Appendix — NYSA-ILA Welfare Fund v. Dunston
Supreme Court brief1993
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Supreme Court of the United States
OCTOBER TERM, 1993
NYSA-ILA WELFARE FUND, by its Trustees, JOHN BOWERS,
ALBERT CERNADAS, FRANK LONARDO, THOMAS POPOLA,
JAMES CAPO, JOSEPH N. BARBERA, BART DiMATTINA,
and RICHARD H. O’NEILL,
Petitioner,
v.
FRANCIS J. DUNSTON, in her capacity as New Jersey Commissioner of Health;
NEW JERSEY STATE DEPARTMENT OF HEALTH;
NEW JERSEY HOSPITAL RATE SETTING COMMISSION;
AND COLUMBUS HOSPITAL, EAST ORANGE GENERAL HOSPITAL,
ST. JAMES HOSPITAL, and UNIVERSITY HOSPITAL, individually and as
Class Representatives of Hospitals in the State of New Jersey;
and NEW JERSEY HOSPITAL ASSOCIATION, as Class Representative
of Hospitals in the State of New Jersey,
Respondents.
APPENDIX TO PETITION FOR A WRIT OF CERTIORARI
TO THE UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
Thomas W. Gleason C. Peter Lambos
Ernest L. Mathews, Jr.* Donato Caruso*
Kevin Marrinan LAMBOS & GIARDINO
GLEASON & MATHEWS 29 Broadway, 9th Floor
26 Broadway, 17th Floor New York, NY 10006
New York, NY 10004 (212) 943-2470
(212) 425-3240
Co-Counsel to Petitioners
(* Counsel of Record)
BEST AVAILABLE COPY
TABLE OF CONTENTS
Page
Opinion of the United States Court of Appeals for the Third Circuit,
SE PO WE sicsncecedoniacsicnenaeetel ee ee ee la
Judgment of the United States Court of Appeals for the Third Circuit,
SO SNE OR, TI sricinsicinssssivinniesnccuiciaticrmieiens tila eee 45a
Opinion of the United States Court of Appeals for the Third Circuit,
Sur Petition for Rehearing, Dated June et ota OMEN AED 62a
Opinion and Order of the United States District Court for the District
of New Jersey, Dated May 27, 1992 ......ccccsssssssssssssssssssscssessseecessececcscscc. 64a
la
Filed May 14, 1993
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
Nos. 92-5317/5319/5320/
534 1/5343/5345/5352/5354/5355
UNITED WIRE, METAL AND MACHINE HEALTH AND
WELFARE FUND; JACK STOLL; ESTHER BORJA; JAVIER
RESTREPO; UNITED FOOD AND COMMERCIAL WORKERS
INTERNATIONAL UNION LOCAL 464A, AFL-CIO GROUP
REIMBURSEMENT WELFARE PLAN; FRANK LACATENA;
DOLORES LACATENA; NEW JERSEY CARPENTERS
WELFARE FUND; LOCAL #807 LABOR-MANAGEMENT
HEALTH FUND; TRUSTEES OF THE LOCAL #807 LABOR-
MANAGEMENT HEALTH FUND; PROSPER ALEXANDER;
MARIE ALEXANDER; DISTRICT COUNCIL OF
IRONWORKERS OF NORTHERN NEW JERSEY WELFARE
FUND; ARCHIE G. FERGUSON; RONALD W. JENSEN;
JOHN J. IRVINE; WALTER PHILLIPS; MICHAEL J.
MCDERMOTT; SAMUEL PACICH; ALBERT J. IRWIN;
NICHOLAS J. ANDRETTA, SR.; GARY UGARO; WALTER F.
STEINMETZ; JOHN D. MULVANY; MICHAEL W.
FEATHERSON; FRANCIS E. ARNY; JOHN J. CLARK, SR.;
RONALD W. WILLIAMS; DANIEL J. PEREZ: KEITH E.
ZDEP; EDWARD WEIDLER; LOUIS ROCCO; RAYMOND J.
