Opposition Brief — Montemayor, Commissioner, Texas Department of Insurance v. Corporate Health Insurance

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No. 00-665 | Ci!

Sepreme Court. US.

DEC § 2000

IN THE

Supreme Court of the United States

JOSE MONTEMAYOR, COMMISSIONER OF THE TEXAS

DEPARTMENT OF INSURANCE; JOHN CORNYN,

ATTORNEY GENERAL OF TEXAS,

Petitioners,

Vv.

CORPORATE HEALTH INSURANCE, INC.; AETNA HEALTH

PLANS OF TEXAS, INC.; AETNA HEALTH PLANS OF

NORTH TEXAS, INC.; AETNA LIFE INSURANCE

COMPANY,

Respondents.

On Petition For A Writ Of Certiorari

To The United States Court of Appeais

for the Fifth Circuit

RESPONDENTS’ BRIEF IN CPPOSITION

JOHN B. SHELY MIGUEL A. ESTRADA

KENDALL M. GRAY Counsel of Record

_ ANDREWS & KURTH LLP RACHEL A. CLARK

600 Travis, Suite 4200 GIBSON, DUNN & CRUTCHER LLP

Houston, Texas 77002 1050 Connecticut Avenue, N.W.

(713) 220-4200 Washington, D.C. 20036

(202) 955-8500

Counsel for Respondents

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QUESTIONS PRESENTED

1. Whether the Employee Retirement Income Secu-

rity Act of 1974, 29 U.S.C. § 1001 et seg., preempts the

independent review requirements established by Texas

Senate Bill 386.

2. Whether the Federal Employees Health Benefit

Act, 5 U.S.C. § 8901 et seg., preempts the independent

review requirements established by Texas Senate Bill

386.

PARTIES TO THE PROCEEDING AND RULE 29.6

STATEMENT

The caption contains the names of all of the parties to

the proceeding. All respondents are indirect subsidiaries

or affiliates of Aetna, Inc., a publicly traded company. .

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TABLE OF CONTENTS

Page

QUESTIONS PRESENTED ........ccccscccsscsccossssrsssessessneses 1

PARTIES TO THE PROCEEDING AND RULE

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CONSTITUTIONAL AND STATUTORY

PROVISIONS INVOLVED ........cccccccrsccccccscccsccsscsvecseess ]

STATEMENT............... Taso cada snelasideaenacecnpaniinh l

PEIEIEIIIEITUT schsnctssensusdsissanncnssossseecnsserebesnncsaswegeancceseeannecs 6

I. THIS CASE DOES NOT PROPERLY

PRESENT THE ISSUE WHETHER

STATE STATUTES THAT CONFLICT

WITH THE EXCLUSIVE REMEDIES

SET FORTH IN SECTION 502 ARE

SAVED FROM PREEMPTION BY

ERISA’S “SAVING CLAUSE.”..........:cscssceee 7

II. TEXAS’ STATUTE IS CLEARLY

PREEMPTED BY ERISA BECAUSE IT

CONFLICTS WITH SECTION 502 AND

IS NOT SAVED FROM SECTION 514

IIE BRIM: sasncenrscnsaiccnsacsscensinsnscesnesorseccsene 14

III. TEXAS HAS FAILED TO IDENTIFY

ANY REASON WARRANTING

REVIEW OF THE FIFTH CIRCUIT’S

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TABLE OF AUTHORITIES

Page(s)

CASES

Alessi v. Raybestos-Manhattan, Inc., 451

ES Ry 5 RRR Tiapeeece Ney Grae EDR NEED Artec ePaha 15

Boggs v. Boggs, 520 U.S. 833 (1997)... eeeeees 8,17

California Div. of Labor Standards

Enforcement v. Dillingham Constr., N.A.,

ee ee ee I Bsc taccaiecndicdsb an cacheuiaiininisasiniteisaatetn 15

Donatelli v. Home Insurance Co., 992 F.2d

Fa I ililidichitiiesp ii biasantecioniaieanitonstentsinie 23

E.I. du Pont de Nemours & Co. v. Train, 430

ns eae He ouiiiaciasiecicindaiandess elles asibucsisascentlanesnbtipiinaiks 23

FMC Corp. v. Holliday, 498 U.S. 52 (1990)............ 19, 20

Fort Halifax Packing Co. v. Coyne, 482 U.S.

ID visu citiehdosensen:tiedpbecilieaclataraclnaselaaasastinauicasehanlattiactine 16, 17

Garcia v. Texas State Bd. of Med.

Examiners, 384 F. Supp. 434 (W.D. Tex.

ND7E), OG, SE1 UB, FOS CAST) savncsccssntentansnsonssznes 18

In re U.S. Healthcare, Inc., 193 F.3d 151

(3d Cir. 1999), cert. denied, 120 S. Ct.

Ne CU iaidisatiennCinsickecslaannseisledmnibiahdenantidguatccinneinnninns 12

In re Life Ins. Co. of N. Am., 857 F.2d 1190

Cs SI iin nieksssanies Kerteiniinidesiaiciandiiesieiinenans eakaaess 9

Jun v. Lloyds, No. 03-00-00110-CV, 2000 WL

1675683 (Tex. App.-Austin, Nov. 9, 2000)............... 22

Metropolitan Life Ins. Co. v. Massachusetts,

OTE ee TE CE kininase passim

Metropolitan Life Ins. v. Taylor, 481 U.S. 58

OC RIIIET P scctssicsadinasdaccinasiaticcsiiamintiobamen de cakecmmdiamall 12

Moran v. Rush Prudential HMO, Inc., 230

Fe er CF eel Bist aieiisastsdenianatanannaniann passim

New York State Conference of Blue Cross &

Blue Shield Plans v. Travelers Ins. Co.,

SISELS, GS CFS initiate 15

PAS v. Travelers Ins. Co., 7 F.3d 349 (3d

Ct. BIE cincccnossinecieasenengensemeaasnala 11, 12,22

Patterson v. McLean Credit Union, 491 U.S. -

BG CE cinccnsncscmsintctandespenidaaaamaninee 10

Pegram vy. Herdrich, 120 S. Ct. 2143

CD iiscscsnrsccnniisanissccnmbiienimademaaaaannen 6, 17,23

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

CEDIE FD inicsccinsciachiesmnitiieesniteacaiaaadaaaaiaamie nae passim

Ramirez v. Intercontinental Hotels, 890 F.2d 760

(Si Oe, RII rcistcancutinscstescssetarnmaionaaenaiancinen 13

Rivet v. Regions Bank of Louisiana, 522

CLS. S70 Ci atinsicssicnemmannianianainen 12

Ruble v. UNUM Life Insurance Co. of Am.,

DiS FBG Bae COA, FOO iiccietieerecniiinniion a3

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

CUSED sccicitsisnisitnindespbiasicticippaniicoleaseiaeadiaaa manmade 16

Thompson v. General Health Systems, Inc.,

202 FS VOTE CR CA, FI ccaiiessanestccennioniictnnemenntntct 16

Union Labor Life Ins. Co. v. Pireno, 458

UB. LED CEI ccrsssicscensescesaeasaaaaneeal 20

United States v. Mendoza, 464 U.S. 154

( FIDE) scnnsnnstsinitnnenseessainpiapenanannadimamecmaaiaaladaaama 23

United States v. Williams, 504 U.S. 36

( SIPUUE ) asccarsecinseiapinniuabeunmmalasamaddenanmenm ame 13

UNUM Life Ins. Co. v. Ward, 526 U.S. 358

(TDS P .cinschscsnnecienstenbemmeapaninmmenaaaiaa 4,9, 18,19

Williams Ins. Trust v. Travelers Ins. Co., 50

eee Te Ce | nes 11, 15, 16, 24

STATUTES

> UDA. § GPG! 68 AOE, cinta i ie

> UA. © GENIC 8 P casscnssinssiuiteeinmeiiancacame naan 25

> UDG. & Gal dusnsctssesccssoaansiceanaeaaaaaeee 25

5S U.BA.. § 5085 OC OU, sccsisieananenenaee 18

1S UB. & BG1Z.csicctiscstonscsetssita aia 5

a0 UBA.. § TED) cccienenimaaeee ]

29 CFR. FUR SI0e ninintienimaiaeneae 24

29 CPR. POR ZIGG. De Ue sahiccisesnseccnesasieicasnniie 24

9 UD As. | TGG8 GEOR cnntisicecicceeeanae ie

29 UB. § WOR inssiutcentneanaenaaee 16

29 Uda. | W6aRcitiniiennninncicdcaaaee ae i

29 Uke. | LED venice 6, 7

29 USA. | TESA cncsvsiseictnimceaiaenenns 5

39 UBS. © Poi iicccrcimectunaaaaanan 7,15

20 UBS. § TAR cccauicetetnnaaaeeen . passim

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29 U.S.C. § 1144(b)(2)(A)...cccccccccscscsesesessseseeeeesees 4,7,8,9

BE ee ET > mene 19

TEX. INS. CODE ANN. arts. 20A.09.cccccccsscsssesssescsesssssseee 2

TEX. INS. CODE ANN. arts. 20A.12A.0........ccccccsccsssesesseeees 2

TEX. INS. CODE ANN. art. 21.58A

Pe Petes asiscuscaceseioaidadsiiuatananmeumacuacisnadenctal 2

TEX. INS. CODE ANN. art. 21.58A § 2(2).....cccccccceseseseeseeee 2

RIK, BGR. COMM ARO, Wit, 20 TBA. vcccessnccieninssccesssicssecenionns 2

TEX. INS. CODE ANN. art. 21.58A § 2(17)(B)............ 2,19

TEX. INS. CODE ANN. art. 21.58A § 2(17)(C)............ 2,19

TEX. INS. CODE ANN. art. 21.58A

Sy Fane a ssivinibacdainicseadaadadapmianidaindaandataaiiiamadtamismaaeaias 2

TEX. INS. CODE ANN. art. 21.58A § 2(21)(B)............ 2,19

TEX. INS. CODE ANN. art. 21.58A § 2(21)(C).............20005- 2

TEX. INS. CODE ANN. art. 21.58A § 6 ...ccccscccssseeseeee. 2,19

TEX. INS. CODE ANN. art. 21.58A § 6A ...............cse0 2,19

Vill

OTHER AUTHORITIES

Fe I LT cencicnssesccsccnsnnnnesnsstanensonnaen 6, 25

Pees A, DUN ONE, CRD IGD cncnceccncncscssnsnnsnsacnncasossence 24

Peis Pig WUD GIR, CID ccccscicsnnsneasscnnnsnantennnenancson 24

is Se, I A I ai cincshcconnictssencanscdnenehiestinigeanns 24

S.Amend. 3694, 106th Cong. (2000)... eee 24

BNA’s Health Care Daily Report, Plan

Regulation: Bill of Rights Could Make

CI Oe I II Srccssccsscsnsactncrncrnisncosnscnssnes 24

Business Groups Prepare, Bureau of Na-

tional Affairs, Inc. (Dec. 6, 2000) ...............ceeeeeee eens 24

OPINIONS BELOW

The opinions of the court of appeals (Pet. App. Al-

A26, D1-D8) are reported at 215 F.3d 526 (Sth Cir.

