Opposition Brief — Louisiana ex rel. Ieyoub v. CIGNA Healthplan of Louisiana, Inc.

No. 96-316 |

IN THE

Supreme Court of the United States

OCTOBER TERM, 1995

STATE OF LOUISIANA, EX REL. RICHARD P. IEYOUB,

Attorney General,

Petitioner,

vi

CIGNA HEALTHPLAN OF LOUISIANA, INC. and

CONNECTICUT GENERAL LIFE INSURANCE COMPANY,

Respondents.

ON PETITION FOR A WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS FOR THE FIFTH CIRCUIT

RESPONSE TO

PETITION FOR A WRIT OF CERTIORARI

HARRY N. MAZADOORIAN DONALD T. BLISS

EDWARD P. POTANKA ROBERT N. ECCLES

CIGNA HEALTHCARE OF (COUNSEL OF RECORD)

LOUISIANA, INC. O'MELVENY & MYERS LLP

900 Cottage Grove Road 555 Thirteenth Street, NW

Hartford, CT 06152 Washington, DC 20004

(860) 726-6451 (202) 383-5300

RAYMOND J. SALASSI, JR. Counsel for Respondents

HARRY S. HARDIN III

JONES, WALKER, WAECHTER,

POITEVENT, CARRERE & DENEGRE LLP

201 St. Charles Avenue

New Orleans, LA 70170

(504) 582-8000

QUESTIONS PRESENTED FOR REVIEW

l. Whether the Eleventh Amendment to the

Constitution of the United States bars respondents’ suit to

obtain prospective relief to prevent a state official from

violating the Supremacy Clause of the United States Consti-

tution by enforcing a state law that is preempted by a federal

Statute.

2. Whether the Employee Retirement Income

Security Act of 1974 ("ERISA"), 29 U.S.C. §§ 1001, ef

seq., preempts a State statute that prohibits employee welfare

benefit plans from providing benefits through selective

networks of medical providers.

.

°

tore

ll

PARTIES TO THE PROCEEDING

Pursuant to Rule 29.6 of the Rules of this Court,

respondents state the following: Respondent CIGNA

Healthplan of Louisiana, Inc. (now renamed CIGNA

HealthCare of Louisiana, Inc.) is a wholly-owned subsidiary

of CIGNA Health Corp., which is a wholly-owned subsid-

iary of Connecticut General Corporation, which is a wholly-

owned subsidiary of CIGNA Holdings, Inc., which is a

wholly-owned subsidiary of CIGNA Corporation, a publicly

held corporation. CIGNA Healthplan of Louisiana, Inc. has

no subsidiaries.

Respondent Connecticut General Life Insurance

Company is a wholly-owned subsidiary of Connecticut

General Corporation, which is a wholly-owned subsidiary of

CIGNA Holdings, Inc., which is a wholly-owned subsidiary

of CIGNA Corporation, a publicly held corporation.

Connecticut General Life Insurance Company has no

subsidiaries in which outside persons might have an interest.

iii

TABLE OF CONTENTS

QUESTIONS PRESENTED FOR REVIEW .....

PARTIES TO THE PROCEEDING .......... ii

EN i ccc cesses ill

pet OF Ge iy) 8 ey) iV

RESPONSE TO PETITION FOR A WRIT OF

SS oes Re ow kln sb l

I. This Court Should Deny Certiorari on the

Eleventh Amendment Question ..........

~]

II. This Court Should Grant Certiorari on the

ERISA Preemption Question ............ 11

EE ee 24

iv

TABLE OF AUTHORITIES

Cases Page

American Drug Stores, Inc. v. Harvard Pilgrim

Health Care, inc. and Prudential Insurance Co. of Am.,

No. 96-10084-MEL (D. Mass. filed

SS: eer eee eee re e 16

Arizona v. Maricopa County Medical Soc.,

Got Wah See SEE 6 ck Rha eee 6

Blue Cross and Blue Shield of Ala. v. Nielsen,

917 F. Supp. 1532 (N.D. Ala. 1996) ........ 17

California Div. of Labor Standards Enforcement v.

Dillingham Constr. N.A., Inc. (No. 95-789),

cert. granted, 64 U.S.L.W. 3689 (U.S. Apr. 15, ,

ee 6. da eee Ae eee ae wae ae 11

Coeur D’Alene Tribe of Idaho v. Idaho,

42 F.3d 1244 (9th Cir. 1994),

cert. granted, 63 U.S.L.W. 3672

(U.S. Apr. 15, 1996) (No. 94-1474) ....... 10

Davidowitz v. Delta Dental Plan of Cal., Inc..,

S56 F.26 8670 Oe Gai ESSE) 6 bce cs Sea e ss 4

DeBruyne v. Equitable Life Assur. Soc. of the U.S.,

ib mw EF -yee, fo oe. Serene errnee 23

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

ae Ub. tae GaPeee 6 88 Oka he ew eee 19

|

TABLE OF AUTHORITIES (continued)

Page

Donovan v. Dillingham,

688 F.2d 1367 (11th Cir. 1982) ........... 19

Ex parte Young,

Se tes ROe COO kk a Se alee a 7-10

Fort Halifax Packing Co. v. Coyne,

Cn we. Se iw ease Oi ok Se 3

Green v. Mansour,

Oe es Oe Ce sia cA eh Oia wks 9

Insurance Bd. Under Social Insurance Plan of

Bethlehem Steel Corp v. Muir,

Sip Fae Oe EC. POE) be i ee cee 23

Jones v. Louisiana ex rel. Bd. of Trustees,

A F-28108 Ga Ce: 2089) oc ek ne 9

Metropolitan Life Insurance Co. v. Massachusetts,

STL ARG. Fae Cee Sikes 3 Ber 11

Napoletano v. CIGNA HealthCare of Conn., Inc.,

680 A.2d 127 (Conn. 1996) ........ 5, 18, 20-22

New York State Conference of Blue Cross and

Blue Shield Plans v. Travelers Insurance Co..,

RED. Oh. BOTS foe a ek sc. 3-5, 11, 18-22

vi

TABLE OF AUTHORITIES (continued)

Page

NLRB v. Amax Coal Co., Div. of Amax, Inc.,

See Sas en REED bk be es oe eS 19

Pilot Life Insurance Co. v. Dedeaux,

en See Oe ETD 6A a 5 64 Se ee ea Od 23

Scheuer v. Rhodes,

BE Sts SERENE coh Sat iwises®eteys 8

Seminole Tribe of Florida v. Florida,

Se hs es Re aE hb ok oe re ACR 2, 7, 9-10

Shaw v. Delta Air Lines, Inc..,

Ee Shes OF RAED 68k 8 CR ROS UKE SOR 8, 11

Stuart Circle Hosp. Corp. v. Aetna Health Mgmt.,

995 F.2d 500 (4th Cir.),

cert. denied, 510 U.S. 1003 (1993) ...4, 17, 22, 23

Texas Pharmacy Ass’n v. Prudential Insurance Co. of Am..,

907 F. Supp. 1019 (W.D. Tex. 1995) ..... 17, 22

Tingle v. Pacific Mutual Insurance Co.,

Be ee Ee ee 23

Unite,’ ¥¢-od & Commercial Workers & Employers Az.

