Amicus Curiae Brief — Louisiana Health Health Service Service & Indemnity Co Co. v. Rapides Rapides Healthcare Healthcare (No. 06-839)

“2

4.

a

No. 06-839

IN THE ?

Supreme Court of the Anited States

LOUISIANA HEALTH SERVICE & INDEMNITY CoO., D/B/A

BLUE CROSS AND BLUE SHIELD OF LOUISIANA,

Petitioner,

¥.

RAPIDES HEALTHCARE SYSTEM, ET AL.,

Respondents.

On Petition for Writ of Certiorari to the

Court of Appeals for the Fifth Circuit

BRIEF FOR BLUE CROSS AND BLUE SHIELD OF ALABAMA,

BLUE CROSS AND BLUE SHIELD OF KANSAS, INC..,

BLUE CROSS AND BLUE SHIELD OF NEBRASKA,

BLUE CROSS AND BLUE SHIELD OF NORTH CAROLINA,

BLUE CROSS AND BLUE SHIELD OF SOUTH CAROLINA,

BLUECROSS BLUESHIELD OF DELAWARE, BLUE CROSS

BLUE SHIELD OF FLORIDA, INC., BLUECROSS BLUESHIELD

OF MICHIGAN, CAREFIRST OF MARYLAND, INC.,

EXCELLUS HEALTH PLAN, INC., GROUP HOSPITALIZATION

AND MEDICAL SERVICES, INC., THE REGENCE GROUP,

WELLMARK, INC., WELLPOINT, INC., AND

AMERICA’S HEALTH INSURANCE PLANS, INC.

AS AMICI CURIAE IN SUPPORT OF PETITIONER

ANTHONY F. SHELLEY

Counsel of Record

DUNCAN N. STEVENS

MILLER & CHEVALIER CHARTERED

655 15th Street NW, Suite 900

Washington, D.C. 20005

(202) 626-5800

i

TABLE OF CONTENTS

Page

RP Se FAS Ie Ce eccrpiirnnninmnitin ili

INTEREST OF THE AMICI CURIAE.......0..ccccessossssosesosseses l

SUMMARY OF ARGUMENT ..:cciccocssesccsnssvorsscenstevesssbasiene 2

FRDURPATIGITEE ‘sistetersinssinnioinidinorniuniuiiisiinbitieaadininaanimeraningendinmaaial 4