2000) and 220 F.3d 641 (Sth Cir. 2000), respectively.

The opinion of the district court (Pet. App. B1-B82) is

reported at 12 F. Supp. 2d 597 (S.D. Tex. 1998).

JURISDICTION

The judgment of the court of appeals was entered on

June 20, 2000. A petition for panel rehearing was de-

nied on July 27, 2000. Pet. App. Di, D6. The petition

for a writ of certiorari was filed on October 24, 2000.

The jurisdiction of this Court is invoked under 28 U.S.C.

§ 1254(1).

CONSTITUTIONAL AND STATUTORY

PROVISIONS INVOLVED

Texas’ Senate Bill 386, the Supremacy Clause of the

United States Constitution and the pertinent provisions

of the Employee Retirement Income Security Act of

1974, 29 U.S.C. § 1001 et seg. and the Federal Employ-

ees Health Benefit Act, 5 U.S.C. § 8901 et seq. are re-

produced in the appendix to this brief.

STATEMENT

1. In 1997, Texas enacted Senate Bill 386 (“SB

386”). The law purports to subject managed care or-

ganizations (“MCOs”) to a set of independent review

requirements through which members may appeal ad-

verse determinations of medical necessity made by an

MCO. Specifically, SB 386 applies to any “preferred

provider organization” (“PPO”), “health maintenance

organization” (“HMO”), or “any other person or entity

which provides * * * or administers * * * health benefits

* * * pursuant to a policy, plan, or contract.” TEX. INS.

CODE ANN. art. 21.58A §§ 2(17)(B) and (C), 2(21)(B), 6

and 6A (West 1999).! The Texas statute requires MCOs

to fund an independent review by a state-approved or-

ganization (“independent review organization” or

“TRO”) whenever an MCO’s utilization review agent

denies a plan enrollee’s appeal of an adverse coverage

determination. TEX. INS. CODE ANN. arts. 20A.09,

20A.12A, & 21.58A (West 1999); Pet. App. E1-E2, E4,

E6-E7. In addition, the state provisions mandate that

MCOs must “comply” with the IRO’s determination of

the “medical necessity” or “appropriateness” of the par-

ticular health care coverage at issue. Id. at E5.2

1 SB 386 applies by its terms to insurers writing health in-

surance policies, to self-insured plans, employers with em-

ployees in Texas who are covered under a health benefit plan

or health insurance policy, and administrators as defined by

article 21.07-6 of Texas Insurance Code. TEX. INS. CODE

ANN. art. 21.58A §§ 2(2), 2(17)(A) and (B), 2(21)(A), (B)

and (C), 6, and 6A (West 1999). While Section 14(e) of Ar-

ticle 21.58A purports to exempt ERISA plans from the IRO

provisions, Texas nevertheless sought to apply them both to

ERISA plans and to entities that administer benefits on be-

half of those plans. Appearing as amicus in support of Texas

in the courts below, the Secretary of Labor called the mean-

ing of Section 14(e) “uncertain” under state law, and there-

fore characterized federal review as “premature.” See Brief

of Secretary of Labor as Amicus Curiae 23-27 (Sth Cir. Mar.

12, 1999).

2 The validity of the law’s other provisions—which purport

to establish liability for MCOs that fail to meet an “ordinary

care” standard (“the liability provisions”) and to prohibit

MCOs from including indemnification clauses in their con-

tracts and from retaliating against doctors or health care pro-

viders for advocating health care coverage (“the anti-

indemnification and anti-retaliation provisions”)—is not at

issue before this Court. Even so, the court of appeals did not

hold, as Texas implies, that one might use SB 386 (or any

[Footnote continued on next page]

Saale ede. BBL MI ADL ee ENR A Aaa a ay Re REA MRL Ie aK EN Pe oe Ok 2

2. Respondents—several indirect wholly-owned

subsidiaries of Aetna, Inc.—are MCOs that are subject

to SB 386’s independent review provisions. Respondent

Aetna Life Insurance Company, for example, makes

coverage determinations for employee benefit plans

(both insured and self-funded) governed by ERISA. See

Record at 20:72-75. The petitioners are Jose Monte-

mayor, Commissioner of the Texas Department of In-

surance, and John Cornyn, Attorney General of Texas

(collectively “Texas”).

After SB 386 was enacted, respondents (hereinafter

“Aetna’’) filed suit against Texas in federal district court,

seeking declaratory and injunctive relief. With respect

to the issues pertinent here, Aetna asserted that the Em-

ployee Retirement Income Security Act of 1974

(“ERISA”), 29 U.S.C. § 1001 et seg., and the Federal

Employees Health Benefit Act (“FEHBA”), 5 U.S.C.

§ 8901 et seg., preempt the Texas statute’s independent

review provisions.

On cross-motions for summary judgment, the dis-

trict court ruled, in pertinent part, that ERISA preempts

the IRO provisions of SB 386. First, the court held that

ERISA’s express preemption provision, ERISA

§ 514(a), 29 U.S.C. § 1144(a), preempts the independent

review provisions because they would “improperly

mandate the administration of employee benefits” and

would interfere with “the goal of uniformity [in ERISA

[Footnote continued from previous page}

other state law theory) to sue an MCO for improper benefits

determinations, based on medical necessity or otherwise. In

order to conclude that the liability provisions are not neces-

sarily preempted in all of their applications, the court of ap-

peals construed those provisions as applying only to a “lim-

ited universe of events,” namely vicarious liability claims

arising from the professional malpractice of a treating physi-

cian. See, e.g., Pet. A8-A9.

plan regulation] that Congress sought to implement”

through Section 514(a). Pet. App. B66-B67 (citation

omitted). The court next concluded that SB 386 is not a

state law regulating insurance under ERISA’s saving

clause, ERISA § 514(b)(2)(a); 29 U.S.C.

§ 1144(b)(2)(A). The court reasoned that, “on its face,

the Act is obviously not ‘limited to entities within the

insurance industry.’ Even though the Act lists health

insurance carriers as one group covered by its terms, it

also specifies that it applies to health maintenance or-

ganizations and other managed care entities for a health

care plan.” Pet. App. B15 (quoting Metropolitan Life

Ins. Co. v. Massachusetts, 471 U.S. 724, 743 (1985)).3

With respect to Aetna’s claim that SB 386 also cre-

ates an impermissible alternate enforcement mecha-

nisms, the court concluded that courts should determine

on a case-by-case basis “[w]hether a claim seeks review

of an adverse benefit determination [which would re-

quire preemption] or to secure quality coverage [which

would not].” Jd. at B76-B77. The court reached a simi-

lar conclusion on Aetna’s claim that FEHBA preempts

SB 386. /d. at B80. Having determined, however, that

SB 386’s independent review provisions are preempted

by ERISA’s express preemption provision and not saved

under the saving clause, the court severed the IRO pro-

visions from the remainder of the bill. /d. at B67-B68.

3 Because the district court ruled on the preemption ques-

tion before this Court decided UNUM Life Ins. Co. of Am. v.

Ward, 526 U.S. 358 (1999), the court relied on Fifth Circuit

precedent that required that a state regulation must satisfy all

three McCarran-Ferguson factors in order to be viewed as a

regulation of insurance under ERISA’s saving clause. After

determining that SB 386 failed the third factor because it is

not limited to entities within the insurance industry, the dis-

trict court thus had no occasion to analyze the other factors.

Cr Sec Oe et is cers ec ne. tr Weare ot Senet Ener. tis

3. The court of appeals affirmed in part and re-

versed in part, concluding in pertinent part that ERISA

and FEHBA preempt the independent review provisions

of SB 386. Pet. App. Al-A26.

The court first held that Texas’ IRO provisions fall

squarely within the scope of ERISA’s express preemp-

tion provision: “The [independent review] provisions

allow a patient who has been denied coverage to appeal

to an outside organization. Such an attempt to impose a

state administrative regime governing coverage determi-

nations is squarely within the ambit of ERISA’s preemp-

tive reach.” Pet. App. Al3. The court then held that

ERISA’s saving clause does not save the IRO provisions

from preemption. Pet. App. Al3-A16. The court first

noted that the independent review provisions meet two

of three factors for identifying the business of insurance

under the McCarran Ferguson Act, 15 U.S.C. § 1012:

although those provisions “probably do not * * * reallo-

cat[e] * * * risk,” they are aimed at insurers and regulate

the insured-insurer relationship. Jd. at Al3-Al4. The

court noted, however, that the McCarran-Ferguson fac-

tors are not the end of the analysis under ERISA’s sav-

ing clause, because Pilot Life Ins. Co. v. Dedeaux, 481

U.S. 41 (1987), held that the clause does not save state

laws that conflict with Section 502(a) of ERISA, 29

U.S.C. § 1132(a). Pet. App. A15.

The court explained that the independent review

procedures conflict with Section 502(a) because they

bind ERISA plans to the decisions of IROs regarding

whether benefits must be paid, and “create[] an alterna-

tive mechanism through which plan members may seek

benefits due them under the terms of the plan—the iden-

tical relief offered under § 1132(a)(1)(B) of ERISA.”

Pet. App. at A15-Al16. The court therefore held that

Texas’ independent review provisions “conflict with

ERISA’s exclusive remedy and cannot be saved by the

savings clause.” Jd. at Al6.

Finally, the court of appeals determined that

FEHBA preempts the independent review provisions

under general conflict principles because those provi-

sions conflict with the administrative remedy concerning

benefits disputes provided by the Office of Personnel

Management under FEHBA. Pet. App. Al7 (citing 5

U.S.C. § 8902()); 5 C.F.R. § 890.105-890.107). Having

found the independent review provisions preempted, the

court then severed them from the remainder of the stat-

ute.

4. Texas sought rehearing of the panel’s ruling that

ERISA and FEHBA preempt SB 386’s IRO provisions,

contending that that ruling was contrary to Pegram v.