Health « Welfare Trust v. Pacyga,

Sol F.26 1157 Gt Ce. 19GB) nc ke Ke Ree es 23

ee eee

vii

TABLE OF AUTHORITIES (continued)

Page

Statutes

Employee Retirement Income Security Act of 1974,

29 U.S.C. §§ 1001, et seq.

Bue Fie 2 oe gl rrr 19

§ Sida), 29 U.S.C. § iid) .......... 11, 22

§ 514(b)(2)(A), 29 U.S.C. § 1114(6)(2)(A) . . 11, 22

Louisiana Health Care Cost Control Act,

La. Rev. Stat. Ann. § 40:2201, et seg. ... 3, 18, 19

Health Maintenance Organization Act of 1973,

Re Foe OM OF eras Oe eee 12

Health Maintenance Organization Act,

N.Y. Pub. Health Law § 4400, et seg. (1995)... 12

Ala. Code § 27-45-3 (Supp. 1994) ............ 15

Ark. Code Ann. § 23-79-114(b) (Michie Supp. 1993) 15

Conn. Gen. Stat. Ann. § 38a-471 (West 1982) ..... 15

Sooke SS eee ere ry rer eee 20, 21

viii

TABLE OF AUTHORITIES (continued)

Page

Fla. Stat. Ann. § 408.706 (West Supp. 1995) ..... 15

Ga. Code Ann. §§ 33-20-16 (1976) ........... 15

Idaho Code § 41-3937 (Supp. 1995) ........... 15

215 Ill. Comp. Stat. Ann. 5/370h (West 1993) .... 15

Ind. Code Ann. § 27-8-11-3(b)-(c) (Michie 1994) . 15-16

Ky. Rev. Stat. Ann. § 304.17A-110

(Banks-Baldwin Supp. 1994) ............. 16

1994 Mass. Acts 60, §§ 148-49, 241 .......... 16

Soe DU, SUE See eh Wl SS 16

Miss. Code Ann. § 41-83-3 (1994) ............ 16

N.H. Rev. Stat. Ann. § 420-B:12(V) (Supp. 1994) .. 16

1994 N.J. Laws SB 886/AB 1221 ............ 16

N.C. Gon. Stat. § SO-31<37 €2996) 2 we cee 16

N.D. Cent. Code § 38.2-4209(B)-(D) (1994) ...... 16

Ohio Rev. Code Ann. § 1742.09(B)(2)

CARDO IONE s 64S + EES OR A FES 16

WA Re Nit ah Ute

mR ae ea eed ee a ee

La Sa deste

TABLE OF AUTHORITIES (continued)

Page

Okla. Stat. Ann. tit. 36, § 3634 (West Supp. 1994-95) 16

S.D. Codified Laws § 58-18-37 (Michie 1990)... .. 16

Tex. Ins. Code Ann. art. 20A-14(g)(h) (West 1996) . 16

Utah Code Ann. § 31A-22-617 (1991) .......... 16

Va. Code Ann. § 38.2-3407 (Michie Supp. 1996) ... 16

Wis. Stat. Ann. § 628.36 (West 1995).......... 16

Wyo. Stat. Ann. § 26-22-503(a)(1)

(Renee Oe Foe Nia SEs eK 16

Miscellaneous

Any Willing Provider Laws: Regulating the Health Care

Provider’s Contractual Relationship with the Insurance

Company, The Health Lawyer: The ABA Forum on

Se AA 8 Ce en a we A ee eae eRe 16

Atkinson & Co., Cost Impact of "Any Willing Provider”

Se ee 5. sb. Fs $e RES Se 14

Jesselyn Alicia Brown, ERISA and State Health Care Re-

form: Roadblock or Scapegoat?, 13 Yale L. & Pol’y Rev.

MO SI 8 eNO Kae eR ee 6

TABLE OF AUTHORITIES (continued)

Brief of Petitioner, Coeur D'Alene Tribe of Idaho v.

Idaho (No. 94-1474) filed May 30, 1996 ........ 10

Anthony J. Dennis, Potential Anticompetitive Effects of

Most Favored Nation Contract Clauses in Managed Care

and Health Insurance Contracts, 4 Ann. Health L. 71

0 SP re rr on a ee eee 14

Employee Benefit Research Institute Education and Re-

search Fund, EBRI Databook on Employee Benefits (3d ed.

PPP T CRTC Cee he eee Ta 5

Gary A. Francesconi, ERJSA Preemption of "Any Willing

Provider" Laws -- An Essential Step Toward National

Health Care Reform, 73 Wash. U. L.Q. 227 (1995) 6, 14

Group Health Ass’n of America, State Managed Care

Legislative Resource (1996) .........0000008% 16

Douglas A. Hastings, et al., eds., Fundamentals of Health

di. | EPSP ETUECETE Eee CT 6, 12, 14

Karen A. Jordan, Managed Competition and Limited

Choice of Previders: Countering Negative Perceptions

Through a Responsibility to Select Quality Network Physi-

Clans, 27 Agta. BR. L.3. STS (IFS) wwe ccc awe. 14

Bruce D. Platt, Dispelling the Negative Myths of Managed

Care, 23 Fla. St. U.L. Rev. 489 (1995) ........ 14

xi

TABLE OF AUTHORITIES (continued)

Page

U.S. General Accounting Office, Human Resources Div..

