Opposition Brief — United States Healthcare Systems of Pennsylvania, Inc. v. Pennsylvania Hospital Insurance

SEP 19 200)

No. 01-200 | price

IN THE

Supreme Court of the United States

UNITED STATES HEALTHCARE SYSTEMS OF

PENNSYLVANIA, INC..

Petitioner,

PENNSYLVANIA HOSPITAL INSURANCE COMPANY, and

THE COMMONWEALTH OF PENNSYLVANIA MEDICAL

PROFESSIONAL LIABILITY CATASTROPHE LOSS FUND,

Respondents.

On PETITION FOR A WRIT OF CERTIORARI

TO THE SUPREME COURT OF PENNSYLVANIA, EASTERN DISTRICT

BRIEF IN OPPOSITION FOR RESPONDENTS

CHARLES W. CRAVEN

Counsel of Record

STEPHEN A. RYAN

MARION H. GriFFIN

MARSHALL, DENNEHEY, WARNER,

COLEMAN & GOGGIN

1845 Walnut Street

Philadelphia, PA 19103

(215) 575-2600

Counsel for Respondents

169] 32 g

CCUNSEL PRESS

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

1

COUNTERSTATEMENT OF

QUESTION PRESENTED

In enacting ERISA and its preemption clause, did

Congress clearly intend to truncate the states’ traditional roles

in the regulation of the quality of health care services and in

the enforcement of health care malpractice tort rights by

preempting and effectively eradicating claims for personal _

injury damages caused by the negligence of HMO-employed

health care service professionals in the performance of their

duties to provide or to arrange for appropriate medical care

for the beneficiaries of ERISA plans?

il

STATEMENT PURSUANT TO

RULES 14.1(b) AND 29.6

The petition accurately lsts the parties to the

proceedings.

Respondent Pennsylvania Hospital Insurance

Corporation, In Rehabilitation, (“°HICO”) is a subsidiary

of PHICO Group, Inc., which is ovned in its entirety by the

Health Alliance of Pennsylvana, and is currently in

Rehabilitation.

Respondent The Commonvealth of Pennsylvania

Medical Professional Liability Catistrophe Loss Fund (“CAT

Fund”) is a statutorily created :xecutive agency of the

Commonwealth of Pennsylvania.

unr

eee

TABLE OF CONTENTS

Counterstatement of Question Presented .........

Statement Pursuant to Rules 14.1(b) and 29.6

cae yds sadeewes

Counterstatement of the Case ..................

ne

Ps OE MUIR occ ccc cece scssnce

Ree WUOIEIS REMUOOEY 5c acc cccccscccccess

Reasons To Deny The Petition Or To Summarily

Affirm The Decision Of The Pennsylvania

POOL ELLE CEE TTT eS POT ETTTe

A. The Approach Taken By The Pennsylvania

Supreme Court Regarding The Applicability

Of ERISA And Its Preemption Clause

Correctly Follows The Approach Most

Recently Taken By Your Honorable Court

Te ee SO eeec eae ea eae aeeaenseeaesaeaeaesaaenanen eee @ 6 @

B. The Decision Of The Pennsylvania Supreme

Court That The Claim At Issue Was Not

Preempted, Because It Was A Mixed

Eligibility And Treatment Claim, Is Fully

Consistent With Your Honorable Court’s

REESE PORTE TC TTT

Page

10

10

iv

Contents

C. Whatever Need There May Be For Further

Clarification By Your Honorable Court Can

Be Delivered By A Grant Of Certiorari And

Summary Affirmance Of The Decision Of

The Pennsylvania Supreme Court ........

1. Like The Pennsylvania Supreme Court,

Most Lower Courts Have Correctly

Understood And Followed Your

Honorable Court’s Decisions In

Travelers, DeBuono, And Pegram ....

2. Any Confusion Caused By The Third

Circuit’s Most Recent Decision In

Pryzbowski And In Other Decisions That

Apparently Depart From Your Honorable

Court’s Decisions In Travelers,

DeBuonc, And Pegram Can Be Resolved

By Summary Affirmance Of Pappas II

And Disapproval Of The Contrary

PFET ETT eT eT TTT Te Tere

a eae ea

Appendix — Brief For The Secretary Of The United

States Department Of Labor As Amicus Curiae

Dated September 22, 2000 ........c0cccceess

Page

18

18

20

22

la

pte la ematoh

TABLE OF CITED AUTHORITIES

Cases:

Aetna U.S. Healthcare v. Lazorko, 121 S. Ct. 2552,

2001 U.S. LEXIS 4732 (2001) 2... 0. ccc scenes.

California Div. of Labor Standards Enforcement v.

Dillingham, 519 U.S. 316 (1997) ............

Corporate Health Ins. v. Texas Dept. of Ins. 215 F.3d

Pa CONG: WOO atk ks bn en Wh kRe EN Cee ROEn

Crum v. Health Alliance-Midwest, Inc., 47 F. Supp.2d

RE oO) .. Prr ra ray

DeBuono v. NYSA-ILA Medical and Clinical Services

Page

Fund, 520 U.S. 806 (1997) ... 6, 10, 11, 12, 18, 20, 22

Dukes v. U.S. Healthcare, 57 F.3d 350 (3d Cir.),

cert. den., $16 U.S. 1009 (1993S) .......00005:

Dykema v. King, 959 F. Supp. 736 (D.S.C. 1997) ..

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

(3d Cir. 1999), cert. den., 530 U.S. 1242 (2000)

ee

Lazorko v. Pennsylvania Hospital, 237 F.3d 242

(3d Cir. 2000), cert. den. sub nom, Aetna U.S.

Healthcare v. Lazorko, 121 S. Ct. 2552, 2001 U.S.

Fee Feeds. | rrr err rr

vi

Cited Authorities

Page

Mackey v. Lanier Collections Agency and Service,

466 US. SES CEPGS) 60-000 600teseasnsesaeen 12

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

rroit:. -) PePPrrrrerrrr rrr 8 6, 10, 11, 12, 13

Moreno v. Health Partners Health Plan, 4 F. Supp.2d

| SSS GD. AGE. BOTED os sscevcsssnevenvaeeieel 19

Nascimento v. Harvard Community Health Plan,

No. 94-2543, 1997 Mass. Super. LEXIS 166

(Mass. Super. Sept. 26, 1997) ............... 19

Nealy v. U.S. Healthcare, 93 N.Y.2d 219 (1999) .. 19

New York State Conference of Blue Cross & Blue

Shield Plans v. Travelers Ins. Co., 514 U.S. 645

(1995) wcccccccccccccaces 6, 9, 10, 11, 12, 18, 20, 22

Pappas v. Asbel, 675 A.2d 711 (Pa. Super. 1996) .. 6

Pappas v. Asbel, 724 A.2d 889 (Pa. 1998) ...... 1,2, 6,8

Pappas v. Asbel, 768 A.2d 1069 (Pa. 2001) ......

WYTTTET Tr reer rey 2, 3, 7, 8, 20, 21

Pegram v. Herdrich, 120 S. Ct. 2143 (2000) ..... passim

Phommyvong v. Muniz, No. 3:98-CV-0070-L, 1999

U.S. Dist. LEXIS 3101 (N.D. Tex. March 11,

IGSD) oc ccdscotedvedaausaeusaseeeeee 19

A ee ttm WOR oe

vil

Cited Authorities

Page

Pilot Life Ins. Co. v. Dedeaux, 481 U.S. 41 (1987)

bade doh adhendennanee 6, 10, 11, 12, 13, 16, 17

Prudential Ins. Co. of America v. Doe, 46 F. Supp.2d

Paar ee BED 6 bb acbc'cccdecccsrecutes 19

Pryzbowski v. U.S. Healthcare, Inc., 245 F.2d 266

Se: SD oc Shabbos e se eae eee 2, 3, 20, 21, 22

Ray v. Value Behavioral Health, Inc., 967 F. Supp.

ee ee Ss BOE nde ckeudscevesctaebenees 19

U.S. Healthcare, Inc. v. Bauman, 530 U.S. 1242

SE > xe. hes duds REC RHORSO Rea DAa eee Res 3, 20, 22

Statute:

pe Ome Bl rr errr re 17

Other Authorities:

R. Charrow and L. Greenlees, ERJSA Pre-Emption

— A Law in Search of a Doctrine, Health L. Dig.,

De SOE bibatcksdowineetaskaneeataeeas 19

K. Jordan, Travelers Insurance: New Support for the

Argument to Restrain ERISA Pre-emption, 13 Yale

iS F- fs. BPPererrrrrrererrrrrs 18

-_

sical

ae ee ae rer ve sis

al el ae he

]

COUNTERSTATEMENT OF THE CASE

A. Introduction

This case involves a state law medical malpractice

personal injury damages claim against an HMO medical

services provider for its alleged negligence in delaying

appropriate emergency medical treatment for a subscriber to

the HMO, Basil Pappas, who was unquestionably entitled to

that treatment by any capable medical facility, whether or

not the facility had a contractual service relationship with

the HMO. The HMO, petitioner U.S. Healthcare, functioned

as a provider of pre-paid medical services to the ERISA plan

which had been established by the employer of the

subscriber’s wife. The ERISA plan is not a party to this case.

