Amicus Curiae Brief — Aetna Life Insurance Co. v. Stuart Circle Hospital Corp

4NUe VuvusV

MOTION ELED.

OCT 29 1203 sctiias

Supreme Court of the Gnited States

OCTOBER TERM, 1993

AETNA LIFE INSURANCE COMPANY and

AETNA HEALTH MANAGEMENT.

Petitioners.

Ve

STUART CIRCLE HOSPITAL CORPORATION,

Re sponde nt.

On Petition for Writ of Certiorari

to the United States Court of Appeals

for the Fourth Circuit

MOTION FOR LEAVE TO FILE BRIEF AMICUS CURIAE

AND BRIEF AMICUS CURIAE

“THERESA L. SOROTA

LYNNE E. FRITTER

B. MICHAEL HERMAN

Health Insurance Association of

America

1025 Connecticut Ave., N.W

Washington, D.C. 20036

(202) 223-7822

ao oe &

ANNE MARIE WALSH

American Association of Preferred

Provider Associations

1101 Connecticut Ave., N.W.

Washington, D.C. 20036

(202) 429-5133

KELLI D. BACK

American Managed Care and

Review Association

1227 25th Street, N.W.

Suite 610

Washington, D.C. 20037

(202) 728-0506

Attorneys for Amici

“Counsel of Record

IN THE

Supreme Court of the United States

OCTOBER TERM, 1993

No. 93-510

AETNA LIFE INSURANCE COMPANY and

AETNA HEALTH MANAGEMENT,

Petitioners,

V.

STUART CIRCLE HoOsPITAL CORPORATION,

Respondent.

On Petition for Writ of Certiorari

to the United States Court of Appeals

for the Fourth Circuit

MOTION OF THE HEALTH INSURANCE ASSOCIATION

OF AMERICA, AMERICAN ASSOCIATION OF

PREFERRED PROVIDER ORGANIZATIONS, AND

AMERICAN MANAGED CARE AND REVIEW

ASSOCIATION FOR LEAVE TO FILE BRIEF AMICUS

CURIAE IN SUPPORT OF THE PETITION

Pursuant to Rule 37.2 of the Rules of this Court,

amici, the Health Insurance Association of America

(“HIAA”’), Association of Preferred Provider Orga-

nizations (“‘AAPPO’’), and American Managed Care

and Review Association (““AMCRA”’), hereby move for

leave to file the attached brief amicus curiae.

Petitioner has granted but respondent has refused to

grant consent for amici to file a brief amicus curiae

in support of the petition.

Amici bring a unique and broad perspective to the

issue brought before this Court. ERISA preemption

and its relation to the Virginia “‘any willing provider’

statute affects most of our collective membership, in-

cluding large and small insurers and companies op-

erating preferred provider organizations (PPOs) which

are neither health care providers nor health insurance

carriers.

Amici can bring to this Court’s attention relevant

matters that could not be brought fully to the Court’s

attention by petitioner and that respondent is unlikely

to bring to the Court’s attention. In particular, amici

point out how the holding of the Fourth Circuit Court

of Appeals will, if allowed to stand, inhibit the ability

of employee welfare benefit plans to contain and con-

trol health care costs_through the use of managed

care networks.

Amici therefore respectfully request leave to file

the attached brief amicus curiae.

Respectfully submitted,

/s/ Theresa L. Sorota

*THERESA L. SOROTA

LYNNE E. FRITTER

B. MICHAEL HERMAN

Health Insurance Association of —

America

1025 Connecticut Ave., N.W.

Washington, D.C. 20036

(202) 223-7822

ANNE MARIE WALSH

American Association of Preferred

Provider Associations

1101 Connecticut Ave., N.W.

Washington, D.C. 20036

(202) 429-5133

KELLI D. BACK

American Managed Care and

Review Association

1227 25th Street, N.W.