RODGERS; FRANCIS J. AKESSON; DONALD J. BANTA, SR.;
CHARLES W. BIRD; DAVID F. BROWN; CLIFFORD
CROOKS; ROBERT T. CUSICK; JAMES P. FITZGERALD;
JOSEPH A. FUSARO; CHARLES GAMBA; RICHARD
GOUGEON; JOHN KEATING; GERARD MCCLOUD;
ROBERT MCGEE; ALEXANDER MCLELLAN; JOHN
MURPHY; LAURENCE O’BRIEN; PETER 0’ CONNER; RAUL
RODRIGUEZ; ROBERT SCHWEITZER; ROBERT SICKLES;
ANDREW L. SMITH; RICHARD SPARKS; GEORGE SUDAK;
EDWARD TEDESCO; JAMES TOAL; ENOCH P. MCMAHON;
LOCAL UNION 400; IBEW WELFARE FUND;
2a
BRIAN HRUSKA; WILLIAM MARSH; CHARLES WORK;
HAROLD RUTLEDGE; RALPH ALLEN; THOMAS VADAS;
VINCENT WORTH; TIMOTHY HILL; RONALD RAMSEY;
JOHN IRELAND; JAMES MARTIN; MICHAEL ALMASI;
BEVERLY A. RUBY; PETER NAMOTKA; DANIEL
KENNEDY; GEORGE COLE; WALTER DAVIES; ROBERT
HERMANN; FRANK HERMANN; CHARLES KELLER;
DENNIS JOHNSON; CONNIE J. KOEHLER; FRANK O’DAY;
VINCENT LA STELLA; DONALD MCNEIL; JEAN-LOUIS
POULIOT; NICHOLAS AEMISEGO; ROBERT STAHNKE;
PHILIP CERZA; GARY GIORGIO; EDWARD OSOWSKI;
GLENN HALVORSEN; WILLIAM STADELMAN; DANIEL
JULIO, JR.; FRANCIS ALEXANDER; LEONARD DAHL;
MICHAEL DEVINE; JOSEPH GEORGE; RALPH JENSEN;
DONALD LA BRUTTO; NORMAN GRAMLICH; JUAN
ROMERO; JOSEPH PIWOSKI; HARRY PEASE, JR.; EUGENE
O’ROURKE; PAUL NIEDZINSKI; BERNARD WALL;
STEPHEN KOJAC; CHARLES KRUPKA; WILLIAM
MCCORMACK; MINOR KENNARD; STEPHEN J. SANGLE;
DONALD SCHIRALDO; JOHN GACINA, III; BRIAN
MCCARTHY; CHARLES MCNALLY; ROBERT CZAJOWSKI;
BRIAN WOODALL; JEFFREY STAHNKE; JOHN RYAN;
RALPH ROSAMILIA, SR.; DANIEL MUGAN; EDWARD
MIRONSKI; MICHAEL MIDDINGS; ANDREW MAHASKY;
WALTER JELINSKY; ALBERT GAECHTER; LOUIS DI
MASCIO; ELLIOTT ROSEMAN; TRUSTEES OF THE
OPERATING ENGINEERS LOCAL 825 WELFARE FUND;
RICHARD HORNECKER; TEAMSTERS LOCAL 11 BENEFIT
PLAN; TRUSTEES OF THE TEAMSTERS LOCAL 11
BENEFIT PLAN; KATLUSKA BAIDAL; WILLIAM BARTEL;
GUNTER BLOHM; ANGELO BUINNO; BETTY J. CAIRNS;
FRANK CLOSE; JOSE CRUZ; SANTOS GARCIA; KAREN
GENSURE; DOROTHY LARSON; RICHARD LITCHFIELD;
SANDRA MARINO; JOHN MATUSZKIEWICZ; GEORGE
MCCLAUGHLIN; OLGA MONTES; FERNANDO PEREZ;
SANTO RAMOS; MARTHA SARA; ROXEEN SCALA;
EDMUND SCOTT; CHARLIE TAYLOR; MELISSA TURI,
SANGPO TSULDIN; COSMO VISENTINI; NYSA-ILA
WELFARE FUND; JOHN BOWERS; ALBERT CERNADAS;
FRANK LONARDO; THOMAS POPOLA; JAMES CAPO;
JOSEPH N. BARBERA; BART DIMATTINA; RICHARD H.