Managed Health Care: Effect on Employers’ Costs Diffi-

cult to Measure (GAO/HRD-94-3) (1993) . 5-6, 12, 14-15

U.S. General Accounting Office, Health, Education, and

Human Services Div., Employer-Based Health Plans:

Issues, Trends, and Challenges Posed by ERISA (GAO

ED CE sno a sow Sd ba Gem's 5, 6

Wyatt Co., Cost Analysis of State Legislative Mandates on

Six Managed Health Care Practices (1991) ....... 14

No. 96-316

IN THE

SUPREME COURT OF THE UNITED STATES

OCTOBER TERM, 1995

STATE OF LOUISIANA, EX REL. RICHARD P. [EYOUB,

Attorney General,

Petitioner,

CIGNA HEALTHPLAN OF LOUISIANA, INC. and

CONNECTICUT GENERAL LIFE INSURANCE COMPANY,

Respondents.

ON PETITION FOR A WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS FOR THE FIFTH CIRCUIT

RESPONSE TO

PETITION FOR A WRIT OF CERTIORARI

This Court should deny the petition for certiorari to

the extent that it presents the question whether the Eleventh

Amendment to the Constitution of the United States bars this

action. The district court rejected petitioner’s assertion of an

Eleventh Amendment defense as “patently without merit."

(Pet. 23a n.2.) The Court of Appeals agreed with that

assessment, finding it “well established that the federal

courts have jurisdiction to hear suits against state officials

where, as here, the plaintiffs seek only prospective declarato-

ry or injunctive relief to prevent a continuing violation of

federal law." (Pet. 3a n.1.) The Court of Appeals also

correctly decided that this Court’s decision in Seminole Tribe

of Florida v. Florida, 116 S. Ct. 1114 (1996), did not alter

this conclusion. (Pet. 4a n.1.) Because the decision below

is squarely supported by this Court’s precedent, no reason

exists for this Court to review the Eleventh Amendment

question.

Although they prevailed below, respondents nonethe-

less urge this Court to grant the petition for certiorari limited

to the question of whether Louisiana’s “any willing provider"

statute is preempted by ERISA. The specific preemption

question presented is one that this Court has not addressed

and as to which the lower courts are divided. It is of funda-

mental importance not only to petitioner and officials of

other states and to respondents and other entities that offer

managed health care coverage, but also to sponsors and

participants of ERISA plans that are increasingly subjected

to state regulation of the type that ERISA’s preemption

provision was designed to avoid.

Respondents administer for ERISA-regulated employ-

ee benefit plans, many of which operate in multiple states,

a network of selectively contracted medical providers, such

as physicians. The Louisiana statute at issue directly

prohibits respondents and their employee benefit plan

customers from using a selective provider network in that

state. It provides, both by its express terms and its neces-

sary effect, that an ERISA-covered employee benefit plan or

other "group purchaser" may not, regardless of the plan’s

provisions, provide health care benefits through a provider

network unless that network is open to any and all providers

willing to contract on the network’s terms and conditions.

See La. Rev. Stat. Ann. § 40:2202(5)(c) (1992). Although

the Court of Appeals correctly held this statute preempted as

applied to ERISA-covered employee benefit plans, the

pervasive and recurring nature of this question, its nation-

wide impact, and the conflict in legal analysis among the

lower courts warrant the grant of certiorari.

ERISA’s preemption provision represents a congres-

sional judgment that employee benefit plans should be free

to develop their own uniform benefit and administrative

structures instead of being subject to a “patchwork scheme

of regulation." Fort Halifax Packing Co. v. Coyne, 482

U.S. 1, 11 (1987). In New York State Conference of Blue

Cross and Blue Shield Plans v. Travelers Insurance Co. aan

S. Ct. 1671 (1995) ("Travelers"), this Court held that a state

Statute that did not directly regulate ERISA-covered employ-

ee benefit plans but merely had the "indirect economic influ-

ence” of raising the costs borne by such plans was not

preempted by ERISA. The Court left undisturbed, however,

its longstanding precedent that ERISA preempts state laws

directly affecting the structure and administration of employ-

ee benefit plans. Although the court below correctly recog-

nized that Travelers had not altered the preemption analysis

as to such laws, other courts have reached inconsistent

conclusions and results. Review by this Court is necessary

to resolve whether a state any willing provider statute that

prohibits employee benefit plans from offering benefits

through limited provider networks is preempted by ERISA.

Despite the intense public debate over issues of

health care costs and delivery, Congress has not modified

ERISA’s preemptive effect or generally amended ERISA to

restrict plan sponsors’ freedom in health plan design but has

continued "to allow the free marketplace to work out such

competitive, cost effective, medical expense reducing

structures as may evolve." Davidowitz v. Delta Dentai Plan

of Cal., Inc., 946 F.2d 1476, 1481 (9th Cir. 1991). Increas-

ingly, however, state regulation has sought impermissibly to

encroach on the operation of employee benefit plans by,

among other things, prohibiting or restricting managed care

features that are integral to the plans’ design. The fact that

Louisiana’s “any willing provider" statute is one of many

such statutes underscores the nationwide scope of the clash

between ERISA’s protection of the freedom of employee

benefit plans to structure their own benefit programs and

many states’ efforts to restrict that freedom.

Not surprisingly, this conflict between regulatory

schemes has already led to substantial litigation that has

produced judicial decisions with divergent analyses and

results. As the petition notes, the Court of Appeals for the

Fourth Circuit has issued a decision reaching a result

inconsistent with the decision below and upholding a

Virginia any willing provider statute against a challenge

based on ERISA preemption. See Stuart Circle Hosp. Corp.

v. Aetna Health Mgmt., 995 F.2d 500 (4th Cir.), cert.

denied, 510 U.S. 1003 (1993). Moreover, some courts have

read this Court’s decision in Travelers as altering the

preemption analysis and reopening the question of whether

ERISA preempts state laws that directly affect the structure

and administration of employee benefit plans. The court

below held that Travelers did not affect preemption of the

Louisiana statute. The Supreme Court of Connecticut has,

however, employed a very different analysis of Travelers in

concluding that ERISA does not preempt claims that one of

respondents’ affiliates had violated a state law regulating

PPO contracting practices. See Napoletano v. CIGNA

HealthCare of Conn., Inc., 680 A.2d 127 (Conn. 1996).