Suite 610

Washington, D.C. 20037

(202) 728-0506

Attorneys for Amici

*Counsel of Record

October 29, 1993

TABLE OF CONTENTS

Page

Ses Oe CPREIEE seinctinncckteitine eee l

SAB GOP AUTOR IIIS ~ cccexcecsceccscscsvnccscrecccsecescsse ll

SEVER Meeeme a OF THI AMIE ccnscvcccticcdctsiccsccdlecccle.. 1

REASONS FOR GRANTING THE WRIT. ..............000. by

A. The Fourth Circuit’s Decision Will Adversely

Affect Amici’s Members’ Ability to Contain

Escalating Health Care Costs .00.....ccccccecceese 6

B. The Fourth Circuit Failed to Apply the Ap-

propriate Precedent Articulated By This

Court in Royal Drug That the Selection of

Network Providers Is Not the ‘Business of

MENGE incensnconsecinitinnctaeee 10

C. Proliferation of “‘Any Willing Provider’ Leg-

islation Will Erode the Ability of Insurers

and Other Third Party Payors to Create Ef-

fective Managed Care Networks ............60.... 14

CONULATIIIT | yssainstsninsensreiudcesinbstnen eee 16

ii

TABLE OF AUTHORITIES

Cases: Page

Group Life & Health Ins. Co. v. Royal Drug Co.,

440 U.S. 205 (1979), cert. denied, 469 U.S. 1160

CRG cccecosesistisinniencemnestaueitaaaaeanee 6,11,12,13

Metropolitan Life Ins. Co. v. Massachusetts, 471 U.S.

FE CRED) cetecsmsccescimmniaaenanae 5,11,13

Pilot Life Ins. Co. v. Dedeaux, 481 U.S. 41

CEDUTD cocecsssssissesesstinctommecaaamaiaa ssemnenmnbaniaabii 15

Shaw v. Delta Air Lines, Inc., 463 U.S. 85

CEDIED cocesccsusssionssssonwesmanniaiaunianaaaeeel 11

Stuart Circle Hosp. Corp. v. Aetna Health Man-

agement; Aetna Life Ins. Co., 995 F.2d 500

CEU scerscerssvissorcersvetsaerneenieadghedd ee 3,12

Union Labor Life Ins. Co. v. Pireno, 458 U.S. 119

CRUE) sccscconcesccscsnceisssssbdéausmmoueaanaeaaaaaaaen 11

Statutes:

Employee Retirement Income Security Act of 1974,

SU USL. GGG] OF BOG sccucssnrvoncecnsanainaen passim

SO U.BA. § TGC. scsciiccmusameneuaaeuee 10

McCarran-Ferguson Act, 15 U.S.C. §1011 et seq. . 1]

Alm. Code. 6 S7-46-3 (300 cccecicicrcencsstiataian 14

Ark. Stat. Ann. § 23-79-143 (1991) 00... eee 14

Cal. Ins. Code §10133 et 86. ...........-cccscssssseseseeees 9

Conn. Gen. Stat. § 38A-471 (1981) ........c ccc 14

Fla. Stat. § 408.706(10) (1993) oo... ee eee eee ee 14

Ga. Code Ann. § 33-30-4.3 (1991) .........ccc cc eeeceeeeeeee 14

Idaho Code § 41-1844 (1991) wo... eeeceeeeeeee 14

215 Ill. Comp. Stat. Ann. 5/370h (1993) .......0000000.. 14

Ind. Code Ann. § 27-8-11-3 (Burns 1992) ......0........ 14

La. Rev. Stat. Ann. 22:1214(15) (West 1992) ........ 14

ill

Table of Authorities Continued

N.C. Gen. Stat. § 58-51-58 (1993) .............ccccvcsverees

N.D. Cent. Code § 26.1-36-12.2 (1989) ....... iitelennas

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

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

Va. Code § SE2BOGT (1GGR) cncecocscceccevsessssescesccessess

1993 Wash. Laws Chapter 492 .........ccccccccsseeeeeeeeees

W.Va. Code § 33-25A-31 (1991) ............cccsceeseeeeeeeees

Wis. Stat. Ann. § 628.36 (1991 & Supp. 1992) .....

