater New York (‘*Blue Cross’) and the Hospital Association of New York participated in the court below as Aynici Curiae in support of respondents. il TABLE OF CONTENTS yuestion Presented ........ ccc cece eee eee eee eeeenee - go SAT cer re? eee Taiie ae GONy ik. k bk oo icin od obs Ud a be cds JupITH A. GORDAN, Assistant Attorney Gen- eral, New York, N.Y. (Robert Abrams, Atty Gen. of the State of New York, New York, N.Y., of Counsel), for Defendants- Appellants. SUSAN MARTIN, New York, N.Y. (Sipser, Weinstock, Harper, Dorn & Leibowitz, I. Philip Sipser, Richard Dorn and Jerome Tauber, New York, N.Y., of Counsel), for Plaintiff-Appellee. Ropert A. BiIcKs, New York, N.Y. (Breed, Abbott & Morgan, Alan C. Drewsen and Daphne E. Telfeyan, New York, N.Y., of Counsel), for Amicus Curiae Blue Cross and Blue Shield of Greater New York. Wood, Lucksinger & Epstein, New York, N.Y. (George Kalkines, Fredrick I. Miller and William S. Bernstein, New York, N.Y., of Counsel), for Amicus Curiae The Hospital Association of New York State. VAN GRAAFEILAND, Circuit Judge: This is an appeal from a judgment of the United States District Court for the Southern District of New York (Conner, J.), which invalidated section 2807-a (6) (b) of New York’s Public Health Law to the extent it prohibits a hospital from establishing inpatient charges for self-insured employee benefit plans that are other the charges authorized by the section. The provi- of the statute thus invalidated precluded self- insured employee benefit plans such as the United Optical Workers Insurance Fund (United) from negotiating dis- count rates with hospitals similar to the rates permitted for payors such as Blue Cross, which operates under Article IX-C of New York’s Insurance Law. In holding as it did, the district court adopted ap- pellee’s contention that New York's right to set hospital rates chargeable to employee benefit plans was preempted by section 514(a) of the Employee Retirement Income Security Act (ERISA), 28 U.S.C. §1144(a), which states with certain exceptions that the provisions of ERISA shall supersede State laws insofar as they “relate” to any employment benefit plan. For reasons hereafter stated, we believe that appellee’s contention should have been rejected. During the past several decades, the cost of hospital care has spiraled. See Greater New York Hospital Asso- ciation v. Blum, 634 F.2d 668, 669 (2d Cir. 1980); California Welfare Rights Organization v. Richardson, 348 F. Supp. 491, 496 (N.D. Cal. 1972). In 1983, ap- proximately $8 billion was spent on inpatient hospital care in the State of New York alone. Because approxi- mately two-thirds of this amount was paid by Medicaid and Medicare, both the federal and state governments have sought to develop systems of cost control. However, since Medicaid controls have been more exacting than those of Medicare, administrative attempts to contain hospital costs have been more successful in the former than in the latter. Medicaid is a joint state and federal program de- signed to provide medical care to those who otherwise da Opini could not afford it. Hospital Association of New York, Ine. v. Toia, 577 F.2d 790, 792 (2d Cir. 1978). New York State is one of the voluntary participants in this plan, which it administers in compliance with applicabie federal statutes and regulations. In return for such compliance, the federal government has obligated itself to fund up to 60% of the cost of New York’s program. 42 U.S.C. § 1396a(a)2. 970, New York reimbursed hospitals on the costs. Sa Dpini As early as 1967, however, Congress realized that “the rigid commitment to a cost basis of reimbursement may provide insufficient incentive for participating pro- viders of services to furnish health care economically and efficiently”, and concluded that bases of Medicare reini- bursement other than the cost method should be explored experimentally. S. Rep. No. 744, 90th Cong., Ist Sess. reprinted in 1967 U.S. Code Cong. & Ad. News 2834, 2905. This realization led to the enactment of Pub. L. No. 90-248, tit. IV, $402(a), (b), 81 Stat. 930, 931, the precursor of 42 U.S.C. §1395b-1. In substaace, section 402(a),(b) authorized the Secretary of Health, Educa- tion and Welfare to develop and engage in experiments under which hospitals would be reimbursed im a manner leading to increased efficiency without any impairment of quality. Section 402(c) of the 1967 statute amended section 1875(b) of the Social Security Act, now 42 U.S.C. $ 13950 to provide that the Secretary should submit an annual report to Congress concerning the experiments and demonstration projects authorized by Section 402 (a),(b). Section 222 of Pub. L. No. 92-603, tit. TI, 86 Stat. 1390, enacted in 1972, continued and enlarged upon the Secretary's authority to conduct experiments and demon- stration projects. Anticipating that Medicaid and private insurers might participate in these experiments, Congress expressed its intent that “Medicaid and private funds would also be used proportionately when medicaid and private programs participate in the project.” H.R. Rep. No. 231, 92d Cong., 2d Sess., reprinted in 1972 U.S. Code Cong. & Ad. News 4989, 5068. See 42 U.S.C. § 1395b-1 (a) (2). By the time Congress decided in 1983 to convert Medicare substantially to a system of predetermined 6a Opinion prospective rates, see Pub. L. No. 98-21, tit. VI, § 601, 97 Stat. 149 (1983), codified at 42 U.S.C. § 1895ww/(d), (e),(£), demonstration projects had been established in Maryland, Massachusetts, New Jersey, and New York. Section 603(b) of the 1983 Act, which may be found in the Historical Note following 42 U.S.C. § 1395b-1, pro- vided that “the amendments made by this title shall not affect the authority of the Secretary to develop, carry out, or continue experiments and demonstration projects.” In commenting on section 603(b), the report of the House Ways and Means Committee stated: Your Committee believes that State cost contain- ment systems have proven effective in reducing the cost of hospital care and that such systems should be encouraged. It is the intent of this provision that the Secretary continue medicare waivers for States which currently have effective demonstration projects and provide an opportunity for new States to develop sound approaches to cost containment. State sys- tems covering all payors have proven effective in reducing health costs and should be encouraged. Such State programs may be useful models for our national system. H.R. Rep. No. 25, 98th Cong., 1st Sess. 147-48, reprinted im 1983 U.S. Code Cong. & Ad. News 219, 366-67. The Committee’s report continues: Your Committee bill provides that, upon the request of the State, the Secretary is required to modify the terms of the New York and Massachusetts waivers to eliminate the requirement that the State rate of increase in medicare hospital costs be below the national rate. * la Opinion Under your Committee’s bill and under the current demonstration authority of the Secretary, State sys- tems are required to meet a savings test that is related to medicare. Id. The statute invalidated below is part of New York’s experiment and demonstration project, a three-year pro- gram beginning January 1, 1983. The program was approved by the Secretary on December 21, 1982, pur- suant to the authority granted by section 402(a). In pertinent part, this plan provides that the State Com- missioner of Health shall establish for each hospital an “inpatient revenue cap”, i.e., the maximum amount of inpatient revenue the hospital will be authorized to re- ceive for services during a twelve-month period, N.Y. Pub. Health Law § 2807-a(1), with additional allowances being made for bad debts and charity care, id. at (4). Each general hospital is required to establish a charge schedule sufficient to generate the inpatient revenue au- thorized by the revenue cap, with a proviso that the rate for Article IX-C corporations such as Blue Cross shall be at a discount of from 12% to 15% below that of other non-governmental payors such as United. The statute excepts from this rate differential health maintenance organizations certified under Article 44 of New York’s Public Health Law and self-insured and self-administered groups that had hospital rate contracts in effect on May 1, 1982. Jd. at (6). Because United is not an Article 44 health maintenance organization and had no rate con- tract in effect on May 1, 1982, it did not fall within the excepted group. Appellee commenced this action on December 1, 1983. In addition to his claim of preemption under ERISA, 8a Opinion appellee alleged that subsection 6(b) unconstitutionally impaired the obligation of contracts, burdened interstate commerce, denied United equal protection of the law, was void and preempted by the Constitution’s supremacy clause, and established anti-competitive price discrimina- tion in violation of the federal antitrust laws. Because the district court held that the rate setting provisions of the statute, as they applied to self-insured employee bene- fit plans, were preempted by ERISA, the