I. THE FIFTH-CRRCUFT’S DECISION

CREATES A CIRCUIT SPLIT THAT

COMPLICATES THE ADMINISTRA-

TION OF NATIONWIDE PLANS ...........::cecssescereseees 4

lil. THE FIFTH CIRCUIT’S DECISION

CONFLICTS WITH THIS COURT’S

FPN FU sovesrssenisinsiiiniicnnachainniiiniinnianaanbamnnaniin 8

A. The Fifth Circuit Decision Is

Inconsistent with the Court’s

Precedents Applying ERISA’s

PROCIPIOR PHOVIRIOR .c.ccevesececseosesersesesesvotessonseyes 9

B. The Fifth Circuit’s Decision

~Disregards the Court’s Conflict

Preemption Rulings Involving

ERISA’s Enforcement Mechanism................... 12

C. The Concurring Judge Misapplied

The Court’s Test Under ERISA’s

NE CIE os ssisiiiescstosertatnicrniomiainnael 14

ii

Il. THE FIFTH CIRCUIT’S DECISION

HAS FAR-REACHING PRACTICAL

Eh BINOUD vccvccsassercorcscecesvovovevsenvesesenceceesoveccoeneee 16

ET sssabesrecorsceeseveecsssvesootescoserecveseesscverececorseesoesers 20

ill

TABLE OF AUTHORITIES

CASES

Page

Aetna Health Inc. v. Davila,

Se Che Be GIN cisecinesnivinnntininianinibnniinnamaten 12, 13, 16

Allison v. UNUM Life Ins. Co.,

SB1 FSG TOUS CIC Car, FO acccsicctcvssevcoscesncesorsevocsvacie 16

Ark. Blue Cross & Blue Shield v. St. Mary's Hosp.,

Inc., 947 F.2d 1341 (Sth Cir. 1991)......ccccocccressorcssssccroseeee 5

Bannister v. Sorenson,

IOS P.S6 GSZ COR Car. 19 IG) crceceresessessoverssesevimnnonemmmensavie 7

Barber v. UNUM Life Ins. Co. of Am.,

SES FSG E346 CoG Cer, BOD cccccenncceresscsvcrsecrvesnsivionrecesins 16

Black & Decker Disability Plan v. Nord,

SIS UD. FEE CO ireiscccetecmniinaisiuinniccetutatannininta 13

City of Hope Nat’l Med. Ctr. v. Healthplus, Inc.,

156 F.36 ZZ3 Ci gk Cae, 19GB) aeccccecevescscevsenevcevecrescovecerevens 7

Dallas County Hosp. Dist. v. Assocs.' Health &

Welfare Plan, 293 F.3d 282 (Sth Cir. 2002)...........:cccec0e0 8

DeBartolo v. Blue Cross/Blue Shield,

2001 U.S. Dist. LEXIS 18363 (N.D. Ill. Nov. 8,

DENIED cccscicrornicicincetestnabinsniedstipewinialiaiegamaieinaenmainiandiin 7

De Buono v. NYSA-ILA Med. & Clinical Servs. Fund,

SIO UB. GEG (EGET cnccanscceneceerssecresseninntemmnnsiaunvonmath 6

Elfstrom v. N.Y. Life Ins. Co.,

SSB PDE FFE CDG enccscicstnncssnnceseninteatninenviimainmntvitiaits 10

iV

Egelhoff v. Egelhoff,

Fe ee ee i isciccacenssibatiensaiciibenaititpiiataiaaaiila passim

FMC v. Holliday,

Se a ee a csicanidoiectiniocpsieneuicliohiieniemeiiennieenaiepeinnsinn 14

Fisher v. Building Serv. 32B-J Health Fund,

1997 U.S. Dist. LEXIS 12886 (S.D.N.Y. Aug.

SERENE eat nea aa So Soe ED ee EE 8

Fort Halifax Packing Co. v. Coyne,

eg). : SRE ea NTE eT 6

Ingersoll-Rand Co. v. McClendon,

i ee I ciiisiscissicinesbintcprecnessioraveiiosceninntinneeenn 12

Kentucky Ass'n of Health Plans, Inc. v. Miller,

es ee ee itictiesianbisiniilaitipnientataishinsaiiaieiintiniii 15, 16

Kidneigh v. UNUM Life Ins. Co.,

SP SO TERE CAG Ge, FE sviceevvscnseverenescncesvevnrecvoses 16

La. Health Serv. & Indem. Co. v. Rapides Healthcare

Sys., 461 F.3d 529 (Sth Cir. 2006), petition for

cert. filed, 75 U.S.L.W. 3333 (U.S. Dec. 14,

Is PE cciitticscesenctepiinsisiapsenciaiciinincieiisoneil passim

Mackey v. Lanier Collection Agency & Serv.,

ee ee ee IE senencortoninisnandeniiincnsiieiisevsncenemsiwnseivensiods 6

Nat'l Rehabilitation Hosp. v. Manpower Int'l,

Bin I Be WE Ce. BOD ricicccrnrreceserninsnrnnersernene 8

N.Y. State Conference of Blue Cross & Blue Shield

Plans v. Travelers Ins. Co.,

Fy SF ER iccttiinieninntnninncveninpaeinmnennneeinnsenintee 3, 6, 8

Pilot Life Ins. Co. v. Dedeaux,

OE Air AE RE ED ecinisiicseciniersiresteisvenssveiisneniindiianinn 12,14

Provident Life & Accident Ins. Co. v. Sharpless,

FOF ae G8 ON Cie, BO a cecescecsssiesessonsescesstecsecivsacents 16

Renfrew Ctr. v. Blue Cross & Blue Shield of Cent.

N.Y., Inc., 1997 U.S. Dist. LEXIS 5088

ok ae Ds) on nn Tee 18

St. Francis Regional Med. Ctr. v. Blue Cross & Blue

Shield, 49 F.3d 1460 (10th Cir. 1995)........ccccseeeseeeeeeeees 5

UNUM Life Ins. Co. v. Ward,

FA hs ee ee iscevinienssisecaniniininissveneenieniants passim

Washington Hosp. Ctr. Corp. v. Group Hosp. & Med.

Servs., Inc., 758 F. Supp. 750 (D.D.C. 1991) ....18, 19, 20

STATUTES

Employee Retirement Income Security Act of 1974,

Br is ee BE OIE cikiacrctrticuninemncetnts 1

ere Fe iceeincnvicesserresineaevieiareseensussemsieaiees 9

Be ese 6 PIE ED vitsescsseterescsctecseessvonsdssavneninnpiomeciecens 9

Be re Fe I EN icc encisexctsvinecesetneeniecioctdetanenionee’ 13

Be ae ae i serlsctassescciicninintinaeanianiainasipeteanteatsaannnaae

Brees BE ND cecenseccitersnseveinsivecnssteneniaseresees 14

TE 8 PI vcssaicscnmssetvssrnciovinevinivecstisnes 14

Health Maintenance Organization Act,

TE Trice SO i ic vcetnnsnesevenssesenesersesstivetevesbesenes 17

La. Rev. Stat. Ann. § 40:2010 (2004) .....sccssecssecseeeeseeeees 13,14

vi

REGULATIONS

fie ek | cee enone: 17

MISCELLANEOUS

©; ep. Mar 99-429 VTS) acco rccvenevnnsccvnternrterecinnintnen 17

Nancy Bader, Retaining Freedom of Choice in a

Managed Care Plan, Business & Health (Oct.

TUTTE victedesioncttibisichipiatsanedinsniueiantibaiiadalinadeandppiniinieniauiiiaibeas 18

Lisa A. Krouse, Managed Care and Workers’

Compensation, 33 Tort & Ins. L.J. 849 (Spring

FUSIPTEEE cickipiniennenneaniiindindnihsdieciiapnesiiiiiaiiarisiaindiaeiiaiaimaaadite 18

Managed Care Shifts Direction, Employee Benefit

Plan Review (Feb. 2000).............00:000+8 acisnissiauisaninniusdiches 18

As Employers Look to Hang on to Workers, PPOs

Gain Favor, Business First (Dec. 8, 2000) .............. 17,18

Adnan Bull, Let’s Take the Market Forward,

Financial Adviser (June 5, 2003) ..............::ccceseceeeeeeseeeee 18

Peter R. Kongsvedt, Managed Care: What it is and

FINO SE TOOTS SF GO vvccvecectstcvovepeseticnnonvenccsesenaienisonen 18

American Association of Preferred Provider

Organizations, PPO 10]: A Comprehensive

Overview of the PPO Industry 30 (2005).............00+- 17,19

INTEREST OF THE AMICI CURIAE

Blue Cross and Blue Shield of Alabama, BlueCross

BlueShield of Delaware, Blue Cross Blue Shield of Florida,

Inc., Blue Cross and Blue Shield of Kansas, Inc., BlueCross

BlueShield of Michigan, Blue Cross and Blue Shield of

Nebraska, Blue Cross and Blue Shield of North Carolina,

Blue Cross and Blue Shield of South Carolina, CareFirst of

Maryland, Inc., Excellus BlueCross BlueShield, Group

Hospitalization and Medical Services, Inc., The Regence

Group, Wellmark, Inc., and WellPoint, Inc. are or operate

independent, locally owned Blue Cross and Blue Shield

Plans. Through insurance arrangements and administrative

services agreements with employers, employee benefits

plans, and individual subscribers, they furnish health benefits

to tens of millions of Americans. In most instances, the

provision of these benefits is governed by the Employee

Retirement Income Security Act of 1974 (“ERISA”), 29

U.S.C. §§ 1001 et seq.