There is no claim in this case against the ERISA plan, and

no claim challenging the terms of the plan or seeking payment

by the ERISA plan. There is no evidence that the HMO acted

as the ERISA plan’s administrator. The obligations of the

HMO in this case are no different from its obligations toward

any of its subscribers, whether or not they are beneficiaries

of an ERISA plan.

This is the second time that this case has reached

your Honorable Court. On the first occasion, your Court

granted certiorari, summarily vacated the judgment of

the Pennsylvania Supreme Court in Pappas v. Asbel, 724

A.2d 889 (Pa. 1998) (“Pappas I’), and remanded for

reconsideration in light of Pegram v. Herdrich, 120 S. Ct.

2143 (2000). United States Healthcare Systems of

Pennsylvania, Inc. v. Pennsylvania Hospital Insurance Co.,

530 U.S. 1241 (2000). On remand, the Pennsylvania Supreme

Court received new briefs from the pariies and from the

2

Solicitor General on behalf of the Secretary of Labor and

then did exactly what your Court directed it to do, Pappas v.

Asbel, 768 A.2d 1069 (Pa. 2001) (“Pappas IT’).

In its second attempt to obtain review of the merits of

this case by your Honorable Court, petitioner roots its

analysis and its arguments largely on its selective reading of

what the Pennsylvania Supreme Court said in Pappas J and

on the shift that Pegram inspired in the position of the

Solicitor General between Pegram and Pappas II.' Petitioner

also attempts to draw an irreconcilable conflict between

Pappas II and the decision of the United States Court of

Appeals for the Third Circuit in Pryzbowski v. U.S.

Healthcare, Inc., 245 F.2d 266 (3d Cir. 2001) and decisions

from other jurisdictions.

1. Petitioner points to the Pennsylvania Supreme Court’s

statement, arguably dicta, in Pappas I, that “negligence claims

against a health maintenance organization do not ‘relate to” an ERISA

plan.” (App. 29a). Petitioner unaccountably ignores the clarifying

next sentence of the -court’s opinion, which expressed its narrow

holding that claims that an HMO caused bodily harm by negligently

delaying the delivery of the medical services which it promised to

provide were claims regarding the provision of safe medical care

and that Congress did not intend to preempt the states from

adjudicating those claims (App. 39a). Likewise, petitioner stresses

selective quotations from the brief filed by the Solicitor General

with your Honorable Court, but fails to provide your Court with the

brief that the Solicitor General filed with the Supreme Court of

Pennsylvania in Pappas II, in which the government candidly

acknowledged that it no longer adhered to the statements which the

petition now disinters. See p. 4a of the Solicitor General’s brief

attached as the appendix to this brief in opposition (“Because the

Secretary’s views of this case have changed in light of Pegram, and

because this is the first opportunity to express those views since

Pegram, the Secretary has a strong interest in participating in this

stage of the proceeding.”).

3

What is now at issue, however, is what was said by the

Pennsylvania Supreme Court in Pappas I]. Because what that

court said in Pappas II comports fully with the controlling

decisions of your Court, respondents PHICO and the CAT

Fund respectfully ask that your Honorable Court either deny

the HMO’s petition for writ of certiorari, as your Court did

in Aetna U.S. Healthcare v. Lazorko, 121 S. Ct. 2552, 2001

U.S. LEXIS 4732 (2001) and in U.S. Healthcare, Inc. v.

Bauman, 530 U.S. 1242 (2000), or that your Court grant the

petition and summarily affirm the judgment of the

Pennsylvania Supreme Court in Pappas II. If necessary, your

Court could note its disapproval of the analysis of Pryzbowski

and the other cases advocated by petitioner, or could

distinguish Pryzbowski, as involving a delay in making a

benefit determination, and directly related to plan

administration, as opposed to a negligent medical judgment

concerning which independent provider was capable of

supplying the care needed within the time it was needed.

B. Factual Background

The opinion of the Pennsylvania Supreme Court

accurately sets forth the factual background. App. pp. 2a-3a,

12a-13a.2 However, because the issue arose on U.S.

Healthcare’s motion for summary judgment in the trial court

(as opposed to a petition for removal), the facts and their

inferences must be viewed in the light most favorable to the

respondents.

As the Pennsylvania Supreme Court duly noted and

considered, Dr. Dickter, the Haverford emergency room

physician who personally attempted to persuade the HMO

2. The Solicitor General’s brief noted a similar factual

background (Respondents’ App., pp. 15-16a).

4

to change its veto against transporting Mr. Pappas to the

non-affiliated hospital that he had ascertained was ready to

promptly and properly treat Mr. Pappas, testified that he

emphasized to the HMO representatives that the situation

confronting Mr. Pappas was a neurological emergency, and

that his pleas for the HMO to reevaluate and change its

decision were reviewed and disapproved by the HMO’s

Medical Director, Dr. Liebowitz. See Reproduced Record,

pp. 70a-72a, 77a (deposition testimony of Dr. Dickter),

and pp. 93a (typewritten transcript of emergency room chart).

When viewed in the proper perspective, the record

facts of this case suggest that the ultimate decision by the

HMO’s Medical Director was completely or predominately

a medical determination, either that Mr. Pappas’ condition

was not a true emergency or that there was no need to have

him treated at a hospital that was not affiliated with the HMO.

There is no question in this case that Mr. Pappas alleged a

medical condition which required emergency medical care.

There is also no question that Mr. Pappas was entitled to

have U.S. Healthcare pay for treatment at any capable facility

if his situation was an emergency. Nor is there any claim for

the payment of such emergency service.’

C. Procedural History

Basile and Theodora Pappas filed a complaint against

David Asbel, D.O. and Haverford Community Hospital

(“Haverford”), alleging, inter alia, that those defendants were

negligent in failing to timely diagnose and treat Mr. Pappas’

3. The Solicitor General’s brief noted that coverage for

emergency care was required by both federal and state law, and that

the facts indicated that the HMO’s decision was a mixed treatment

and eligibility decision, Respondents’ App., pp. 15-17a.

i a ah i Ea ta o

5

spinal cord compression. App. pp. 47a-58a. Haverford joined

petitioner U.S. Healthcare as an additional defendant.

App. pp. 59a-6la. Haverford alleged that U.S. Healthcare

“refused to authorize transfer of husband/plaintiff to a

hospital selected by physicians at Haverford Community

Hospital.” App. p. 60a, para. 7. Furthermore, by incorporation

of paragraph 24 of plaintiffs’ complaint (App. p. 60a,

para. 6), Haverford alleged that HMO-PA negligently:

a. fail[ed] to transfer the patient to a hospital capable

and competent of administering to his acute medical

condition in a prompt and timely fashion;

b. delay[ed] inordinately in transferring the patient,

keeping him at the Haverford Community Hospital

during which time his spinal cord compression

continued with resultant damage to the patient’s

spinal cord. App. pp. 54a-55a.

After discovery, U.S. Healthcare filed a motion for

summary judgment, claiming that Haverford’s complaint

must be dismissed under ERISA. The trial court granted the

motion for summary judgment, finding that all of Haverford’s

claims against the HMO fell within the confines of

administration of an employee benefit plan, and therefore,

were barred under the ERISA preemption provision.

App. p. 41a. Ultimately, a settlement agreement was reached

among the original parties, and respondents PHICO and the

CAT Fund were substituted for Haverford as the real

parties in interest against petitioner U.S. Healthcare.

App. pp. 45a-46a.

On the respondents’ appeal, the Superior Court of

Pennsylvania reversed the trial court’s decision and remanded

6

the matter for further proceedings on the merits of the claim.

Pappas v. Asbel, 675 A.2d 711, 717 (Pa. Super. 1996);

App. pp. 18a-33a.

On the HMO’s appeal, the Pennsylvania Supreme Court

affirmed the reversal and remand ordered by the Pennsylvania

Superior Court, but for different reasons, Pappas I.

The Pennsylvania Supreme Court eschewed the Superior

Court’s emphasis on the HMO’s cost-containment interest

(App. p. 39a, n.6).

In determining the approach to be taken in the resolution

of the HMO’s immunity-through-preemption defense, the

Pennsylvania Supreme Court perceived that your Honorable

Court’s decisions in New York State Conference of Blue Cross

& Blue Shield Plans v. Travelers Ins. Co., 514 U.S. 645

(1995) (“Travelers”), California Div. of Labor Standards

Enforcement v. Dillingham, 519 U.S. 316 (1997).

(“Dillingham”), and DeBuono v. NYSA-ILA Medical and

Clinical Services Fund, 520 U.S. 806 (1997) (“DeBuono”’),

marked a narrowing departure from the broader approach to

“relate to” that your Court earlier took in determining ERISA

preemption in Metropolitan Life Ins. Co. v. Massachusetts,

471 U.S. 724 (1985) (“Metropolitan Life”), and Pilot Life

Ins. Co. v. Dedeaux, 481 U.S. 41 (1987) (“Pilot Life”).

App. pp. 35a-39a.

Following the approach mapped by Travelers,

Dillingham, and DeBuono, the Pennsylvania Supreme Court

concluded that “negligence claims against a health

maintenance organization do not ‘relate to’ an ERISA plan.”