ee ae |
3a
O’NEILL; LABORERS INTERNATIONAL UNION OF NORTH
AMERICA LOCAL 415 HEALTH AND WELFARE FUND;
SHEET METAL WORKERS LOCAL UNION NO. 25
WELFARE FUND; JEFFREY STAJEK; JAMES LUCIANO;
JOHN A. FREUDENREICH, SR.; THOMAS SMIECH; JOSEPH
MCCALLION; DANIEL SMITH, JR.; JAMES MCKAY; MARK
COX; TRUSTEES OF THE TEAMSTERS LOCAL 641
WELFARE FUND; CARLOS ROCHA; GEORGE KOESTER;
CARMELA FERENS; KHOONRAJIE RAGHUBANS; PHILLIP
SAVITTIERI; EAR PATTERSON; ROBERT REEDER; LOCAL
1245, LOCAL 1245 HEALTH FUND; ANTHONY RIZZO:
JOSEPH ABBATE; JOSEPH MASSOUD; RALPH
MASTRANGELO; TRUSTEES OF THE WELFARE TRUST
FUND, LOCAL UNION NO. 475; WILLIE A. BARNES;
HERMAN GEIGER; VINSTON LEE KING; KEVIN E. KLINE;
ROBERT L. ROSA; WILLIAM BRENNAN; JAMES MURPHY,
JR.; PATRICIA MCELLIGOTT; KEVIN MCCORMICK:
PATRICK RYAN, JR.; ANTHONY E. SMITH; ROBERT
LAVERATT; JOHN S. WITTEK: JOHN MCQUILKEN; JOHN
MONTESANO; ROY E. FRANK; JOHN O’NEILL, JR.; FRANK
ROBINSON; DALE SCHAEFER; JOHN J. SERRA; DONALD
SHERIDAN; WENCESLAO SOTO; MICHAEL J. RUSSO;
JOSEPH P. MURPHY, JR.; CALVIN R. SUTTON, III;
RONALD J. ZAKARZEWSKI; FRANK WHITNEY, SR.; JACK
NACHTIGALL; LAWRENCE PARKIN; EDISON RODRIQUEZ;
WILLIAM MORAN; VINCENT DOFFONT; GEORGE STOUT;
BRIAN LUBECK; AMERICO GUGLIELMO; DAVID VADAS;
CHRISTOPHER ANDREWSKI; DAVID JENKINS; ARTHUR
ACKERMAN; KENNETH FINTON; RAMON LORENZO;
WESLEY SANDERSON; CHARLES NEWMAN, III;
LEONARD IAROSSI; GEORGE ROSSI; WILLIAM
SKIECZIUS; JOHN HANCOCK; EDWARD THORNE; JOSEPH
TAGLIADIA; MICHAEL MACHANSKA; STEVE PARLACASK
Vv.
MORRISTOWN MEMORIAL HOSPITAL; FRANCES J.
DUNSTON; NEW JERSEY COMMISSIONER OF HEALTH:
NEW JERSEY STATE DEPARTMENT OF HEALTH; NEW
JERSEY HOSPITAL RATE SETTING COMMISSION; NEW
JERSEY COMMISSIONER OF HEALTH; FRANCES
DUNSTON; MEMORIAL HOSPITAL OF BURLINGTON
COUNTY; THE MEDICAL CENTER OF OCEAN COUNTY;
da
KIMBALL MEDICAL CENTER; MERCER MEDICAL
CENTER; OUR LADY OF LOURDES HOSPITAL;
PRINCETON MEDICAL CENTER; HOSPITAL OF SALEM
COUNTY; NEWCOMB MEDICAL CENTER; RIVERVIEW
MEDICAL CENTER; COMMUNITY MEDICAL CENTER;
SHORE MEMORIAL HOSPITAL; BURDETTE TOMLIN
MEMORIAL HOSPITAL; CHRIST HOSPITAL; NEWARK
BETH ISRAEL MEDICAL CENTER; ST. JOSEPH’S
HOSPITAL; WAYNE GENERAL HOSPITAL; SOUTH JERSEY
HOSPITAL SYSTEM; COOPER HOSPITAL; WEST JERSEY
HEALTH SYSTEMS; ATLANTIC CITY MEDICAL CENTER;
UNION MEMORIAL HOSPITAL; ELIZABETH GENERAL
HOSPITAL; ENGLEWOOD HOSPITAL; ROBERT WOOD
JOHNSON UNIVERSITY HOSPITAL; BARNERT MEMORIAL
HOSPITAL; PASSAIC GENERAL HOSPITAL; RAHWAY
HOSPITAL; VALLEY HOSPITAL; HOLY NAME HOSPITAL;
ST. PETER’S MEDICAL CENTER; SOMERSET MEDICAL
CENTER; OVERLOOK HOSPITAL; ST. ELIZABETH
HOSPITAL; DOVER GENERAL MEDICAL CENTER;
HUNTERDON MEDICAL CENTER; CHILTON MEMORIAL
HOSPITAL; KESSLER MEMORIAL HOSPITAL; FREEHOLD
AREA HOSP.; KENNEDY MEMORIAL HOSPITAL;
UNIVERSITY HOSPITAL; UNDERWOOD MEMORIAL
HOSPITAL; JERSEY CITY MEDICAL CENTER; ST.