court found it unnecessary to reach appellee’s other contentions. The sole issue before this Court, therefore, is whether Con- gress, in enacting ERISA, intended to preclude the subse- quent adoption of experimental and demonstration proj- ects, such as the one at issue herein, to the extent that those plans prescribe hospital rates chargeable to self- insured employee benefit plans. Appellants’ principal argument on appeal is that the setting of rates that hospitals must charge private payors, a group that includes employee benefit plans, does not “relate” to United’s plan within the meaning of section 514(a). Appellee’s initial response to this argument, albeit a response made almost in passing, is that it was not made in the district court and therefore should not be heard herew Although generally this Court will not consider an issue not passed on below, Singleton v. Wulff, 428 U.S. 106, 120 (1976), we may, under proper circum- stances, make exceptions to this rule, id. at 121; Chico v. Schweiker, 710 F.2d 947, 952 (2d Cir. 1983); see also Davis v. Musler, 713 F.2d 907, 917 (2d Cir. 1983) (Van Graafeiland, J., concurring) and cases there cited. Be- cause the district court examined the issue of relationship in some detail and because that court’s decision has broad legal ramifications and concerns the validity of a State statute, we think this is a case for such an exception. 190-—— 9a Opinion Moreover, both parties as well as amici have fully briefed and argued before this Court whether this New York law “relates to” ERISA plans within the meaning of §514(a), and the issue is solely one of law the deter- mination of which could not be altered by appellee’s pro- ducing additional evidence. Section 514(a) of ERISA, 29 U.S.C. § 1144(a), pro- vides that “the provisions of this title and title IV shall supersede any and all State laws insofar as they may now or hereafter relate to any employee benefit plan... .” In the definitional section, 29 U.S.C. § 1144(c) (2), Congress defined the term “State” for ERISA preemption purposes as follows: The term “State” includes a State, any political sub- divisions thereof, or any agency or instrumentality of either, which purports to regulate, directly or in- directly, the terms and conditions of employee benefit plans covered by this subchapter. Thus, a state law must “purport[] to regulate, . . . the terms and conditions of employee benefit plans” te fall within the preemption provision. Appellee contends that this phrase should not be read to impose any special limitation in determining whether the hospital rate regu- lation in the instant case relates to United. We disagree. 1 Appellee relies for this argument on a report issued after the passage of ERISA by the House Committee on Education and Labor that concluded that the phrase “which purports to regulate” modifies “agency or instrumentality” only and does not modify the term “State.” H.R. Rep. No. 1785, 94th Cong., 2d Sess. 47-48 (1977). Such reports, although often persuasive, are not binding. We reject this Report’s analysis as lacking even persuasive au- thority. In Alessi v. Raybestos-Manhattan, Inc., 451 U.S. 504, 525 (1981), the Supreme Court held that the phrase “directly or indirectly” modified both “State” and “agency or instrumentality.” [Footnote continued on following page] 10a Opinion As the district court quite properly recognized, the Su- preme Court has given the term “relate” as used in ERISA a broad and liberal construction. See Shaw v. Delta Air Lines, Inc., 108 S. Ct. 2890, 2899-900 (1983). However, the preemptive scope of ERISA is neither all- encompassing, Lane v. Goren, No. 83-6496, slip op. 4263, 4265 (9th Cir. Sept. 27, 1984), nor unlimited, Savings and Profit Sharing Fund of Sears Employees v. Gago, 717 F.2d 1038, 1040 (7th Cir. 1983). ERISA does not in- validate those State statutes whose effect on pension plans is simply tangential in nature. Shaw v. Delta Air Lines, Inc., supra, 103 S. Ct. at 2901 n.21; American Telephone & Telegraph Co. v. Merry, 592 F.2d 118, 121 (2d Cir. 1979). This conclusion follows as a matter of common sense from the fact that ERISA plan members and man- agers are bound to engage in myriad transactions that Congress never considered when it drafted § 514. A pre- emption provision designed to prevent state interference with federal control of ERISA plans does not require the creation of a fully insulated legal world that excludes these plans from regulation of any purely local trans- action. The containment of hospital costs is an exercise of a State’s police powers, which should not be superseded by federal regulations unless that was the clear intent of Congress. Alessi v. Raybestos-Manhattan, Inc., 451 U.S. [Footnote continued from previous page] This entirely sensible reading follows naturally the structure of the sentence and its punctuation, and we see no reason to read the immediately preceding clause, “which purports to regulate,” any differently. Thus, even without the decision in Alessi, we would read the phrase “which purports to regulate, . .. the terms and conditions of employee benefit plans” as modifying the term “State.” Accord, Lane v. Goren, No. 83-6496, slip op. 4263, 4265 (9th Cir. Sept. 27, 1984). lla Opinion 504, 522 (1981); Massachusetts Nursing Association V. Dukakis, 726 F.2d 41, 44 (1st Cir. 1984); see Ray v. Atlantic Richfield Co., 435 U.S. 151, 157 (1978). Ac- cordingly, a State’s promulgation of hospital rate sched- ules should not be found to “relate” to “the terms and conditions of employee benefit plans” unless this conclu- sion is unavoidable. See Alessi v. Raybestos-Manhattan, Inc., supra, 451 U.S. at 522. It is clear that ERISA preempts state laws that require or forbid the provision of a certain kind of bene- fit. See, eg., Stone & Webster Engineering Corp. V. Ilsley, 690 F.2d 323, 329-30 (2d Cir. 1982), aff'd sub nom, Arcudi v. Stone & Webster Engineering Corp., 103 S. Ct. 3564 (1983) (state law requires provision of health insurance to former employee receiving workmen’s com- pensation). It is equally clear that ERISA does not pre- empt every state law that incidentally touches pension plans through its effect on individuals. See, e.g., Ameri- can Tel. & Tel. Co. v. Merry, supra, 592 F.2d at 123-26 (garnishment of pension benefits to collect alimony and child support). As said in Shaw v. Delta Air Lines, Inc., supra, 103 S. Ct. at 2901 n.21: “Some state actions may affect employee benefit plans in too tenuous, remote, or peripheral a manner to warrant a finding that the law ‘relates to’ the plan.” New York’s decision to regulate the amounts hospitals can charge falls within this descrip- tion. Appellee’s suggestion that, because this regulation affects pensions plans in their dealings with hospitals by increasing their costs of doing business, it must be found preempted, proves altogether too much. As the court observed in Lane v. Goren, supra, slip op. at 4266: That argument does not withstand scrutiny. So too, for example, do State laws and municipal ordinances regulating zoning, health, and safety increase the 12a Opinion operational costs of ERISA trusts, but no one could seriously argue that they are preempted. See also American Progressive Life & Health Insurance Co. v. Corcoran, 715 F.2d 784, 787 (2d Cir. 1983). The purchase of hospital service is like the purchase of public utility service, or of any other service or com- modity whose price is controlled by the State. Insofar as the regulation of hospital rates affects a plan’s cost of doing business, it also may be analogized to State labor laws that govern working conditions and labor costs, to rent control laws that determine what employee benefit plans pay or receive for rental property, and even to such minor costs as the Thruway, bridge and tunnel tolls that are charged to plans’ officers or employees. In short, if ERISA is held to invalidate every State action that may increase the cost of operating employee benefit plans, those plans will be permitted a charmed existence that never was contemplated by Congress. Where, as here, a State statute of general application does not affect the structure, the administration, or the type of benefits pro- vided by an ERISA plan, the mere fact that the statute has some economic impact on the plan does not require that the statute be invalidated.’ Moreover, such indirect economic impact as may re- sult from State control over hospital rates does not run counter to ERISA’s aim of national uniformity in plan a 2 The mere fact that section 2807 recognizes differences between groups, including “self-insured groups” like United, and tempers its treatment of these groups to reflect these differences, does not make it any the less a law of general application for preemption analysis. Cf. New York Tel. Co. v. New York State Dept. of Laber, 440 U.S. 519 (1979) (New York unemployment benefit law that gives special treatment to striking employees is “a law of general application,” and thus is not preempted by NLRA). 