App. p. 39a. More specifically, the court held that claims

that an HMO caused bodily harm by negligently delaying

the delivery of the medical services which it promised to

Kap SBMA ES TTS CPSP EN Da a A Pdi bb at Ne

7

provide were claims regarding the provision of safe medical

care and that Congress did not intend to preempt the states

from adjudicating those claims (App. p. 39a):

. .. As noted by 7ravelers, Congress did not intend

to preempt state laws which govern the provision

of safe medical care. Travelers, 514 U.S. at 661,

115 S. Ct. at 1680, 131 L. Ed. 2d at 709. Claims

that an HMO was negligent when it provided

contractually guaranteed medical benefits in such

a dilatory fashion that the patient was injured

indisputably are intertwined with the provision of

safe medical care. We believe that it would be

highly questionable for us to find that these claims

were preempted when the United States Supreme

' Court has stated that there was no intent on

the part of Congress to preempt state laws

concerning the regulation of the provision of safe

medical care.

Thereafter, your Honorable Court granted the HMO’s

petition for writ of certiorari, summarily vacated the

Pennsylvania Supreme Court’s order, and remanded the

matter for reconsideration in light of Pegram.

On remand, the Pennsylvania Supreme Court accepted

new briefs from the parties and from the Solicitor General

on behalf of the Secretary of Labor.

In his brief to the Pennsylvania Supreme Court in

Pappas IT, the Solicitor General reached the same conclusion,

stating,

Nevertheless, Dr. Dickter’s attempt to explain that -

he had a neurological emergency, and the

8

involvement of a JSHC physician in USHC’s

decision, suggest tlat USHC’s transfer decision

may have involve some exercise of medical

judgment as to wh¢her an emergency existed or,

assuming an emergincy existed, whether the non-

affiliated hospital tat Dr. Dickter recommended

was as well-equifped as the HMO-affiliated

hospitals to deal vith the emergency. In either

case, USHC wouldhave made a mixed treatment

and eligibility decijon.

(Respondents’ App., pp. 6-17a) The Solicitor General’s brief

also noted that Justice Vigro concluded in his concurring

opinion in Pappas | thatthe HMO’s actions “constituted, in

effect, an individual medcal decision or judgment as opposed

to a decision affecting the administration of an employee

benefit plan,” (Respmdents’ App., pp. 17a, n.11) an

observation which th: majority opinion in Pappas II

acknowledged to have“anticipated the Supreme Court’s

reasoning in Pegram (App. p. 6a, n.3).

Appropriately consdering Pegram and the briefs and

record before it, the Pennsylvania Supreme Court again

concluded that the :laims against the HMO were

not preempted. The cout confirmed its original disposition

by affirming the judgment of the Superior Court and

remanding the case for ‘urther proceedings in the trial court.

App. p. 14a.

In reaching that dgposition, the court first recounted

the remand directive from your Honorable Court, the

pertinent history and fats, and its earlier analysis. App. pp.

la-6a. It then turned ty and thoroughly analyzed Pegram.

App. pp. 7a-lla. It ten drew from Pegram and from

PAP Neate apt eee > 4 Ne ee ORG let oo

9

Travelers the recognition that a personal injury claim which

was based on a “mixed eligibility and treatment decision”

by an HMO was not preempted. App. Ila. Finally, the

Pennsylvania Supreme Court turned to the record and,

viewing the facts and drawing inferences in the light most

favorable to the parties which opposed the HMO’s motion

for summary judgment, perceived that the HMO’s Medical

Director did not simply make a simple decision on coverage,

but rather rejected another doctor’s clinical judgment and

rendered a mixed eligibility and treatment decision which

was not preempted by ERISA. App. pp. 12a-13a.

Justice Saylor filed a dissenting opinion. He recognized,

however, that Pegram did not require a reversal of the

court’s decision, and that claims based upon mixed eligibility

and treatment decisions were not preempted by ERISA.

App. pp. 16a, 17a-18a, 28a-29a. Expressing his belief that

the court had to address two additional points relating to the

duty or the standard of care for HMO’s, Justice Saylor sought

to have the court leave the preemption question open to allow

the HMO to assert preemption after the trial court had devised

proper jury instructions regarding the HMO’ duty or standard

of care. App. pp. 17a-29a. The majority of the Pennsylvania

Supreme Court noted that the questions regarding the HMO’s

liability were not raised by its preemption claim and

were yet to be determined in the case. App. p. 14a, n.7;

see also p. 40a, n.7.

10

REASONS TO DENY THE PETITION OR TO

SUMMARILY AFFIRM THE DECISION OF

THE PENNSYLVANIA SUPREME COURT

A. The Approach Taken By The Pennsylvania Supreme

Court Regarding The Applicability Of ERISA And

Its Preemption Clause Correctly Follows The

Approach Most Recently Taken By Your Honorable

Court

Petitioner first posits that your Honorable Court should

review the decision of the Pennsylvania Supreme Court

because that decision failed to follow Metropolitan Life and

Pilot Life and instead followed Travelers and DeBuono.

However, even a casual comparison of those cases confirms

that the Pennsylvania Supreme Court correctly perceived a

shift in your Court’s approach to a determination of what

state laws “relate to” an ERISA plan. Your Court’s more

recent decision in Pegram reinforces that conclusion.

The earlier Metropolitan Life/Pilot Life approach

emphasized the general nature of the ERISA preemption

clause’s “relates to” phrase and the structure of the ERISA

preemption and exception clauses: if the matter had some

impact on an ERISA plan, then it may be preempted, unless

it fell within the scope of the insurance exception to

preemption. Thus, under the original approach delineated in

Metropolitan Life/Pilot Life, conduct that does or might affect

an ERISA plan is presumptively preempted unless it falls

within the scope of the exceptions to ERISA’s broad

preemption provision. Metropolitan Life, supra, 471 U.S. at

739; Pilot Life, supra, 481 U.S. at 47-48.

ot ao i went de

| II

In contrast, the later approach delineated in Travelers

and DeBuono, began with the recognition that emphasis on

the “relate to” phrase can produce a sweep of federal

preemption far beyond the scope intended by Congress

when it enacted ERISA, because virtually everything can

be connected to an ERISA plan. Travelers, supra, 514 U.S.

at 655; DeBuono, supra, 520 U.S. at 813. The Travelers/

DeBuono analysis also recognized that the operative

presumption is against preemption, not for preemption, and

it placed on the party claiming preemption “the considerable

burden of overcoming ‘the starting presumption that

Congress does not intend to supplant state law’.” DeBuono,

520 U.S. at 814, quoting Travelers, 514 U.S. at 654. 7

When Congress enacted ERISA, all of the states had

traditionally allowed, and regulated to varying extents, health

care malpractice claims. “And yet there is not so much as a

hint in ERISA’s legislative history or anywhere else that

Congress intended to squelch these state efforts.” Travelers,

514 U.S. at 665. As the Solicitor General stated in his brief

to the Pennsylvania Supreme Court, “In determining whether

ERISA preempts a state law, the Court should start with the

presumption that Congress did not want to preempt a state’s

historic police powers in areas such as regulation of medical

care, unless there is a clear and manifest intent to the

contrary.” Respondents’ App., p. 4. Notably absent from the

HMO ’s petition is a citation to a specific prohibition against

health care malpractice claims asserted against health care .

providers, either in ERISA or in the Department of Labor’s

; implementing regulations.

Tate

Petitioner attempts to make much of the fact that your

Honorable Court did not overrule Metropolitan Life and Pilot

Life when it decided the later cases. However, your Court

had no reason to overrule those cases when it decided

12

Travelers and DeBuono. Metropolitan Life presented state

action that squarely affected the substantive provisions of

an ERISA plan. Pilot Life presented a state action that

squarely conflicted with ERISA’s contractual enforcement

provisions. Because the state actions in those cases clearly

“related to” ERISA plans and plainly conflicted with federal

provisions, your Court had no reason to denounce those

decisions. See DeBuono, supra, 520 U.S. at 813.

The HMO’s arguments miss two additional points.

First, your Honorable Court did take a different approach in

its later cases after acknowledging that the approach taken

in its earlier cases was unworkable. Second, your Court

followed the 7ravelers/DeBuono approach when it decided

Pegram. In that case, your Court stated that 7ravelers “throws

some cold water on the preemption theory; there, we held

that, in the field of health care, a subject of traditional state

regulation, there is no ERISA preemption without clear

manifestation of congressional purpose.” Pegram, supra, 120

S. Ct. at 2158. The Court also saw no congressional intent to

usurp, and no benefit in judicially federalizing, state

malpractice claims. /d. Furthermore, your Court reiterated

its holding Travelers, supra, 514 U.S. at 654-655, that,

“in the field of health care, a subject of traditional state

regulation, there is no ERISA preemption without clear

manifestation of congressional purpose.” Pegram, 120 S. Ct.

at 2158. That holding echoed and crystallized your Court’s

earlier observation in Mackey v. Lanier Collections Agency

and Service, 486 U.S. 825, 833 (1988), that commonplace

tort claims were not displaced by ERISA.

The restrictive approach taken by your Honorable Court

in Pegram; its reaffirmation of a presumption against ERISA

preemption of state medical malpractice claims; and its

13

finding no clear congressional purpose to federalizing those

claims are factors that reinforce the accuracy of the

Pennsylvania Supreme Court’s decisions to approach the

preemption determination not from the preemption

presumption suggested by Metropolitan Life/Pilot, but rather

from the more recent perspectives that preemption is not to

be presumed but must be explicitly established by its

proponent, and that preemption does not obtain simply

because there may be some tenuous connection between the

HMO defendant and an ERISA plan.