America’s Health Insurance Plans, Inc. (“AHIP”’) is the

national association representing the private health plan and

insurer community. AHIP’s mission is to advance health

care quality and affordability through leadership in the health

care community, advocacy, and the provision of services to

its members. AHIP represents nearly 1,300 member

companies that insure or administer health and other

employee benefits to more than 200 million individuals, the

majority of whom are covered through ERISA-governed

plans.

The Petition for a Writ of Certiorari presents questions

concerning the states’ power to regulate essential aspects of

the administration of ERISA plans. The Fifth Circuit’s

' In accordance with Rule 37.6, the amici certify that counsel for a party

did not author this brief in whole or in part and that no entity other than

the amici, their members, or their counse! made a monetary contribution

to the preparation or submission of the brief.

decision upholds -- against a preemption challenge -- a state

law that requires ERISA plans to comply with an assignment

of health benefits payments from plan participants to

providers, even when ERISA plan provisions instruct

differently. As such, the court of appeals’ decision nullifies

critical plan terms affecting claims payment. It also

significantly undermines the ability of ERISA plans to create

provider networks designed to contain plan costs and ensure

quality care, since the promise of direct payment to a

provider only upon joining a network is often the linchpin for

a provider joining such a network. Given the decision’s

significant implications for ERISA plans, the amici -- as

entities insuring and administering ERISA plans and the

national association of health insurance plans -- have a strong

interest in the Petition.

Counsel for the parties have consented to the filing of

this amicus brief.

SUMMARY OF ARGUMENT

The Fifth Circuit’s decision addresses an area now

familiar to this Court and the lower courts: ERISA

preemption. Specifically, the issue in the case is whether

ERISA preempts Louisiana’s law requiring health benefits

plans, including ERISA plans, to accept assignments of

rights to health benefits payments, when those assignments

are from plan participants to hospitals. Because the Fifth

Circuit’s decision conflicts with the decisions of two other

circuits, is counter to this Court’s own precedents, and

undermines the ability of ERISA plan sponsors, insurers, and

administrators to create provider networks that are key to

containing plan costs and ensuring quality care, the Court

should grant the Petition.

1. The Fifth Circuit’s decision created -- as it candidly

noted -- a clear split among the circuits: the Eighth and

Tenth Circuits had already addressed the same issue and

found similar assignment laws preempted. The Fifth Circuit

attempted to play down the conflict by reasoning that the

intervening decision in New York State Conference of Blue

Cross & Blue Shield Plans v. Travelers Insurance Co., 514

U.S. 645 (1995), somehow undercut the other circuits’

determinations, but that analysis misreads Travelers. Indeed,

contrary to the Fifth Circuit’s reasoning, numerous courts

well after Travelers have relied on and followed the Eighth

and Tenth Circuits’ holdings.

2. Not only is the Fifth Circuit’s decision contrary to

the rulings of other circuits, it conflicts with this Court’s own

precedents, in particular Egelhoff v. Egelhoff, 532 U.S. 141

(2001), and UNUM Life Insurance Co. v. Ward, 526 U.S.

358 (1999), by overriding plan terms and jeopardizing

national uniformity in plan administration. The decision also

is inconsistent with this Court’s holdings that a state law

supplementing or interfering with ERISA’s comprehensive

enforcement scheme is preempted under ordinary conflict

preemption principles. The assignment statute does not

simply transfer the available ERISA cause of action from one

party to another; it creates an additional remedy, solely in the

hands of the provider, to enforce the state statute’s

assignment terms.

The Fifth Circuit’s preemption holding cannot be

salvaged, as the concurrence below attempted, through

application of ERISA’s insurance saving clause. As an

initial matter, the concurrence’s saving clause analysis does

not obviate the split in the circuits that warrants this Court’s

attention, because the majority’s opinion applies to self-

funded plans exempted from the saving clause. Hence, the

conflict with the Eighth and Tenth Circuits remains. In any

event, the Louisiana assignment statute does not, under the

applicable saving clause test, constitute an insurance

regulation, principally because it does not affect the risk

pooling arrangement between an insurer and an insured. The

statute has little to do with the substantive insurance bargain

between the insurer and the insured, but instead regulates

4

provider rights. And even if the assignment statute were a

law regulating insurance under the saving clause, the statute

would still be preempted because it conflicts with ERISA’s

exclusive enforcement mechanism.

3. The Fifth Circuit’s decision threatens a cost-

containment tool central to ERISA plans and, in fact, to the

Nation’s entire health care delivery system -- namely,

preferred provider networks. Today, rather than offering

health maintenance organization (“HMO”) plans exclusively,

employers rely on hybrid models -- the most common of

which are known as “preferred provider organizations” --

that encourage consumers to choose from a large network of

providers who have agreed to discounted prices for their

services. Such organizations are now the most prevalent

form of health benefits arrangement in the United States.

The Fifth Circuit’s decision, however, casts a pall over

the creation of preferred provider networks. A chief

incentive for a provider to join such a network is the promise

of direct payment by the plan, payment that otherwise would

be sent to the patient from whom the provider would then

have to collect. By holding that state law may require direct

payment to any provider with an assignment, the Fifth

Circuit has seriously compromised plans’ ability to establish

preferred provider networks, to the detriment of plans and

their participants. That threat to a principal structural

component of ERISA health benefits plans warrants this

Court’s review.