JOSEPH’S HOSPITAL; ST. BARNABAS MEDICAL CENTER;
RARITAN BAY MEDICAL CENTER; CLARA MAASS
MEDICAL CENTER; ST. CLARES/RIVERSIDE MEDICAL
CENTER; JOHN F. KENNEDY MEDICAL CENTER;
HACKETTSTOWN COMMUNITY HOSPITAL; ZURBRUGG
MEMORIAL HOSPITAL; JERSEY SHORE MEDICAL
CENTER; MONMOUTH MEDICAL CTR; NEWTON
MEMORIAL HOSPITAL; UNIVERSITY OF MEDICINE &
DENTISTRY OF NEW JERSEY; DEBORAH HEART AND
LUNG CENTER; HOSPITAL CENTER AT ORANGE; DOVER
GENERAL HOSPITAL; WEST JERSEY HEALTH SYSTEM;
RARITAN BAY MEDICAL CENTER; HACKENSACK
MEDICAL CENTER; SOUTH AMBOY MEMORIAL
HOSPITAL; THE MOUNTAINSIDE HOSPITAL; ST. FRANCIS
HOSPITAL; BAYONNE HOSPITAL; MUHLENBERG
HOSPITAL; CENTRASTATE (FAH) HOSPITAL, ST. JAMES
HOSPITAL; KENNEDY MEMORIAL HOSPITAL AT SADDLE
5a
BROOK; ADMINISTRATOR OF THE NEW JERSEY HEALTH
CARE TRUST FUND; NEW JERSEY DEPARTMENT OF
HUMAN SERVICES (DIVISION) OF MEDICAL ASSISTANCE
AND HEALTH SERVICES; ELIZABETH GENERAL
MEDICAL CENTER; DOVER GENERAL MEDICAL CENTER;
IRVINGTON GENERAL HOSPITAL; UNION HOSPITAL;
WARREN HOSPITAL, COLUMBUS HOSPITAL; EAST
ORANGE GENERAL HOSPITAL, FRANCIS DUBEAU;
LILLIAN DUBEAU; BAYSHORE COMMUNITY HOSPITAL;
NEW JERSEY HOSPITAL ASSOCIATION; BERGEN PINES
COUNTY HOSPITAL; COMMUNITY MEMORIAL
HOSPITAL; GREENVILLE HOSPITAL; MONTCLAIR
COMMUNITY (HOSPITAL) PALISADES GENERAL
HOSPITAL; PASSAIC BETH ISRAEL HOSPITAL; RARITAN
BAY MEDICAL CENTER/PERTH AMBOY DIVISION;
RIVERVIEW MEDICAL CENTER; SOUTHERN OCEAN
COUNTY HOSPITAL; ST. MARY’S HOSPITAL; THE
GENERAL HOSPITAL CENTER AT PASSAIC; WALLKILL
VALLEY HOSPITAL AND HEALTH CENTERS; ST. MARY’S
HOSPITAL (PASSAIC); UNITED HOSPITAL; PASCACK
VALLEY HOSPITAL; WEST HUDSON HOSPITAL; JOHNSON
UNIVERSITY HOSPITAL; ADMINISTRATOR OF THE NEW
JERSEY HEALTH CARE TRUST FUND; NEW JERSEY
DEPARTMENT OF HUMAN SERVICES DIVISION OF
MEDICAL ASSISTANCE AND HEALTH SERVICES; NEW
JERSEY HOSPITAL; NEW JERSEY HOSPITAL
ASSOCIATION,
Intervenor-Defendants
(Newark New Jersey District Consolidated Lead Civil
No. 90-02639)
UNITED WIRE, METAL AND MACHINE HEALTH AND
WELFARE FUND; ESTHER BORJA
V.