Wyo. Stat. § 26-22-503 (1977) ........cscccseeseeeeeeeeereeees

Other Authorities:

Directory of Operational PPOs, SMG Marketing

Group Inc. (9th ed. 1993) ..........escserssrrererereees

Glenn A. Melnick, et al. The Growth and Effects of

Hospital Selective Contracting, Health Care

Manage Rev. (1989) .......ccccccccccrrsrrrrrrrersersessees

Health Care Benefits Survey 1992, A. Foster Hig-

gins & Co., Inc. (1992) .........cccccrcrrcersesserecores

Insurer-Sponsored Managed Health Care: 1990,

Health Insurance Association of America

CRIED cevcocedctacsantoussnnsernesenseasesseesenvanrevessenstnintins

Report to Health Insurance Association of America:

Cost Analysis of State Legislative Mandates on

Siz Managed Health Care Practices, 14-26

(Wyatt Co. 1991) .........ccccccccessoseescrrserrseorererseoee

Page

IN THE

Supreme Court of the Gnited States

OCTOBER TERM, 1993

No. 93-510

AETNA LIFE INSURANCE COMPANY and

AETNA HEALTH MANAGEMENT,

Petitioners,

Ve

STUART CIRCLE HOSPITAL CORPORATION,

Respondent.

On Petition for Writ of Certiorari

to the United States Court of Appeals

for the Fourth Circuit

BRIEF AMICUS CURIAE

FOR THE HEALTH INSURANCE ASSOCIATION OF

AMERICA, AMERICAN ASSOCIATION OF PREFERRED

PROVIDER ORGANIZATIONS, AND AMERICAN

MANAGED CARE AND REVIEW ASSOCIATION IN

SUPPORT OF THE PETITION

INTERESTS OF THE AMICI

The Health Insurance Association of America

(““HIAA’’), the American Association of Preferred

Provider Organizations (‘‘AAPPO’’), and the Ameri-

can Managed Care and Review Association

(“AMCRA’’) submit this amicus curiae brief in sup-

port of petitioners.'

HIAA is a non-profit national trade organization

representing over 250 commercial health insurers that

provide health care coverage to over 65 million Amer-

icans. Many of HIAA’s member companies either own,

operate, or lease health maintenance organizations

(“‘HMOs’’), preferred provider organizations (‘“‘PPOs’’),

and other entities whose primary purpose is to pro-

vide health care services through a managed care

system. Approximately 50 percent of all HIAA mem-

bers offer at least one network-based managed care

product. Additionally, more than two-thirds of the to-

tal enrollment in commercial insurers’ managed care

plans are in PPOs. Insurer-Sponsored Managed Health

Care: 1990, Health Insurance Association of America

(1991). Other member insurers, primarily mid-sized

carriers, lease PPO networks from other insurers or

enter into joint venture agreements with independent

PPOs.

AAPPO is a non-profit national trade association

representing PPOs, exclusive provider organizations

(EPOs), and point of service (POS) plans, and their

partners in managed health care. The AAPPO’s 1,300

individual members represent 274 PPOs (more PPOs

than all other trade associations combined), 53 insur-

ers and more than 300 other organizations actively

involved in managed care. The AAPPO represents the

fastest growing health care delivery model, and its

membership comprises a significant portion of both

the delivery systems and recipients of health care in

‘This brief is being filed with the consent of petitioners and

by amici’s Motion for Leave to File as amicus curiae.

3

the United States. The organization’s activities in-

clude public and industry education, research, devel-

opment of industry standards, and advocacy.

AMCRA is a national trade association representing

over 500 managed care organizations providing health

care to more than 75 million Americans. AMCRA

represents the full spectrum of managed care orga-

nizations, including HMOs, independent practice as-

sociations (“IPAs’’), and PPOs. These organizations

provide Americans with a choice of health care plans

that emphasize the appropriate use of health care

facilities and services, resulting in the highest quality

of health care at an affordable price.