B. The Decision Of The Pennsylvania Supreme Court

That The Claim At Issue Was Not Preempted, Because

It Was A Mixed Eligibility And Treatment Claim, Is

Fully Consistent With Your Honorable Court’s

Decision In Pegram

The core of petitioner’s argument to your Honorable

Court are the propositions that the claim against it simply

“challenges a straightforward and commonplace ERISA plan

determination,” and that the claim “falls squarely within the

preemptive scope of Sections 502(a) and 514(a) of ERISA,”

because the claim “arises from and directly relates to the

administration of benefits under the ERISA-governed health

plan, and provides an alternative enforcement mechanism to

ERISA,” Petition, p. 12. Those propositions, however, cannot

be accepted for several reasons.

First, the claim at issue involves only U.S. Healthcare,

which is an entity that is completely distinct from the ERISA

plan that Mrs. Pappas’ employer created. Neither the ERISA

plan nor the employer are parties to this case.

a4

Second, there is no evidence that U.S. Healthcare was

the administrator of the employer’s ERISA plan. To the

contrary, U.S. Healthcare’s sole apparent role was to serve

as a health care service provider to the beneficiaries of the

employer’s ERISA plan.

Third, the claim in this case does not directly implicate

a provision of the employer’s ERISA plan. It may fairly be

taken as given that the plan’s terms included health care

benefits for its beneficiaries, and it may be fairly assumed

that the plan’s terms described the quantity of those benefits

in a general manner that allowed the plan to contract with a

service provider, such as an HMO or an insurer, to enroll the

plan’s beneficiaries, who so desired, as members of the HMO

or as insureds. However, there is no evidence that the plan’s

terms delineated the particulars of the insurer’s coverage or

the scope of the HMO’s program. Moreover, there is no

evidence that the plan’s terms established the quality

standards for the services to be delivered by the health care

provider, and no evidence that the plan’s terms immunized

the provider from personal injury or malpractice claims.

Fourth, the case does not simply involve a challenge to

a benefits determination. The damages which respondents

seek from petitioner are contribution to the personal injury

damages suffered by Mr. and Mrs. Pappas. There is no claim

for payment for hospitalization or even for ambulance

transportation, and there is no claim for injunctive or

declaratory relief. Moreover, there is no genuine question

that the terms of the HMO’s service contract entitled

Mr. Pappas to be treated for an emergency at any hospital,

not just at the hospitals within U.S. Healthcare’s system.

To put it bluntly, there was no legitimate question of coverage

15

for emergencies by an out-of-network hospital.* Rather, the

focus of the claims against U.S. Healthcare in this case

centers on the medical treatment aspects of its conduct, in

particular on the implication that its decision rested on its

Medical Director’s medical determination, such as that

Dr. Dickter’s clinical diagnosis of an emergency situation

was not correct, or that its contract hospitals were as available

and as appropriate as the hospital which Dr. Dickter initially

selected, or the like.°

Fifth, the medical treatment aspects of the HMO’s

conduct are not subject to ERISA, because they are at least

“mixed” decisions under Pegram. Petition, pp. 16-17.

Petitioner declares that subjecting it “to state tort law liability

4. To the extent that U.S. Healthcare argues that coverage was

its sole concern, that argument simply underscores its negligence in

failing to properly consider the medical circumstances of Mr. Pappas’

situation.

5. In its brief to the Pennsylvania Supreme Court, the

government reached the same conclusion, stating,

Nevertheless, Dr. Dickter’s attempt to explain that he

had a neurological emergency, and the involvement of a

USHC physician in USHC’s decision, suggest that

USHC’s transfer decision may have involved some

exercise of medical judgment as to whether an

emergency existed or, assuming an emergency existed,

whether the non-affiliated hospital that Dr. Dickter

recommended was as well-equipped as the HMO-

affiliated hospitals to deal with the emergency. In either

case, USHC would have made a mixed treatment and

eligibility decision.

(Respondents’ App., pp. 16-17a)

16

for providing coverage at network hospitals rather than an

out-of-network hospital would thus be contrary to — not

consistent with — Pegram.” Most pointedly, however, your

Court held in Pegram that such decisions are not subsumed

by ERISA, even if made by an HMO in its capacity as an

administrator of an ERISA plan. Petitioner’s assertion cannot

stand in the face of your Court’s explicit statement to the

contrary:

The kinds of decisions mentioned in Herdrich’s

ERISA count and claimed to be fiduciary in

character are just such mixed eligibility and

treatment decisions: physicians’ conclusions about

... making referrals to ... facilities other than

[the HMO’s]; about proper standards of care, . . .

the reasonableness of a certain treatment, and the

emergency character of a medical condition.

Pegram, supra, at 2154-2155.°

Finally, the ultimate result that U.S. Healthcare seeks in

this case is a declaration of immunity from negligence.

Although the arguments that your Honorable Court rejected

in Pegram posited some tangential benefits to federalizing

mixed decisions and malpractice claims, such as faster docket

movement and potential awards of attorneys fees,

U.S. Healthcare’s arguments that the claims made against it

in this case have to be dismissed under Pilot Life raise. no

comparable universal benefits. Instead, what U.S. Healthcare

6. The Solicitor General’s brief to the Pennsylvania Supreme

Court pointed to the same language in Pegram to support

the government’s contention that the HMO’s decision in this case

was a “mixed treatment and eligibility decision.” Respondents’

App., p. 17a.

17

seeks would benefit only itself and other HMOs: complete

immunity from any malpractice claim that can possibly be

linked to some ERISA plan.

Further consideration of that argument elicits an

additional distinction between this case and Pilot Life that

U.S. Healthcare’s arguments fail to appreciate. When

Congress entered the field of employee benefit plan

regulation through the enactment of ERISA, the legislative

choice was between state diversity and federal uniformity,

not between a contractual cause of action and no cause of

action whatsoever. Congress gave ERISA participants and

beneficiaries some contractual cause of action and some relief

akin to the cause of action and the relief asserted by the

claimant in Pilot Life. Because the Pilot Life plaintiff retained

the federal cause of action and remedies provided by ERISA

with respect to the insurer’s denial of benefits, the task of

your Honorable Court in that case was to determine whether

that cause of action and its remedies could be enlarged by

the state cause of action and remedy. However, in the context

of a health care malpractice action against a service provider,

such as this case, the pertinent considerations are very

different. In essence, U.S. Healthcare urges the courts to rule

that Congress obliterated a traditional state field of law

without providing a parallel federal field of law as it did

with respect to the essentially contractual terms of ERISA.’

Without a stronger indication of congressional intent beyond

what U.S. Healthcare divines from the absence of a

malpractice cause of action in ERISA, no court should

assume that Congress intended to eradicate state health care

malpractice actions against service providers such as the

HMO in this case.

7. That the congressional usurpation was limited to essentially

contractual matters is evident in the remedial provisions of ERISA’s

Section 502(a), as set forth in 29 U.S.C. § 1132(a).

18

C. Whatever Need There May Be For Further

Clarification By Your Honorable Court Can Be

Delivered By A Grant Of Certiorari And Summary

Affirmance Of The Decision Of The Pennsylvania

Supreme Court

1. Like The Pennsylvania Supreme Court, Most

Lower Courts Have Correctly Understood And

Followed Your Honorable Court’s Decisions In

Travelers, DeBuono, And Pegram

In the past, lower court decisions with respect to the

extent of ERISA’s preemption have varied markedly and

incompatibly. Notably, nearly all inconsistencies occurred

prior to the decisions handed down by your Honorable Court

in Travelers, DeBuono and Dillingham. Importantly,

however, as one author has recognized, Travelers “provides

much needed guidance for courts asked to identify the line

delimiting state laws that Congress intended to preempt. . .”

K. Jordan, Travelers Insurance: New Support for the

Argument to Restrain ERISA Pre-emption, 13 Yale J. Reg.

255, 290 (1996).

In addition to the decision of the Pennsylvania Supreme

Court, Travelers’ influence is now emerging in decisions of

other lower courts, limiting ERISA preemption of state law

tort claims. These courts have applied 7ravelers and

its progeny to come to a more functional definition of

“relate to”. See, for example, Corporate Health Ins. v.

Texas Dept. of Ins. 215 F.3d 526, 535 (Sth Cir. 2000) (holding

that a state law allowing suit for claims of negligent delivery

of medical services and imposing vicarious liability on

managed care entities is not preempted); Crum v. Health

Alliance-Midwest, Inc., 47 F. Supp.2d 1013 (C.D. Ill. 1999)

19

(noting that a claim for failure to diagnose myocardial

infarction would not be preempted under § 514(a));

Prudential Ins. Co. of America v. Doe, 46 F. Supp.2d 925

(E.D. Mo. 1999) (determining that claims for emotional

distress and invasion of privacy are not preempted);

Phommyvong v. Muniz, No. 3:98-CV-0070-L, 1999 US. Dist.