Herdrich, 120 S. Ct. 2143 (2000). The court denied re-

hearing, but it issued a supplemental opinion rejecting

Texas’ reliance on Pegram. The court explained that

Pegram held that mixed eligibility and treatment deci-

sions made by an HMO through its physicians are not

fiduciary acts under ERISA, but that Pegram did not

“entail that every conceivable state law survives pre-

emption so long as it is based on a mixed question of

eligibility and treatment.” Pet. App. D2-D3.

The court also rejected Texas’ characterization of its

IRO program as a law that merely implements a minimal

level of care, like the state law at issue in Metropolitan

Life Ins. Co., 471 U.S. at 731, 758, by imposing a man-

datory insurance contract term. The court concluded in-

stead that “the [RO provisions here are plainly a state

regime for reviewing benefit decisions.” Pet. App. D6.

ARGUMENT

Texas contends that certiorari is warranted to re-

solve two distinct questions. First, Texas contends that

this Court should decide whether a state law that con-

flicts with the exclusive remedies set forth in ERISA

§ 502(a), 29 U.S.C. § 1132(a), can nonetheless avoid

federal preemption if that law regulates “insurance”

;

within the meaning of ERISA’s “saving clause,” 29

U.S.C. § 1144(b)(2)(A). Second, Texas argues that this

Court should consider whether state laws that provide

for external review of an MCO’s determination that a

particular treatment is not “medically necessary” are

preempted by ERISA or FEHBA. There is no conflict

among the lower courts with respect to Texas’ proposed

first question, which in any event is not properly pre-

sented in this case. With respect to the second question

framed by Texas, the Fifth Circuit’s ERISA preemption

analysis could be viewed as inconsistent with the ap-

proach employed by the Seventh Circuit in a recent case,

but any conflict between those two decisions is not yet

ripe for this Court’s review. Accordingly, plenary re-

view is not warranted.

I. THIS CASE DOES NOT PROPERLY PRE-

SENT THE ISSUE WHETHER STATE

STATUTES THAT CONFLICT WITH THE

EXCLUSIVE REMEDIES SET FORTH IN

SECTION 502 ARE SAVED FROM PRE-

EMPTION BY ERISA’S' “SAVING

CLAUSE.”

1. Texas first presents the question whether Section

502(a) of ERISA, 29 U.S.C. § 1132(a), is “an exclusive

remedy prevision that preempts state insurance law

remedies” that purportedly fall within the insurance

“saving clause” of Section 514 of the statute, 29 U.S.C.

§ 1144. In Pilot Life Ins. Co. v. Dedeaux, 481 U.S. 41

(1987), however, this Court unanimously concluded that

the remedies set forth in Section 502(a) are indeed ex-

clusive. As tiie Court explained:

[T]he detailed provisions of § 502(a) set forth a

comprehensive civil enforcement scheme that repre-

sents a careful balancing of [policy choices.] The

policy choices reflected in the inclusion of certain

remedies and the exclusion of others under the

federal scheme would be completely undermined if

ERISA-plan participants and beneficiaries were free

to obtain remedies under state law that Congress re-

jected in ERISA.

Pilot Life, 481 U.S. at 54. This Court found additional

support for the exclusivity of Section 502(a)’s remedies

in the legislative history of ERISA, which demonstrated

that Congress modeled the preemptive force of Sec-

tion 502(a) on Section 301 of the Labor-Management

Relations Act of 1947 (“LMRA”). See Pilot Life, 481

U.S. at 55. As this Court noted, Congress well under-

stood that Section 301 of the LMRA preempts state stat-

utes “even when [they] purport[] to authorize a remedy

unavailable under the federal provision.” Pilot Life, 481

U.S. at 55. Indeed, “the entire comparison of ERISA’s

§ 502(a) to §301 of the LMRA[] would make little

sense if the remedies available to ERISA participants

and beneficiaries under § 502(a) could be supplemented

or supplanted by varying state laws.” Pilot Life, 481

USS. at 56.

In light of this Court’s analysis in Pilot Life, any

state law that purports to “supplement[] or supplant[]”

the exclusive remedies that Congress made available in

Section 502(a) is invalid under conventional conflict

preemption principles. See, e.g., Boggs v. Boggs, 520

U.S. 833, 844 (1997) (“In the face of [a] direct clash be-

tween state law and the provisions and objectives of

ERISA, the state law cannot stand”). Texas submits,

however, that the Court’s analysis in Pilot Life does not

control when, as Texas contends is the case here, the

state law falls within the scope of ERISA’s saving

clause, 29 U.S.C.§ 1144(b)(2)(A). See Pet. 12-17. That

argument is at odds with the specific reasoning of Pilot

Life, which examined the effect of Section 502(a) in or-

der to inform the Court’s “understanding of the saving

clause,” Pilot Life, 481 U.S. at 52, and found Section

502(a)’s exclusive remedy to be an important factor in

;

determining that the state law was not saved under

ERISA § 514(b)(2)(A), 29 U.S.C. § 1144(b)(2)(A). See

Pilot Life, 481 U.S. at 57.4 As the Eighth Circuit has

observed, “Pilot Life could not have stated with any

greater clarity that the remedies afforded under ERISA

are exclusive, and no state law purporting to supply ad-

ditional remedies will escape * * * preempti[on] * * * as

laws ‘which regulate insurance’ under § 1144(b)(2)(A).”

In re Life Ins. Co. of N. Am., 857 F.2d 1190, 1194 (8th

Cir. 1988).

2. Texas correctly notes that the Solicitor General,

whose reasoning was adopted by this Court in Pilot Life,

see Pilot Life, 481 U.S. at 52, retreated from his posi-

tion in UNUM Life Ins. Co. of Am. v. Ward, 526 U.S.

358 (1999), and now apparently believes that ERISA’s

Saving clause may save from preemption even statutes

that conflict with the exclusive remedies provided by

Section 502 of ERISA. See UNUM, 526 U.S. at 376-77

n.7. At the outset, that contention overlooks key aspects

of this Court’s analysis in Pilot Life. Pilot Life did not

merely hold that Section 502 remedies are exclusive,

and thus preemptive of conflicting state laws under con-

ventional conflict preemption principles. Pilot Life also

held that the exclusivity of Section 502 remedies is so

important to ERISA’s design that it must inform judicial

interpretation of the scope of the business of “insurance”

that Congress intended to reserve for the States. That

Statutory term, the Court held, must be defined not only

4 Indeed, in Pilot Life this Court noted that its “understand-

ing of the saving clause must be informed by the legislative

intent concerning the civil enforcement provisions provided

by ERISA § 502(a),” and it found that Section 502(a)’s ex-

clusive remedial scheme was the “most important[{]” factor

indicating that the state law was not saved. See Pilot Life,

481 U.S. at 52, 57. Texas’ arguments here would turn that

analysis on its head.

on the basis of the McCarran-Ferguson guideposts, but

also with reference to “the role of the saving clause in

ERISA as a whole.” Pilot Life, 481 U.S. at 52. Thus,

Texas errs at the outset in presuming that Congress in-

tended to save for the States the authority to regulate

anything that might be viewed as “insurance” under a

common sense application of two out of the three

McCarran-Ferguson guideposts.

In any event, by accepting the Solicitor General’s

arguments, Pilot Life did not purport to give the Solici-

tor General a continuing proxy to change the rule of law

that this Court unanimously adopted in that case—a rule

that for nearly fifteen years has been part of the accepted

understanding of ERISA shared by litigants and the

lower courts. Indeed, far more than the Solicitor Gen-

eral’s change of heart would be necessary to meet the

high burden that must be “borne by the party advocating

the abandonment of an established precedent,” espe-

cially where, as here, “the Court is asked to overrule a

point of statutory construction.” Patterson v. McLean

Credit Union, 491 U.S. 164, 172 (1989).

Moreover, contrary to Texas’ assertions, there is no

conflict among the courts of appeals on the question

whether ERISA’s saving clause preserves from preemp-

tion state statutes that conflict with ERISA’s substantive

provisions. Although Texas suggests that the Seventh

Circuit’s recent decision in Moran v. Rush Prudential

HMO, Inc., 230 F.3d 959 (7th Cir. 2000), adopted such a

view, see Pet: 6-12, the Seventh Circuit did not remotely

suggest that it was departing from Pilot Life’s unani-

mous teaching that Section 502 is an exclusive provision

that preempts State laws that provide alternative or addi-

tional remedies to plan participants or beneficiaries.

Moran concluded that an Illinois statute that provides

for a form of external review could not properly be

characterized as an alternative or supplemental enforce-

ment mechanism precluded by Section 502(a), but rather

was a permissible “mandated contract term” that became

eS ee a ae ee

part of ERISA plans—and thus is enforceable in an ac-

tion under Section 502(a)—by operation of state law.

Because the Seventh Circuit did not view the Illinois

statute as an impermissible state mechanism for enforc-

ing plan benefits, it found that the statute did not run

afoul of Section 502’s exclusive sweep. Moran, 230

F.3d at 970-72. That is far from holding that, were the

statute properly characterized as an alternative or sup-

plemental enforcement mechanism, it could nonetheless

be saved from preemption by the saving clause.5

Texas is even wider of the mark in claiming that

Williams Ins. Trust v. Travelers Ins. Co., 50 F.3d 144

(2d Cir. 1995), and PAS v. Travelers Ins. Co., 7 F.3d

349 (3d Cir. 1993), show that “[t]he Second and Third

Circuits do not view Pilot Life as an obstacle to saving

state insurance law remedies from preemption or to en-

forcement of those remedies in a state proceeding.” Pet.

15. In both Williams Trust and PAS the sole, narrow is-

sue properly before the court of appeals was whether the

state statutes at issue were so completely preempted by

ERISA that the defendants were entitled to remove ac-

tions filed under those statutes to federal court. Wil-

liams Trust, 50 F.3d at 146; PAS, 7 F.3d at 351. As

Texas doubtless is aware, this Court unanimously

ruled—on the same day it decided Pilot Life—that any

state cause of action that falls within the scope of the

civil enforcement provisions of Section 502(a) is so in-

herently and completely preempted that such a cause of

> Moran might be read as creating a conflict with the deci-

sion below only with respect to one half of the second ques-

tion that Texas has framed—i.e., whether ERISA (but not

FEHBA) preempts state laws that provide external review of

a managed care organization’s decision not to cover a par-

ticular treatment on the ground that such treatment is not

“medically necessary.” As discussed more fully below, any

such conflict is not ripe for review.

action may be removed to federal court. See Metropoli-

tan Life Ins. v. Taylor, 481 U.S. 58, 66 (1987). The

Court was careful to point out, however, that not all pre-

emption defenses support removal jurisdiction, and the

fact that a particular preemption claim does not support

“complete preemption” removal means only that the

preemption defense must be adjudicated by the state

courts—it does not mean that the statute is not pre-

empted. See id. at 63-64; see also Rivet v. Regions Bank

of Louisiana, 522 U.S. 470, 475-77 (1998); In re U.S.