The ability of the members of HIAA, AAPPO, and

AMCRA [hereinafter amici] to offer cost efficient,

high quality preferred provider networks through em-

ployee welfare benefit plans is jeopardized by the de-

cision of the Fourth Circuit, which held that Virginia’s

“any willing provider” Statute, Virginia Code § 38.2-

3407, is saved from ERISA preemption as a law that

regulates the “business of insurance.” Stuart Cirele

Hosp. Corp. v. Aetna Health Management; Aetna Life

Ins. Co., 995 F.2d 500 (4th Cir. 1993). That statute

requires that PPO networks accept any provider of

health care services willing to meet the network’s

established criteria. Such a requirement strikes at the

heart of the principles of managed care.

PPOs, HMOs, and other variations of managed care

organizations are formed in order to deliver quality

health care to consumers at a reduced cost. Admin-

istrators of these alternative delivery systems, which

in many cases are not insurance companies, use se-

lective contracting to negotiate prices with a limited

number of providers. These “preferred” providers

typically deliver health care services to employee ben-

efit plan participants at a substantially lower rate

than non-network providers in exchange for increased

patient volume.

Increased patient volume makes it possible for the

provider to benefit by obtaining a larger share of the

market. The promise of increased market share allows

providers to predict the amount of business they will

have and improves economies of scale, both of which

maximize efficiency. ‘“‘Any willing provider”’ statutes

increase the number of health care providers in a

network, thereby reducing each provider’s total pa-

tient volume. This, in turn, reduces incentives for

providers to accept reduced fees or to cooperate with

utilization management mechanisms. Utilization man-

agement is the most significant method by which

PPOs, HMOs and other managed care entities control

health care costs and assess quality of care. Utiliza-

tion management and the information derived from

utilization management allow a PPO to credential and

recredential providers, monitor overutilization and

underutilization of health care services, and monitor

and assess the quality of care provided in the net-

work.

The limited number of participating providers in a

PPO or other network setting helps contain health

care costs, and plan participants realize cost savings

through the use of the network providers. For in-

stance, plan participants enrolled in a PPO plan may

use the preferred (or network) providers or go outside

the network to other physicians and hospitals for care.

However, there are strong financial incentives de-

signed to encourage patients to use the network prov-

iders. For example, the health care that participants

a

receive from preferred providers is often reimbursed

at 90 to 100 percent of reasonable and customary

charges. Health care obtained outside the network

may be reimbursed at 80 percent or less, resulting

in individuals paying more out of their own pockets.

Enforcement of Virginia's “any willing provider’

statute would effectively eliminate the ability of ami-

ci’s members to control health care costs by selec-

tively contracting with efficient, yet highly skilled

providers.

REASONS FOR GRANTING THE WRIT

The major question that petitioners have presented

before this Court is whether Virginia’s ‘‘any willing

provider’”’ statute, Virginia Code § 38.2-3401, regu-

lates the ‘‘business of insurance” and therefore sur-

vives ERISA preemption. The Fourth Circuit held that

the ‘any willing provider” statute was not preempted

because it does regulate the “business of insurance.”

This holding effectively eliminates the ability of man-

aged care organizations to deliver quality health care

at a lower price. If provider networks become unlim-

ited, the cost of doing business for managed care

organizations will increase since it will either be im-

possible or considerably more expensive to impose ap-

propriate cost controls. In addition, the likelihood of

increased patient volume for individual health care

providers will no longer exist. Thus, providers will no

longer have a financial incentive to join PPOs at re-

duced fees.

In reaching its decision that the “any willing prov-

ider” statute regulates the “business of insurance,”

the Fourth Circuit improperly relied on Metropolitan

Life Ins. Co. v. Massachusetts, 471 U.S. 724 (1985),

concluding that ‘‘any willing provider’’ laws regulate

the ‘‘business of insurance.’”’ The Fourth Circuit should

instead have applied the standard articulated in Group

Life & Health Ins. Co. v. Royal Drug Co., Inc., 440

U.S. 205 (1979), cert. denied, 469 U.S. 1160 (1985).