LEXIS 3101, *10 (N.D. Tex. March 11, 1999) (concluding

ERISA preemption does not apply to claims based upon

quality of care received); Moreno v. Health Partners Health

Plan, 4 F. Supp.2d 888, 893 (D. Ariz. 1998) (finding

“no relation between an action for medical malpractice and

the recovery of benefits or the clarification of rights to future

benefits under an ERISA plan.”); Ray v. Value Behavioral

Health, Inc., 967 F. Supp. 417, 423 (D. Nev. 1997)

(finding claims for negligence, invasion of privacy and

infliction of emotional distress are “exactly the sort of

generally applicable personal injury laws that § 514 of ERISA

does not preempt.”’); Dykema v. King, 959 F. Supp. 736, 739

(D.S.C. 1997) (agreeing that a claim of direct liability for

failure to diagnose pulmonary embolism does not “relate to”

an ERISA plan); Nascimento v. Harvard Community Health

Plan, No. 94-2543, 1997 Mass. Super. LEXIS 166, *27

(Mass. Super. Sept. 26, 1997) (holding that the provisions

of ERISA do not preempt a claim for failure to provide bone

marrow transplantation therapy); Nealy v. U.S. Healthcare,

93 N.Y.2d 219-220 (1999) (noting claims for failure to take

reasonable steps to provide for patient’s timely treatment by

specialist do not “relate to” the administration of an ERISA

plan). Each of these decisions is compatible with “the general

tenor of recent [Supreme] Court cases that reemphasize the

strength and vitality of the presumption against ERISA pre-

emption of laws of general application.” R. Charrow and L.

Greenlees, ERISA Pre-Emption — A Law in Search of a

Doctrine, Health L. Dig., March 1999 at 14.

20

In like manner, the United States Court of Appeals for

the Third Circuit recognized the Travelers approach to

determining claims of ERISA preemption and rejected the

HMOs’ claims in similar factual cases in Dukes v. U.S.

Healthcare, 57 F.3d 350 (3d Cir.), cert. den., 516 U.S. 1009

(1995), In Re: U.S. Healthcare, Inc., 193 F.3d 151

(3d Cir. 1999), cert. den., 530 U.S. 1242 (2000) (“Bauman’’),

and in Lazorko v. Pennsylvania Hospital, 237 F.3d 242

(3d Cir. 2000), cert. den. sub nom, Aetna U.S. Healthcare v.

Lazorko, 121 S. Ct. 2552, 2001 U.S. LEXIS 4732 (2001).

2. Any Confusion Caused By The Third Circuit’s

Most Recent Decision In Pryzbowski And In Other

Decisions That Apparently Depart From Your

Honorable Court’s Decisions In Travelers,

DeBuono, And Pegram Can Be Resolved By

Summary Affirmance Of Pappas II And

Disapproval Of The Contrary Decisions

As the petition for writ of certiorari suggests (Petition,

p. 18), the analysis and decision of the Third Circuit in

Pryzbowski could be read to conflict with the analysis and

decision of the Pennsylvania Supreme Court in Pappas II.

Yet, since the delay in that case which allegedly caused the

harm, was not a delay caused by a negligent medical judgment

to refer a patient to providers incapable of providing needed

care in a timely fashion, but rather was a delay in the benefit

determination process itself, Pryzbowski is arguably

distinguishable as a benefit determination. Even if read to

conflict with Pappas II, the precedential value of Pryzbowski

is highly suspect because it is a panel decision which facially

conflicts impermissibly with the prior and binding Third

Circuit panel decisions in Dukes, Bauman, and Lazorko,

despite the Pryzbowski panel’s attempts to distinguish those

21

\

cases. Furthermore, the precedential value of Pryzbowski is

questionable because its analysis and decision appears clearly

at odds with your Honorable Court’s pronouncements in

Pegram.

Petitioner criticizes the Pennsylvania Supreme Court

for not addressing Pryzbowski “in the face of Justice Saylor’s

discussion of Pryzbowski in his dissent” (Petition, p. 19).

But it was, most likely, the institutional weakness

of Pryzbowski that prompted Justice Saylor to relegate it

to footnotes and to attempt to distinguish it (App. note 3 at

pp. | 7a-18a; note 6 at p. 20a), and why the majority opinion

did not see fit to discuss it. Moreover, while the Pryzbowski

panel interpreted and applied Pegram differently from the

majority of the Pennsylvania Supreme Court, Justice Saylor

“agree[d] with the majority that nothing in Pegram requires

a full reversal of its prior decision” (App. 16a).

To the extent that your Honorable Court believes that

further clarification of the law with respect to personal injury

malpractice claims against HMO health care service

providers is necessary, respondents respectfully suggest that

the message can be delivered quickly and forcibly by the

Court’s simply granting the petition for writ of certiorari,

summarily affirming Pappas JI in light of Pegram, and noting

its disagreement with Pryzbowski and similar cases.

22

CONCLUSION

Because the decision of the Pennsylvania Supreme Court

is fully consistent with your Honorable Court’s holdings in

Travelers, DeBuono, and Pegram, respondents respectfully

suggest that your Court deny the HMO’s petition for writ of

certiorari in this case, as it did in Aetna U.S. Healthcare v.

Lazorko, 121 S. Ct. 2552, 2001 U.S. LEXIS 4732 (2001),

and in U.S. Healthcare, Inc. vy. Bauman, 530 U.S. 1242

(2000).

In the alternative, respondents respectfully suggest that

your Honorable Court provide further guidance to the lower

courts and resolve the apparent discrepancies among their

reported decisions by granting the petition for writ of

certiorari, summarily affirming the decision of the

Pennsylvania Supreme Court in light of Pegram, and noting

its disagreement with the apparently contrary decisions, such

as Pryzbowski.

Respectfully submitted,

CHARLES W. CRAVEN

Counsel of Record

STEPHEN A. RYAN

MARION H. GriFFIN

MARSHALL, DENNEHEY, WARNER,

COLEMAN & GOGGIN

1845 Walnut Street

Philadelphia, PA 10103

(215) 575-2600

Counsel for Respondents

APPENDIX

la

APPENDIX — BRIEF FOR THE SECRETARY OF

THE UNITED STATES DEPARTMENT OF LABOR

AS AMICUS CURIAE DATED SEPTEMBER 22, 2000

IN THE

SUPREME COURT OF PENNSYLVANIA

No. 0098 E.D. Appeal Docket 1996

BASILE PAPPAS & THEODORA PAPPAS, H/W,

Plaintiffs,

Vv.

DAVID S. ASBEL, D.O.,

Defendant,

PENNSYLVANIA HOSPITAL INSURANCE CO. (PHICO)

and THE COMMONWEALTH OF PENNSYLVANIA

MEDICAL PROFESSIONAL LIABILITY CATASTROPHE

LOSS FUND (CAT FUND),

Defendants/ Appellees,

v.

UNITED STATES HEALTHCARE SYSTEMS

OF PENNSYLVANIA, INC.,

Additional Defendant/Appellant.

BRIEF FOR THE SECRETARY OF THE UNITED STATES

DEPARTMENT OF LABOR AS AMICUS CURIAE

2a

Appendix

On Remand from the Order of the United States

Supreme Court, No. 98-1836, dated June 19, 2000

Henry L. Solano, Solicitor of Labor

Nathaniel I. Spiller, Deputy Associate Solicitor

Edward D. Sieger and Wayne R. Berry, Attorneys

United States Department of Labor

200 Constitution Ave., N.W., Rm. N-2700

Washington, D.C. 20210

(202) 219-8247

Counsel for the Secretary of Labor

‘ 3a

Appendix

STATEMENT OF THE QUESTION INVOLVED

Whether, in light of Pegram v. Herdrich, 1208S. Ct. 2143

(2000), Section 514(a) of the Employee-Retirement Income

Security Act (ERISA), 29 U.S.C. 1 144(a), preempts a state law

action arising from a health maintenance organization’s alleged

negligence in denying authorization for certain emergency

medical treatment under an ERISA-governed plan.

* * *

INTEREST OF THE SECRETARY OF LABOR

At the request of the United States Supreme Court, the

Solicitor General, on behalf of the Secretary, filed a brief

expressing views on whether to grant United States

Healthcare’s (USHC’s) certiorari petition in this case, which

sought review of this Court’s decision in Pappas v. Asbel,

555 Pa. 342, 724 A.2d 889 (1998).' The government argued

1. The Secretary of the United States Department of Labor has

a strong interest in preemption issues under the Employee Retirement

Income Security Act (ERISA) because the Secretary is charged with

administering and enforcing Title I of ERISA. See 29 U.S.C.

1002(13) (defining “Secretary”), 1132(a)(2), (5), 1135. The

Secretary has participated as amicus curiae in a number of cases

raising ERISA preemption issues in federal and state courts in the

health care context. See, e.g., Nealy v. US Healthcare HMO, 711

N.E.2d 621 (N.Y. 1999); In re U.S. Healthcare, Inc., 193 F.3d 151

(3d Cir. 1999), cert. denied, 120 S. Ct. 2687 (2000). The Solicitor

General of the United States has also presented the Secretary’s views

to the United States Supreme Court in such cases. See, e.g.,

De Buono v. NYSA-ILA Med. & Clinical Servs. F und, 520 U.S. 806

(1997); New York State Conference of Blue Cross & Blue Shield

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

4a

Appendix

that, under existing law, the 1998 decision was overbroad

and incorrect as applied to the facts as we understood them.