ARGUMENT

I. THE FIFTH CIRCUIT’S DECISION CREATES A

CIRCUIT SPLIT THAT COMPLICATES THE

ADMINISTRATION OF NATIONWIDE PLANS

The Court should grant the Petition in order to resolve a

split among the circuits. As the Fifth Circuit expressly

acknowledged, its ruling that ERISA does not preempt state

assignment laws conflicts with existing precedent from the

Eighth and Tenth Circuits. See La. Health Serv. & Indem.

Co. v. Rapides Healthcare Sys., 461 F.3d 529, 539-40 (Sth

Cir. 2006), petition for cert. filed, 75 U.S.L.W. 3333 (U.S.

Dec. 14, 2006) (No. 06-839).

In Arkansas Blue Cross & Blue Shield v. St. Mary’s

Hospital, Inc., 947 F.2d 1341 (8th Cir. 1991), the Eighth

Circuit determined that Arkansas’ similar assignment statute

was preempted under ERISA’s express preemption clause,

which provides that ERISA “shall supersede any and all

State laws insofar as they may now or hereafter relate to...

[an ERISA] plan.” 29 U.S.C. § 1144(a). For several

reasons, the Eighth Circuit concluded that the Arkansas law

“relates to” ERISA plans and consequently was preempted.

First, it found that an assignment statute directly affects the

structure of ERISA plans and the relationship between the

primary ERISA entities (the plan, the plan fiduciaries, and

the participants) by transferring to participants the power to

decide who can receive payment of ERISA benefits. 947

F.2d at 1346. Second, it determined that the state statute

affected plan administration, since it changed the procedures

by which plans determined how benefits should be paid and

subjected multi-state plans to conflicting assignment rules.

Id. at 1347-48. Third, the Eighth Circuit concluded that the

economic impact of assignment statutes was significant, for

they eliminate health care providers’ incentives to enter into

provider networks and diminish plans’ ability to reduce

costs. /d. at 1348-49.

The Tenth Circuit, for its part, found a similar statute to

be preempted because it conflicted with the structure and

provisions of ERISA itself. It “interpret[ed] ERISA as [both]

leaving the assignability of benefits to the free negotiations

and agreement of the contracting parties” and “insist[ing]

that the states not interfere with the parties’ freedom of

choice.” St. Francis Regional Med. Ctr. v. Blue Cross &

Blue Shield, 49 F.3d 1460, 1464 (10th Cir. 1995).

‘

The Fifth Circuit took direct aim at these decisions,

holding that Congress’s silence on the assignability of health

benefits indicated congressional intent to permit states to

regulate assignment issues. 461 F.3d at 540. Counter to the

other circuits’ decisions, it also concluded that the “burden

on plan administrators [was] minimal” even for multi-state

plans, because Louisiana supposedly made it easy to

recognize an assignment: “Louisiana requires all insurance

claims to be submitted on a uniform claim form that includes

space for indicating whether benefits have been assigned.”

Id. at 539.

Nonetheless, attempting to downplay the circuit split,

the Fifth Circuit suggested that this Court’s decision in New

York State Conference of Blue Cross & Blue Shield Plans v.

Travelers Ins. Co., 514 U.S. 645 (1995), somehow overruled

the Eighth and Tenth Circuits’ holdings sub silentio, by

decrying “uncritical literalism” in applying ERISA’s

preemption clause. 461 F.3d at 540. But nothing about: the

St. Mary's or St. Francis decisions involves such

“titeralism.” Both decisions conducted detailed analyses of

the factors that this Court and lower courts have considered

relevant to the “relate to” analysis under ERISA’s

preemption provision, including effects on _ plan

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

1, 9-10 (1987), and consistency with ERISA’s terms and

structure, Mackey v. Lanier Collection Agency & Service,

486 U.S. 825, 832-40 (1988). Travelers did not abolish

those factors, and indeed this Court has continued not just to

apply them but to focus on them since then in ERISA

preemption cases. See, e.g., Egelhoff v. Egelhoff, 532 US.

141, 147-48 (2001) (statute impermissibly “relate[s] to”

ERISA “because it interferes with nationally uniform plan

administration” and “runs counter” to other ERISA

provisions); UNUM Life Ins. Co. of Am. v. Ward, 526 US.

358, 379 (1999* «ule “relates to” ERISA because it “would

have a marked e.-zct on plan administration”); De Buono v.

NYSA-ILA Med. & Clinical Servs. Fund, 520 U.S. 806, 816

(1997) (assessing effect on plan administration).

Accordingly, Travelers did not overrule St. Mary’s or St.

Francis or undermine the Eighth and Tenth Circuits’

reasoning, and the conflict between those decisions and the

Fifth Circuit’s ruling is irreconcilable.

In the same vein, the Fifth Circuit suggested that

“{njeither the Eighth nor Tenth Circuits operated with the

starting assumption that Congress did not intended [sic] to

preempt state law in an area of traditional state regulations.”

461 F.3d at 540. The Eighth and Tenth Circuits, however,

acted fully in accord with the rule later articulated in

Travelers and found that clear evidence of congressional

intent to preempt the relevant field overcame any

presumption to the contrary. For example, both decisions

relied heavily on Mackey, where this Court considered the

significance of congressional silence and held in that instance

that such inaction favored a finding of no preemption; the

Eighth and Tenth Circuits grappled with that holding but

found the circumstances before them to warrant a different

result than in Mackey. That is evidence not of some now-

impermissible rush to find preemption, but of a careful

cognizance that preemption was not to be assumed and

certainly was in no manner automatic.

It is also significant that other courts have relied on the

St. Mary’s and St. Francis rulings, even after Travelers.