Resolution of the question presented is urgently

needed because of its broad and nationwide impact on health

care benefits received by the majority of American workers

and their families. An estimated 114 million Americans

receive health care benefits through employee welfare benefit

plans subject to ERISA.' In response to the spiraling cost

of health care, employers and unions that sponsor such

ERISA plans have frequently incorporated "managed care"

features into their plan design.” In contrast to a traditional

fee-for-service or indemnity plan that reimburses all or a

portion of the fee charged by a medical service provider,

"managed care" seeks to integrate the benefit and delivery

aspects of health care so as to provide quality health care at

' See U.S. General Accounting Office, Health, Education, and

Human Services Div., Employer-Based Health Plans: Issues,

Trends, and Challenges Posed by ERISA (GAO/HEHS-95-167)

(1995) ("1995 GAO Report") at 2, 45. See also Employee Benefit

Research Institute Education and Research Fund, EBR/ Databook

on Employee Benefits (3d ed. 1995) at Table 8.8.

* See U.S. General Accounting Office, Human Resources

Div., Managed Health Care: Effect on Employers’ Costs Difficult

to Measure (GAO/HRD-94-3) (1993) ("1993 GAO Report") at 3-4

(discussing the growth of managed care since 1980).

an affordable cost. Among the most frequently used

managed care programs are network-based programs, such

as preferred provider organizations ("PPOs") and health

maintenance organizations ("HMOs") of the type offered by

respondents here.* So prevalent have these types of pro-

grams become that recent statistics show that they are

available to upwards of 90 million persons who are partici-

pants or beneficiaries in ERISA welfare plans.°

Absent review by this Court, litigation over ERISA

preemption and any willing provider laws will only increase,

and the conflicts among the lower courts will likely only

deepen.® Without this Court’s resolution of the issue,

* See Arizona v. Maricopa County Med. Soc., 457 U.S. 332,

339 n.7 (1982) (discussing the difference between traditional

health insurance plans and managed care programs); 1993 GAO

Report at 23-31 (discussing key elements of managed care).

* See 1993 GAO Report at 6-12; see also Douglas A. Has-

tings, et al., eds., Fundamentals of Health Law 258-260 (1995).

* See 1993 GAO Report at 5-7; see also 1995 GAO Report at

20 n.39 (reflecting that in 1994, nearly two-thirds of individuals

with employer-based insurance were enrolled in network-based

managed care).

* Legal commentators have also noted the unanswered nature

of the question presented here. See, e.g., Jesselyn Alicia Brown,

ERISA and State Health Care Reform: Roadblock or Scapegoat?,

13 Yale L. & Pol’y Rev. 339, 380-81 (1995) (discussing uncer-

tainties regarding preemption of any willing provider laws by

ERISA); Gary A. Francesconi, ERISA Preemption of "Any Willing

Provider" Laws -- An Essential Step Toward National Health Care

Reform, 73 Wash. U. L.Q. 227 (1995) (same).

employee benefit plans will be free to adopt limited provider

networks in some states but not in others, and ERISA’s goal

of promoting uniform national regulation of such plans will

remain elusive. This case presents this important issue in a

summary judgment context and on a record of undisputed

material facts. Accordingly, respondents urge the Court to

grant certiorari limited to the question of ERISA preemption.

I. This Court Should Deny Certiorari on the Eleventh

Amendment Question

There is no conflict in authority requiring resolution

by this Court as to the Eleventh Amendment question

presented by petitioner. To the contrary, it is well settled

that the Eleventh Amendment does not bar actions to enjoin

State officials like petitioner from enforcing state laws that

are preempted by federal law. As the district court and the

Court of Appeals both held, such actions for prospective

relief against state officials have long been allowed under the

doctrine established in Ex parte Young, 209 U.S. 123 (1908).

Just last term, this Court in Seminole Tribe of Florida v.

Florida, 116 S. Ct. 1114, 1131 n.16 (1996), affirmed the

vitality of this doctrine in cases like this one, Stating that "an

individual may obtain injunctive relief under Ex parte Young

in order to remedy a state officer’s ongoing violation of

federal law.”

In Ex parte Young, the Court held that the Eleventh

Amendment does not bar suits against state officers to enjoin

them from violating federal law, reasoning that a state

officer who (as here) seeks to enforce an unconstitutional

Statute is stripped of his official or representative character.

209 U.S. at 159-60; see also Scheuer v. Rhodes, 416 U.S.

232, 237 (1974). Following Ex parte Young, federal courts

have routinely entertained suits against state officials seeking

prospectively to prevent those officials from enforcing state

laws that violate the Supremacy Clause of the Constitution.

Most notably, the Court unanimously applied this rule to

ERISA preemption suits in Shaw v. Delta Air Lines, Inc.,

463 U.S. 85 (1983). There, the Court held that the Ex parte

Young doctrine empowered plaintiffs to sue to enjoin state

regulation that was preempted by ERISA, stating that "[iJt is

beyond dispute that federal courts have jurisdiction over suits

to enjoin state officials from interfering with federal rights."

Id. at 96 n.14.’

Contrary to petitioner’s argument that this case is

"dissimilar{ ]" from cases involving "traditional Ex parte

Young analysis," Pet. 25, this is precisely the type of action

encompassed by the Ex parte Young doctrine. Respondents

sued the Attorney General of Louisiana, who is responsible

for enforcing the any willing provider law,* and who was

7 As Shaw makes clear, petitioner is plainly wrong in his

contention that Ex parte Young applies only if the state official!

seeks to enforce "a criminal statute with intimidating provisions

and penalties." (See Pet. 27.)

® Petitioner argues this suit is barred by the Eleventh Amend-

ment because it was purportedly brought against Louisiana itself.

(Pet. 7.) However, as both the trial court and the Court of

Appeals noted, the body of respondents’ complaint makes clear

that the only defendant in the suit is the Attorney General of

Louisiana, rendering this argument meritless. (Pet. 23a n.2 (citing

eT

acting to enforce that law against respondents. Because the

Louisiana statute is preempted by ERISA, the Attorney

General’s efforts to enforce it violated the Supremacy

Clause. Respondents’ action to enjoin the Attorney General

from acting in violation of the Supremacy Clause falls

precisely within the realm of actions permitted under Ex

parte Young. As this Court stated in Green v. Mansour, 474

U.S. 64, 68 (1985), "the availability of prospective relief of

the sort awarded in Ex parte Young gives life to the Suprem-

acy Clause." Thus, contrary to petitioner’s protestations,

there was nothing "novel" in the Court of Appeals’ applica-

tion of Ex parte Young to this case, and there is no reason to

review or reverse its decision.