Healthcare, Inc., 193 F.3d 151, 165 (3d Cir. 1999), cert.

denied, 120 S. Ct. 2687 (2000). The limited removal

rulings in Williams Trust and PAS could not properly

establish otherwise.

In any event, it is difficult to see how either Wil-

liams Ins. Trust or PAS can be read to support Texas’

claim that ERISA’s saving clause trumps all preemption

defenses under the statute. In Williams Ins. Trust the

case had been removed on the basis of ERISA’s general

preemption provision, 29 U.S.C. § 1144(a)}—the very

provision where the saving clause appears—and thus

conflict preemption was not even at issue in the case.

See Williams Trust, 50 F.3d at 147. PAS concluded that

ERISA did not completely preempt a state insurance law

that prohibited discrimination in the provision of mental

health benefits, reasoning that such a law did not con-

flict with the provisions of Section 502(a). PAS, 7 F.3d

at 356. Neither case can plausibly be read for the propo-

sition that state statutes that do conflict with Section

502(a) are immune from preemption if they satisfy

Texas’ proposed interpretation of the saving clause.

3. Even if this Court were otherwise inclined to en-

tertain the argument that Pilot Life should be revisited as

Texas desires, this case would not be the proper vehicle

in which to do so for three reasons. First, as explained

more fully below, while the court of appeals correctly

concluded that the saving clause does not save Texas’

external review requirements, that court was mistaken in

eee

EEE

believing that a common sense assessment of the

McCarran-Ferguson factors points to the conclusion that

Texas’ statute regulates insurance. For that reason, an

essential predicate for the question posed by Texas is

simply missing in this case.

Second, although Texas has always maintained that

its external review statute is not preempted by ERISA, it

did not argue below that a statute that conflicts with the

exclusive remedies provided by Section 502(a) may be

saved nonetheless if the statute meets Texas’ interpreta-

tion of ERISA’s saving clause. Texas’ argument has

been—and remains, see Pet. 11, 13—that there is no

conflict at all between Texas’ external review statute

and Section 502(a). Indeed, Texas advanced its saving-

clause argument below solely in an attempt to establish

that the external review provisions are not independently

preempted by ERISA § 514(a) as laws “relat[ing] to”

employee benefit plans, 29 U.S.C. § 1144(a). Texas did

not urge below the legal issue on which it now seeks re-

view: that the saving clause—interpreted solely by ref-

erence to the McCarran-Ferguson factors—is the begin-

ning and end of the analysis for all preemption defenses

under ERISA.® Not surprisingly, the court of appeals

did not consider any such claim. Thus, review of that

question would not be appropriate in this case solely be-

cause the court of appeals did apply ordinary principles

of conflict preemption. See, e.g., United States v. Wil-

liams, 504 U.S. 36, 41 (1992) (“Our traditional rule * *

* precludes a grant of certiorari * * * when the question

that the court of appeals revisit en banc its analysis in Rami-

rez v. Intercontinental Hotels, 890 F.2d 760, 763-64 (Sth Cir.

1989). Neither Texas’ briefs before the panel nor its subse-

quent petition for rehearing en banc contained any such en-

treaty.

presented was not pressed or passed upon below’) (in-

ternal quotation marks omitted).

Finally, although SB 386 by its terms expressly

links the external review and liability provisions—thus

strongly suggesting the existence of a state-law cause of

action for members dissatisfied with the external review

process—the court of appeals construed the liability

provisions as extending only to “a limited universe of

events”—i.e., events that constitute medical negligence

by a treating physician, for which the MCO would be

vicariously liable. Pet. App. A8. In light of that con-

struction, Texas now asserts that its external review pro-

visions should be viewed as “creati[ing] a procedural

right that an ERISA beneficiary can assert in a § 502(a)

enforcement action.” Pet. 11; see also id. at 13 (external

review provisions are “incorporated into ERISA plans

and supply the relevant rule of decision in a § 502(a)

> suit”). Aetna disagrees that Texas’ external review re-

quirements are a mere procedural mechanism or that

state law may require “incorporation” of that mechanism

into the terms of ERISA plans. Nonetheless, as Texas

characterizes its own statute, this case does not present

the distinct legal question whether the saving clause

should be read to save state laws that conflict with Sec-

tion 502(a). See UNUM, 526 U.S. at 377 n.7 (“We need

not address the Solicitor General’s current argument, for

Ward has sued under § 502(a)(1)(B) for benefits due,

and seeks only application of saved state insurance law

as a relevant rule of decision in his § 502(a) action”).

Il. TEXAS’ STATUTE IS ~ CLEARLY

PREEMPTED BY ERISA BECAUSE IT

CONFLICTS WITH SECTION 502 AND IS

NOT SAVED FROM SECTION 514

PREEMPTION.

Texas’ independent review requirements purport to

establish a binding alternate enforcement mechanism for

claimants to receive plan benefits. That not only is pre-

cisely the sort of state law remedy that Congress in-

tended to preempt with ERISA’s comprehensive reme-

dial scheme in Section 502(a), but also runs afoul of

) ERISA’s express preemption provision, 29 U.S.C.

§ 1144.

1. ERISA’s express preemption provision provides

that ERISA “shall supersede any and all State laws inso-

far as they * * * relate to any employee benefit plan.”

ERISA § 514(a), 29 U.S.C. § 1144(a). Thus, any state

law that “relates to” an ERISA plan must give way to

7 ERISA’s preemptive reach. This Court has “long ac-

3 knowledged that ERISA’s pre-emption provision is

‘clearly expansive.’” California Div. of Labor Stand-

ards Enforcement v. Dillingham Constr., N.A., 519 U.S.

316, 324 (1997) (quoting New York State Conference of

| Blue Cross & Blue Shield Plans v. Travelers Ins. Co.,

| 514 U.S. 645, 656 (1995)). As this Court reaffirmed in

Travelers, “§ 514 indicates Congress’s intent to estab-

lish the regulation of employee welfare benefit plans ‘as

exclusively a federal concern.’” 7; ravelers, 514 U.S. at

656 (citation omitted); see also Alessi v Raybestos-

Manhattan, Inc., 451 U.S. 504, 523 (1981) (“[Section

514] demonstrates that Congress intended to * * * estab-

' lish pension plan regulation as exclusively a federal

' concern.”). To that end, Section 514(a) preempts any

state law that has a “connection with” or “reference to”

such a plan. Dillingham, 519 U.S. at 324 (citation omit-

ted).

The court of appeals in this case and the Seventh

Circuit in Moran—the only courts of appeals that have

considered whether ERISA preempts the type of statute

at issue here—both correctly concluded that external re-

view statutes plainly “relate to” ERISA plans under Sec-

tion 514(a). Pet. App. Al2-A13; Moran, 230 F.3d at

968-69. After all, a determination that a particular

treatment is not “medically necessary” does not prohibit

a member from receiving such a treatment; it is simply a

judgment that the plan under which the member iS COV-

ered is not obligated to pay for it—it is, in other words, a

coverage determination. See, e.g., Thompson v. Gen-

care Health Systems, Inc., 202 F.3d 1072, 1074 (8th Cir.

2000). By forcing ERISA plans to pay for treatments

that, in the plan’s view, are not covered, Texas’ external

review provisions would have the clearly impermissible

effect of “mandat[ing] employee benefit structures or

their administration” and of “binding plan administrators

to a[] particular choice.” Travelers, 514 U.S. at 658,

659; see also Shaw v. Delta Air Lines, Inc., 463 U.S. 85,

97 (1983). Indeed, because external review laws fun-

damentally interfere with the allocation and payment of

plan benefits to participants and beneficiaries in accor-

dance with the terms of the applicable plan documents,

those laws go to the very core of ERISA. See ERISA

§ 2(b), 29 U.S.C. § 1001(b) (“[It is] the policy of this

Act to protect * * * the interests of * * * beneficiaries”

in ERISA plans); Fort Halifax Packing Co. v. Coyne,

482 U.S. 1, 9 (1987) (explaining that ERISA plans are

“obligat[ed] . . . [to] determin[e] the eligibility of claim-

ants”’).

In addition, Texas’ independent review law, if per-

mitted to survive ERISA preemption, would frustrate

Congress’s aim of “‘avoid[ing] a multiplicity of regula-

tion in order to permit the nationally uniform

administration of employee benefit plans.’” Travelers,

514 U.S. at 657. As this Court explained in Fort Hali-

Jax: ‘An employer that makes a commitment systemati-

cally to pay certain benefits undertakes a host of ob-

ligations, such as determining the eligibility of

claimants * * * [and] making disbursements * * *

The most efficient way to meet these responsibilities

is to establish a uniform administrative scheme,

which provides a set of standard procedures to guide

processing of claims and disbursement of benefits.

Such a system is difficult to achieve, however, if a

benefit plan is subject to differing regulatory re-

quirements in differing States. A plan would be re-

is.

quired to * * *. process claims in a certain way in

some States but not in others * * *.,

Fort Halifax, 482 U.S. at 9. Here, as in Shaw, Holliday,

and Alessi, validation of Texas’ external review law

would impose inconsistent state requirements on the

administration of ERISA plans and thereby frustrate

ERISA’s clear purpose to “secur[e] national uniformity

: in the administration of employee benefit plans.” Boggs,

520 U.S. at 842.

Petitioners nonetheless contend that Pegram v. Her-

drich, 120 S. Ct. 2143 (2000), stands for the proposition

that the independent review provisions at issue here do

not “relate to” an ERISA plan, because Pegram noted

that coverage or “eligibility decisions cannot be untan-

gled from physicians’ judgments about reasonable

medical treatment.’” Pet. 24, quoting Pegram, 120 S.