The government asked the United States Supreme Court

either to grant certiorari or to dispose of USHC’s certiorari

petition in light of the Court’s disposition of Pegram v.

Herdrich, 120 S. Ct. 2143 (2000), which was then pending

before the Court.

On June 19, 2000, the United States Supreme Court

vacated this Court’s decision and remanded for

reconsideration in light of Pegram. See United States

Healthcare Sys. of Pa., Inc. v. Pennsylvania Hosp. Ins. Co.,

120 S. Ct. 2686 (2000). Because the Secretary’s views of

this case have changed in light of Pegram, and because this

is the first opportunity to express those views since Pegram,

the Secretary has a strong interest in participating in this

stage of the proceeding.

ARGUMENT

IN LIGHT OF PEGRAM, IT IS UNCERTAIN IN THE

PRESENT POSTURE OF THE CASE WHETHER

USHC IS ENTITLED TO SUMMARY JUDGMENT

ON PREEMPTION GROUNDS

A. Under Pegram, an important element in the preemption

inquiry is whether USHC made a “mixed” treatment and

eligibility decision

1. General preemption principles.

Section 514(a) of the Employee Retirement Income

Security Act of 1974 (ERISA), 29 U.S.C. 1 144(a), provides

Sa

Appendix

(with exceptions not herein relevant) that ERISA “shall

supersede any and all State laws insofar as they may now or

hereafter relate to any [ERISA-covered] employee benefit

plan.” The term “State laws” includes state common law.

See 29 U.S.C. 1144(c)(1) (term includes “decisions” having

the effect of law); Pilot Life Ins. Co. v. Dedeaux, 481 U.S.

41, 47-48 (1987). Thus, as this Court recognized, the

negligence claim against United States HealthCare of

Pennsylvania (USHC) in this case is preempted if it “relate[s]

to” the ERISA plan through which Mr. Pappas received

health maintenance organization (HMO) coverage.

See Pappas v. Asbel, 555 Pa. 342, 345 n.1, 347 n.3, 724

A.2d 889, 890 n.1, 891 n.3 (1998), vacated, 120 S. Ct. 2686

(2000).

In determining whether ERISA preempts a state law, the

Court should start with the presumption that Congress did

not want to preempt a state’s historic police powers in areas

such as regulation of medical care, unless there is a clear

and manifest intent to the contrary. New York State

Conference of Blue Cross & Blue Shield Plans v. Travelers

Ins. Co., 514 U.S. 645, 654-655, 661 (1995) A state law that

has a “reference to” or “connection with” ERISA plans is

preempted (unless too tenuous or remote); the requisite

reference or connection is determined, however, not by the

“unhelpful text” of Section 514(a)’s “relate[s] to” language

but by ERISA's objectives. Jd. at 656. Those objectives are:

‘to ensure that plans and plan sponsors would be

subject to a uniform body of benefits law; the goal

was to minimize the administrative and financial

burden of complying with conflicting directives

6a

Appendix

among States or between States and the Federal

Government ..., [and to prevent] the potential

for conflict in substantive law .. . requiring the

tailoring of plans and employer conduct to the

peculiarities of the law of each jurisdiction.’

Id. at 656-657 (citations omitted; Court’s alterations).

Thus, Section 514(a) preempts a state law that regulates

core ERISA functions, such as one that ““mandate[s] employee

benefit structures or their administration.” Travelers, 514 U.S.

at 658. Additionally, Section 514(a) preempts “alternative

enforcement mechanisms,” ibid., such as state-common law

actions for improper processing of a claim for benefits. Pilot

Life, 481 U.S. at 52-57 (such claims are preempted because,

among other things, they conflict with Congressional intent

that the civil enforcement scheme in Section 502(a) of ERISA;

29 U.S.C. 1132(a), be exclusive).2 Moreover, apart from

Section 514(a), under ordinary conflict preemption analysis,

ERISA preempts any state law that directly conflicts with

ERISA provisions (i.e., that cannot be accomplished without

violating ERISA) or frustrates its purposes. Boggs v. Boggs,

520 U.S. 833, 841 (1997); see also, Corporate Health Ins.,

Inc. v. Texas Dep't of Ins., 215 F.3d 526, 533 (Sth Cir.),

on reh’g, 220 F.3d 641 (Sth Cir. 2000).

2. The government has questioned whether Pilot Life’s reliance

on Section 502(a) of ERISA should apply to state laws that are

exempted from ERISA preemption under 29 U.S.C. 1144(b)(2)

because they regulate insurance. See UNUM Life Ins. Co. v. Ward,

526 U.S. 358, 376 n.7 (1999). Because there is no claim that the

state negligence law at issue in this case regulates insurance per se,

Pilot Life’s construction of Section 502(a) is applicable.

7a

Appendix

2. Prior proceedings in this case.

In its 1998 decision, this Court held broadly that

“negligence claims against a health maintenance organization

do not ‘relate to’ an ERISA plan,” and therefore are not

preempted. Pappas, 555 Pa. at 351, 724 A.2d at 893. The

Court declined to follow the reasoning of federal courts of

appeals holding that certain claims against HMOs are

preempted. /d. at 351 n.5, 724 A.2d at 893 n.5. See also,

e.g., Danca v. Private Health Care Sys., Inc., 185 F.3d 1,

5-7 (Ist Cir. 1999) (finding preemption under a 7ravelers

analysis); Parrino v. FHP, Inc., 146 F.3d 699, 705 (9th Cir.)

(same), cert. denied, 525 U.S. 1001 (1998).

In recommending that USHC’s certiorari petition should

be granted, the government argued that this Court’s 1998

decision was overbroad. Fundamentally, the government

argued, the decision failed to distinguish between USHC’s

role as a medical care provider and its role as the

administrator of an ERISA plan. United States Healthcare

v. Pennsylvania Hosp. Ins. Co., No. 88-1836 (U.S.), Br. for

the United States as Amicus Curiae 6-14 (USHC, USS.

Amicus Br.).> The government argued that when an HMO

provides medical services, it is sub ect to suit under state

law for negligence in performing its medical duties, but that

ERISA generally preempts state law challenges to an HMO’s

actions in making benefits determinations in its role as a

plan administrator. /d. at 10-11. Believing that a plan

coverage decision is plan administration even when medical

3. Because the parties have attached copies of the United

States’ briefs in USHC and Pegram to their supplemental filings,

we do not attach additional copies here.

8a

Appendix

judgment is “an adjunct” to it, id. at 11, the government stated

that on “undisputed” but limited facts of record in this case,

this Court did not suggest that USHC “exercised any medical

judgment at all,” id. at 12, and that the state negligence action

“necessarily” challenged a benefits determination by USHC.

Id. at 13; see also id. at 15 (arguing that the 1998 decision

conflicted with Pilot Life). The government suggested that

the United States Supreme Court should grant USHC’s

certiorari petition and either set the case for briefing or vacate

this Court’s 1998 decision and remand for reconsideration

in light of Pegram v. Herdrich, 120S. Ct. 2143 (2000), which

had not yet been decided.‘

4. The government argued that, if the United States Supreme

Court agreed with the physician-petitioner in Pegram that the

intended “benefit” from an HMO is simply membership in the HMO,

rather than provision of medical benefits, then the conduct of USHC

would not involve a claim for “benefits” under an ERISA plan and

would therefore likely not be preempted. USHC, U.S. Amicus Br.

19. (The United States Supreme Court did not adopt that categorical

argument that the actions of an HMO never constitute plan

administration.) The government also argued that if the Court held

in Pegram that some of the claims in that case involved

“administration” and are governed by ERISA, that would effectively

hold or strongly imply that claims “such as the negligence action

against USHC were preempted. /bid. Consistent with that argument,

the government argued in Pegram that, to the extent the physician

incentives at issue in that case constituted plan administration, they

involved fiduciary conduct subject to ERISA. The Court, however,

held that the HMO’s “mixed” treatment and eligibility decisions

were not subject to ERISA’s fiduciary standards. See Pegram, 120

S. Ct. at 2151-2158.

Pia intataeny pe geae aiyreva2 NMP Tae Sia dash ech lab ital schemas aan BABE

9a

Appendix

3. The Pegram decision and its effect on this case.

In Pegram, the United States Supreme Court addressed

the scope of fiduciary liability under ERISA. In the course

of doing so, it established two overlapping principles that

are relevant to this Court’s disposition of the instant case.

First, Pegram agreed with the government that an HMO

may act both as plan administrator and as a medical care

provider. Pegram, 1208S. Ct. at 2147. In particular, the Court

ascribed different roles to HMOs depending on whether they

are delivering medical care, making coverage determinations

as insurers do, or administering an ERISA plan. See id. at

2149, 2151. The Court explained that the term “plan” means

“a scheme decided upon in advance,” and here “comprises a

set of rules that define the rights of a beneficiary and provide

for their enforcement.” Jd. at 2151. Thus, while documents

setting up the HMO are not an ERISA plan, “the agreement

between an HMO and an employer who pays the premiums

may, as here, provide elements of a plan by setting out the

rules under which beneficiaries will be entitled to care.” Jbid.

The Court reasoned that an HMO may be an ERISA fiduciary

“if it administers the plan.” Jbid.