13a Opinion regulation. See Shaw v. Delta Air Lines, Inc., supra, 103 S. Ct. at 2890 n.20. There is no valid reason why em- ployee benefit plans cannot be subject to nationally uni- form supervision despite dissimilarities in their costs of doing business. Indeed, if statutes such as section 2807- a(6)(b) of New York’s Public Health Law are held to be preempted by ERISA, every hospital will be able to set its own rates for ERISA plans, and appellee does not contend that these rates are, or will be, uniform, even as between hospitals in the same locality. Lack of uni- formity is not a valid argument for preemption of New York’s statute. The author of this opinion, writing only for himself and not his colleagues, who take no position on the issue, believes that New York’s experimental and demonstration project, incorporated in section 2807-a, also is exempted from the preemptive provisions of ERISA by section 514 (d) of that Act, which provides that nothing in ERISA shall be construed to “impair . . . any law of the United States .. . or any rule or regulation issued under any such law.” 29 U.S.C. § 1144(d). Medicaid has been described correctly as a “coopera- tive endeavor”, a “cooperative program of shared financial responsibility” between the states and the federal govern- ment. Harris v. McRae, 448 U.S. 297, 308-09 (1980). It is “one of the ‘cooperative federalism’ welfare prorrams administered jointly by state and federal governments.” Massachusetts General Hospital v. Sargent, 397 F. Supp. 1056, 1061 (D. Mass. 1975). See also King v. Smith, 392 U.S. 309, 316 (1968). A federally authorized ex- perimental and demonstration project that incorporates both Medicaid and Medicare certainly is no less a coopera- tive undertaking. Ida Opinion As already pointed out, Congress authorized the Sec- retary of Health, Education and Welfare “to develop and engage in experiments and demonstration projects . . . to determine whether the rates of payment . . . for health care services, approved by a State for purposes of the administration of one or more of its laws, when utilized to determine the amount to be paid for services furnished in such State under the health programs established by this chapter, would have the effect of reducing the costs of such programs without adversely affecting the quality of such services.” 42 U.S.C. § 13885b-1(a)(1)(C). This statute unambiguously vests the Secretary with authority to engage in such experiments. Blue Cross Association V. Harris, 622 F.2d 972, 976 (8th Cir. 1980). It is a commonplace of statutory construction that a legislative grant of power carries with it the right to.use the means and instrumentalities necessary to the beneficial exercise of that power. Id. at 978. See also Health Care Service Corp. v. Califano, 601 F.2d 934, 935 (7th Cir. 1979); California Welfare Rights Organization v. Richardson, supra, 348 F. Supp. at 493, 495. In fact, Congress did more than merely authorize the Secretary to approve New York’s demonstration project. In section 603b(1) of the 1983 Act, Congress ratified what the Secretary had done by authorizing the continuation of the established project. The program under review is not simply a New York undertaking; it is a cooperative undertaking of the state and federal governments. The need for such experimental projects in the con- tinually developing field of public health and assistance 1Sa Opinion is obvious. “A purpose to determine whether and how improvements can be made in the welfare system is as ‘legitimate’ or ‘appropriate’ as anything can be.” Aguayo v. Richardson, 473 F.2d 1090, 1109 (2d Cir. 1973). See California Welfare Rights Organization v. Richardso:, supra, 348 F. Supp. at 497. Indeed, the predetermined rate scheduling procedure that New York adopted for Medicaid in 1970 began its existence as an experimental or demonstration project with the approval of the Secre- tary and later was adopted as a permanent basis for pay- ments. The above outlined history of the numerous con- gressional enactments authorizing experiments and demon- stration projects shows the consistent intent of Congress that such experiments be conducted. When Congress gives authority with one hand, it ordinarily does not take it away with the other. In attempting to control hospital charges, a State has the choice of setting rates for specific services, a procedure that is both cumbersome and expensive, or of prescribing a “revenue cap” for all services, a procedure that elim- inates much of the administrative morass inherent in selective rate setting and gives hospitals some leeway in fixing specific charges. In order for the “revenue cap” concept to operated properly, a plan must provide, as New York’s does, for an equitable apportionment of hospital costs among all payors, including the costs of bad debts and charity care. Indeed, the Medicare Act specifically prohibits the shifting of costs between Medicare and non- Medicare payors. 42 U.S.C. §1395x(v)(1)(A). See Greater New York Hospital Association v. Matthews, 536 F.2d 494, 499 (2d Cir. 1976); 10 N.Y. Admin. Cede, tit. 10, § 86-1.11(b). Were the Secretary prevented from approving experimental reimbursement programs that at- tempt to regulate all sources of hospital inpatient revenue 16a Opinion and equitably apportion responsibility for bad debt and charity care, the statutory mandate for such experimental programs would be impaired substantially. In sum, the writer does not believe that Congress in- tended that ERISA would preempt a project of cooperative federalism, such as we have here, a project that was au- thorized and ratified by federal statute and is intended in substantial part to conserve federal funds. The district court’s judgment is vacated and the matter is remanded for further proceedings consistent with this opinion. 17a OPINION AND ORDER OF THE UNITED STATES DISTRICT COURT, SOUTHERN DISTRICT OF NEW YORK DATED MARCH 12, 1984 UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK 83 Civ. 8707 (wcc) SEBASTIAN REBALDO, as Chairperson of the Board of Trustees of the UNITED OPTICAL WORKERS INSURANCE FUND, Plaintiff, - against - MARIO CUOMO, Governor of the State of New York, and DAVID AXELROD, Commissioner of Health of the State of New York, Defendants. APPEARANCES: SIPSER, WEINSTOCK, HARPER, DORN & LEIBOWITZ, ESQS. Attorneys for Plaintiff 380 Madison Avenue New York, New York 10017 18a Opinion and Order I. PHILIP SIPSER, ESQ., DONALD E. KLEIN, ESQ., JEROME TAUBER, ESO., SUSAN MARTIN, ESQ., Of Counsel ROBERT ABRAMS, ESQ. Attorney General of the State of New York Attorney for Defendants Two World Trade Center New York, New York 10047 MELVYN R. LEVENTHAL, ESQ.., Deputy First Assistant Attorney General ROBERT A. FORTE, ESQ. Assistant Attorney General Of Counsel BREED, ABBOTT & MORGAN, ESQS. Attorneys for Amicus Curiae Blue Cross and Blue Shield of Greater New York 153 East S3rd Street New York, New York 10022 ROBERT A. BICKS, ESQ.., Of Counsel CONNER, D. J.: i9a Opinion and Order Plaintiff Sebastian Rebaldo (‘‘Rebaldo’’) filed this action on behalf of the United Optical Workers Insurance Fund (the ‘“‘Fund’’) in December 1983, seeking declaratory and injunctive relief against implementation of a small portion of the New York Prospective Hospital Reimbursement Method (the “‘NYPHRM"’), New York Public Health Law §2807-a, ef seg. Among its provisions, the NYPHRM establishes one method of hospital reimbursement for major third-party payors such as Medicare, Medicaid and Blue Cross, and another for all other payors. Rebaido contends that the subsection in question, §2807-a.6(b), which mandates that rates for charge-paying individuals and groups such as the Fund be set at levels from 12% to 15% higher than rates set for corporations like Blue Cross, is invalid as applied to the Fund. He reasons that because this subsection restricts the right of an employee welfare benefit plan to negotiate with hospitals for reduced rates, it is pre-empted by the Employee Retirement Income Security Act of 1974, 29 U.S.C. $1001 er seq. (1976 ed. and Supp. V\“‘ERISA"’). Defendants Mario Cuomo, the Governor of the State of New York, and David Axelrod, the Commissioner of Health, are the state officials charged with enforcing the NYPHRM. The matter is now before the Court on cross-motions for summary judgment.' The Fund is a self-insured and self-administered employee welfare benefit plan governed by a board of trustees, of which Rebaildo is the chairman. The Fund receives contributions from employers in various states pursuant to the terms of collective bargaining agreements between the employers and the United Optical Workers, Local 408, and the resulting fund is used to provide hospital and other health and welfare coverage for employees and their dependents. Rebaldo Aff. at {1. The parties to this action and amicus Blue Cross agree that the Fund is governed by ERISA. PI's Mem. at 2; Def’s Mem. at 2; Amicus Mem. at 19. ele 20a Opinion and Order Prior to 1983 the Fund purehased insurance coverage through Blue Cross. However it suffered financial losses under this arrangement, and in 1982, it retained Donald Rubin (‘‘Rubin’’) to explore the possibility of self-insuring. Rubin concluded that by self-insuring, the Fund could provide superior benefits at reduced costs. Under his guidance, the Fund terminated its relationship with Blue Cross effective January 1, 1983, and converted to a self-insured and self-administered plan. On behalf of the Fund, Rubin negotiated discount contracts with more than 100 area hospitals; these contracts called for payment rates calculated at 5% above the discount rate paid by Blue Cross. As a result of these negotiated discount arrangements, as well as increased efficiency and lower administrative costs, the Fund estimates that it saved approximately $100,000 in hospitalization costs in 1983 by self-insuring. Jd. at 43. The New York Legislature enacted the NYPHRM in 1982, following years of proposals and recommendations aimed at remedying a vast array of hospital cost containment problems caused by such conditions as spiraling inflation, inability to cover bad debts and charity care, inadequate efficiency incentives and an inequitable distribution of financial burdens on various categories of payors. See generaily Ex.A to Sweeney Aff. The ultimate goal of the statute, as characterized by the Director of the Office of Health Systems Management of the New York State Department of Health, is the attaining ‘‘financial stability for the hospital industry while at the same time promoting cost containment and overall increased efficiency in hospital operation.’’ Sweeney Aff. at 419. The NYPHRM seeks to accomplish this end through a complex and comprehensive ‘reimbursement methodology’’ that accounts for and controls all sources of hospital revenue. The central concept is that of an ‘inpatient revenue cap’’ established for each hospital, which determines the maximum amount of inpatient revenue the hospital 2la Opinion and Order may receive for services in a given year. Section 2807-a.1; Lovett Aff. at 414,; Miller Aff. at 44. Once the dollar figure is fixed for each hospital, it is allocated among various categories of payors, im part by the subsection at issue here. Hospitals receive the great bulk of their revenue for patient care from third-party payors rather than from the personal funds of individual patients. Medicare, Medicaid and Blue Cross account for approximately 80% of payments for hospital care in New York, and the remaining percentage is attributable primarily to private insurance companies, self-insured groups such as the Fund, and individual ‘‘self-pay’’ patients (collectively ‘‘charge payors’’). Sweeney Aff. at 44. lin order to implement a comprehensive system to contain hospital costs, and to prevent hospitals from ‘‘juggling”’ reimbursement among payors, making up losses in one area with higher revenues from another, the legislature concluded that it would be necessary to achieve control over the rates paid by each of these groups. Sweeney Aff. at 4420, 25. The New York State Department of Health already regulated Medicaid reimburseinent rates, Sweeney Aff. at 45, and similar controls had been exerted over rates charged to Blue Cross, a not-for-profit corporation which is organized pursuant to Article IX-C of the New York Insurance Law, and which is therefore subject to considerable state regulation. Lovett Aff. at 43; Sweeney Aff. at 49. Prior to the enactment of the NYPHM, however, the federal government had sole responsibility for establishing reimbursement rates for the Medicare program, Sweeney Aff. at 47, and the State made no attempt to control self-insured groups that wished to negotiate their own discount rates. In order to bring Medicare reimbursement rates under state control, New York proposed and received from the Office of Research and Demonstration of the federal Health Care Financing 22a Opinion and Order Administration, Ex. A to Lovett Aff., a waiver under which the state was permitted td establish its own method of setting Medicare rates during an experimental three-year period. Sweeney Aff. at 448, 10.? Control over the rates charged to self-insured groups was achieved by the enactment of §2807-a.6. Section 2807-a.6(a) requires that each hospital establish a charge schedule that will be sufficient to generate the inpatient revenue authorized by the revenue cap. Section 2807-a.6(b) then requires that as of January 1, 1984, each hospital’s gross charges shall be set at a level such that the reimbursement rates paid by Blue Cross and other Article [IX-C corporations are from 12% to 15% lower than the rates billed to charge-paying patients. In other words, self-insured groups such as the Fund must be charged by each hospital at its full or ‘‘gross’’ rates. Lovett Aff. at 416. An express exception not applicable to the Fund’s contracts allows for the continuation of negotiated discount systems which were in effect on May 1, 1982. Plaintiff seeks relief from this Court because the terms of §2807-a.6(b) effectively nullified its negotiated contracts as of January first of this year. He has submitted letters from the administrators of various hospitals with which contracts had been arranged, terminating those agreements ‘‘in compliance with section 2807-a(6)(b).’’ Ex. A to Rebaldo Reply Aff., Ex. A to Rubin Aff. Rebaldo asserts that §2807-a.6(b) ‘‘relates to’? ERISA plans, and that it therefore falls within the broad scope of ERISA’s pre-emption provision. Defendants concede that the subsection relates to ERISA plans, but argue that it escapes pre-emption under two of ERISA’s savings clauses, one of which exempts state laws that regulate insurance, and the other which forbids construing ERISA’S preemption provision so as to alter, amend or modify federal law. For the reasons set forth below, I conclude 23a Opinion and Order that §2807-a.6(b) is pre-empted by ERISA, and therefore may not be enforced against funds such as that administered by plaintiff. Discussion ERISA is a comprehensive body of federal law designed to promote and protect the interests of employees and their beneficiaries in pension and welfare benefit plans. 29 U.S.C. §1001. An ‘‘employee welfare benefit plan’’ is any plan, fund or program that provides medical, surgical or hospital care or benefits for contingencies such as illness, accident, disability, death or unemployment, 29 U.S.C. §1002(1), and all parties to this action agree that plaintiff’s Fund is covered by the terms of this provision. The instant dispute arises under ERISA’s pre-emption provision, §514(a), 29 U.S.C. §1144(a), (**§514(a)’’) and the savings clauses that follow. With certain exceptions discussed below, §514(a) pre-empts ‘‘any and all State laws insofar as they may now or hereafter relate to any employee benefit plan’’ covered by ERISA. The scope of this provision was widely debated after ERISA’s enactment, but much of the controversy was put to rest by the Supreme Court in Shaw v. Delta Air Lines,___ U.S. ___., 103 S.Ct. 2890 (1983). The unanimous Court announced in Shaw: The breadth of §514(a % pre-emptive reach is apparent from that section’s language. A law ‘‘relates to’’ an employee benefit plan, in the normal sense of the phrase, if it has a connection with or reference to such a plan. Id. at 2899. The Court then cited Black’s Law Dictionary for its definition of the term ‘‘relate’’: ‘“To stand in some relation; 24a Opinion and Order to have bearing or concern; to pertain; refer; to bring into association or connection with.’’ Jd., n.16. This definition is consistent with ERISA’s §514(c)(2), which provides that ERISA pre-empts any state action ‘‘which purports to regulate, directly or indirectly,’’ the terms or conditions of covered plans. (emphasis supplied). See Alessi v. Raybestos-Manhattan, Inc., 451 U.S. 504, 525 (1980) (‘‘It is of no moment that New Jersey intrudes indirectly, through a workers’ compensation law, rather than directly, through a statute called ‘‘pension regulation’. ERISA makes clear that even indirect state action bearing on private pensions may encroach upon the area of exclusive federal concern.’’) The Supreme Court went on to say in Shaw that in using the words ‘“‘relate to’’ in their broadest sense, Congress rejected the suggestion that §514(a) be interpreted to preempt only state laws dealing with the subject matters specifically covered by ERISA, such as reporting, disclosure and fiduciary responsibility. The Court recognized that requiring multi-state plans such as Rebaldo’s Fund to comply with varying state regulations would have the direct effect of increasing the costs and decreasing the efficiency of fund administration. These increased costs, the Court reasoned, would eventually. result in a reduction of benefits to participants. The employer might choose to offer a number of plans, each tailored to the laws of particular states; the inefficiency of such a system presumably would be paid for by lowering benefit levels ERISA’s comprehensive pre-emption of state law was meant to minimize this sort of interference with the administration of employee benefit plans. 103 S.Ct. at 2904, n.25. 