Ct. at 2157. Pegram held that ERISA does not impose a

fiduciary duty on HMO physicians for their mixed eligi-

bility and treatment decisions, Pegram, 120 S. Ct. at

2158. Because Pegram was not a preemption case, this

Court “ha[d] no occasion to discuss” the standards gov-

erning a § 502(a) claim for benefits nor “the interaction

of such a claim with state law causes of action,” Pe-

gram, 120 S. Ct. at 2154 n.9; see also id. at 2158. In-

deed, to the extent that Pegram even so much as hinted

at any principle of preemption law, it at most suggested

that a physician who makes coverage decisions in the

course of treating his patients is not thereby shielded

from the state’s malpractice laws. That principle is un-

exceptionable but, as the court of appeals correctly noted

in denying Texas’ petition for rehearing, it is not par-

ticularly helpful to Texas here. Pet. App. D2-D3, n.7

(noting that even assuming that malpractice causes of

——_——__.—~ ~

action are not preempted, SB 386’s external review pro-

cedures “would still be preempted.”).’

2. The court of appeals correctly concluded that

ERISA’s saving clause does not save the external review

provisions of SB 386 from preemption. Pet. App. A15S.

The conflict between the external review provisions and

Section 502(a) alone establishes that those provisions

are not part of the business of “insurance” that Congress

intended to save from preemption. Pilot Life, 481 U.S.

at 52. But even if the inquiry were restricted to the

McCarran-Ferguson factors and “a common-sense view

of the matter” (UNUM, 526 U.S. at 367), the external

review provisions do not regulate insurance within the

meaning of the saving clause.®

7 Moreover, Pegram addressed mixed eligibility and treat-

ment decisions in the context of a “staff model” managed

care plan, in which physicians are employees of the plan and

make coverage decisions on behalf of the plan. Aetna does

not operate any “staff model” plans in Texas; as the court of

appeals noted, Aetna contracts with independent providers

and hospitals. Pet. App. A3. Indeed, under Texas law “staff

model” plans would likely run afoul of the State’s prohibition

on the corporate practice of medicine. See Garcia v. Texas

State Bd. of Med. Examiners, 384 F. Supp. 434, 437 (W.D.

Tex. 1974) (per curiam), aff'd, 421 U.S. 995 (1975). Thus, it

is hard to see how Pegram’s discussion of physicians who

make both medical and coverage judgments could have any

application to Aetna, which deals solely with coverage is-

sues.

8 The McCarran-Ferguson factors are “first, whether the

practice has the effect of transferring or spreading a policy-

holder’s risk; second, whether the practice is an integral part

of the policy relationship between the insurer and the in-

sured; and third, whether the practice is limited to entities

within the insurance industry.” UNUM, 526 US. at 367; see

also Metropolitan Life, 471 U.S. at 743. Although a law

[Footnote continued on next page]

Texas’ external review provisions do not “regulate

insurance” under a common sense understanding, be-

cause Texas’ law is not directed specifically at the man-

aged care industry as insurers or even at the insurance

industry in general. See UNUM, 526 '!.S. 375; Pilot

Life, 481 U.S. at 50. Rather, the IRO procedures pro-

vide a dispute resolution mechanism of certain coverage

determinations (those involving “medical necessity”), a

matter not unique to the insurance industry. To cite only

the most obvious example, Texas’ law expressly targets

not merely entities that assume risk for health care ser-

vices, but also “any other person or entity which * * *

administers * * * health benefits * * * pursuant to a pol-

icy, plan, or contract.” TEx. INS. CODE ANN. art.

21.58A §§ 2(17)(B) and (C), 2(21)(B), 6 and 6A.

Senate Bill 386 thus quite Clearly reaches not only

plans in which Aetna assumes some financial risks of

coverage, but also plans—particularly self-funded em-

ployee benefit plans—that Aetna merely administers in

exchange for a fee. Texas’ law expressly reaches, in

other words, the prime example of what Congress in-

tended for States not to reach under the guise of “insur-

ance.” See FMC Corp. v. Holliday, 498 U.S. 52, 61

(1990) (discussing ERISA’s “deemer clause,” 29 U.S.C.

§ 1144(b)(2)(B), which precludes states from using the

Saving clause to “deem” employee benefit plans “insur-

ers” or to “deem” such plans “to be engaged in the busi-

ness of insurance”). For that same reason, SB 386’s ex-

ternal review procedures do not satisfy the third McCar-

ran-Ferguson factor. Indeed, while the court of appeals

dismissed the third McCarran-F erguson factor on the

[Footnote continued from previous page]

need not meet all of three McCarran-F erguson factors to fall

within the protection of the Saving clause, see UNUM, 526

U.S. at 373, the Court has continued to scrutinize all three

factors.

theory that Texas may permissibly reach any “entities

acting as insurers,” Pet. App. Al4 (emphasis in origi-

nal), that is simply another way of saying that Texas

could permissibly “deem” self-funded plans to be “in-

surers” for regulatory purposes, a boundless theory that

would essentially nullify ERISA’s “deemer clause.” See

FMC Corp., 498 U.S. at 63-64.

Moreover, as the court of appeals essentially con-

ceded, Texas’ external review requirements do not meet

the first McCarran-Ferguson factor because they do not

operate to transfer or spread a policyholder’s nsk. See

Pet. App. A15 (“the provisions probably do not meet the

first factor”). Regardless of the particular remedy avail-

able to obtain benefits under the terms of a plan—

whether under Section 502(a) or through a state man-

dated appeals process of independent review—the basic

contract terms providing benefits to a policyholder for

“medically necessary” health care remain controlling.

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

130-31 (1982). The relevant risk is fixed when the con-

tract is completed (id. at 131), and—notwithstanding

Texas’ law—a member’s health plan continues to bear

the risk of covering only “medically necessary” health

care, while members continue to bear the financial risk

of covering any desired health care that is not medically

necessary.

Finally, given Texas’ current insistence that its ex-

ternal review provisions merely mandate a “procedural

night” (Pet. 11), those provisions can scarcely be con-

sidered “integral” to any insurance relationship. Like

the state common law bad faith claim at issue in Pilot

Life, Texas’ IRO process “does not define the terms of

the relationship between the insurer and the insured; it

declares only that, whatever terms have been agreed

upon in the insurance contract, [such as, in this case,

coverage for “medically necessary” health care,] a

breach of that contract may * * * allow a policyholder to

obtain” certain state law remedies. Pilot Life, 481 U.S.

at 51.

In sum, because Texas’ IRO provisions fail to

“regulate insurance” from a common-sense view of the

matter and clearly fail to satisfy any of the McCarran-

~ Ferguson factors, those provisions cannot be viewed as

“regulating insurance” within the meaning of Sec-

tion 514(b)(2)(A). Accordingly, those provisions are

independently preempted not only under Section 502(a),

but also under Section 514(a).

3. In Moran, the Seventh Circuit recently held that

ERISA does not preempt an Illinois statute’s provisions

requiring independent review of certain medical neces-

sity decisions. Moran, 230 F.3d at 972-73. After con-

cluding that the Illinois law falls “squarely” within

ERISA’s express preemption clause because it would

affect benefit determination procedures (id. at 968), the

court concluded that Section 514 does not invalidate I]-

linois’ law because that law regulates insurance within

the meaning of the saving clause, id. at 969-70. With

respect to “conflict” preemption, the court determined

that the Illinois statute’s independent review provisions

do not “creat[e] an alternative remedy scheme that con-

flicts with [§] 502(a),” but rather are incorporated into

the terms of the insurance contract by operation of state

law. Id. at 970. Thus, the court held, any suit to enforce

the Illinois review procedures would be “simply a suit to

enforce the terms of the plan—precisely the sort of suit

that is contemplated by [§] 502(a)(1)(B).” Jd.9

9 Moran’s state law analysis appears to be based upon an

overly broad proposition of law that does not necessarily ap-

ply in this case. That proposition is that “Illinois laws auto-

matically are incorporated into all contracts of insurance in

that state.” Moran, 230 F.3d at 966; see also id. at 969. In

Texas, however, not every law is incorporated into every

[Footnote continued on next page]

As Judge Posner recognized in dissenting from the

Seventh Circuit’s denial of rehearing en banc, the

Moran panel’s logic would permit the “transparent * * *

evasion of ERISA’s preemption clause,” a result that is

plainly impermissible. Moran, 230 F.3d at 972-73 (Pos-

ner, J., dissenting from denial of rehearing en banc).

States could evade ERISA through the simple artifice of

declaring that a state law that ERISA would otherwise

preempt is “incorporated” into the terms of a plan. That

anomalous analysis may merit this Court’s review in an

appropriate case, but review at this time would be pre-

mature. Only two courts of appeals have even consid-

ered whether ERISA preempts state laws that require

external review, even though, according to Texas and its

amici, “[m]Jany states” have adopted “some form of in-

dependent, external review process.” Pet. 27 & n.24;

see also Brief of the States of Massachusetts ef al. as

Amici Curiae in Support of Petitioners at 2 &. n.4.10

[Footnote continued from previous page]

contract of insurance. See Jun v. Lloyds, No. 03-00-00110-

CV, 2000 WL 1675683, at *3-4 (Tex. App.-Austin, Nov. 9,

2000, no pet. hist.).

10 Contrary to Texas’ petition for certiorari, there is no con-

flict among other courts of appeals about whether ERISA

preempts state independent review laws. See Pet. 13-15.

The decisions from Second, Third, Sixth and Eighth Circuits

on which Texas relies involved state insurance laws which,

unlike the state independent review law at issue here, do not

urport to establish additional remedies in conflict with

§ 502(a), but merely mandate minimum insurance benefits,

like the insurance law held not preempted in Metropolitan

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

Williams Ins. Trust, 50 F.3d at 151 (state insurance law re-

quiring that interest on life insurance benefits be computed

from the date of death); PAS, 7 F.3d at 356-57 (state insur-

ance law prohibiting discrimination in the provision of men-

[Footnote continued on next page]

The widespread adoption of such laws should afford this

Court ample opportunity to address the issues raised by

Texas after several other courts of appeals have had an

adequate opportunity to address the interrelation be-

tween external review laws and ERISA. Indeed, if

Texas is correct that Pegram has some relevance to the

preemption analysis that applies in this context—though

neither the Fifth Circuit nor the Seventh Circuit believed

that Pegram addressed the issues presented here—the

very recency of that decision would itself counsel

against review of Texas’ arguments at this time, before

the lower courts have had an adequate opportunity to

assimilate that ruling.

As this Court has recognized, the percolation of im-

portant legal questions throughout the judicial system

prior to a grant of a writ of certiorari offers this Court

the benefits of enhanced development and consideration

of the issues and of the various factual settings in which

they arise. See, e.g., United States v. Mendoza, 464 U.S.

154, 160 (1984); EZ. du Pont de Nemours & Co. v.