E.g., City of Hope Nat’l Med. Ctr. v. Healthplus, Inc., 156

F.3d 223, 229 (ist Cir. 1998) (“ERISA leaves the

assignability or non-assignability of health care benefits

under ERISA-regulated welfare plans to the negotiations of

the contracting parties.”); Bannister v. Sorenson, 103 F.3d

632, 636 (8th Cir. 1996) (St. Mary’s decision “sets forth an

analytical structure for ERISA preemption claims that

facilitates reasoned decision-making and appellate review”);

DeBartolo v. Blue Cross/Blue Shield, 2001 U.S. Dist. LEXIS

18363, *12 (N.D. Ill. Nov. 8, 2001) (finding assignment

statute preempted); see also Nat'l Rehabilitation Hosp. v.

Manpower Int'l, 3 F. Supp. 2d 1457, 1460 (D.D.C. 1998);

Fisher v. Building Serv. 32B-J Health Fund, 1997 U.S. Dist.

LEXIS 12886, *13 (S.D.N.Y. Aug. 27, 1997). Even the Fifth

Circuit in a 2002 ruling, citing St. Francis, noted that

“ERISA leaves the assignability of benefits to the free

negotiations and agreement of the contracting parties.”

Dallas County Hosp. Dist. v. Assocs.’ Health & Welfare

Plan, 293 F.3d 282, 287 n.3 (5th Cir. 2002). These courts

have found no inconsistency between Travelers and the

Eighth and Tenth Circuit rulings.

The split among the circuits is particularly problematic

because it raises the prospect that, until this Court sorts out

the matter, plans operating in multiple states will be subject

to inconsistent rules regarding assignment. State law would

need to be followed in one circuit, but not in another.

National uniformity in plan administration is one of ERISA’s

central objectives, see infra p. 9, adding urgency to the

resolution of a circuit split on a key issue affecting plan

administration.

Il. THE FIFTH CIRCUIT’S DECISION CON-FLICTS

WITH THIS COURT’S PRECEDENTS

A grant of certiorari would also enable this Court to

reverse the Fifth Circuit’s misapplication of the Court’s

ERISA preemption jurisprudence. The Fifth Circuit’s

holding cannot be reconciled with the Court’s cases applying

ERISA’s express preemption clause, especially Egelhoff v.

Egelhoff, 532 U.S. 141 (2001), and similar decisions.

Moreover, the Fifth Circuit erroneously found the Louisiana

law to escape the rule now well established in the Court’s

precedents that state law remedies supplementing or altering

ERISA’s enforcement scheme conflict with, and are

preempted by, ERISA. Finally, the concurring Judge’s

analysis of ERISA’s saving clause, whereby she rationalized

the result reached in the panel’s principal opinion, cannot be

squared with this Court’s (and lower court) decisions on the

subject.

A. The Fifth Circuit Decision Is Inconsistent with

the Court’s Precedents Applying ERISA’s

Preemption Provision

The Fifth Circuit grappled with, but ultimately

misapplied, one of the Court’s most recent decisions

applying ERISA’s preemption provision -- Egelhoff. The

State statute at issue in Egelhoff revoked the designation of a

spouse as the beneficiary of non-probate assets, including

ERISA plan benefits, upon dissolution of marriage. The

Court found that the law impermissibly bound plan

administrators “to a particular choice of rules for determining

beneficiary status.” 532 U.S. at 147. That was improper,

this Court held, because it conflicted with ERISA’s statutory

requirements that the plan “‘specify the basis on which

payments are made to and from the plan’” and that the plan

administrator follow the “‘documents and instruments

governing the plan.’” Jd. (quoting 29 U.S.C. §§ 1102(b)(4),

1104(a)(1)). Hence, the state statute “govern[ed] the

payment of benefits, a central matter-of plan administration,”

and “related to” ERISA for purposes of preemption. /d. at

160.

Egelhoff’s holding is controlling. Just as the state statute

there prohibited plan administrators from following the terms

of the plan in directing payment of benefits, and required that

benefits be paid to a recipient other than the plan’s designee,

Louisiana’s assignment statute overrides the terms of ERISA

plans and redirects payment to third-party providers. In other

words, it imposes a “choice of rules” on_ plans’

determinations of who is to receive payments from ERISA

plans: “[t]he administrators must pay benefits to the

beneficiaries chosen by state law, rather than to those

identified in the plan documents.” Egelhoff, 532 U.S. at 147.

10

In reaching its preemption conclusion, the Court in

Egelhoff also paid heed to ERISA’s concern for “national

uniform{ity]” in plan administration. /d. at 148. It was

impermissible in Egelhoff for plans to be “subject to different

legal obligations in different States,” such that plan

administrators would have to familiarize themselves with

every state’s statutes to determine whether a beneficiary

designation was valid. Jd. Louisiana’s law has the same

defects. Absent preemption of state assignment statutes,

multi-state plans would be required to consult local law in

order to determine whether to honor an insured’s assignment,

and choice-of-law rules requiring complex analyses of what

state has the greatest interest in a given transaction would

simply exacerbate the problem. Cf Egelhoff, 532 U.S. at

149.

The Fifth Circuit dismissed these concerns about

additional burdens on multi-state plans on the ground that

Louisiana had created a “uniform claim form” with an option

to indicate the assignment of benefits, thereby supposedly

simplifying any task of complying with an assignment

regime in Louisiana that differed from other states’. 461

F.3d at 539. But that hardly solves the problem, for plan

administrators must still determine whether a _ given

assignment is valid, is subject to any conditions, or has

subsequently been revoked. They must also determine

whether an assignment that does actually exist is invalid if

the box in question is not checked. The outcome of these

determinations may differ, depending on the particular state’s

assignment rules.

Nor can the decision below be harmonized with UNUM

Life Insurance Co. v. Ward, 526 U.S. 358 (1999) -- a

decision the Fifth Circuit nowhere addressed. In that case,

again applying ERISA’s preemption provision, this Court

invalidated a California rule concerning agency relationships.