ST. MARY’S HOSPITAL HOSPITAL; NEW JERSEY
COMMISSIONER OF HEALTH; NEW JERSEY STATE
DEPARTMENT OF HEALTH; NEW JERSEY HOSPITAL RATE
SETTING COMMISSION; FRANCES J. DUNSTON;
6a
(Newark New Jersey District Civil No. 90-03640)
UNITED WIRE, METAL AND MACHINE HEALTH AND
WELFARE FUND; JAVIER RESTREPO
Vv.
ST. JOSEPH’S HOSPITAL AND MEDICAL CENTER;
FRANCES J. DUNSTON, in her capacity as New Jersey
Commissioner of Health; NEW JERSEY STATE DEPARTMENT
OF HEALTH; NEW JERSEY HOSPITAL RATE SETTING
COMMISSION
(Newark New Jersey District Civil No. 91-00073)
UNITED FOOD AND COMMERCIAL WORKERS
INTERNATIONAL UNION, LOCAL 464A, AFL-CIO GROUP
REIMBURSEMENT WELFARE PLAN; FRANK LACATENA;
DOLORES LACATENA
V.
WAYNE GENERAL HOSPITAL; FRANCES J. DUNSTON;
NEW JERSEY COMMISSIONER OF HEALTH; NEW JERSEY
STATE DEPARTMENT OF HEALTH; NEW JERSEY
HOSPITAL RATE SETTING COMMISSION
(Newark New Jersey District Civil No. 91-00336)
DISTRICT COUNCIL OF IRONWORKERS OF NORTHERN
NEW JERSEY WELFARE FUND; ARCHIE G. FERGUSON;
RONALD W. JENSEN; JOHN J. IRVINE, WALTER PHILLIPS;
MICHAEL J. MCDERMOTT; SAMUEL PACICH; ALBERT J.
IRWIN, NICHOLAS J. ANDRETTA, SR.; GARY UGARO;
WALTER F. STEINMETZ; JOHN D. MULVANEY; MICHAEL
W. FEATHERSON; FRANCIS E. ARNY; JOHN J. CLARK,
SR.; RONALD W. WILLIAMS; DANIEL J. PEREZ; KEITH E.
ZDEP; EDWARD WEIDLER; LOUIS ROCCO; RAYMOND J.
RODGERS; FRANCIS J. AKESSON; DONALD J. BANTA, SR;
CHARLES W. BIRD; DAVID BROWN; CLIFFORD CROOKS;
ROBERT T. CUSICK; JAMES P. FITZGERALD; JOSEPH A.
FUSARO; CHARLES GAMBA; RICHARD GOUGEON; JOHN
KEATING; GERARD MCCLOUD; ROBERT MCGEE;
ALEXANDER MCLELLAN; JOHN MURPHY; LAURENCE
O’BRIEN; PETER O’CONNER; RAUL RODRIGUEZ; ROBERT
SCHWEITZER; ROBERT SICKLES; ANDREW L. SMITH;
a
7a
RICHARD SPARKS; GEORGE SUDAK; EDWARD TEDESCO;
JAMES TOAL; ENOCH P. MCMAHAN
v.
FRANCES J. DUNSTON, in her capacity as New Jersey
Commissioner of Health; NEW JERSEY STATE DEPARTMENT
OF HEALTH; NEW JERSEY HOSPITAL RATE SETTING
COMMISSION; DEBORAH HEART AND LUNG CENTER;
HUNTERDON MEDICAL CENTER, ST. FRANCIS
HOSPITAL; HOSPITAL CENTER AT ORANGE; ST. PETERS
MEDICAL CENTER; ST. CLARES/RIVERSIDE MEDICAL
CENTER; JOHN F. KENNEDY MEDICAL CENTER; DOVER
GENERAL HOSPITAL; ST. BARNABAS MEDICAL CENTER;
VALLEY HOSPITAL; OVERLOOK HOSPITAL; RAHWAY
HOSPITAL; NEWTON MEMORIAL HOSPITAL; WEST
JERSEY HEALTH SYSTEM; RARITAN BAY MEDICAL
CENTER; HACKENSACK MEDICAL CENTER; CLARA
MAASS MEDICAL CENTER; HOLY NAME HOSPITAL;
NEWARK BETH ISRAEL MEDICAL CENTER; BAYONNE
HOSPITAL; CHILTON MEMORIAL HOSPITAL; ST.