Train, 430 U.S. 112, 135 n.26 (1977) (noting the “wis-

dom of allowing difficult issues to mature through full

consideration by the courts of appeals”). That percola-

tion could obviate any need for review altogether—by

solidifying lower court support for the correct rule and

[Footnote continued from previous page]

tal health benefits); Ruble v. UNUM Life Insurance Co. of

Am., 913 F.2d 295, 297 (6th Cir. 1990) (state insurance law

prohibiting insurance benefits from being reduced by any

amount of social security benefits received); Donatelli v.

Home Insurance Co., 992 F.2d 763; 764-65 (8th Cir. 1993)

(state insurance law requiring insurers to provide accidental

death benefits in the event of death by suicide while insane).

Unlike the state IRO procedures at issue here, those cases did

not approve an alternate remedial scheme that directly con-

flicts with ERISA’s civil enforcement provisions.

causing the Seventh Circuit to reconsider Moran's rule

en banc.

Permitting further percolation of the preemption is-

sue in the lower courts is particularly appropriate be-

cause the apparent disagreement between the Seventh

and Fifth circuits may be rendered moot by federal legis-

lative or regulatory developments. Leaders of both po-

litical parties are currently advocating separate versions

of a Patients’ Bill of Rights. See, e.g., H.R. 2990, 106th

Cong. (1999); H.R. 2723, 106th Cong. (1999); S. 1344,

106th Cong. (1999); S.Amend. 3694, 106th Cong.

(2000); BNA’s Health Care Daily Report, Plan Regula-

tion: Bill of Rights Could Make Comeback in Next Ses-

sion; Business Groups Prepare, Bureau of National Af-

fairs, Inc. (Dec. 6, 2000). The Senate and House ver-

sions of that bill contain provisions for external inde-

pendent review at Sections 121 and 1103, respectively.

See, e.g., H.R. 2990, 106th Cong. (1999). That legisla-

tion might well achieve many of the objectives of meas-

ures such as SB 386, without disrupting the nationally

uniform regulation of employee benefit plans that Con-

gress intended in ERISA. Travelers, 514 U:S. at 656.

In addition, less than three weeks ago the U.S. De-

partment of Labor published a new ERISA regulation

that revises the benefit claims procedures for ERISA

plans. 65 Fed. Reg. 70246 (2000) (to be codified at 29

C.F.R. Part 2560). In particular, the regulation estab-

lishes new standards for the conduct of reviews of ad-

verse benefit determinations with respect to group health

plans and plans providing disability benefits. The regu-

lation requires de novo review of such determinations by

a third party fiduciary who is neither the individual who

made the initial determination nor that person’s subordi-

nate. Jd. at 70268-69 (to be codified at 29 C.F.R. Part

2560.503-—1(h)). In addition, the review must take into

account all comments, documents, records, and other

information submitted by the claimant, without regard to

whether such information was previously submitted or

relied upon in the initial determination. Jd. at 70269.

With regard to reviews of determinations based on a

medical judgment, including medical necessity and ap-

propriateness decisions, the regulation requires consulta-

tion with an appropriately qualified health care profes-

sional who is different from, and not subordinate to, any

individual who was consulted in connection with the ini-

tial decision. Jd. The effect of that new regulation on

the issue of ERISA’s preemption of state external re-

view laws has yet to be evaluated by any lower federal

court. In these circumstances, review by this Court of

the decision below would be premature and unwar-

ranted.

Ill. TEXAS HAS FAILED TO IDENTIFY ANY

REASON WARRANTING REVIEW OF

THE FIFTH CIRCUIT’S FEHBA RULING.

The court of appeals determined that FEHBA pre-

empts SB 386’s independent review procedures because

those procedures squarely conflict with the administra-

tive benefit review procedures established by the Office

of Personnel Management under FEHBA. Pet. App.

Al7 (citing 5 U.S.C. § 8902(j); 5 C.F.R. § 890.105-

890.107). Although Texas’ second question ostensibly

seeks review of that determination (see Pet. i), Texas

presents no argument impugning the correctness of the

court of appeals’ FEHBA analysis and identifies no

lower court conflict of any sort on that issue. Indeed,

although the bulk of Texas’ arguments under ERISA de-

rive from Texas’ assertion that SB 386 is a permissible

regulation of insurance, FEHBA expressly preempts

state laws relating to “insurance.” See 5 U.S.C.

§ 8902(m)(1). Because Texas proffers no reason for this

Court to review any FEHBA issue, this Court should

consider Texas’ FEHBA claim abandoned.

CONCLUSION

The petition for a wnt of certiorari should be denied.

Respectfully submitted.

JOHN B. SHELY MIGUEL A. ESTRADA

KENDALL M. GRAY Counsel of Record

ANDREWS & KURTH LLP. RACHEL A. CLARK

600 Travis, Suite 4200 GIBSON, DUNN & CRUTCHER LLP

Houston, Texas 77002 1050 Connecticut Avenue, N.W.

(713) 220-4200 Washington, D.C. 20036

(202) 955-8500

Counsel for Respondents

December 8, 2000

APPENDIX

CONSTITUTIONAL AND STATUTORY

APPENDIX

CONSTITUTION OF THE UNITED STATES OF

AMERICA

ARTICLE VI, CLAUSE 2

This Constitution, and the Laws of the United States

which shall be made in Pursuance thereof; and all Trea-

ties made, or which shall be made, under the Authority

of the United States, shall be the supreme Law of the

Land; and the Judges in every State shall be bound

thereby, any Thing in the Constitution or Laws of any

State to the Contrary notwithstanding.

TEXAS SENATE BILL 386

AN ACT

relating to review of and liability for certain health care

treatment decisions.

BE IT ENACTED BY THE LEGISLATURE OF

THE STATE OF TEXAS:

SECTION 1. Title 4, Civil Practice and Remedies

Code, is amended by adding Chapter 88 to read as fol-

lows:

CHAPTER 88. HEALTH CARE LIABILITY

Sec. 88.001. DEFINITIONS. In this chapter:

(1) “Appropriate and medically necessary” means

the standard for health care services as determined by

physicians and health care providers in accordance with

the prevailing practices and standards of the medical

profession and community.

(2) “Enrollee” means an individual who is enrolled

in a health care plan, including covered dependents.

(3) “Health care plan” means any plan whereby any

person undertakes to provide, arrange for, pay for, or re-

imburse any part of the cost of any health care services.

(4) “Health care provider” means a person or entity

as defined in Section 1.03(a)(3), Medical Liability and

Insurance Improvement Act of Texas (Article 4590i,

Vernon’s Texas Civil Statutes).

(5) “Health care treatment decision” means a de-

termination made when medical services are actually

provided by the health care plan and a decision which

affects the quality of the diagnosis, care, or treatment

provided to the plan’s insureds or enrollees.

(6) “Health insurance carrier” means an authorized

insurance company that issues policies of accident and

sickness insurance under Section 1, Chapter 397, Acts of

the 54th Legislature, 1955 (Article 3.70-1, Vernon’s

Texas Insurance Code).

(7) “Health maintenance organization” means an

organization licensed under the Texas Health Mainte-

‘nance Organization Act (Chapter 20A, Vernon’s Texas

Insurance Code).

(8) “Managed care entity’‘ means any entity which

delivers, administers, or assumes risk for health care

services with systems or techniques to control or influ-

ence the quality, accessibility, utilization, or costs and

prices of such services to a defined enrollee population,

but does not include an employer purchasing coverage

or acting on behalf of its employees or the employees of

one or more subsidiaries or affiliated corporations of the

employer or a pharmacy licensed by the State Board of

Pharmacy.

(9) “Physician” means:

(A) an individual licensed to practice medicine

in this state;

(B) a professional association organized under

the Texas Professional Association Act (Article

1528f, Vernon’s Texas Civil Statutes) or a nonprofit

health corporation certified under Section 5.01,

Medical Practice Act (Article 4495b, Vernon’s

Texas Civil Statutes); or

(10) “Ordinary care” means, in the case of a

health insurance carrier, health maintenance organiza-

tion, or managed care entity, that degree of care that a

health insurance carrier, health maintenance organiza-

tion, or managed care entity of ordinary prudence would

use under the same or similar circumstances. In the case

of a person who is an employee, agent, ostensible agent,

or representative of a health insurance carrier, health

maintenance organization, or managed care entity, “or-

dinary care” means that degree of care that a person of

ordinary prudence in the same profession, specialty, or

area of practice as such person would use in the same or

similar circumstances.

Sec. 88.002. APPLICATION. (a) A health insur-

ance carrier, health maintenance organization, or other

managed care entity for a health care plan has the duty

to exercise ordinary care when making health care treat-

ment decisions and is liable for damages for harm to an

insured or enrollee proximately caused by its failure to

exercise such ordinary care.

(b) A health insurance carrier, health maintenance

organization, or other managed care entity for a health

care plan is also liable for damages for harm to an in-

sured or enrollee proximately caused by the health care

treatment decisions made by its:

(1) employees;

(2) agents;

(3) ostensible agents; or

(4) representatives who are acting on its behalf

and over whom it has the right to exercise influence

or control or has actually exercised influence or con-

trol which result in the failure to exercise ordinary

care.

against a health insurance carrier, health maintenance

organization, or other managed care entity for a health

care plan that:

(1) neither the health insurance carrier, health

maintenance organization, or other managed care

entity, nor any employee, agent, ostensible agent, or

representative for whose conduct such health insur-

ance carmer, health maintenance organization, or

other managed care entity is liable under Subsection

(b), controlled, influenced, or participated in the

health care treatment decision; and

(2) the health insurance carrier, health mainte-

nance organization, or other managed care entity did

not deny or delay payment for any treatment pre-

scribed or recommended by a provider to the in-

sured or enrollee.

(d) The standards in Subsections (a) and (b) create

no obligation on the part of the health insurance carrier,

health maintenance organization, or other managed care

entity to provide to an insured or enrollee treatment

which is not covered by the health care plan of the en-

tity.

(e) This chapter does not create any liability on the

part of an employer, an employer group purchasing or-

ganization, or a pharmacy licensed by the State Board of

Pharmacy that purchases coverage or assumes nsk on

behalf of its employees.

(f) A health insurance carrer, health maintenance

organization, or managed care entity may not remove a

physician or health care provider from its plan or refuse

to renew the physician or health care provider with its

plan for advocating on behalf of an enrollee for appro-

priate and medically necessary health care for the enrol-

lee.