25a Opinion and Order — ERISA’s legislative history was given considerable attention in Shaw. The Court extensively quoted the bill’s sponsors, who noted as ERISA’s crowning achievement its reservation to federal authority of ‘‘the sole power to regulate the field of employee benefit plans,’’ and who anticipated that the statute would eliminate any threat of conflicting or inconsistent state and local regulation. Jd. at 2901, quoting Remarks of Representative Dent and Senator Williams, 120 Conf.Rec. 29197 and 29933 (1974). The Court also cited remarks by Senator Javits, who described the ‘‘ernergence of a comprehensive and pervasive Federal interest’’ and who recognized that ‘‘the interests of uniformity with respect to interstate plans required — but for certain exceptions — the displacement of state action in the field of private employee benefit programs.’’ Jd. at 2901 n.20, quoting 120 Cong. Rec. 29942. In light of this legislative history, the Supreme Court determined thai the specific enumerated exceptions to the pre- emption provision should be narrowly construed. Jd. at 2902, 2903. (‘‘As we have detailed above, Congress applied the principle of pre-emption ‘‘in its broadest sense to foreclose any non-Federal regulation of employee benefit plans,’’ creating only very limited exceptions to pre-emption’’). Neither defendants nor amicus argues that §2807-a.6(b) does not ‘‘relate to”” ERISA plans,’ and such an argument would not prevail. Section 2807-a.6(b) adversely affects the administration of such plans in at least two ways . It is obvious that if the Fund is required to pay the higher reimbursement rates set for charge payors, it will not be able to provide the same breadth of coverage for its beneficiaries. Its other alternative is to return to the previous arrangement of purchasing insurance through Blue Cross, but the Fund asserts that its experience has shown this arrangement to be more expensive than the present system, and that some 26a Opinion and Order reduction in benefits would still be necessary to cover increased costs. In addition, by imposing a local condition on the administration of covered funds, §2807-a.6(b) runs afoul of ERISA’s goal of facilitating the operation of uniform multi-state plans. In order to best conserve assets, the Fund might well find it practical to operate separate plans in different states; it might find that it could provide benefits most efficiently by insuring through Biue Cross in New York and by self-insuring in states without similar restrictions. This would result in higher administrative costs, and as the Supreme Court noted in Shaw, would eventually necessitate a decrease in benefits. It should be noted, as well, that §2807-a.6(b)’s impact on ERISA plans is not incidental; it is apparent from the express exclusion of discount contracts entered into by ‘‘self-insured and self-administered groups’’ before May 1, 1982 that the legislature considered ERISA pians and fully intended to curtail their ability to negotiate or receive discounts after January 1, 1984. This conclusion is further supported by direct references to ‘‘self-insured groups [that] have negotiated payment rates with individua! hospitals’’ in a report by the statutorily-created Council on Heaith Care Financing, which was charged with devising a plan for financing hospital inpatient care, and also by statements attributed to Edwin Werner, the President of Blue Cross and a member of the Council on Health Care Financing. In a memorandum entitled “‘Questions and Answers on the Changes in Financing Hospital Care in New York State,’’ Ex.C to Rubin Aff., Werner discussed the impact of the NYPHRM on self-administered funds: These funds pay substantially less than other charges-paying patients; in several circumstances, 27a Opinion and Order their payment rates approximate [Blue Cross’] own. The unfairness of this became obvious to all in the course of the Council on Health Care Financing deliberations. As a result, under the Act, no new arrangements of this sort can be established after May 1, 1982. Id. at p.7. In discussing the impact of the NYPHRM on Blue Cross, Werner then stated that the ‘‘abusive reimbursement practices of self-insured programs will be curtailed.”’ Jd. at p.8. I am convinced, based upon the foregoing, that §2807-a.6(b) ‘pertains to’”’ and ‘‘refers to’? ERISA funds, and that it has a direct ‘‘bearing on’’ and ‘‘connection with’’ them. This conclusion by no means suggests that the designers of the NYPHRM acted with improper motives toward ERISA funds. To the contrary, defendants and amicus have provided the Court with considerable justification for the payment rate differential established between ERISA plans and corporations such as Blue Cross. The wisdom of §2807-a.6(b) is not at issue here, however, and I therefore turn to an examination of whether eicher of the proffered exceptions to ERISA’s broad pre-emption rule apply. Defendants and amicus assert that two of §514(a)’s narrow savings provisions apply to this controversy. The first is subsection (b)(2)(A) of §514, which excepts from pre-emption ‘‘any law of any State which regulates insurance.’’ On its face, §2807-a.6(b) certainly does not purport to be an insurance law; it merely regulates the rates at which charge payors compensate hospitals for health care services. As noted above, this group of charge payors includes many individuals who are not covered by insurance at all. Nevertheless, it is apparent from the very existence of the present controversy that this measure has a regulatory effect on 28a Opinion and Order insurance, and I therefore look to the intended meaning of the phrase ‘‘law which regulates insurance’’ in §514(b)(2)(A).* ERISA itself provides no definition of this language, but both parties recognize that §514(b)(2)(A) is a reflection of congressional intent to accommodate the states’ primacy in the area of insurance. Pl’s Mem. at 6-7; Def’s Mem. at 11-12. See also Wadsworth v. Whaland, 562 F.2d 70, 78 (ist Cir. 1977); Eversole v. Metropolitan Life Ins. Co., 500 F. Supp. 1162 (C.D.Cal. 1980); McLaughlin v. Connecticut General Life Ins. Co., 565 F. Supp. 434, 443 (N.D.Cal. 1973). That primacy was officially granted by Congress with the enactment of §2(b) of the McCarran Ferguson Act, 15 U.S.C. §§1011-1015 (1976)“‘:he McCarran Act’’), and thus it is appropriate to examine the language and background of the McCarran Act in construing ERISA’s insurance savings clause. The McCarran Act was passed in response to the Supreme Court’s decision in United States v. South-Eastern Underwriters Assn., 322 U.S. 533 (1944), which held that insurance transactions were subject to federal regulation under the Commerce Clause. Congress was apparently concerned that inroads might be made on the tradition of state insurance regulation, and it therefore sought to “‘give support to the existing and future state systems for regulating and taxing the business of insurance.’’ Prudential Ins. Co. v. Benjamin, 328 U.S. 408, 429 (1946). It accomplished this by enacting §2(b), which provides in relevant part: No Act of Congress shall be construed to invalidate, impair, or supersede any law enacted by any State for the purpose of regulating the business of insurance, or which imposes a fee or tax upon such business, unless such Act specifically relates to the business of insurance .. 29a Opinion and Order In: SEC v. National Securities, Inc., 393 U.S. 453 (1969), the Supreme Court discussed the meaning of the McCarran Act’s ‘““business of insurance”’ language. The Court stated first that in enacting the measure, Congress intended to assure that states retain the free hand they had previously enjoyed in ‘‘regulating the dealings between insurers and policyholders.’’ It is the protection of this relationship, according to the Court, with which laws regulating the ‘‘business of insurance’’ are concerned. Insurance companies may do many things which are subject to paramount federal regulation; only when they are engaged in the “business of insurance’’ does the statute apply. Certainly the fixing of rates is part of this business; Congress was concerned with the type of state regulation that centers around the contract of insurance, the transaction which Paul v. Virginia held was not “‘commerce.’’ The relationship between insurer and insured, the type of policy which could be issued, its reliability, interpretation, and enforcement — these were the core of the “business of insurance.’’ Undoubtedly, other activities of insurance companies relate so closely to their status as reliable insurers that they too must be placed in the same class. But whatever the exact scope of the statutory term, it is clear where the focus was — it was on the relationship between the insurance company and the policyholder. Statutes aimed at protecting or regulating this relationship, directly or indirectly, are laws regulating the ‘‘business of insurance.”’ Id. at 459-60 (emphasis added). 