JOSEPH’S HOSPITAL; MUHLENBERG HOSPITAL;
COMMUNITY MED CENTER; CHRIST HOSPITAL; SOUTH
AMBOY MEMORIAL HOSPITAL; CENTRASTATE (FAH)
HOSPITAL; WAYNE GENERAL HOSPITAL; PRINCETON
MEDICAL CENTER; ST. JAMES HOSPITAL,a/k/a
CATHEDRAL HEALTH SERVICES, INC.; MOUNTAINSIDE
HOSPITAL; PASSAIC GENERAL HOSPITAL; NEW JERSEY
HOSPITAL ASSOCIATION
Intervenor/Defendant
(Newark New Jersey District Civil No. 91-02190)
NEW JERSEY CARPENTERS WELFARE FUND
.
FRANCES J. DUNSTON, in her capacity as New Jersey
Commissioner of Health; NEW JERSEY STATE DEPARTMENT
OF HEALTH; NEW JERSEY HOSPITAL RATE SETTING
COMMISSION; SOUTH JERSEY HOSPITAL SYSTEM;
COOPER HOSPITAL; WEST JERSEY HEALTH SYSTEMS;
ATLANTIC CITY MEDICAL CENTER; MEMORIAL
HOSPITAL OF BURLINGTON COUNTY; THE MEDICAL
CENTER OF OCEAN COUNTY; KIMBALL MEDICAL
CENTER; MERCER MEDICAL CENTER; OUR LADY OF
8a
LOURDES; PRINCETON MEDICAL CENTER; HOSPITAL OF
SALEM COUNTY; NEWCOMB MEDICAL CENTER;
RIVERVIEW MEDICAL CENTER; COMMUNITY MEDICAL
CENTER; SHORE MEMORIAL HOSPITAL; BURDETTE
TOMLIN MEMORIAL; CHRIST HOSPITAL; MORRISTOWN
MEMORIAL HOSPITAL; NEWARK BETH ISRAEL MEDICAL
_ CENTER; WAYNE GENERAL HOSPITAL; UNION
MEMORIAL HOSPITAL; ELIZABETH GENERAL HOSPITAL;
ENGLEWOOD HOSPITAL, ROBERT WOOD JOHNSON
UNIVERSITY HOSPITAL; BARNERT MEMORIAL
HOSPITAL; PASSAIC GENERAL HOSPITAL; RAHWAY
HOSPITAL; THE VALLEY HOSPITAL; HOLY NAME
HOSPITAL; ST. PETER’S MEDICAL CENTER; SOMERSET
MEDICAL CENTER; OVERLOOK HOSPITAL; ST.
ELIZABETH HOSPITAL; DOVER GENERAL
MEDICAL CENTER; HUNTERDON MEDICAL CENTER;
CHILTON MEMORIAL HOSPITAL; KESSLER MEMORIAL
HOSPITAL; FREEHOLD AREA HOSPITAL; KENNEDY
MEMORIAL HOSPITAL; UNIVERSITY HOSPITAL;
UNDERWOOD MEMORIAL HOSPITAL; JERSEY CITY
MEDICAL CENTER; ST. JOSEPH’S HOSPITAL; ST.
BARNABAS MEDICAL CENTER; RARITAN BAY MEDICAL
CENTER; CLARA MAASS MEDICAL CENTER; ST.
CLARE’S/RIVERSIDE MEDICAL CENTER; JOHN F.
KENNEDY MEDICAL CENTER; HACKETTSTOWN
COMMUNITY HOSPITAL; ZURBRUGG MEMORIAL
HOSPITAL; JERSEY SHORE MEDICAL CENTER;
MONMOUTH MEDICAL CENTER; NEWTON MEMORIAL
HOSPITAL; NEW JERSEY HOSPITAL, NEW JERSEY
HOSPITAL ASSOCIATION
Intervenor/Defendant
(Newark New Jersey District Civil No. 91-03280)
LOCAL #807 LABOR-MANAGEMENT HEALTH FUND;
TRUSTEES OF THE LOCAL #807 LABOR-MANAGEMENT
HEALTH FUND; PROSPER ALEXANDER; MARIE
ALEXANDER
¥.
UNIVERSITY HOSPITAL; UNIVERSITY OF MEDICINE &
DENTISTRY OF NEW JERSEY; FRANCES J. DUNSTON, in
9a
her capacity as New Jersey Commissioner of Health; NEW
JERSEY STATE DEPARTMENT OF HEALTH; NEW JERSEY
HOSPITAL RATE SETTING COMMISSION
(Newark New Jersey District Civil No. 91-03286)
LOCAL UNION 400, IBEW WELFARE FUND; BRIAN
HRUSKA; WILLIAM MARSH; CHARLES WORK; HAROLD
RUTLEDGE; RALPH ALLEN; THOMAS VADAS; VINCENT
WORTH; TIMOTHY HILL, RONALD RAMSEY; JOHN
IRELAND; JAMES MARTIN
v.