Petitioner’s reliance on Seminole Tribe is equally

misplaced, since Seminole Tribe does not affect Ex parte

Young’s application here. In Seminole Tribe, the Court held

that Congress lacked the authority under the Indian Com-

merce Clause to abrogate Florida’s Eleventh Amendment

immunity to suit, 116 S. Ct. at 1131-32, an issue irrelevant

to this case. In so holding, the Court stressed that it was not

disturbing the traditional Ex parte Young cause of action,

Stating that "an individual can bring suit against a state

officer in order to ensure that the officer’s conduct is in

compliance with federal law." Jd. at 1131 n.14: see also id.

at 1131 n.16.

While Seminole Tribe also held that Congress could

not have intended to permit suits against state officials for

Jones v. Louisiana ex rel. Bd. of Trustees, 764 F.2d 1183, 1185-

86 (Sth Cir. 1985)); Pet. 3 n.1.).

10

prospective relief where it had "prescribed a detailed remedi-

al scheme for the enforcement against a State of a statutorily

created right," id. at 1132, those circumstances are not

present here. As the Court of Appeals noted, respondents do

not seek to invoke any remedial scheme involving enforce-

ment against a State. (Pet. 4a n.1.) Rather, respondents

seek to prevent petitioner from violating the Supremacy

Clause by encroaching on legal terrain that Congress has

deemed exclusively the province of federal law.

In short, the decision of the Court of Appeals that the

Eleventh Amendment does not bar this action is fully

consistent with this Court’s decisions, and there is no

conflict in authority among the circuit courts requiring

resolution by this Court. Accordingly, to the extent it seeks

review of this question, the petition should be denied.®

* In Coeur D’Alene Tribe of Idaho v. Idaho, 42 F.3d 1244 (9th

Cir. 1994), cert. granted, 63 U.S.L.W. 3672 (U.S. Apr. 15,

1996) (No. 94-1474), a tribe sued to establish its purported right,

under an Executive Order ratified by Congress, to land to which

Idaho also claimed title. The Ninth Circuit held that the tribe

could sue Idaho officials under Ex parte Young for relief establish-

ing its rights to those lands. Jd. at 1251-52. Even if this Court

reversed that ruling, it would not alter the analysis in this case.

Unlike Coeur D’Alene, this case involves efforts to enjoin a state

official from violating the Supremacy Clause. Indeed, Idaho

recognized in its brief that Ex parte Young applies to cases like

this one, arguing that there (unlike here) "[t]he injunctive relief

that the Tribe seeks is not tailored to enforcement of allegedly

unconstitutional state statutes by state officers." Br. of Pet., No.

94-1474 at § (D(c)(1) (filed May 30, 1996).

11

II. This Court Should Grant Certiorari on the ERISA

Preemption Question

1. Section 514(a) of ERISA provides, with certain

exceptions, that the provisions of ERISA

Shall supersede any and ali State laws insofar as

they may now or hereafter relate to any employ-

ee benefit plan.

29 U.S.C. § 1114(a). One of the relevant exceptions is

contained in ERISA § 514(b)(2)(A) which provides generally

that the broad preemptive effect of § 514(a) shall not apply

to "any law of any State which regulates insurance." This

Court has construed both of these provisions many times,

see, e.g., Shaw v. Delta Air Lines, Inc. , 463 U.S. 85 (1983)

("relate to" clause) and Metropolitan Life Insurance Co. v.

Massachusetts, 471 U.S. 724 (1985) (insurance "savings"

clause), and most recently in its interpretation of the "relate

to” clause in Travelers.

The question presented here, which has not previous-

ly been addressed by this Court, is whether, in light of

Travelers, a state statute may, as Louisiana’s any willing

provider statute does, directly regulate the structure and

administration of ERISA-covered employee benefit plans."

© Respondents recognize that this Court has pending before it

another case involving ERISA’s preemption provision. See

California Div. of Labor Standards Enforcement vy. Dillingham

Constr. N.A., Inc. (No. 95-789), cert. granted, 64 U.S.L.W. 3689

(U.S. Apr. 15, 1996). The preemption issue in that case,

however, arises in a far different context and may well be resolved

on grounds that would not affect the analysis or result in this case.

12

The Court of Appeals faithfully followed this Court’s

decisions in holding that Louisiana’s any willing provider

statute was preempted because it “relate[s] to" ERISA-

governed employee benefit plans and is not saved from

preemption as a law “which regulates insurance." (Pet. 10a-

lla, 15a.) Review by this Court is nonetheless warranted

because of the national importance of the preemption

question presented and the conflict and disarray among the

lower courts over that issue.

2. Managed care programs such as those offered by

respondents and affected by the Louisiana statute arose in

response to marketplace demands from employee benefit plan

sponsors for alternatives to indemnity programs that could

control health care costs while assuring quality and ac-

cess.’ Generally speaking, managed care is a process by

which the parties responsible for paying for health care

services intervene in the health care delivery process in

various ways in order to reduce the costs of such care and

improve the quality of such care."

“\ See 1993 GAO Report at 2-6. HMOs and other managed

care organizations have also been vigorously encouraged by both

federal and state legislation. See, e.g., Health Maintenance

Organization Act of 1973, 42 U.S.C. § 300e, et seg.; Health

Maintenance Organization Act, N.Y. Pub. Health Law § 4400, er

seg. (1995). See also 1993 GAO Report at 7 n.7 (discussing

impact of legislation on the rapid growth of managed care);

Douglas A. Hastings, et al., eds., Fundamentals of Health Law

252 (1995).

® Jd. at 245.

13

One popular method utilized by many insurers and

other managed care organizations, including respondents, is

to offer care through "preferred provider" panels or net-

works, referred to as PPOs." PPOs selectively contract

with physicians, hospitals, and others to obtain services for

PPO participants at a discounted rate from normal charges.