The rule, adopted by the California courts in Elfstrom v. N.Y.

Life Insurance Co., 432 P.2d 731, 737 (1967) (en banc), held

1]

that an employer automatically “act[s] as [the] .. . agent” of

an insurer who pays claims, such that notice of a claim to the

employer could operate as notice to the plan’s insurer.

UNUM, 526 U.S. at 377. The rule was directly contrary to

the ERISA plan’s language, which provided that, “‘[u}nder

no circumstances will the policyholder [i.e., the employer} be

deemed the agent of the ... [insurer] without a written

authorization.”” Jd. (quoting ERISA plan).

This Court had no trouble finding that “the Elfstrom rule

‘relates to’ ERISA plans.” /d. at 379. The Court said that

“deeming the policyholder-employer the agent of the insurer

would have a marked effect on plan administration.” Jd. It

would compel the employer “to assume a role, with attendant

legal duties and consequences, that it has not undertaken

voluntarily.” Jd. “{I}t would affect not merely the plan’s

bookkeeping obligations regarding to whom benefits checks

must be sent,” but would “regulate the basic services that a

plan may or must provide to its participants and

beneficiaries,” by requiring benefits payments when the

employer, as opposed to the insurer, was timely notified of a

claim. /d. (internal quotation marks omitted).

As in UNUM, the state law at issue here creates

involuntary legal duties relating to plan administration. /d. at

378. In this case, the plan has not undertaken to pay

providers outside of its network directly; indeed, it has

renounced exactly such a policy through the plan language

itself. Furthermore, Louisiana’s law would not only and

obviously alter “the plan’s bookkeeping obligations

regarding to whom benefits checks must be sent,” it would

also add to those services provided by the plan, in that the

plan would now be required essentially to provide collection

services to out-of-network providers. Id. at 379.

Specifically, the plan contemplates a regime whereby

participants are paid for services obtained from out-of-

network providers, with the providers then having to

undertake their own collection efforts to obtain

12

reimbursement from participants. The Louisiana assignment

law makes the plan the collection vehicle for the provider,

compelling the plan to transmit to the provider the funds that,

under the plan’s terms, belong to the participant. In sum, just

as a state law forcing an ERISA plan to recognize an agency

relationship between an employer and an insurer was

preempted in UNUM, a state law compelling a plan to

recognize an agency relationship (via an assignment)

between a provider and participant is preempted.

B. The Fifth Circuit’s Decision Disregards the

Court’s Conflict Preemption Rulings Involving

ERISA’s Enforcement Mechanism

Not only is the Louisiana assignment statute preempted

under ERISA’s preemption provision, it fails under ordinary

conflict preemption principles, because it conflicts with

ERISA’s exclusive enforcement scheme. The Court most

recently stated the applicable rule in Aetna Health Inc. v.

Davila, 542 U.S. 200, 209 (2004), where it declared: “any

State-law cause of action that duplicates, supplements, or

supplants the ERISA civil enforcement remedy conflicts with

the clear congressional intent to make the ERISA remedy

exclusive and is therefore pre-empted.” Accord Ingersoll-

Rand Co. v. McClendon, 498 U.S. 133, 143-45 (1990); Pilot

Life Ins. Co. v. Dedeaux, 481 U.S. 41, 54-46 (1987).

The Fifth Circuit erroneously determined that the

Louisiana statute was consonant with ERISA’s enforcement

remedy. The court of appeals said that the state law

survived, because it “merely passes the sole enforcement

mechanism -- ERISA § 502 -- from patient to hospital; it

does not impose any additional obligation, on the ERISA

plan administrator, nor does it create additional or separate

means of enforcement.” 461 F.3d at 535.

But the Fifth Circuit misread the governing state statute.

The assignment law states:

13

When any insurance company, employee benefit

trust, self-insurance plan, or other entity has notice

of such assignment prior to such payment [made to

the insured by the company, trust, or plan] any

payment to the insured shall not release that entity

from liability to the hospital to which the benefits

have been assigned, nor shall such payment be a

defense to any action by the hospital against the

entity to collect the assigned benefits.

La. Rev. Stat. Ann. § 40:2010 (2004) (emphasis added).

The state law thus envisions, in at least some

circumstances, an action by the hospital against the plan to

collect benefits. Unless this would be an action for benefits

under ERISA’s enforcement scheme (in particular, under

ERISA § 502(a)(1)(B), 29 U.S.C. § 1132(a)(1)(B)), the

assignment statute could not possibly be said to do anything

other than create a remedy that “supplements” ERISA’s

remedial regime. Aetna, 542 U.S. at 209. Presumably, the

Fifth Circuit believed that the hospital’s remedy would be

under state law, not under ERISA § 502.

And even if the Louisiana statute (and the Fifth Circuit

in construing it) assumed the hospital’s remedy for benefits

would be under § 502, the assignment statute would fail

because it establishes a damages standard not adopted in

ERISA. See UNUM, 526 U.S. at 378 (criticizing Ninth

Circuit for remanding to lower court to determine, in context

of § 502 action, if “the claim was timely under Elfstrom”’).

Nowhere does ERISA articulate a damages rule that permits

a party (such as the hospital) fully to collect benefits

notwithstanding that another (such as the participant) has

already recovered those benefits. If such a standard is to be

read into ERISA, it is for federal courts applying a federal

common law under ERISA to determine, not for a state

legislature to mandate. See Black & Decker Disability Plan

v. Nord, 538 U.S. 822, 831 (2003) (“Congress ‘expected’

14

courts would develop ‘a federal common law of nghts and

obligations under ERISA-regulated plans’) (quoting Pilot

Life, 481 U.S. at 56).