(g) A health insurance carrier, health maintenance

organization, or other managed care entity may not enter

into a contract with a physician, hospital, or other health

care provider or pharmaceutical company which in-

cludes an indemnification or hold harmless clause for

the acts or conduct of the health insurance carrier, health

maintenance organization, or other managed care entity.

Any such indemnification or hold harmless clause in an

existing contract is hereby declared void.

(h) Nothing in any law of this state prohibiting a

health insurance carrier, health maintenance organiza-

tion, or other managed care entity from practicing medi-

cine or being licensed to practice medicine may be as-

serted as a defense by such health insurance carrier,

health maintenance organization, or other managed care

entity in an action brought against it pursuant to this sec-

tion or any other law.

(i) In an action against a health insurance carrier,

health maintenance organization, or managed care en-

tity, a finding that a physician or other health care pro-

vider is an employee, agent, ostensible agent, or repre-

sentative of such health insurance carrier, health mainte-

nance organization, or managed care entity shall not be

based solely on proof that such person’s name appears in

a listing of approved physicians or health care providers

made available to insureds or enrollees under a health

care plan.

(j) This chapter does not apply to workers’

compensation insurance coverage as defined in Section

401.011, Labor Code.

(k) An enrollee who files an action under this chap-

ter shall comply with the requirements of Section 13.01,

Medical Liability and Insurance Improvement Act of

Texas (Article 45901, Vernon’s Texas Civil Statutes), as

it relates to cost bonds, deposits, and expert reports.

Sec. 88.003. LIMITATIONS ON CAUSE OF

ACTION. (a) A person may not maintain a cause of ac-

tion under this chapter against a health insurance carrier,

health maintenance organization, or other managed care

entity that 1s required to comply with the utilization re-

view requirements of Article 21.58A, Insurance Code,

or the Texas Health Maintenance Organization Act

(Chapter 20A Vernon’s Texas Insurance Code), unless

the affected insured or enrollee or the insured’s or enrol-

lee’s representative:

(1) has exhausted the appeals and review appli-

cable under the utilization review requirements; or

(2) before instituting the action:

(A) gives written notice of the claim as

provided by Subsection (b); and

(B) agrees to submit the claim to a review

by an independent review organization under

Article 21.58A, Insurance Code, as required by

Subsection (c).

(b) The notice required by Subsection (a)(2)(A)

must be delivered or mailed to the health insurance car-

rier, health maintenance organization, or managed care

entity against whom the action is made not later than the

30th day before the date the claim is filed.

enrollee’s representative must submit the claim to a re-

view by an independent review organization if the health

insurance carner, health maintenance organization, or

managed care entity against whom the claim is made re-

quests the review not later than the 14th day after the

date notice under Subsection (a)(2)(A) is received by the

health insurance carner, health maintenance organiza-

tion, or managed care entity. If the health insurance car-

ner, health maintenance organization, or managed care

entity does not request the review within the period

specified by this subsection, the insured or enrollee or

the insured’s or enrollee’s representative is not required

to submit the claim to independent review before main-

taining the action.

(d) Subject to Subsection (e), if the enrollee has not

complied with Subsection (a), an action under this sec-

tion shall not be dismissed by the court, but the court

may, in its discretion, order the parties to submit to an

independent review or mediation or other nonbinding al-

ternative dispute resolution and may abate the action for

a penod of not to exceed 30 days for such purposes.

Such orders of the court shall be the sole remedy avail-

able to a party complaining of an enrollee’s failure to

comply with Subsection (a).

(e) The enrollee is not required to comply with

Subsection (c) and no abatement or other order pursuant

to Subsection (d) for failure to comply shall be imposed

if the enrollee has filed a pleading alleging in substance

that:

(1) harm to the enrollee has already occurred

because of the conduct of the health insurance car-

ner, health maintenance organization, or managed

care entity or because of an act or omission of an

employee, agent, ostensible agent, or representative

of such carner, organization, or entity for whose

conduct it is liable under Section 88.002(b); and

(2) the review would not be beneficial to the

enrollee, unless the court, upon motion by a defen-

dant carrier, organization, or entity finds after hear-

ing that such pleading was not made in good faith,

in which case the court may enter an order pursuant

to Subsection (d).

(f) If the insured or enrollee or the insured’s or en-

rollee’s representative seeks to exhaust the appeals and

review or provides notice, as required by Subsection (a),

before the statute of limitations applicable to a claim

against a managed care entity has expired, the limita-

tions period is tolled until the later of:

(1) the 30th day after the date the insured or en-

rollee or the insured’s or enroillee’s representative

has exhausted the process for appeals and review

applicable under the utilization review requirements;

(2) the 40th day after the date the insured or en-

rollee or the insured’s or enrollee’s representative

gives notice under Subsection (a)(2)(A).

(g) This section does not prohibit an insured or en-

rollee from pursuing other appropriate remedies, includ-

ing injunctive relief, a declaratory judgment, or relief

available under law, if the requirement of exhausting the

process for appeal and review places the insured’s or en-

rollee’s health in serious jeopardy.

SECTION 2. Section 6, Article 21.58A, Insur-

ance Code, is amended by amending Subsection (b) and

adding Subsection (c) to read as follows:

(b) The procedures for appeals must be reasonable

and shall include the following:

(1) a provision that an enrollee, a person acting

on behalf of the enrollee, or the enrollee’s physician

or health care provider may appeal the adverse de-

termination and shall be provided, on request, a

clear and concise statement of the clinical basis for

the adverse determination;

(2) a list of documents needed to be submitted

by the appealing party to the utilization review agent

for the appeal;

(3) a provision that appeal decisions shall be

made by a physician, provided that, if the appeal is

denied and within 10 working days the health care

provider sets forth in writing good cause for having

a particular type of a specialty provider review the

case, the denial shall be reviewed by a health care

provider in the same or similar specialty as typically

manages the medical condition, procedure, or treat-

ment under discussion for review of the adverse de-

termination;

(4) in addition to the written appeal, a method

for an expedited appeal procedure for emergency

care denials and denials of continued stays for hos-

pitalized patients, which shall include a health care

provider who has not previously reviewed the case;

such appeal must be completed no later than one

working day following the day on which the appeal,

including all information necessary to complete the

appeal, is made to the utilization review agent; and

(5) written notification to the appealing party of

the determination of the appeal, as soon as practical,

but in no case later than the 30th day after the date

the utilization agent receives [:

the appeal. If

the appeal is denied, the written notification shall

include a clear and concise statement of:

(A) the clinical basis for the appeal’s de-

nial;

(B) [and] the specialty of the physician

making the denial; and

seek review of the denial by an independent re-

view organization under Section 6A of this arti-

cle and the procedures for obtaining that review.

stance involving an enrollee’s life-threatening condition,

the enrollee is entitled to an immediate appeal to an in-

dependent review organization as provided by Section

6A of this article and is not required to comply with pro-

cedures for an internal review of the utilization review

agent’s adverse determination. For purposes of this sec-

10a

tion, “hfte-threatening condition” means a disease or

other medical condition with respect to which death is

probable unless the course of the disease or condition is

interrupted.

SECTION 3. Article 21.58A, Insurance Code, is

amended by adding Section 6A to read as follows:

Sec.6A. INDEPENDENT REVIEW OF AD-

VERSE DETERMINATIONS. A utilization review

agent shall:

(1) permit any party whose appeal of an ad-

verse determination is denied by the utilization re-

view agent to seek review of that determination by

an independent review organization assigned to the

appeal in accordance with Article 21.58C of this

code;

(2) provide to the appropriate independent re-

view organization not later than the third business

day after the date that the utilization review agent

receives a request for review a copy of:

(A) any medical records of the enrollee

that are relevant to the review;

(B) any documents used by the plan in

making the determination to be reviewed by the

organization;

Section 6(b)(5) of this article;

(D) any documentation and written infor-

mation submitted to the utilization review agent

in support of the appeal; and

(E) a list of each physician or health care

provider who has provided care to the enrollee

and who may have medical records relevant to

the appeal;

lla

(3) comply with the independent review or-

ganization’s determination with respect to the medi-

cal necessity or appropriateness of health care items

and services for an enrollee; and

(4) pay for the independent review.

SECTION 4. Section 8, Article 21.58A, Insur-

ance Code, is amended by adding Subsection (f) to read

as follows:

(f) Confidential information in the custody of a

utilization review agent may be provided to an inde-

pendent review organization, subject to rules and stan-

dards adopted by the commissioner under Article

21.58C of this code.

SECTION 5. Subdivision (3), Subsection (a),

Section 9, Texas Health Maintenance Organization Act

(Article 20A.09, Vernon’s Texas Insurance Code), is

amended to read as follows:

(3) An evidence of coverage shall contain:

(A) no provisions or statements which are

unjust, unfair, inequitable, misleading, decep-

tive, which encourage misrepresentation, or

which are untrue, misleading, or deceptive as

defined in Section 14 of this Act; and

(B) a clear and complete statement, if a

contract, or a reasonably complete facsimile, if a

certificate, of:

(i) the medical, health care

services, or single health care service

and the issuance of other benefits, if

any, to which the enrollee is entitled

under the health care plan or single

health care service plan;

(ii) any limitation on the ser-

vices, kinds of services, benefits, or

kinds of benefits to be provided, in-

12a

cluding any deductible or co-

payment feature;

(iii) where and in what manner

information is available as to how

services may be obtained; and

(iv) a clear and understandable

description of the health maintenance

organization’s methods for resolving

enrollee complaints, including the

enrollee’s nght to appeal denials of

an adverse determination, as that

term is defined by Section 12A of

this Act, to an independent review

organization and the procedures for

making an appeal to an independent

review organization. Any subse-

quent changes may be evidenced in a

separate document issued to the en-

rollee.

SECTION 6. Section 12, Texas Health Mainte-

nance Organization Act (Article 20A.12, Vernon’s

Texas Insurance Code), is amended to read as follows:

Sec. 12. COMPLAINT SYSTEM. (a) Every

health maintenance organization shall establish and

maintain a complaint system to provide reasonable pro-

cedures for the resolution of oral and written complaints

initiated by enrollees concerning health care services.

(b) The commissioner may examine the complaint

system.

SECTION 7. The Texas Health Maintenance Or-

ganization Act (Chapter 20A, Vernon’s Texas Insurance

Code) is amended by adding Section 12A to read as fol-

lows:

Sec. 12A. REVIEW OF # ADVERSE

DETERMINATIONS. (a) The complaint system re-

quired by Section 12 of this Act must include:

l3a

(1) notification to the enrollee of the enrollee’s

right to appeal an adverse determination to an inde-

pendent review organization;

(2) notification to the enrollee of the procedures

for appealing an adverse determination to an inde-

pendent review organization; and

(3) notification to an enrollee who has a life-

threatening condition of the enrollee’s nght to im-

mediate review by an independent review organiza-

tion and the procedures to obtain that review.