The Fourth Circuit’s misapplication of the Metro-

politan Life analysis is detrimental to amici’s mem-

bers, and accordingly, review by this Court is

necessary.

A. The Fourth Circuit’s decision will adversely affect

amici’s members’ ability to contain escalating

health care costs.

“Any willing provider’ statutes, such as the Vir-

ginia statute at issue here, mandate that managed

care organizations include in their networks any prov-

ider willing to meet the terms and conditions specified

by the organization. These laws inhibit the effective-

ness of alternate delivery systems, such as PPOs, by

causing the network to become too large and costly

to effectively administer. The inflated network will

incur more costs and supply fewer patients to each

participating health care provider; thus, diminishing

or eliminating the system’s overall cost savings.

One of the adverse consequences of “any willing

provider’ laws is the administrative difficulty of man-

aging the larger networks that result. Increasing the

number of provider applications per network requires

significant staff time to process and properly verify

the credentials of new applicants. New providers must

be trained in network procedures. In addition, larger

numbers of providers require additional monitoring by

the PPO. A 1991 study by the Wyatt Company com-

pared a simulated model of a larger network with

a baseline network. The baseline network was com-

posed of approximately 25.5 percent of the individual

health care providers and 44 percent of the hospitals

in the network service area. The study concluded that

if the number of network providers were increased

to 40 percent of the available providers and 60 per-

cent of the hospitals, there would be an 80.1 percent

increase in the amount of administrative costs over

the baseline network’s administrative costs. Report to

Health Insurance Association of America: Cost Anal-

ysis of State Legislative Mandates on Six Managed

Health Care Practices, 14-26 (Wyatt Co. 1991) fhere-

inafter Wyatt Study].

Another detrimental aspect of ‘‘any willing provi-

der’’ laws is the potential decrease in provider claims

savings. By expanding the percentage of providers in

the baseline model PPO, for example, the Wyatt Study

found that providers are less likely to grant as big

a discount as expected because each provider will have

fewer patients directed his or her way. The provider

will either deliver more services or give smaller dis-

counts in order to maintain his or her current level

of income (or, in the case of hospitals, their operating

margins). The Wyatt Study concludes that the pos-

sible outcome of an “any willing provider’ statute

could be an 8.8 percent loss in claims savings as

compared with the typical PPO. Wyatt Study, supra,

at 20.

The conclusions of the Wyatt Study demonstrate

that there is a point at which a PPO will be unable

to demonstrate any value to the community if it is

forced to accept more than a limited percentage of

available providers. In fact, 20 percent or more of

the hospitals and 40 percent or more of individual

providers will need to be excluded from the network

in order to serve the community as a cost effective

deliverer of health care services. Jd. at 23.

It can be inferred from the Wyatt Study that se-

lective contracting by a PPO or other managed care

organization gives health care providers an incentive

to join a managed care network. In the absence of

“any willing provider’’ legislation, network providers

will experience lower administrative costs and higher

patient volumes, thereby fostering both competition

and cost savings. Should Virginia’s ‘‘any willing prov-

ider’”’ statute survive preemption by ERISA, providers

will no longer have incentives to become more effi-

cient and more competitive in the services they offer.

There will be too many health care providers in each

network, resulting in too few patients per provider

and the inability of providers to control costs through

economies of scale.

The higher administrative costs of dealing with

larger networks mandated by Virginia’s ‘‘any willing

provider’’ statute is likely to limit the availability of

PPOs in the Commonwealth. Thus, a direct conse-

quence of the Virginia law would be to limit con-

sumers’ ability to select alternative delivery systems

for health care services. Indeed, the Federal Trade

Commission (““FTC’’) has, on many occasions, con-

cluded that ‘‘any willing provider’”’ legislation inhibits

competition among providers by limiting providers’

incentive to compete in developing attractive or in-

novative proposals. See, e.g., Letter from Thomas B.