C. The Concurring Judge Misapplied the Court’s

Test Under ERISA’s Saving Clause

Judge Owen’s concurrence would have upheld the

assignment statute on grounds that it regulates insurance and

therefore comes within ERISA’s saving clause, which

provides that “nothing in this title shall be construed to

exempt or relieve any person from any law of any State

which regulates insurance, banking, or securities.” 29 U.S.C.

§ 1144(b)(2)(A). Judge Owen, however, is mistaken,

because the saving clause is inapplicable here. -

As a threshold matter, it is important to note that, even if

Judge Owen were correct, her analysis would not obviate the

split in the circuits necessitating this Court’s review. The

“deemer clause” exception to the saving clause, 29 U.S.C.

§ 1144(b)(2)(B), exempts self-funded ERISA plans from the

saving clause’s “regulate insurance” analysis. This means

that, to the extent a state statute “relates to” ERISA and

applies to self-funded plans as opposed to insured plans, it is

still preempted, whether or not the state law qualifies as a

“saved” insurance regulation. See FMC v. Holliday, 498

U.S. 52, 61 (1990). The Louisiana assignment statute does

not limit itself simply to insured plans. See La. Rev. Stat.

Ann. § 40:2010 (including in its scope any “employee benefit

trust” or “self-insurance plan”). Hence, the Fifth Circuit

majority’s preemption analysis would remain the law of the

circuit with regard to self-funded plans even if Judge Owen’s

analysis were adopted as to insured plans. Since the

majority’s analysis is at odds with the competing Eighth and

Tenth Circuit rulings, the split would remain, and Judge

Owen’s analysis cannot avoid. the need to resolve that

disagreement.

15

In any event, the assignment law is not a saved insurance

regulation. Judge Owen cited, but then misapplied, the

saving clause test enunciated by this Court in Kentucky

Association of Health Plans, Inc. v. Miller, 538 U.S. 329

(2003). The most substantial problem with Judge Owen’s

analysis arises from Méiller’s requirement that, to be

considered an insurance regulation, a state law must

“substantially affect the risk pooling arrangement between

the insurer and the insured.” /d. at 342. The state statute in

Miller stated that an insured was entitled to payment for

services from any provider who agreed to abide by a plan’s

payment terms (even if the provider was in a category

otherwise excluded in the plan). In finding that law saved,

the Court focused on the state statute’s expansion of the

plan’s substantive coverage terms: “By expanding the

number of providers from whom an insured may receive

health services, AWP [i.e., any-willing-provider] laws alter

the scope of permissible bargains between insurers and

insureds .... No longer may Kentucky insureds seek

insurance from a closed network of health-care providers in

exchange for a lower premium.” /d. at 338-39.

The Louisiana assignment statute, by contrast, does not

affect the scope of the risks accepted by the insured and the

insurer. It does not address “whether or not an insurance

company must cover claims” or “dictate to the insurance

company the conditions under which it must pay for the risk

that it has assumed.” /d. at 339 n.3. Instead, it creates rights

for providers. The plan is liable to a provider for failing to

pay it directly, irrespective of whether the participant has

received all that to which he or she is entitled under the plan.

As a result, the Louisiana statute does not have “a substantial

effect on the risk-pooling arrangement between the insurer

16

and insured,” but on the balance of power between insurers

and providers. Jd. at 329 (emphasis added).’

Even if the Louisiana statute could be considered a law

regulating insurance under Miller, it would still be preempted

because, as already noted, the statute conflicts with ERISA’s

exclusive enforcement mechanism. This Court has noted in

Aetna and elsewhere that ERISA’s civil enforcement

provision represents an “overpowering federal policy” that

trumps even the saving clause: “even a state law that can

arguably be characterized as ‘regulating insurance’ will be

pre-empted if it provides a separate vehicle to assert a claim

for benefits outside of, or in addition to, ERISA’s remedial

scheme.” 542 U.S. at 217.

Iii. THE FIFTH CIRCUIT’S DECISION HAS FAR-

REACHING PRACTICAL IMPLICATIONS

Important practical considerations strongly favor a grant

of certiorari in this case. Many of the most common models

for employer-based health insurance rely heavily on delicate

and intricately negotiated relationships between plans and

providers. Louisiana’s assignment statute disrupts those

relationships, with potentially profound consequences for the

nation’s health care system. In particular, the statute

threatens the predominant health benefits arrangement

currently adopted by ERISA plans: preferred provider

organizations, or “PPOs.”

* Consistent with this conclusion, many lower courts since Miller have

found that state statutes do not affect the risk pooling relationship if they

do not directly affect the bargain between the insurer and insured, and

these courts have so held even if the state laws focus on the rights for

insureds as opposed to third parties. E.g., Barber v. UNUM Life Ins. Co.

of Am., 383 F.3d 134, 143 (3d Cir. 2004); Provident Life & Accident Ins.

Co. v. Sharpless, 364 F.3d 634, 641 (5th Cir. 2004); Allison v. UNUM

Life Ins. Co., 381 F.3d 1015, 1027 (10th Cir. 2004); Kidneigh v. UNUM

Life Ins. Co., 345 F.3d 1182, 1187 (10th Cir. 2003). Of course, the

Louisiana law is more problematic than even these state laws because it

does not focus on rights for insureds, but for providers who are not in any

facet part of the risk-pooling bargain.

17

Over the past thirty years, the private sector has seen

many changes to the health insurance environment. In

Congress’s view, traditional indemnity plans, which imposed

no restrictions on a patient’s choice of providers, did not

meaningfully restrain costs. See, e.g., S. Rep. No. 93-129,

3045, 3047 (1973). Therefore, starting in the 1970s,

Congress encouraged the formation of health maintenance

organizations (“HMOs”), whose hallmark is care provided by

a closed panel of providers subject to strict “procedures to

monitor utilization and control cost of basic and

supplemental health services.” 42 C.F.R. § 417.103(b)

(implementing the Health Maintenance Organization Act of

1973, 42 U.S.C. § 300e(c)(2)(D)). Many employers adopted

HMOs in the 1980s, but the perception arose that the HMO

model unduly limited patients’ choice of providers. See “As

Employers Look to Hang on to Workers, PPOs Gain Favor,”

Business First (Dec. 8, 2000).