(b) The provisions of Article 21.58A, Insurance

Code, that relate to independent review apply to a health

maintenance organization under this section as if the

health maintenance organization were a utilization re-

view agent.

(1) “Adverse determination” means determina-

tion by a health maintenance organization that the

health care services furnished or proposed to be fur-

nished to an enrollee are not medically necessary.

(2) “Independent review organization” means

an organization selected as provided under Article

21.58C, Insurance Code.

(3) “Life-threatening condition” has the mean-

ing assigned by Section 6, Article 21.58A, Insurance

Code.

SECTION 8. Subchapter E, Chapter 21,

Insurance Code, is amended by adding Article

21.58C to read as follows:

Art. 21.58C. STANDARDS FOR INDEPENDENT

REVIEW ORGANIZATIONS

Sec. 1. Definitions. In this article:

(1) “Life-threatening condition” has the mean-

ing assigned by Section 6, Article 21.58A of this

code.

(2) “Payor” has the meaning assigned by Sec-

tion 2, Article 21.58A of this code.

Sec.2. CERTIFICATION AND DESIGNA-

TION OF INDEPENDENT REVIEW ORGANIZA-

TIONS. (a) The commissioner shall:

(1) promulgate standards and rules for:

(A) the certification, selection, and opera-

tion of independent review organizations to per-

form independent review described by Section

6, Article 21.58A of this code; and

(B) the suspension and revocation of the

certification;

(2) designate annually each organization that

meets the standards as an independent review or-

ganization;

(3) charge payors fees in accordance with this

article as necessary to fund the operations of inde-

pendent review organizations; and

(4) provide ongoing oversight of the independ-

ent review organizations to ensure continued com-

pliance with this article and the standards and rules

adopted under this article.

(b) The standards required by Subsection (a)(1) of

this section must ensure:

(1) the timely response of an independent re-

view organization selected under this article;

(2) the confidentiality of medical records

transmitted to an independent review organization

for use in independent reviews;

15a

(3) the qualifications and independence of each

health care provider or physician making review de-

terminations for an independent review organiza-

tion;

(4) the fairness of the procedures used by an in-

dependent review organization in making the deter-

minations; and

(5) timely notice to enrollees of the results of

the independent review, including the clinical basis

for the determination.

of this section must include standards that require each

independent review organization to make its determina-

tion:

(1) not later than the earlier of:

(A) the 15th day after the date the inde-

pendent review organization receives the infor-

mation necessary to make the determination; or

(B) the 20th day after the date the inde-

pendent review organization receives the re-

quest that the determination be made; and

(2) in the case of a life-threatening condition,

not later than the earlier of:

(A) the fifth day after the date the inde-

pendent review organizetion receives the infor-

mation necessary to make the determination; or

(B) the eighth day after the date the inde-

pendent review organization receives the re-

quest that the determination be made.

(d) To be certified as an independent review or-

ganization under this article, an organization must sub-

mit to the commissioner an application in the form re-

quired by the commissioner. The application must in-

clude:

loa

(1) tor an applicant that is publicly held, the

name of each stockholder or owner of more than

five percent of any stock or options;

(2) the name of any holder of bonds or notes of

the applicant that exceed $100,000;

(3) the name and type of business of each cor-

porauion or other organization that the applicant con-

trols or 1s athihated with and the nature and extent of

the affiliation or control;

(4) the name and a biographical sketch of each

director, officer, and executive of the applicant and

any entity listed under Subdivision (3) of this sub-

section and a descnption of any relationship the

named individual has with:

(A) a health benefit plan;

(B) a health maintenance organization;

(D) a utilization review agent;

(E) a nonprofit health corporation;

(F) a payor;

(G) a health care provider; or

(H) a group representing any of the entities

described by Paragraphs (A) through (G) of this

subdivision;

(5) the percentage of the applicant’s revenues

that are anticipated to be derived from reviews con-

ducted under Section 6A, Article 21.58A of this

code;

(6) a description of the areas of expertise of the

health care professionals making review determina-

tions tor the applicant; and

(7) the procedures to be used by the independ-

ent review organization in making review determi-

17a

nations with respect to reviews conducted under

Section 6A, Article 21.58A of this code.

(e) The independent review organization shall an-

nually submit the information required by Subsection (d)

of this section. If at any time there is a material change

in the information included in the application under

Subsection (d) of this section, the independent review

organization shall submit updated information to the

commissioner.

(f) An independent review organizatron may not be

a subsidiary of, or in any way owned or controlled by, a

payor or a trade or professional association of payors.

(g) An independent review organization conducting

a review under Section 6A, Article 21.58A of this code

is not liable for damages arising from the determination

made by the organization. This subsection does not ap-

ply to an act or omission of the independent review or-

ganization that is made in bad faith or that involves

gross negligence.

SECTION 9. Chapter 88, Civil Practice and

Remedies Code, as added by this Act, applies only to a

cause of action that accrues on or after the effective date

of this Act. An action that accrues before the effective

date of this Act is governed by the law applicable to the

action immediately before the effective date of this Act,

and that law is continued in effect for that purpose.

SECTION 10. (a) The change in law made by

Sections 2 through 4 and 6 through 8 of this Act applies

only to an adverse determination of a utilization review

agent or health maintenance organization made on or af-

ter the effective date of this Act.

(b) The change in law made by Section 5 of this

Act to Section 9, Texas Health Maintenance Organiza-

tion Act (Article 20A.09, Vernon’s Texas Insurance

Code), applies only to an evidence of coverage that is

delivered, issued for delivery, or renewed on or after

18a

January 1, 1998. An evidence of coverage that is deliv-

ered, issued for delivery, or renewed before January 1,

1998, is governed by the law as it existed immediately

before the effective date of this Act, and that law is con-

tinued in effect for that purpose.

SECTION 11. This Act takes effect September 1,

1997.

SECTION 12. The importance of this legislation

and the crowded condition of the calendars in both

houses create an emergency and an imperative public

necessity that the constitutional rule requiring bills to be

read on three several days in each house be suspended,

and this rule is hereby suspended.

TITLE 29—LABOR

CHAPTER 18—EMPLOYEE RETIREMENT

INCOME SECURITY PROGRAM

SUBCHAPTER I—PROTECTION OF EMPLOYEE

BENEFIT RIGHTS

SUBTITLE A—GENERAL PROVISIONS

* * * * *

Part 5—Administration and Enforcement

* * * * *

§ 1132. Civil enforcement

(a) Persons empowered to bring a civii action

A civil action may be brought—

(1) by a participant or beneficiary—

(A) for the relief provided for in subsec-

tion (c) of this section, or

(B) to recover benefits due to him under

the terms of his plan, to enforce his nghts under

19a

the terms of the plan, or to clarify his nghts to

future benefits under the terms of the plan;

(2) by the Secretary, or by a participant, benefi-

ciary or fiduciary for appropriate relief under section

1109 of this title;

(3) by a participant, beneficiary, or fiduciary

(A) to enjoin any act or practice which violates any

provision of this subchapter or the terms of the plan,

or (B) to obtain other appropriate equitable relief (1)

to redress such violations or (11) to enforce any pro-

visions of this subchapter or the terms of the plan;

(4) by the Secretary, or by a participant, or

beneficiary for appropriate relief in the case of a

violation of 105(c) of this title;

(5) except as otherwise provided in subsection

(b) of this section, by the Secretary (A) to enjoin any

act or practice which violates any provision of this

subchapter, or (B) to obtain other appropriate equi-

table relief (i) to redress such violation or (ii) to en-

force any provision of this subchapter;

(6) by the Secretary to collect any civil penalty

under paragraph (2), (4), (5), or (6) of subsection (c)

or under subsection (1) or (/) of this section;

(7) by a State to enforce compliance with a

qualified medical child support order (as defined in

section 1169(a)(2)(A) of this title;

(8) by the Secretary, or by an employer or other

person referred to in section 1021(f)(1) of this title,

(A) to enjoin any act or practice which violates sub-

section (f) of section 1021 of this title, or (B) to ob-

tain appropriate equitable relief (1) to redress such

violation or (11) to enforce such subsection; or

(9) in the event that the purchase of an insur-

ance contract or insurance annuity in connection

with termination of an individual’s status as a par-

20a

ticipant covered under a pension plan with respect to

all or any portion of the participant’s pension benefit

under such plan constitutes a violation of part 4 of

this title [subtitle] or the terms of the plan, by the

Secretary, by any individual who was a participant

or beneficiary at the time of the alleged violation, or

by a fiduciary, to obtain appropriate relief, including

the posting of security if necessary, to assure receipt

by the participant or beneficiary of the amounts pro-

vided or to be provided by such insurance contract

or annuity, plus reasonable prejudgment interest on

such amounts.

z * * * *

§ 1144. Other laws

(a) Supersedure; effective date

Except as provided in subsection (b) of this section,

the provisions of this subchapter and subchapter III of

this chapter shall supersede any and all State laws inso-

far as they may now or hereafter relate to any employee

benefit plan described in section 1003(a) of this title and

not exempt under section 1003(b) of this title.

* * * * *

(b) Construction and application

* * * * *

(2)(A) Except as provided in subparagraph

(B), nothing in this subchapter shall be construed to

exempt or relieve any person from any law of any

State which regulates insurance, banking, or securi-

ties.

(B) Neither an employee benefit plan de-

scribed in section 1003(a) of this title, which is not

exempt under section 1003(b) of this title (other

than a plan established primarily for the purpose of

providing death benefits), nor any trust established

under such a plan, shall be deemed to be an insur-

2la

ance company or other insurer, bank, trust company,

or investment company 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, banks, trust compa-

nies, or investment companies.

* * * * *

TITLE 5—GOVERNMENT ORGANIZATION

AND EMPLOYEES

PART Il. EMPLOYEES

SUBPART G. INSURANCE AND ANNUITIES

CHAPTER 89. HEALTH INSURANCE

§ 8902. Contracting Authority

* * * ” *

(m)(1) The provisions of any contract under this

chapter which relate to the nature or extent of coverage

or benefits (including payments with respect to benefits)

shall supersede and preempt any State or local law, or

any regulation issued thereunder, which relates to health

insurance or plans to the extent that such law or regula-

tion is inconsistent with such contractual provisions.

This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.