Carter, Director of the FTC, to John Smithee, Chair-

man of the Texas House Insurance Committee (May

18, 1993). The FTC has also issued opinions concern-

ing the anti-competitive nature of “any willing prov-

ider’’ laws to officials in six other states:

Massachusetts, Montana, New Hampshire, New Jer-

sey, Pennsylvania, and South Carolina.’

Moreover, the use of preferred provider networks

results in health care cost savings. For example, Cal-

ifornia was the first state to enact a selective con-

tracting law enabling the formation of PPOs. Cal. Ins.

Code § 10133 et seg. California leads the nation in the

adoption of provider networks; its biggest success in-

volves the use of hospital selective contracting. In

fact, California hospitals have experienced a marked

decrease in the rate at which their expenses have

increased since the enabling legislation was passed.

See Melnick, Zwanziger, and Verity-Guerra, The

Growth and Effects of Hospital Selective Contracting,

Health Care Manage Rev. (1989). Indeed, there has

been phenomenal growth of PPOs throughout the

country during the last decade. Aeeording to SMG

Marketing Group, there are now 1036 PPOs operating

or organized nationally, up from 978 in 1991. During

2 Other opinion letters include: Letter from Mary Lou Steptoe,

Acting Director of the FTC, to William F. Cass, Vice-Chairman

of the Massachusetts House Health Care Committee (June 15,

1993); Letter from Michael O. Wise, Acting Director of the FTC,

to Joseph P. Mazurek, Montana Attorney General (February 4,

1993); Letter from Michael O. Wise, Acting Director of the FTC,

to Paul J. Alfano, New Hampshire Senate Legal Counsel (March

17, 1992); Letter from Michael O. Wise, Acting Director of the

FTC, to E. Scott Garrett, Chairman of the New Jersey Assembly

Insurance Committee (March 29, 1993); Letter from Michael O.

Wise, Acting Director of the FTC, to Roger A. Madigan, Penn-

sylvania State Senator (April 19, 1993); and Letter from Michael

O. Wise, Acting Director of the FTC, to Thomas C. Alexander,

Chairman of the South Carolina House Labor, Commerce and

Industry Committee (May 10, 1993).

10

the same time period, the number of employees eli-

gible to enroll in PPOs increased more than 50 per-

cent, to almost 58 million lives. Since 1984, the growth

in the number of PPOs has averaged 40 percent an-

nually. Directory of Operational PPOs, SMG Market-

ing Group Inc. (9th ed. 1993).

Increasingly, employers are offering PPO plans to

their employees. A recent survey conducted by Foster

Higgins found that in 1992, 39 percent of employers

offered a PPO program, up from 31 percent in 1991,

even though this type of managed care has been gen-

erally available only since about 1983. Health Care

Benefits Survey 1992, A. Foster Higgins & Co., Inc.

(1992).

The consequences of allowing the decision of the

Fourth Circuit to stand would be increased health

care costs to Virginia consumers. This Court should

not allow states to erect roadblocks to attempts by

responsible ERISA plan sponsors to contain health

care costs. |

B. The Fourth Circuit failed to apply the appropriate

precedent articulated by this Court in Royal Drug

that the selection of network providers is not the

“business of insurance.”’

Section 514(a) of the Employee Retirement Income

Security Act of 1974 (““ERISA’’), 29 U.S.C. § 1001 et

seq., explicitly provides that, subject to certain ex-

ceptions, ERISA preempts all state laws that relate

to employee welfare benefit plans. One of the excep-

tions embodied in ERISA is the insurance savings

clause which saves from preemption any state law

regulating insurance. 29 U.S.C. § 1144(b). This Court

has adopted a two-step inquiry to determine whether

11

a law regulates insurance v/ithin the meaning of the

savings clause. First, a court must make a “‘common-

sense’ determination as to whether the law regulates

the “‘business of insurance.’’ Metropolitan Life, 471

U.S. at 739 (quoting Shaw v. Delta Air Lines, Inc.,

463 U.S. 85, 97 (1983)). Second, the court must con-

sider the three criteria which this Court has estab-

lished to determine whether the ‘‘business of

insurance’ is exempt from federal antitrust regulation

under the McCarran-Ferguson Act, 15 U.S.C. § 1011

et seq.; Union Labor Life Ins. Co. v. Pireno, 458 U.S.