FRANCES J. DUNSTON, in her capacity as New Jersey
Commissioner of Health; NEW JERSEY STATE DEPARTMENT
OF HEALTH; NEW JERSEY HOSPITAL RATE SETTING
COMMISSION; THE MEDICAL CENTER OF OCEAN
COUNTY; RIVERVIEW MEDICAL CENTER; COMMUNITY
MEDICAL CENTER; JERSEY SHORE MEDICAL CENTER;
KIMBALL MEDICAL CENTER; MONMOUTH MEDICAL
CENTER NEW JERSEY HOSPITAL ASSOCIATION
Intervenor/Defendant
(Newark New Jersey District Civil No. 91-03897)
OVERLOOK HOSPITAL
V.
FRANCES DUBEAU; LILLIAN DUBEAU
(Newark New Jersey District Civil No. 91-03910)
LABORERS INTERNATIONAL UNION OF NORTH
AMERICA LOCAL 415 HEALTH AND WELFARE FUND
Vv.
FRANCES J. DUNSTON. in her capacity as New Jersey
Commissioner of Health; NEW JERSEY STATE DEPARTMENT
OF HEALTH; NEW JERSEY HOSPITAL RATE SETTING
COMMISSION
(Newark New Jersey District Civil No. 91-04078)
NYSA-ILA WELFARE FUND, by its Trustees; JOHN BOWERS,
Trustee; ALBERT CERNADAS, Trustee; FRANK LONARDO,
Trustee; THOMAS POPOLA, Trustee; JAMES CAPO, Trustee;
10a
JOSEPH N. BARBERA, Trustee; BART DIMATTINA, Trustee;
RICHARD H. O’NEILL, Trustee
v.
FRANCES J. DUNSTON, in her capacity as New Jersey
Commissioner of Health; NEW JERSEY STATE DEPARTMENT
OF HEALTH; NEW JERSEY HOSPITAL RATE SETTING
COMMISSION; COLUMBUS HOSPITAL; EAST ORANGE
GENERAL HOSPITAL ST. JAMES HOSPITAL; UNIVERSITY
HOSPITAL, Individually and as Class Representatives of
Hospitals in the State of New Jersey; NEW JERSEY HOSPITAL
ASSOCIATION,
as Class representative of Hospital in the State of New Jersey
(Newark New Jersey District Civil No. 91-04259)
SHEET METAL WORKERS LOCAL UNION NO. 25
WELFARE FUND; JEFFREY STAJEK; JAMES LUCIANO;
JOHN A. FREUDENREICH, SR.; THOMAS SMIECH; JOSEPH
MCCALLION; DANIEL SMITH, JR.; JAMES MCKAY;
MARK COX
v.
FRANCES J. DUNSTON, in her capacity of New Jersey
Commissioner of Health; NEW JERSEY STATE DEPARTMENT
OF HEALTH; NEW JERSEY HOSPITAL RATE SETTING
COMMISSION; ADMINISTRATOR OF THE NEW JERSEY
HEALTH CARE TRUST FUND; NEW JERSEY DEPARTMENT
OF HUMAN SERVICES (DIVISION) OF MEDICAL
ASSISTANCE AND HEALTH SERVICES; NEW JERSEY
HOSPITAL ASSOCIATION; ST. BARNABAS MEDICAL
CENTER; HOLY NAME HOSPITAL; HACKENSACK
MEDICAL CENTER; WEST HUDSON HOSPITAL;
OVERLOOK HOSPITAL; JOHN F. KENNEDY MEDICAL
CENTER; HUNTERDON MEDICAL CENTER; MORRISTOWN
MEMORIAL HOSPITAL; IRVINGTON GENERAL HOSPITAL;
CLARA MAASS MEDICAL CENTER
(Newark New Jersey District Civil No. 91-04700)
TRUSTEES OF THE OPERATING ENGINEERS LOCAL 825
WELFARE FUND; RICHARD HORNECKER
v.