The preferred providers also agree to comply with various

quality and utilization management requirements. In turn,

the PPO will limit the size of its provider panel and will

include incentives to its participants to encourage them to

obtain care through the preferred provider panel. The

expectation is that most participants will choose to utilize the

provider network, resulting in a greater volume of patients

for these providers. Increased patient volume, in turn,

provides an incentive to the preferred providers to discount

their fees. Similar networks are used to operate HMOs, in

° Respondents offer a variety of health care coverages and

administrative services to employee benefit plans. Respondent

CIGNA Healthplan of Louisiana, Inc. is a licensed HMO that

provides prepaid health care coverages to its subscribers through

a network of selectively contracted medical providers, such as

physicians. This provider network is offered to health care

consumers both directly and through employee benefit plans,

insurers, and other groups. (Pet. 6a.) Respondent Connecticut

General Life Insurance Company is a licensed insurer that makes

this network available to employee benefit plans, both on a fully

insured basis and for use by self-funded or non-insured plans to

which it provides administrative services. (Id.)

14

which the network is frequently the exclusive vehicle for

obtaining prepaid care."

Limiting the size of the provider network is key to its

success. Providers are willing to discount their charges in

light of the prospect of a high volume of referrals from the

network and prompt payment from a single source. By

limiting the number of providers, the network administrator

is able to establish and monitor quality controls and to avoid

the excess costs of dealing with an unlimited number of

providers.'* These quality and cost advantages directly

“ Hastings, et al., Fundamentals of Health Law at 245, 248;

1993 GAO Report at 6-10.

'S See 1993 GAO Report at 9-10; Anthony J. Dennis, Potential

Anticompetitive Effects of Most Favored Nation Contract Clauses

in Managed Care and Health Insurance Contracts, 4 Ann. Health

L. 71, 72 (1995) (discussing economics of provider panels); Bruce

D. Platt, Dispelling the Negative Myths of Managed Care, 23 Fla.

St. U.L. Rev. 489, 499 (1995) ("‘Any Willing Provider’ legisla-

tion defeats the entire concept of managed care"); Karen A.

Jordan, Managed Competition and Limited Choice of Providers:

Countering Negative Perceptions Through a Responsibility to

Select Quality Network Physicians, 27 Ariz. St. L.J. 875, 915

(1995); Atkinson & Co., Cost Impact of "Any Willing Provider"

Legislation (1994) (cost for a typical independent practice

association would rise by forty-three percent under an any willing

provider mandate); Wyatt Co., Cost Analysis of State Legislative

Mandates on Six Managed Health Care Practices 3 (1991). The

Federal Trade Commission has also recognized the detrimental

effects of any willing provider laws on competition and has issued

opinion letters urging states to discontinue laws that prohibit insur-

ers from maintaining cost effective preferred provider arrange-

ments. See Gary A. Francesconi, ERISA Preemption of "Any

15

benefit employee benefit plans that contract with the network

to provide benefits to employees and their families. Depend-

ing on a plan’s design, networks can provide either an

exclusive or optional form of benefit delivery for an employ-

ee benefit plan, and network benefits can be provided

through an insurance policy or an administrative-services-

only basis to self-funded or non-insured plans.

As of 1992, the GAO found that over half of all

private employers provided network-based managed care to

their employees, covering 90 million persons.'* Despite the

growth and spread of network-based health care, the ability

of respondents and their competitors to make high quality

and low cost provider panels available to employee benefit

plans is threatened by the proliferation of “any willing

provider" statutes similar to the statute at issue in this action.

Although the judgment in this case prevents enforcement of

the Louisiana statute against respondents as applied to

employee benefit plans, 25 other states have some type of

any willing provider law on their books.'” Therefore, al-

Willing Provider" Laws -- An Essential Step Toward National

Health Care Reform, 73 Wash. U. L.Q. 227, 262 n.159, 265

(1995) (collecting citations to FTC letters).

"© See 1993 GAO Report at 5-7.

See Ala. Code § 27-45-3 (Supp. 1994); Ark. Code Ann.

§ 23-79-114(b) (Michie Supp. 1993); Conn. Gen. Stat. Ann.

§ 38-471 (West 1982); Del. Code Ann. tit. 18, § 7301 (Supp.

1994); Fla. Stat. Ann. § 408.706 (West Supp. 1995); Ga. Code

Ann. §§ 33-20-16 (1976); Idaho Code § 41-3937 (Supp. 1995):

215 Ill. Comp. Stat. Ann. 5/370h (West 1993); Ind. Code Ann.

16

though respondents can now maintain limited provider

networks in Louisiana, they or their affiliates in other states

must still contend with similar laws in these states. States

continue to enact any willing provider laws,'* and both

states and private parties continue to bring suit to enforce

laws already on the books.’® Indeed, prior to instituting

§ 27-8-11-3(b)-(c) (Michie 1994); Ky. Rev. Stat. Ann. § 304.17A-

110 (Banks-Baldwin Supp. 1994); 1994 Mass. Acts 60, §§ 148-49,

241; 1994 Minn. Laws 2927; Miss. Code Ann. § 41-83-3 (1994);

N.H. Rev. Stat. Ann. § 420-B:12(V) (Supp. 1994); 1994 N_J.

Laws SB 886/AB 1221; N.C. Gen. Stat. § 58-51-37 (1994); N.D.

Cent. Code § 38.2-4209(B)-(D) (1994); Ohio Rev. Code Ann.

§ 1742.09(B)(2) (Anderson 1996); Okla. Stat. Ann. tit. 36, § 3634

(West Supp. 1994-95); S.D. Codified Laws § 58-18-37 (Michie

1990); Tex. Ins. Code Ann. art. 20A-14(g)(h) (West 1996); Utah

Code Ann. § 31A-22-617 (1991); Va. Code Ann. § 38.2-3407

(Michie Supp. 1996); Wis. Stat. Ann. § 628.36 (West 1995);

Wyo. Stat. Ann. § 26-22-503(a)(1) (Michie Supp. 1995). These

do not include variations such as “price differential laws," which

govern the difference in the allowable reimbursement for use of

out-of-network services, and “due process laws," which mandate

that health plans follow certain procedures in selecting and

deselecting providers. See Any Willing Provider Laws: Regulating

the Health Care Provider’s Contractual Relationship with the

Insurance Company, The Health Lawyer: The ABA Forum on

Health Law 7 (1994-95).

'® See Group Health Ass’n of America, State Managed Care

Legislative Resource (1996).

'? See, e.g., American Drug Stores, Inc. v. Harvard Pilgrim

Health Care, Inc. and Prudential Ins. Co. of Am., No. 96-10084-

MEL (D. Mass. filed Jan. 17, 1996) (suit by pharmacies alleging

violation of Massachusetts any willing pharmacy law).