119 (1982).

The three criteria set forth in Pireno are: (1)

whether the practice has the effect of transferring or

spreading a policyholder’s risk; (2) whether the laws

regulate any practice that is an integral part of the

policy relationship between the insurer and the in-

sured; and (3) whether the laws are limited to entities

within the insurance industry. Union Labor Life, 458

U.S. at 129.

In Royal Drug, a Blue Shield plan entered into a

contract with pharmacists, whereby the pharmacists

were to provide prescription drugs to the insurer’s

policyholders for a $2 charge, and the insurer would

reimburse the pharmacists at cost. Royal Drug, 440

U.S. at 209. Applying the three Pireno criteria, this

Court held that these arrangements did not involve

the spreading or transfer of risk. The court reasoned

that the risk involved was the insurer’s obligation to

reimburse drug costs to its insureds. The insurer had

already assumed that risk in its insurance contracts.

The arrangement with the pharmacists did not trans-

fer or spread that risk but merely affected the in-

surer’s cost of satisfying its obligations on a risk it

had already assumed. Jd. at 213. This court, there-

fore, held that the arrangements were not the ‘‘busi-

ness of insurance.”’ Jd. at 214.

The same reasoning applies here. The petitioner’s

PPO arrangements are contracts between Aetna and

the health care professionals providing the services.

They do not involve the underwriting of the insured’s

risk; all the risks assumed in the insurance policies

are covered. The PPO arrangement merely establishes

a network of providers which the insured may select

when seeking treatment. As this court held in Royal

Drug, contracts between a provider and an insurer

or other entity do not constitute the ‘‘business of

insurance’ but rather the “‘business of insurance com-

panies.’’® Jd. at 217.

The Fourth Circuit distinguished the nature of the

network in this case from that in Royal Drug, indi-

cating that the provider network in Royal Drug was

not a restricted network. Stuart Circle, 995 F.2d at

504. As pointed out in Aetna’s petition, the very fact

that pharmacies were unwilling to meet the terms of

the Blue Shield contract made the network a re-

stricted one. Brief for Petitioner at 20. Moreover, this

Court made clear in Royal Drug that the open access

of pharmacies to the pharmacy agreements was ir-

relevant to its decision. The result would be the same,

the Court explained, if ‘‘an insurance company en-

tered into a contract with a large retail drug chain

whereby its policyholders could obtain drugs under

* However, it is important to note that many PPOs are es-

tablished and operated by entities that are not insurance com-

panies; and therefore, such provider contracts would not even

constitute the ‘‘business of insurance companies.”

— sic

13

their policies only from stores operated by this chain.”

Royal Drug, 440 U.S. at 215. Such an arrangement,

this Court concluded, is not the ‘‘business of insur-

ance.’’* Jd.

When the Fourth Circuit disregarded the holding

in Royal Drug, it purported to apply the ‘common

sense’ approach to determine whether a law regu-

lates the ‘‘business of insurance.’’ The common sense

approach requires the Court to ask whether the stat-

ute in question addresses matters typically within the

purview of state insurance regulations, such as the

solvency of an insurance company, the sale and ad-

vertising of insurance, and the content of the insur-

ance policies. Metropolitan Life, 471 U.S. at 742.