In discussing an HMO’s roles as a medical care provider,

the Court distinguished HMOs from traditional fee-for-

service provider. In particular, the Court reasoned that an

HMO, unlike the fee-for-service providers, agrees to provide

specified health care, if needed, for a fixed fee and thus

assumes the financial risk that the cost of treatment will

exceed the fees received. Pegram, 120 S. Ct. at 2149. The

financial incentives in an HMO system are thus to provide

10a

Appendix

less care, not more. /bid. No HMO organization, according

to the Court, could survive without some incentive

connecting physician reward with treatment rationing. /d. at

2150.

The second principle that derives from Pegram is that

ERISA does not preempt state law that applies to the HMO’s

medical treatment decisions, even when they are what the

Court described as “mixed” treatment and eligibility

decisions. The Court reasoned that an HMO, acting through

its physicians, makes three kinds of decisions: treatment

decisions, pure eligibility decisions, and mixed treatment and

eligibility decisions. 120 S. Ct. at 2153-2155. The Court

described “treatment decisions” as “choices about how to

go about diagnosing and treating 2 patient’s condition: given

a patient’s constellation of symptoms, what is the appropriate

medical response?” Jd. at 2154. “Pure eligibility” decisions

are ones that “turn on the plan’s coverage of a particular

condition or medical procedure for its treatment.” Ibid.

“Mixed” treatment and eligibility decisions arise when

treatment and pure eligibility decisions “are . . . practically

inextricable from one another.” Jbid. In the Court’s view,

“many and possibly most coverage” questions are likely to

require “mixed” treatment and coverage decisions because

they are not “simple yes-or-no questions, like whether

appendicitis is a covered condition (when there is no dispute

that a patient has appendicitis), or whether acupuncture is a

covered procedure for pain relief (when the claim of pain is

unchallenged).” Jbid. A coverage question that requires

medical judgments about “when-and-how” to provide

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Appendix

treatment gives rise to a “mixed” medical-treatment and

eligibility decision. /bid.‘

Pegram holds that “treatment” decisions and “mixed”

treatment and eligibility decisions by physician employees

of an HMO are governed by state malpractice standards and

not by ERISA fiduciary standards. 120 S. Ct. at 2147,

2157-2158. Indeed, the Court found no “value” in

recognizing an ERISA action because such an action “would

simply apply the law already available in state courts and

federal diversity actions today.” Jd. at 2158. Pegram thus

rejected the government’s understanding, expressed in its

briefs in USHC and in Pegram and based on the pre-Pegram

case law from various federal courts, that an HMO’s coverage

decision is plan administration that is subject to ERISA’s

fiduciary standards even when it involves medical judgment

about how to treat a patient, and regardless of whether it is

made before or after treatment is provided.°

5. In other words, generally speaking, an HMO is wearing its

medical provider hat when making treatment decisions, its plan

administrator hat when making pure eligibility decisions, and both

hats when making “mixed” decisions.

6. The HMO in Pegram was owned by its physicians, who

made “mixed” eligibility decisions in the course of treating patients.

See 120 S. Ct. at 2147. HMOs such as USHC that contract with

independent physicians to provide services make the same kind of

decisions in the course of reviewing decisions by treating physicians.

Because Pegram’s holding, that ERISA’s fiduciary standards do

not govern “mixed” treatment and eligibility decisions by HMO

physicians, turns on the nature of the decision, and not on the

structure of the HMO making the decision, the logic of Pegram

(Cont'd)

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We believe that the United States Supreme Court, by

vacating and remanding this Court’s decision for

reconsideration in light of Pegram, has requested this Court

to consider and apply the two principles discussed above.

We conclude that, following this approach, the Court should

hold that USHC may have made a “mixed” treatment and

eligibility decision and, if it did, ERISA does not preempt a

state negligence action challenging the decision.’ We also

conclude that the case should be remanded for further

development of the facts necessary to address the preemption

question.

B. The negligence action in this case is not preempted to

the extent that it challenges a “mixed” medical-

treatment and eligibility decisiow

1. State law governing “mixed” decisions is generally

not preempted.

- As discussed above, Travelers requires a court to begin

with the presumption that ERISA does not preempt state law

(Cont'd)

applies to this case. See id. at 2155 (“Congress did not intend [the

HMO in that case] or any other HMO to be treated as a fiduciary to

the extent that it makes mixed eligibility decisions acting through

its physicians”) (emphasis added).

7. Different considerations may apply when an HMO, or other

managed care entity, uses medical judgment in deciding whether a

claim for treatment that has already been provided should be paid.

Those are the sorts of decisions that insurance companies routinely

make in determining whether payment should be made under a

fee-for-service ERISA plan.

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shila boc elses ead ue atmo ote ee

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actions in the field of health care. Rather, as Pegram

confirms, a “clear manifestation of congressional purpose”

is necessary for preemption in that area of traditional state

concern and authority. Pegram, 120 S. Ct. at 2158.

There is no such manifestation of preemptive intent with

respect to the general category of treatment decisions that

are intertwined with eligibility determinations by an HMO,

l.é., COVerage decisions that involve or implicate medical

judgments (and thus involve or implicate the HMO’s role as

a health care provider). ERISA’s overriding purpose is to

protect the interests of participants and beneficiaries, see 29

U.S.C. 1001(b), and Section 514(a) was enacted to “round

out the protection afforded participants by eliminating the

threat of conflicting and inconsistent State and local

regulation.” 120 Cong. Rec. 29,197 (1974 (statement of Rep.

Dent). Section 514 (a) will not round out any protection to

Participants if an HMO can escape responsibility as an

ERISA fiduciary for its “mixed eligibility decisions,” as

Pegram holds, and also avoid state malpractice law.® Instead,

there will be a gap in protection as courts have recognized.

See, e.g., Corcoran v. United Healthcare, Inc., 965 F.2d

1321, 1333 (5th Cir.), cert. denied, 506 U.S. 1033 (1992).

8. Section 514 (a), as enacted, was drafted in conference, and

there is little legislative history explaining how far it extends.

See Shaw v. Delta Air Lines, Inc., 463 U.S. 85, 98-100 ( 1983). The

primary sponsors in the Senate understood that ERISA would not

preempt local bar associations’ regulation of attorneys as attorneys,

although it would preempt attempts to regulate the form and content of

pre-paid legal services plans. 120 Cong. Rec. at 29,949 (statements of

Sen. Javits and Sen. Williams). Legislators therefore appear to have

been concerned with protecting the structure, form, and content of

plans, not with relieving professionals of their liability for malpractice.

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Moreover, allowing state law challenges to medical

judgments made in the context of an HMO’s mixed treatment

~ and eligibility decisions should not defeat ERISA’s goal of

ensuring that plans and plan sponsors would be subject to a

uniform body of benefits law and not face the administrative

and financial burdens of complying with conflicting state

laws. See Travelers, 514 U.S. at 656. A “mixed” treatment

and eligibility decision involves “when-and-how” questions

of treatment and coverage that require the application of

medical standards to the facts of particular cases.

See Pegram, 120 S. Ct. at 2154-2155. In general, state tort

law “would not threaten uniformity because the

determination is an individualized decision that dictates

nothing regarding the treatment to be afforded in the next

individualized case.” Peter D. Jacobson & Scott D. Pomfret,

Form, Function, and Managed Care Torts: Achieving

Fairness and Equity in ERISA Jurisprudence, 35 Hous. L.

Rev. 985, 1058 (1998); see also id. at 1064 (criticizing federal

appellate decisions holding that ERISA preempts state

actions challenging HMO utilization review decisions

because “UR involves the individualized application of a

standard to particular clinical symptoms”). We see no reason

why this general rule against preemption of “mixed”

eligibility and treatment decisions should not apply in the

circumstances of this case.’

9. Although Pilot Life, 481 U.S. at 48-57, holds that ERISA

preempts state law actions alleging that an insurer had improperly

processed a claim for disability benefits, the disability claim at issue

in Pilot Life did not involve a claim for medical treatment.

See Black's Law Dictionary 804 (7th ed. 1999) (defining “[d]isability

insurance” as “[cloverage purchased to protect a person from a loss of

income during a period of incapacity for work”). Accordingly, the

reasoning in Pegram, rather than Pilot Life, is applicable in this case.

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2. The claim at issue may involve a “mixed” treatment

and eligibility decision

The negligence action in this case concerns USHC’s

response to a May 1991 medical emergency involving Basile

Pappas, a participant in USHC’s HMO. Mr. Pappas was in

the emergency room at Haverford Community -Hospital,

complaining of paralysis and numbness in his extremities.

Pappas, 555 Pa. at 344, 724 A.2d at 890. The emergency

room physician, Dr. Dickter, diagnosed a probable epidural

abscess pressing on Mr. Pappas’s spine, requiring immediate

surgery. /bid. Dr. Dickter arranged to transfer Pappas to a

hospital with a spinal cord trauma unit that was able to

commit to his immediate admission, but the ambulance

service that was to transfer Pappas told Dr. Dickter that

USHC would not authorize transfer to that hospital. /d. at

344-345, 724 A.2d at 890.