17

this action, respondents were sued by a physician under the

Louisiana law and were threatened with actions by the

petitioner Attorney General as well as by other private

parties. (Pet. 7a.)”°

3. Litigation over whether ERISA preempts any willing

provider laws has produced divergent and conflicting results.

At least one decision has, like the decision of the Court of

Appeals in this case, held that ERISA preempts the state

statute. See Blue Cross and Blue Shield of Ala. v. Nielsen.

917 F. Supp. 1532 (N.D. Ala. 1996). Others have held that

the state statute was not preempted because it was saved as

a law “which regulates insurance" even though it "relate[s]

to" employee benefit plans. See Stuart Circle Hosp. Corp.

v. Aetna Health Mgmt., 995 F.2d 500 (4th Cir.), cert.

denied, 510 U.S. 1003 (1993): Texas Pharmacy Ass’n v.

Prudential Ins. Co. of Am., 907 F. Supp. 1019 (W.D. Tex.

1995). A recent decision from the Connecticut Supreme

Court holds that causes of action to enforce a Connecticut

Statute that prohibits a provider network from excluding

* Moreover, any willing provider statutes are merely illustra-

tive of the proliferation of statutes regulating managed care

practices that has occurred in the mid-1990s. States have recently

enacted a multitude of provisions regulating the delivery of health

care benefits which -- similar to any willing provider laws — have

the effect of mandating the structure of benefits provided by

employee benefit plans. For example, "direct access" laws require

closed-panel health plans to permit participants to bypass network

gatekeeper requirements and access the services of certain

specialists. "Freedom of choice" laws require closed-panel health

plans to offer or reimburse out-of-network services.

18

willing providers based on criteria that have not been

publicly filed are not preempted because they do not "relate

to" employee benefit plans. See Napoletano v. CIGNA

HealthCare of Conn., Inc., 680 A.2d 127 (Conn. 1996).

Absent review and further guidance from this Court,

employee benefit plans will be subject not to the uniform

nationwide regulation mandated by ERISA, but to the patch-

work of state regulation that ERISA’s preemption provision

was designed to prevent.

4. The Court of Appeals correctly determined that the

Louisiana statute "relate[s] to” ERISA-covered employee

benefit plans on two separate bases. Nonetheless, there is

disagreement and conflict in the lower courts about the

meaning and application of the "relate to" test after this

Court’s decision in Travelers.

a. The Court of Appeals correctly held that the

Louisiana statute “relate[s] to" employee benefit plans

because it directly refers to them and includes them within

its regulatory ambit. As the Court of Appeals noted, the

Louisiana statute specifically prohibits exclusion from the

PPO of any “licensed provider...who agrees to the terms and

conditions of the preferred provider contract." (Pet. 10a.)

PPOs are defined in the statute as "contractual...agreements

between a provider or providers and a group purchaser or

purchasers to provide for alternative rates of payment." La.

Rev. Stat. Ann. § 40:2202(5)(a). A "group purchaser,” in

turn, is defined in language that directly encompasses

employee benefit plans, as including:

[e]ntities which contract for the benefit of

their...employees, or members such as...Taft-

19

Hartley trusts, or employers who establish or

participate in self funded trusts or programs.

La. Rev. Stat. Ann. § 40:2202(3)(a). Employers or employ-

e€ associations which contract to provide health care "for the

benefit of their...employees or members" thereby establish

“employee welfare benefit plans" subject to ERISA. See

ERISA § 3(1), 29 U.S.C. § 1002(1); see also Donovan y.

Dillingham, 688 F.2d 1367, 1371-73 (11th Cir. 1982). The

Louisiana statute’s application to ERISA plans is made even

more explicit by its reference to "Taft-Hartley trusts"”' as

well as to “employers who establish...self funded trusts or

programs." La. Rev. Stat. Ann. § 40:2202(3)(a). Given its

express application to ERISA-covered employee benefit

plans, the Louisiana statute "relate[s] to” such plans for

preemption purposes “on that basis alone." See District of

Columbia v. Greater Wash. Bd. of Trade, 506 U.S. 125, 130

(1992).

b. The Court of Appeals also correctly held that the

Louisiana statute "“relate[s] to" ERISA plans because it

prohibits an employee benefit plan from being structured to

deliver benefits through a limited provider network. In

reaching this conclusion, the Court of Appeals carefully

considered the impact of this Court’s decision in Travelers.

In Travelers, this Court reviewed a New York statute that

imposed surcharges on hospital bills payable through

commercial insurance but not on bills payable by Blue Cross

*! See NLRB v. Amax Coal Co., Div. of Amax, Inc., 453 U.S.

322, 334 (1981) (noting the applicability of ERISA to trust funds

established to comply with the Taft-Hartley Act).

20

or Blue Shield. 115 S. Ct. at 1674-75. The Court held that

the statute did not "relate to" employee benefit plans because

it had only the “indirect economic effect" on the plans of

raising the cost of commercial insurance and giving them an

incentive to obtain coverage through Blue Cross. /d. at

1679. The Court noted that the New York statute merely

"influenced a plan’s shopping decision" but did not “man-

dat[e] employee benefit structures" or "bind plan administra-

tors to any particular choice." Jd. Recognizing, in contrast,

that the Louisiana statute "specifically mandates that certain

benefits available to ERISA plans must be constructed in a

particular manner,” the Court of Appeals correctly decided

that the “limited Travelers holding...leaves undisturbed our

conclusion that Louisiana’s Any Willing Provider statute is

preempted by ERISA." (Pet. 13a.)

5. A far different reading of Travelers has, however,

been adopted by other courts. Nowhere is this conflict more

evident than in a recent decision of the Connecticut Supreme

Court that relied on Travelers to resolve the preemption issue

adversely to respondents’ Connecticut affiliate. See Napol-

etano v. CIGNA HealthCare of Connecticut, Inc., 680 A.2d

127 (Conn. 1996). Napoletano (and a companion case ad-

dressed in the same opinion, Hollis v. CIGNA HealthCare of

Connecticut, Inc.) involved a Connecticut statute, 1994

Conn. Pub. Acts 235, titled "An Act Concerning Managed

Care." The Connecticut statute requires a preferred provider

network to file with a state commission and make available

to a provider “the general criteria for its selection or

termination of health care providers” to the extent that such

criteria are not proprietary or of a competitive nature. If the

criteria have not been publicly filed, a network "may not

21

reject or terminate" a provider from participating in the

network based on those criteria "until the provider has been

informed of the criteria that his practice fails to meet." 680

A.2d at 131 n.3, quoting 1994 Conn. Pub. Acts 235(e)(2).