30a Opinion and Order The Supreme Court again addressed the meaning of §2(b)’s “business of insurance’ language in Group Life & Health Insurance Co. a/k/a Blue Shield of Texas v. Royal Drug Co., 440 U.S. 205 (1979). Royal Drug involved agreements between Blue Shield and certain ‘‘participating’’ pharmacies, under which policyholders would pay only two dollars for each prescription drug purchased, and Blue Shield would then reimburse the pharmacies for the drug acquisition costs. Policyholders who purchased drugs at non-participating pharmacies would pay full price, and could seek partial reimbursement from Blue Shield. The only issue before the Court was whether the establishment of these pharmacy agreements between Blue Shield and the participating pharmacies constituted the ‘‘business of insurance”’ which, under the McCarran Act, could only be regulated by the state. In concluding that entry into these agreements did nor constitute the ‘‘business of insurance,*’ the Court first discussed the significance of risk-spreading as an indispensable characteristic of insurance. Rejecting Blue Shield’s suggestion that the agreements did involve undewriting of risks, the Court said: The benefit promised to Blue Shield policy holders is that their premiums will cover the cost of prescription drugs except for a $2 charge for each prescription. So long as that promise is kept, policyholders are basically unconcerned with arrangements made between Blue Shield and participating pharmacies. The Pharmacy Agreements thus do not involve any underwriting or spreading of risk, but are merely arrangements for the purchase of goods 3la Opinion and Order and services by Blue Shield. By agreeing with pharmacies on the maximum prices it will pay for drugs, Blue Shield effectively reduces the total amount it must pay to its policyholders. The Agreements thus enable Blue Shield to minimize arrangements may well be sound business practice, and may well inure ultimately to the benefit of policyholders in the form of lower premiums, but they are not the “‘business of insurance."’ Id. at 214-15 (footnotes omitted). The Court went on to emphasize that the pharmacy agreements were simply contractual arrangements between Blue Shield and the pharmacies for the sale and distribution of goods and services other than insurance, and that they did not implicate the relationship between insurer and insured, which was at the heart of §2(b) of the McCarran Act. For these reasons, the Court concluded that the agreements were not ‘“‘the business of insurance’ within the meaning of that Act. /d. at 230. In the instant case, the Fund negotiated with third parties for the delivery of health care services at a discount price. The contracts were designed to reduce the Fund’s costs and preserve its assets, but they had no direct impact upon the relationship between the Fund and its beneficiaries. In short, within the meaning of the McCarran Act, the Fund was not engaging in the ““business of insurance’’ when it executed the contracts affected by the implementation of §2807-a.6(b). Of course, §514(6)2)(A) of ERISA does not contain the ““business of insurance’’ language found in the McCarran Act; 32a Opinion and Order it refers simply to “‘any law ... which regulates insurance”’ Nevertheless, several courts have concluded, correctly I believe, that the two provisions promote the same policy and should therefore be construed consistently. See Wadsworth v. Whaland, $62 F.2d 70, 78 (1st Cir. 1977) (“*[T]he national policy of primacy in the reguiation of insurance announced by Congress in the McCarran-Ferguson Act .. . is twice reaffirmed by ERISA in §514: first with the saving clause and again with subsection (d)""); McLaughlin v. Connecticut General Life Insurance Co., 555 F. Supp. 434, 445 (N.D. Cal. 1983); Eversole v. Metropolitan Life Insurance Co., 500 F. Supp. 1162, 1168 (C.D. Cal. 1980) (“‘The two statutes are in pari materia and should therefore be construed consistently’’). In light of the Supreme Court's conclusion that the specific exceptions to ERISA’s general pre-emption rule are to be construed narrowly, I see no purpose in interpreting the reference to insurance regulation in §514(6)(2)A) more broadly than the corresponding reference in the McCarran Act. It follows, therefore, that §2807-a.6(b) of the New York Public Health Law ‘s not saved from pre-emption under ERISA’s insurance savings clause. Blue Cross has proposed an alternative method of saving §2807-a.6(b) from pre-emption, inviting the Court's attention to §S14(d) of ERISA. This subsection states: Nothing in this subchapter shall be construed to alter, amend, modify, invalidate, impair or supersede any law of the United States or any rule or regulation issued under any such law. Amicus contends that if this Court were to construe ERISA to pre-empt §2807-a.6(b), the federal government would be impaired in its ability to 33a Opinion and Order discharge its responsibilities under the Medicare program, Title XVIII of the Social Security Act, 42 U.S.C. §1395 et seg. The theory, although creative, is also flawed. Underlying Blue Cross’s argument is a concern for the continued viability of the federal government's Medicare waiver, which was granted under a section of the Social Security Act designed to encourage experimentation with Medicare reimbursement at the state level, and which was, in fact, a condition precedent to implementation of the NYPHRM. The source of this concern is a provision, codified as a note to §2807,which provides that: if any payor reduces its rate of payment below that which is developed in accordance with the provisions of section twenty-eight hundred seven- a of the public health law, .. ., the provisions of this act shall have no force and effect and the provisions of the public health law as they existed immediately prior to the enactment of this < :t shall be restored and deemed to be in full force and effect. 1982 N.Y. Laws, ch. 536, §10(a). Blue Cross argues that even though plaintiff has asked the Court to enjoin application of §2807-a.6(b) only insofar as it applies to ERISA funds, the language quoted above forecioses any possibility of such limited relief — in other words, if §2807-a.6(b) is pre-empted, the whole scheme will be invalidated. _ 34a Opinion and Order According to Blue Cross, when the Secretary of Health and Human Services granted the waiver, it thereby ‘‘adopted’’ the NYPHRM scheme for the federal Medicare program, Amicus contends this is precisely the sort of operational experiment Congress clearly sought to enable by enacting §514(d). Amicus letter of February 17, 1984, 6. Plaintiff responds that NYPHRM’s non-severability clause, §10(a) of L.1982, ch. 536, was intended only to assure the continuing participaticn of the state’s three major payors, Medicare, Medicaid and Blue Cross, im the overall scheme, and does not apply to ERISA funds. Plaintiff suggests that another general severability clause, found at §2813 of the Public Health Law, operates to save §2807-a from pre-emption except to the extent that it is held unenforceable against ERISA funds, Pl’s Reply Mem. at 17, and that pre-emption therefore poses no threat to the continued viability of the Medicare waiver. Defendants and amicus have emphasized repeatedly the comprehensiveness of the NYPHRM, and the importance of incorporating into the reimbursement scheme all sources of hospital revenue. These considerations militate against adoption of plaintiff’s construction of §10(a). On the other hand, plaintiff has correctly recognized that a literal construction of the language would lead to the absurd result that ‘‘a single uninsured patient who settled his hospital account for less than the charge payer rate would invalidate the statute.’’ P!’s Reply Mem. at p.17 n.6. Given the importance of the objectives served by the NYPHRM, the extensive time and effort expended in designing and implementing the complex statutory scheme, and the obvious need for some degree of flexibility in its administration,’ I believe that had the New York Legislature been presented with the ambiguity raised here, it would have clerified §10(a) or made some other 35a Opinion and Order provision to avoid the drastic result predicted by amicus. My confidence is bolstered by the fact that the suggestion that pre- emption of §2807-a.6(b) would invalidate the NYPHRM in its entirety was raised not by the Office of the New York State Attorney General, but only by amicus Blue Cross. It would appear, then, that the defendants do not share Blue Cross’s concern for the future of the NYPHRM. Fortunately, it is not necessary for me to second-guess the New York Legislature in order to resolve the legal issue at hand. Even assuming the legislature fully intended that pre-emption of any one provision would result in the defeat of its entire statutory scheme and the nullification of the special Medicare waiver, I have concluded that such a disposition would not alter, modify or impair ‘‘any law of the United States or any rule or regulation issued under any such law’’ within the meaning of §514(d) of ERISA. ‘ Medicare is a comprehensive health insurance program for elderly and disabled persons. Medicare Hospital Insurance (Part A) covers medically necessary inpatient care in a hospital, and thereafter in a skilled nursing facility, while Medicare Medical Insurance (Part B) primarily covers medically necessary outpatient services and supplies. The Secretary of Health and Human Services (the ‘‘Secretary’’) is granted authority under 42 U.S.C. §1302 to ‘‘make and publish such rules and regulations ... as may be necessary to the efficient administration’ of the Medicare program, and she has exercised that authority by publishing regulations governing reimbursement for services rendered to persons covered under Medicare Part A. See 42 C.F.R. §405 (1982). These regulations set forth the retrospective reimbursement procedure from which the New York State Department of Health sought relief in order to implement the NYPHRM. 