Metropolitan Life involved a Massachusetts mandated

benefit law which required insurers to provide cov-

erage for the treatment of mental illness. This Court

held that the mandate regulated the ‘“‘business of in-

surance’ under ERISA because the law affected how

and to what extent treatment was to be covered un-

der an insurance policy. Jd. The Virginia statute at

issue in this case is distinguishable from the mental

illness mandate in Metropolitan Life. Unlike the Mas-

sachusetts statute at issue there, the Virginia statute

does not dictate coverages that insurers must include

in their insurance or health care contracts. In fact,

it involves a completely separate document from the

insurance or health care contract and does not change

the obligation of the insurer or managed care orga-

nization to provide benefits to its insureds or sub-

scribers.

‘ This issue is more fully discussed in Petitioner’s Petition for

Wnit of Certiorari at page 21.

14

C. Proliferation of ‘‘any willing provider’’ legislation

will erode the ability of insurers and other third

party payors to create effective managed care net-

works.

Many states have passed anti-managed care legis-

lation. For example, eight states have enacted “any

willing provider’ legislation which is substantially

similar to the Virginia law.® In addition, nine states

have enacted ‘‘any willing pharmacy” legislation, re-

quiring pharmacy networks to accept any pharmacist

willing to meet the terms and conditions of the net-

work contract.® This proliferation of ‘‘any willing

provider”’ legislation inhibits insurers and other third-

party payors from developing effective managed care

systems. Moreover, the increasing number of ‘‘any

willing provider’ laws enacted by the states compels

companies which do business in multiple jurisdictions

to comply with the requirements of varying laws, re-

sulting in exactly the type of patchwork administra-

* The eight states and the “any willing provider’’statutes they

have enacted are: Georgia, Ga. Code Ann. § 33-30-4.3 (1991);

Illinois, 215 Ill. Comp. Stat. Ann. 5/370h (1993); Indiana, Ind.

Code Ann. § 27-8-11-3 (Burns 1992); South Dakota, S.D. Codified

Laws Ann. § 58-18-37 (1990); Utah, Utah Code Ann. § 31A-22-

617 (1991); Washington, 1993 Wash. Laws Chapter 492; West

Virginia, W.Va. Code § 33-25A-31 (1991); and Wyoming, Wyo.

Stat. § 26-22-503 (1977).

*The nine states and the ‘any willing pharmacy” statutes

they have enacted are: Alabama, Ala. Code § 27-45-3 (1988);

Arkansas, Ark. Stat. Ann. § 23-79-143 (1991); Connecticut, Conn.

Gen. Stat. §38A-471 (1981); Florida, Fla. Stat. § 408.706(10)

(1993); Idaho, Idaho Code § 41-1844 (1991); Louisiana, La. Rev.

Stat. Ann. 22:1214(15) (West 1992); North Carolina, N.C. Gen.

Stat. § 58-51-58 (1993); North Dakota, N.D. Cent. Code § 26.1-

36-12.2 (1989); and Wisconsin, Wis. Stat. Ann. § 628.36 (1991

& Supp. 1992).

15

tive scheme which Congress intended to avoid in

enacting ERISA. Pilot Life Ins. Co. v. Dedeaux, 481

U.S. 41 (1987). Finally, it should be noted that in

enacting these ‘‘any willing provider” laws, states are

attempting to regulate indirectly that which they

clearly cannot regulate directly—employee welfare

benefit plans.

na

16

CONCLUSION

For the foregoing reasons and for the additional rea-

sons advanced in the Petition, the Court should grant

the Petition for Writ of Certiorari and set the case

for plenary review.

Respectfully submitted,

*THERESA L. SOROTA

LYNNE E. FRITTER

B. MICHAEL HERMAN

Health Insurance Association of

America

1025 Connecticut Ave., N.W.

Washington, D.C. 20036

(202) 223-7822

ANNE MARIE WALSH

American Association of Preferred

Provider Associations

1101 Connecticut Ave., N.W.

Washington, D.C. 20036

(202) 429-5133

KELLI D. BACK

American Managed Care and

Review Association

1227 25th Street, N.W.

Suite 610

Washington, D.C. 20037

(202) 728-0506

Attorneys for Amici

*Counsel of Record

October 29, 1993