Plaintiffs in Napoletano sued one of respondents’

Connecticut affiliates, a network administrator, alleging

various statutory and common law causes of action, includ-

ing an action for violation of the Connecticut managed care

Statute. Jd. at 132. Reversing a trial court decision that

these causes of action were preempted by ERISA, the

Connecticut Supreme Court held that the claims were not

preempted because they sought to "enforce," not modify, the

terms of an employee benefit plan. Jd. at 136.

In reaching this conclusion, the Connecticut Supreme

Court extensively discussed this Court’s opinion in Travelers

which it characterized as having "indicated a retreat from

preemption.” Jd. at 140 n.22. Citing to Travelers, the court

reasoned that any “costs and burdens upon the benefit plans"

were insufficient to trigger preemption because "the Supreme

Court has concluded that indirect costs and benefits do not

result in preemption." Jd. at 143 n.26. Similarly, citing

post-Travelers authority from federal courts of appeal, the

court reasoned that “although a successful claim...under the

Connecticut statute would in effect require that CIGNA

continue to employ the plaintiff physicians, such a result

would not have an impermissible or burdensome effect on

the administration of the plan." Jd. at 144.

The conflict in analysis between Napoletano and the

Court of Appeals’ decision in this case goes beyond their

disagreement over whether Travelers was intended by this

22

Court to "indicate[ ] a retreat from preemption." The Court

of Appeals in this case held that the State of Louisiana

simply could not permissibly regulate employee benefit plans

and their administration. The Connecticut Supreme Court,

in contrast, concluded that Travelers has sufficiently changed

the preemption landscape that it is permissible for a state to

regulate a plan’s administration as long as that regulation is

not, in a court’s view, "burdensome." Jd. The two analyses

cannot be reconciled. Rather, they squarely conflict over

whether, after Travelers, state regulation may directly

regulate plan structure and administration.

7. The conflict in the preemption analysis among the

lower courts is not limited to the "relate to" prong of ERISA

§ 514(a) but extends also to whether, or under what test, an

any willing provider law may be "saved" from preemption

under ERISA § 514(b)(2)(A) as a law “which regulates

insurance.” While the Court of Appeals in this case held

that the Louisiana statute was not saved on this basis, the

Court of Appeals for the Fourth Circuit reached the opposite

result in Stuart Circle Hospital Corp. v. Aetna Health

Management, 995 F.2d 500 (4th Cir.), cert. denied, 510

U.S. 1003 (1993), as to Virginia’s any willing provider

statute. Similarly, a district court in the Fifth Circuit has

followed the Fourth Circuit’s decision to hold that a Texas

Statute applicable to pharmacies was saved as a law "which

regulates insurance.” Texas Pharmacy Ass’n v. Prudential

Ins. Co. of Am., 907 F. Supp. 1019 (W.D. Tex. 1995).

These decisions conflict in the way they analyze

ERISA’s insurance saving clause. This Court has held that

a determination of whether a state law “regulates insurance"

————————————O

23

for purposes of ERISA preemption should be made by

considering a “common-sense” definition of insurance

regulation plus an analysis of the three factors used to

determine what constitutes "the business of insurance" under

the McCarran-Ferguson Act. See Pilot Life Ins. Co. v.

Dedeaux, 481 U.S. 41, 48-49 (1987). The court below --

following its own precedent that a law is not saved from

ERISA preemption unless it satisfies both the common-sense

definition of insurance regulation and each of the three

McCarran-Ferguson factors -- found it unnecessary to

analyze anything other than the third factor since the

Louisiana statute “obviously is not limited to entities within

the insurance industry." (Pet. 14a & n.51, quoting Tingle v.

Pacific Mutual Ins. Co., 996 F.2d 105, 108 (Sth Cir. 1993).)

The Court of Appeals for the Fourth Circuit in Stuart Circle,

however -- following its precedent that none of these factors

is determinative -- reached the Opposite result. Because

decisions in the circuits are in conflict over how to analyze

ERISA’s insurance savings clause,” review by this Court

is appropriate to resolve this conflict also.

8. Review by this Court is especially urgent because of

the widespread use of managed care by ERISA-covered

employee benefit plans throughout the country. Unless the

” Compare DeBruyne v. Equitable Life Assur. Soc. of the

U.S., 920 F.2d 457, 468-70 (7th Cir. 1990) (requiring each factor

to be met) with Insurance Bd. Under Soc. Ins. Plan of Bethlehem

Steel Corp v. Muir, 819 F.2d 408, 411 & n.5 (3d Cir. 1987);

United Food & Comm. Workers & Employers Az. Health &

Welfare Trust v. Pacyga, 801 F.2d 1157, 1161 (9th Cir. 1986)

(holding that no one factor is dispositive).

24

preemption question presented here is resolved by this Court,

employee benefit plans will be faced with the prospect of

either litigating over this preemption issue in multiple

jurisdictions or simply foregoing implementation of managed

care features such as limited provider networks, especially

on a uniform nationwide basis. This case presents a clearcut

example of a state statute that interferes with the design and

administration of employee benefit plans and an undisputed

factual record on which the preemption issue can be re-

solved. Accordingly, respondents urge the Court to grant

the petition as to this issue and resolve this issue without

waiting for the conflict in the lower courts to continue to

fester.

CONCLUSION

For the foregoing reasons, this Court should grant

the petition limited to the first question presented involving

ERISA preemption.

25

Respectfully submitted,

DONALD T. BLIss

ROBERT N. ECCLEs

(Counsel of Record)

O’MELVENY & MYERS LLP

555 Thirteenth Street, NW

Washington, DC 20004

(202) 383-5300

HARRY N. MAZADOORIAN

EDWARD P. POTANKA

CIGNA HEALTHCARE OF LOUISIANA, INC.

900 Cottage Grove Road

Hartford, CT 06152

(860) 726-6451

RAYMOND J. SALASSI, JR.

HARRY S. HARDIN III

JONES, WALKER, WAECHTER, POITEVENT, CARRERE &

DENEGRE LLP

Place St. Charles

201 St. Charles Avenue

New Orleans, LA 70170

(504) 582-8000

Counsel for Respondents

September 30, 1996