Dr. Dickter called USHC to explain that the situation

was a neurological emergency. R 67a: see Pappas v. Asbel,

450 Pa. Super. 162, 166, 675 A.2d 71 1, 713 (1996), aff'd,

555 Pa. 342, 724 A.2d. 889 (1998), vacated, 120 S. Ct. 2686

(2000). A USHC representative reportedly consulted with a

USHC doctor and, fifteen minutes later, another USHC

representative called back to confirm that USHC would not

authorize the transfer because the transferee hospital was

not a USHC participating hospital. R 67a-68a; Pappas, 450

Pa. Super. at 166, 675 A.2d at 713. The representative did

State that USHC would cover treatment at any of three other

Participating hospitals, however. R 67a-68a; Pappas, 555

Pa. at 344-345, 724 A.2d at 890. In fact, under the terms of

the plan, the HMO did not require pre-certification for

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emergency care or restrict where such care could be provided.

R 156a, 158a."°

USHC’s alleged negligence thus arises from its

involvement in the decision on how to treat a medical

emergency. In particular, the negligence claim brought by

appellees incorporates the allegations by Mr. Pappas that

Haverford damaged his spine by delaying inordinately his

transfer, alleges further that USHC refused to authorize the

transfer that Haverford selected, and asserts that if Mr. and

Mrs. Pappas prevailed against Haverford, USHC would be

liable to Haverford for that award. R 12a-13a, 19a.

As the government argued to the United States Supreme

Court, there has been no determination that USHC exercised

any medical judgment. USHC, U.S. Amicus Br. 12.

Nevertheless, Dr. Dickter’s attempt to explain that he had a

neurological emergency, and the involvement of a USHC

physician in USHC’s decision, suggest that USHC’s transfer

decision may have involved some exercise of medical

judgment as to whether an emergency existed or, assuming

10. The federal Health Maintenance Organization (HMO) Act

similarly requires USHC to reimburse a member for expenses the

member incurs for care outside its organization when it is “medically

necessary and immediately required because of an unforeseen illness,

injury, or condition.” 42 U.S.C. 300e(b)(4); see also 42 C.F.R.

417-103(e)(1) (same); Dukes v. U.S. Healthcare, Inc., 57 F.3d 350,

352 (3d Cir.) (USHC is “a federally qualified health maintenance

organization”), cert. denied, 516 U.S. 1009 (1995). Since 1996,

Pennsylvania has required state-regulated HMOs and other

organizations to pay for or provide medically necessary services

due to a medical emergency. 40 Pa. Cons. Stat. §§ 3041, 3042 (West

1999).

ee Sanne

S 17a

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an emergency existed, whether the non-affiliated hospital

that Dr. Dickter secommended was as well-equipped as the

HMO.-affiliated hospitals to deal with the emergency. In

either case, USHC would have made a mixed treatment and

eligibility decision.'' See Pegram, 120 S. Ct. at 2155 (such

“mixed” questions include, among other things, doctors’

conclusions about “making referrals to physicians and

facilities other than [the HMO’s]” and “the emergency

character of a medical condition”).

Because the case was decided on USHC’s motion for

summary judgment — and because it is possible that USHC

made a “mixed” medical-treatment and eligibility decision

such that a state-law medical malpractice or corporate

negligence action challenging USHC’s medical judgment

would not be preempted for reasons discussed above — we

Suggest that the Court may wish to vacate the summary

judgment in favor of USHC and remand the case for further

proceedings on that issue in light of Pegram. See Pappas,

555 Pa. at 346, 724 A.2d at 891 (on summary judgment, “all

doubts as to the existence of a genuine issue of material fact

must be resolved against the moving party’’).

Under Pegram, 120 S. Ct. at 2154, a “pure” eligibility

decision is one that “turn{s] on the plan’s coverage of a

particular condition or medical procedure for its treatment,”

and decides a “yes-or-no” question, “like whether

appendicitis is a covered condition (when there is no dispute

11. Justice Nigro concluded that USHC’s actions “constituted,

in effect, an individual medical decision or judgment as opposed to

a decision affecting the administration of an employee benefit plan.”

Pappas, 555 Pa. at 385, 724 A.2d at 894 (Nigro, J., concurring).

18a

Appendix

that a patient has appendicitis), or whether acupuncture is a

covered procedure for pain relief (when the claim of pain is

unchallenged).” A state law action challenging a pure

eligibility decision could raise preemption concerns because

a pure eligibility decision interprets what the plan means,

not just for one claimant but for all claimants with that

condition. Allowing state law to govern questions that “turn

on the plan’s coverage,” ibid., could lead to state court

-decisions mandating coverage, contrary to the intent of the

plan sponsor, and to different results in different states,

depending on how state law applies to issues of plan

interpretation. State laws that “mandate[ ] employee benefit

structures or their administration” are preempted under

United States Supreme Court precedents (unless saved as

insurance regulation). See, e.g., Travelers, 514 U.S. at 658.

In this case, USHC could arguably have made a “pure”

eligibility decision if it simply misread its plan, contrary to

the terms of the plan and its obligations under the federal

HMO Act, see supra, p. 15 & note 10, to require that

emergencies be handled only by hospitals affiliated with the

HMO. If so, then it would be necessary to consider whether,

notwithstanding ERISA’s preemption clause, state regulation

of medical care may extend (with respect to emergency

treatment or more generally) to regulating an entity that

undertakes to provide medical care but fails to do so, even

in acontext in which the HMO is making a “pure” eligibility

decision.

We take no position on that issue here. In our view, there

is insufficient information about both the nature of the legal

claim that is being asserted in this case and the underlying

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Appendix

facts concerning USHC’s conduct to allow a full exploration

of that issue by this Court in the current posture of the case.

We do not know, for example, whether any state-law duty

that might be alleged even in the absence of any exercise of

medical judgment by USHC arises from a “corporate

negligence” theory or some other source. See Pappas v.

Asbel, No. 0098 E.D. App. Dkt. 1996 (Pa.), Br. of American

Med. Ass’n as Amicus Curiae 26-27 (discussing various

theories of negligence).'2 Some courts have held that HMOs

and their physicians have certain duties as medical care

providers that may give rise to nonpreempted state law

actions. See Jn re U.S. Healthcare,-Inc., 193 F.3d 151,

163-164 (3d Cir. 1999) (Section 502(a) of ERISA does not

preempt charge that HMO was negligent in adopting hospital

utilization policies that discouraged certain hospital

admissions; plaintiffs “seek recovery for decisions that [the

HMO] made in Providing and arranging medical services”),

cert. denied, 120 S. Ct. 2687 (2000); Nealy v. US Healthcare

HMO, 711 N.E.2d 621 (N.Y. 1999) (claim that primary care

physician negligently failed to submit a timely specialist

referral form to an HMO for approval fell within the

12. See also Thompson v. Nason Hosp., 527 Pa. 330, 339-340,

591 A.2d 703, 707 (1991) (applying “corporate negligence” doctrine

to hospitals); Shannon v. McNulty, 718 A.2d 828, 831, 835-836 (Pa.

Super. Ct. 1998) (extending doctrine to HMOs); Jones v. Chicago

HMO Ltd., 730 N.E.2d 11 19, 1128-1129 (Il. 2000) (same);

Thompson, 527 Pa. at 340, 591 A.2d at 708 (one who undertakes to

render services to another which he should recognize as necessary

to protect the other’s person may be subject to liability for physical

harm resulting from his failure to exercise reasonable care in the

undertaking); McClellan v. Health Maintenance Org. of Pa., 413

Pa. Super. 128, 139-141, 604 A.2d 1053, 1059 (applying principle

to HMO), allocatur denied, 532 Pa. 664, 616 A.2d 985 (1992).

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traditional domain of state regulation of health care and was

not preempted by ERISA); USHC U.S. Amicus Br. 14 n.9

(if Dr. Asbel, the primary care physician in this case, was a

network provider, the Pappases could have alleged that

USHC was vicariously liable for his malpractice or directly

negligent in selecting him as a provider, but no such claims

were made). Here, however, the question would be whether

breach of any such state-law duty by an HMO is actionable

when it occurs in connection with a “pure” eligibility decision

in construing coverage under an ERISA plan. Pegram does

not address that specific question.

For these reasons, we suggest that the Court remand the

case for further development on what state law negligence

claims are being alleged and for further development of the

facts before addressing the preemption question. Cf. Pegram,

120S. Ct. at 2153 (pleadings must “be parsed very carefully”

to understand what acts are at issue) In particular, on remand,

the Court of Common Pleas may make a factual finding

whether USHC made a mixed medical-treatment and

eligibility decision, in which event a state-law malpractice

or other negligence action challenging the medical decision

would not be preempted. If that court finds that USHC did

not make a mixed medical-treatment and eligibility decision,

the court could then consider whether USHC breached some

other state-law duty that might be alleged under whatever

facts are found and, if so, consider in the first instance

whether any such state law duty is preempted by ERISA.

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CONCLUSION

The judgment of the Superior Court should be vacated

and the case should be remanded for further proceedings as

described herein.

Respectfully submitted.

SEPTEMBER 2000

HENRY L. SOLANO

Solicitor of Labor

NATHANIEL I. SPILLER

Deputy Associate Solicitor

for Special Appellate and

Supreme Court Litigation

s/ Wayne R. Berry/EDS

WAYNE R. BERRY

Pa. Bar. No. 43091

Attorneys

EDWARD D. SIEGER

U.S. Department of Labor

Rm. N-2700

200 Constitution Ave., N.W.

Washington, D.C. 20210

(202) 219-8247