In response, the employer-based market has since then

developed a wide variety of health insurance options.

Employers can now choose between traditional indemnity

plans, HMOs, PPOs, point-of-service (“POS”) plans, and

numerous variants and combinations of these approaches.

While offering greater patient freedom as to choice of

providers, these plans are designed to encourage participants

to use in-network providers who agree to discounted rates

and other cost constraints. For example, PPOs utilize: (1) a

“network of health care providers who have agreed to

provide care to the PPO’s patients, subject to contractually

established reimbursement levels”; (2) incentives for patients

to obtain services from the in-network providers; and (3)

“repricing” features under which plans apply negotiated

discounts to the in-network providers’ claims. American

Association of Preferred Provider Organizations, PPO 101]:

A Comprehensive Overview of the PPO Industry 30, 33, 35-

36 (2005) [hereinafter “PPO /0/”’}.

18

Other health plan models rely on in- and out-of-network

distinctions as well. POS plans are a variation on HMOs that

permit enrollees to seek care outside the HMO provider

system, but impose higher deductibles and higher

coinsurance. See Peter R. Kongsvedt, Managed Care: What

It Is And How it Works 49 (2004). Likewise, traditional

service plans arrange for a network of providers, with fewer

restrictions than PPOs impose, creating a discount for

services within the network. Jd. at 40-41.

The beneficial effect of these health insurance

arrangements on spiraling health care expenditures is now

well-recognized. Commentators have noted that PPOs and

similar products offer consumer choice while “address[ing]

the issue of increasing hospital costs.” Adrian Bull, “Let's

Take the Market Forward,” Financial Adviser, June 5, 2003;

accord “As Employers Look to Hang on to Workers, PPOs

Gain Favor,” supra; “Managed Care Shifts Direction,”

Employee Benefit Plan Review (Feb. 2000); Lisa A. Krouse,

“Managed Care and Workers’ Compensation,” 33 Tort &

Ins. LJ. 849 (Spring 1998); Nancy Bader, “Retaining

Freedom of Choice in a Managed Care Plan,” Business &

Health (Oct. 1993). Courts likewise have said it is “easy to

see how health costs might be constrained” by the PPO

model. Washington Hosp. Ctr., 758 F. Supp. at 754; accord

Renfrew Ctr. v. Blue Cross & Blue Shield of Central N.Y,

Inc., 1997 U.S. Dist. LEXIS 5088, at *9-*10 (N.D.N.Y. Apr.

10, 1997).

Assignment laws like Louisiana’s jeopardize the

viability of PPOs, POS plans, and other products that rely on

network arrangements. A central incentive under these

models for a provider to join the network and thereby agree

to the discounted “reimbursement schedule and any other

cost constraints” is the promise of “rapid, certain and direct

payments from the insurer.” Washington Hosp. Ctr. Corp. v.

Group Hosp. & Med. Servs., Inc., 758 F. Supp. 750, 754

(D.D.C. 1991). Louisiana’s assignment law takes away that

19

incentive. Whereas an out-of-network provider would

customarily need to turn to the patient (and the patient would

receive direct payment from the plan) to collect for his or her

services, Louisiana’s law awards that provider the benefit of

being in the network -- direct payment from the plan --

without requiring it to accept any of the obligations of in-

network status (such as negotiated rates or other cost-

containment measures). Consequently, under the assignment

Statute, providers have little if any incentive to join such

networks. Were the Fifth Circuit’s decision authorizing the

application of laws like Louisiana’s in the ERISA context

allowed to stand, these network arrangements would be at

risk.

Because it so seriously threatens the viability of products

reliant on network arrangements, the Fifth Circuit’s decision

has momentous implications for the future of employer-

based health insurance. The PPO has met with great success

in the employer market, in no small measure because it has

proven to be such a vital tool in the employers’ struggle to

hold down health care expenditures. The PPO is now the

most prevalent health benefits offering in the United States,

accounting for 61% of all individuals with employer-

provided health insurance. PPO 10], at 6. The preemption

question raised in this case thus affects the principal form of

ERISA health benefits arrangement, one adopted because of

its salutary effect on the difficult issue of containing health

care costs.

Participants in ERISA plans will also be worse off if the

Fifth Circuit’s decision is permitted to stand. When creating

their networks, health insurers can and do screen providers to

ensure that members wil! receive high-quality care (see PPO

10] at 35-36); destroying preferred provider arrangements

necessarily means the loss of those credentialing and quality-

assurance mechanisms beneficial to plans and participants

alike. Moreover, providers are often required to “agree[] to

accept payment by Blue Cross as full payment without

20

billing the patient for any balance” as a condition for

participation in the network. Washington Hosp. Ctr., 758 F.

Supp. at 754. Participants benefit from these types of plans

because “the insurer will pay for the entire cost of covered

services (apart from any initial deductibles) instead of the

lesser reimbursement available for use of non-participating

hospitals.” Jd. Finally, the discounted rates for use of in-

network provider (in plans that rely on the distinction

between in- and-out-of-network providers) benefit both plans

and participants.

In sum, the damage that the Fifth Circuit’s decision

portends for ERISA health benefits arrangements and to

participant interests supports the granting of the Petition.

CONCLUSION

The Petition for a Writ of Certiorari should be granted.

Respectfully submitted,

ANTHONY F. SHELLEY

Counsel of Record

DUNCAN N. STEVENS

MILLER & CHEVALIER CHARTERED

655 15th Street, NW

Suite 900

Washington, D.C. 20005

(202) 626-5800

FEBRUARY 2007