36a Opinion and Order The Secretary is authorized under 42 U.S.C. §1395b-1(a)(1)(c) to engage in experiments and demonstration projects designed to determine whether the rates of payment or reimbursement approved by a state for purposes of administering its own laws would reduce the cost of Medicare coverage without adversely affecting the quality of services. Section 1395b-1(b) provides that in the case of any experiment or demonstration project entered into under subsection (a), the Secretary may waive compliance with applicable reimbursement requirements. Under this authority, the Federal Health Care Finance Administration’s Office of Research and Demonstrations issued a letter to the Commissioner of the New York State Department of Health on December 14, 1982, granting such a waiver. Ex.A to Lovett Aff. Blue Cross has not suggested that the predicted nullification of the NYPHRM by pre-emption of §2807-a.6(b) would impair in any way the continued ability of the Secretary to grant waivers under 42 U.S.C. §1395b-1(b). It argues, instead, that the particular waiver granted for purposes of implementing the NYPHRM would be jeopardized, and that this waiver amounts to a ‘“‘rule or regulation’’ which cannot be impaired under §514(d).° By formal action denominated ‘‘Waiver’’ (42 U.S.C. §1395b-1(b)(1976), throughor* “lew York the Secretary has substituted for ‘‘rules and regulations’ set forth in 42 C.F.R. those regulations for reimbursement under Medicare Part A prescribed by NYPHRM. ... In effect, then, the Secretary’s ‘‘Waiver’’ action has constituted adoption of new ‘“‘regulations’’ to govern Medicare Part A reimbursement for New York. Amicus letter of February 17, 1984, 43. For the several reasons set forth below, I cannot agree. 37a Opinion and Order Section 514(d) of ERISA refers to ‘‘any rule or regulation issued under any federal law,’’ but nowhere in the statute is that phrase defined. The Medicare waiver itself is surely not a federal regulation; it merely relieves Medicare providers in New York of their obligation to comply with federal regulations. A rule, in its broadest sense, may be ‘‘an agency statement of general or particular applicability,’’ Administrative Procedure Act, 5 U.S.C. §551(4), but rulemaking by an agency ‘‘characteristically involves the promulgation of concrete proposais, declaring generally applicable policies binding upon the affected public generally. PBW Stock Exchange Inc. v. SEC, 485 F.2d 718, 732 (3d Cir. 1973), cert. denied, 416 U.S. 969 (1974). See, e.g., Flospital Association of New York State v. Toia, 438 F. Supp. 866, 872 (S.D.N.Y. 1977) (In approving New York State Medicaid plan, HEW acted in ‘‘neither an adjudicatory, nor a rule making capacity’’); Vandemark v. Housing Authority of the City of New York, 663 F.2d 436, 440 (3d Cir. 1981). In deterrnining whether the waiver is within this definition, I am of course cognizant of the Supreme Court’s mandate that exceptions to ERISA’s general pre-emption provision be narrowly construed. In light of that mandate, it is inconceivable that Congress intended to permit a state to circumvent ERISA’s requirements merely by persuading a federal bureaucrat to act favorably upon a proposal that embodies otherwise impermissible measures, and then protecting this transgression by means of a non-severability clause. The Medicare waiver was apparently obtained upon an ex parte application. There was no publication or opportunity for opponents to be heard, and the record is devoid of any indication that federal agency officials even considered the potential impact of the proposed plan on ERISA funds before approving the waiver. Under all of these circumstances, I cannot accept amicus’ argument that the waiver effectively converted state law into federal law. 38a Opinion and Order See, e.g., Vandemark, 663 F.2d at 441 (‘‘[Local housing authority’s] indebtedness policy was part of a policy submitted by the [authority] as part of its administrative plan which was approved by HUD .... However, the approval of the {authority’s] policy did not establish a general policy which would bind all housing authorities and tenants .. . . The indebtedness policy is not, therefore, a policy of HUD but is rather a policy of the local housing authority’’). I am also convinced that Congress would not approve the sort of patchwork pattern of laws affecting ERISA funds that would inevitably result if each state were to obtain a Medicare waiver and adopt its own variation of the NYPHRM. Multi-state ERISA funds such as that administered by plaintiff would then be placed in the awkward position of having to comply with the several states’ differing provisions. Obviously, when viewed in light of the legislative history of ERISA’s pre-emption provision with its heavy emphasis on interstate uniformity, such a result cannot be justified.’ As set forth above, I am not persuaded that Blue Cross is correct in its position that pre-emption of §2807-a.6(b) would result in the invalidation of the NYPHRM. If Blue Cross is correct, the result would, indeed, be unfortunate; I have reviewed the voluminous submissions detailing the need for reforms in New York’s hospital reimbursement scheme, and I have been most impressed with the efforts devoted over many years to establishing this innovative and comprehensive alan. Nonetheless, this Court is bound to comply with express congressional intent to displace all state action in the field of private employee benefit programs and §2807-a.6(b) trenches upon that protected area. The Supreme Court recognized in Shaw that application of ERISA’s pre-emption rules might well cause problems in the administration of New 39a Opinion and Order York’s fair employment laws. The Court concluded, however, that ‘‘those problems are the result of congressional choice and should be addressed by congressional action.’’ 103 S.Ct. at 2904-5. The state has a similar remedy here. For all of the reasons set forth above, I conclude that summary judgment for plaintiff is appropriate. Section 2807-a.6(b) of New York’s Public Health Law is pre-empted insofar as it relates to ERISA funds, and enforcement against such funds is hereby enjoined.* Plaintiff is instructed to submit a proposed judgment within five days of the date of this Opinion and Order, on five days’ notice. SO ORDERED. s/ William C. Conner United States District Judge Dated: New York, New York March 12, 1984 40a Opinion and Order FOOTNOTES 1. Plaintiff’s complaint asserts several causes of action in addition to the ERISA pre-emption claim. It alleges that §2807-a.6(b): (1) is pre empted by the Sherman Act, 15 U.S.C. §1 et seq.; (2) violates the Commerce, Contracts, and Supremacy Clauses of the United States Constitution; and (3) violates the Equal Protection Clause of the 14th Amendment. In hopes of obtaining a prompt disposition, plaintiff filed along with his complaint an order to show cause for entry of a preliminary injunction. The Court set up a briefing schedule and granted permission for Blue Cross and Blue Shield of Greater New York to file an amicus curiae brief in opposition to a preliminary injunction. The parties and amicus thereafter addressed the likelihood of plaintiff's prevailing on the merits of his claim, as well as the irreparability of harm. The Court made a preliminary review of the various submissions and concluded, at least with respect to the ERISA claim, that there were no factual issues to be resolved at a trial on the merits and a prompt resolution on the merits would be possible. A conference was convened on January 25, 1984, at which the parties and amicus were asked whether there would be any objection to the Court’s treating the submissions as cross- motions for summary judgment on the ERISA claim and delaying resolution of the other claims. All interested parties indicated that this would be an appropriate ";anner in which to proceed because there were no disputed issues uf material fact, and that they had no additional materials to submit. wy ne 4la Opinion and Order 2. The rate-setting procedure employed by the federal government is ‘‘retrcspective.’’ This means that ‘‘hospitals were issued rates estimated as adequate to cover their current costs for caring for Medicare patients and these rates were then subsequently retroactively adjusted to reflect the facilities’ actual expenses.’’ Sweeney Aff. at 47. According to Raymond Sweeney, the Director of the Office of Health Systems Management of the New York State Department of Heaith, this retrospective system was criticized because it provided no incentive to contain costs or increase efficiency. Jd. Under the ‘‘prospective’’ method adopted in New York, reimbursement rates are generally computed on the basis of actual expenditures in a previous ‘‘base year,’’ and then adjusted for inflation. According to Sweeney, this system provides an incentive for hospitals to increase efficiency because they retain excess revenue generated by keeping actual per diem expenses below their per diem reimbursement rates. Jd. at 46. 3. Defendants and amicus argue only that §2807-a.6(b) is saved from pre-emption by express exceptions to the broad rule of §514(a). Defendants assert that the ‘‘state is functioning here in an area [insurance regulation] in which it has primacy .... Accordingly, plaintiff's ERISA preemption claims must fail.’’ Def’s Mem. at p.11. Blue Cross states: ‘‘It is upon each of these express requirements — that ERISA not be construed to impair the discharge of other federal authority and that ERISA’s pre- emption shall not apply to state laws regulating insurance — that plaintiff’s ERISA claims founder. Mem. of Amicus at p.20. 4. This subsection is followed by a qualifying ‘‘deemer clause,’’ §514(b)(2)(B), which provides that an employee benefit plan shall not ‘‘be deemed to be an insurance company or other 42a Opinion and Order insurer ... or to be engaged in the business of insurance or | banking for purposes of any law of any State purporting to regulate insurance companies, insurance contracts, ... or investment companies.’’ Various courts and commentators have struggled to delineate the scope and explain the interaction of these subsections, particularly where legislation regulating aspects of insurance traditionally governed by the states has had an indirect or incidental impact on ERISA-covered plans. Their conclusions have not been consistent, and efforts to reconcile the varying interpretations have created still greater confusion. See generaily Michigan United Food & Commercial Workers Union v. Baerwaldt, 572 F. Supp. 943 (E.D.Mich. 1983); Eversoie v. Metropolitan Life Ins. Co., 500 F. Supp. 1162 (C.D.Cal. 1980); Manno, ERISA Pre-emption and the McCarran-Ferguson Act: The Need For Congressional Action, 52 Temple L.W. 51 (1979); Brummond, Federal Pre-emption of State Insurance Reguwiation under ERISA, 62 lowa L.R. 57 (1976); see also American Progressive Life & Health Ins. Co. of New York v. Corcoran, 715 F.2d 184 (2d Cir. 1983). But see Attorney General v. Traveler’s Insurance Co., 432 N.E. 433 2d 1223 (Mass. 1982), vacated and remanded sub nom., Metropolitan Life Ins. Co. v. Massachusetts, —_._ U.S. ___, 103 S.Ct. 3563 (1983). Fortunately, the present controversy does not present so delicate an issue. I conclude that §2807-a.6(b) does not ‘‘regulate insurance’’ within the meaning of §514(b)(2)(A), and therefore I find it unnecessary to join the fray. 5. The statute itself provides for some flexibility. Section 2807.10 provides: Notwithstanding the provisions of this article, the commissioner may waive, subject to the approval of the state director of the budget, the requirements 43a Opinion and Order of any provisions of this section or section twenty- eight hundred seven-a to permit the development and/or continuation of limited pilot reimbursement programs to provide additional knowledge and experience in different types of reimbursement mechanisms for general hospitals. (emphasis supplied). 6. Amicus’ reliance on Shaw is misplaced because Shaw dealt with the impairment of Title VII of the Civil Rights Act of 1964, 42 U.S.C. §2000e et seg., which is quite obviously a ‘“‘law of the United States.’ 7. Indeed, the Court has been informed that prior to the enactment of the NYPHRM, the state received Medicare waivers from the federal government in order to establish two experimental reimbursement projects which operated at a regional level. Anderman Aff. at 45. It is conceivable, then, that ERISA plans would be subject to conflicting requirements within a given state. 8. Because §2807-a.6(b) is pre-empted by ERISA, I need not reach the other arguments raised by plaintiff. 44a ORDER OF JUDGMENT OF THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK DATED MARCH 30, 1984 UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK 83 Civ. 8707 (WCC) SEBASTIAN REBALDO, as Chairperson of the Board of Trustees of the UNITED OPTICAL WORKERS INSURANCE FUND, Plaintiff, ~against- MARIO CUOMO, GOVERNOR OF THE STATE OF NEW YORK; and DAVID AXELROD, COMMISSIONER OF HEALTH OF THE STATE OF NEW YORK, Defendants. This cause having come to be submitted before Hon. William C. Conner, United States District Judge, on plaintiff's motion for a preliminary injunction against New York Public Health Law §2807-a(6)(b) on the grounds that the state statute, in part, is pre- empted by §514(a) of the Employee Retirement Income Security Act of 1974 (““ERISA”’), 29 U.S.C. §1144(a), in part, conflicts with 15 U.S.C. §§1, 2, 13, 42 U.S.C. §1395ww, in part, violates the supremacy, commerce and contracts clauses of the United States Constitution and, in part, denies plaintiff equal protection of the laws under the Fourteenth Amendment to the United States Constitution; and the parties and the amicus curiae, Blue Cross 4Sa Order and Blue Shield of Greater New York, having consented to treating the motion for a preliminary injunction and the opposition thereto as cross-motions for summary judgment on plaintiff's claim that Public Health Law §2807-a(6)(b), in part, is pre-empted by ERISA, 29 U.S.C. 1144(a); and the court having considered the pleading, affidavits, exhibits, memoranda and letter-memoranda and having issues an opinion and order dated March 12, 1984; it is ORDERED, ADJUDGED AND DECREED: 1. Plaintiff's motion for summary judgment is granted to the extent set forth in paragraphs 2 and 3 hereof, and defendants’ motion for summary judgment is denied; 2. Public Health Law §2807-a(6)(b), in part, is declared pre- empted by ERISA, 29 U.S.C. §1144(a), and the state statute is invalid to the extent it prohibits a hospital from establishing inpatient charges for self-insured employee benefit plans covered by ERISA which are other than those authorized by Public Health Law §2807.a(6); 3. Defendants, their successors, officers and employees are enjoined from enforcing Public Health Law §2807-a(6)(b) to the extent the state statute prohibits a hospital from establishing inpatient charges for self-insured empioyee benefit plans covered by ERISA which are other than those authorized ty Public Health Law §2807-a(6); .. . Dated: New York, New York March 30, 1984 47a ORDER OF THE UNITED STATES COURT OF APPEALS FOR THE SECOND CIRCUIT DATED NOVEMBER 26, 1984 UNITED STATES COURT OF APPEALS FOR THE SECOND CIRCUIT 84-7388 At a stated Term of the United States Court of Appeals for the Second Circuit, held at the United States Courthouse in the City of New York on the twenty-six day of November one thousand nine hundred and eighty-four. Present: HON. HENRY J. FRIENDLY HON. ELLSWORTH A. VAN GRAAFEILAND HON. JON. 0. NEWMAN Circuit Judges, SEBASTIAN REBALDO, as Chairperson of the Board of Trustees of the UNITED OPTICAL WORKERS INSURANCE FUND, Plaintiff- Appellee, Vv. MARIO CUOMO, Governor of the State of New York; and DAVID AXELROD, Commissioner of Health of the State of New York, Defendants-Appellants. 48a _ Order Appeal from the United States District Court for the Southern District of New York. This cause came on to be heard on the transcript of record from the United States District Court for the Southern District of New York and was argued by counsel. ON CONSIDERATION WHEREOF, it is now hereby ordered, adjudged and decreed that the judgment of said District Court be and it hereby is vacated and the action be and it hereby is remanded to the said district court for further proceedings in accordance with the opinion of this court. Elaine B. Goldsmith, Clerk s/ Edward J. Guardaro, Deputy Clerk A True Copy Raymond F. Burghardt, Clerk s/ J. Caffey Deputy Clerk 49a RELEVANT STATUTES State Statute New York Public Health Law §2807-a(6) states in part: Hospital charge schedules. Effective for the year beginning January first, nineteen hundred eighty four and thereafter, each general hospital shall establish a charge schedule for available and authorized services in accordance with a gross charge determination formula provided by the commissioner which shall: (a) Establish gross charges sufficient to generate the inpatient revenue authorized by the revenue cap; and (b) Establish gross charges such that (i) the payment rate to be made on behalf of subscribers of corporations organized and operating in accordance with article nine-C of the insurance laws, adjusted for uncovered services, shall be at a specified discount from the gross charge rate billed