FRANCES J. DUNSTON, in her capacity as New Jersey
Commissioner of Health; NEW JERSEY STATE DEPARTMENT
lla
OF HEALTH; NEW JERSEY HOSPITAL RATE SETTING
COMMISSION; ADMINISTRATOR OF THE NEW JERSEY
HEALTH CARE TRUST FUND, NEW JERSEY DEPARTMENT
OF HUMAN SERVICES, DIVISION OF MEDICAL
ASSISTANCE AND HEALTH SERVICES
(Newark New Jersey District Civil No. 91-05362)
TEAMSTERS LOCAL 11 BENEFIT FUND; TRUSTEES OF
THE TEAMSTERS LOCAL 11 BENEFIT PLAN; KATLUSKA
BAIDAL; WILLIAM BARTELL; GUNTER BLOHM; ANGELO
BUINNO; BETTY J. CAIRNS; FRANK CLOSE; JOSE CRUZ;
SANTOS GARCIA; KAREN GENSURE; DOROTHY LARSON;
RICHARD LITCHFIELD; SANDRA MARINO; JOHN
MATUSZKIEWICZ; GEORGE MCCLAUGHLIN; OLGA
MONTES; FERNANDO PEREZ; SANTO RAMOS: MARTHA
SARA; ROXEEN SCALA; EDMUND SCOTT; CHARLIE
TAYLOR; MELISSA TURI; SANGPO TSULDIN: COSMO
VISENTINI
Vv.
BAYSHORE COMMUNITY HOSPITAL; CHILTON
MEMORIAL HOSPITAL; CLARA MAASS MEDICAL
CENTER; DOVER GENERAL HOSPITAL; ELIZABETH
GENERAL MEDICAL CENTER; ENGLEWOOD HOSPITAL;
HOLY NAME HOSPITAL; IRVINGTON GENERAL
HOSPITAL; JERSEY CITY MEDICAL CENTER; PASSAIC
GENERAL HOSPITAL; ST. FRANCIS HOSPITAL; ST.
PETER’S MEDICAL CENTER; SOMERSET MEDICAL
CENTER; UNION HOSPITAL; UNITED HOSPITAL;
UNIVERSITY HOSPITAL; VALLEY HOSPITAL; WARREN
HOSPITAL; FRANCES J. DUNSTON, in her Capacity as New
Jersey Commissioner of Health; NEW JERSEY STATE
DEPARTMENT OF HEALTH; NEW JERSEY HOSPITAL RATE
SETTING COMMISSION
(Newark New Jersey District Civil No. 92-00085)
TRUSTEES OF THE WELFARE TRUST FUND, LOCAL
UNION NO. 475; WILLIE A. BARNES; HERMAN GEIGER:
VINSTON LEE KING; KEVIN E. KLINE; ROBERT L. ROSA;
WILLIAM BRENNAN; JAMES MURPHY, JR.; PATRICIA
MCELLIGOTT; KEVIN MCCORMICK; PATRICK RYAN, JR.;
12a
ANTHONY E. SMITH; ROBERT LAVERATT; JOHN S.
WITTEK; JOHN MCQUILKEN; JOHN MONTESANO; ROY E.
FRANK; JOHN O’NEILL, JR.; FRANK ROBINSON; DALE
SCHAEFER; JOHN J. SERRA; DONALD SHERIDAN;
WENCESLAO SOTO; MICHAEL J. RUSSO; JOSEPH P.
MURPHY, JR.; CALVIN R. SUTTON, III; RONALD J.
ZAKARZEWSKI; FRANK WHITNEY, SR.; JACK
NACHTIGALL; LAWRENCE PARKIN; EDISON RODRIGUEZ;
WILLIAM MORAN; VINCENT DOFFONT
v.
FRANCES J. DUNSTON, in her capacity as New Jersey
Commissioner of Health; NEW JERSEY STATE DEPARTMENT
OF HEALTH; NEW JERSEY HOSPITAL RATE SETTING
COMMISSION; ADMINISTRATOR OF THE NEW JERSEY
HEALTH CARE TRUST FUND; NEW JERSEY DEPARTMENT
OF HUMAN SERVICES, DIVISION OF MEDICAL
ASSISTANCE AND HEALTH SERVICES; WEST HUDSON
HOSPITAL; UNIVERSITY OF MEDICINE & DENTISTRY;
OVERLOOK HOSPITAL; MORRISTOWN MEMORIAL
HOSPITAL; UNION HOSPITAL; RIVERVIEW MEDICAL
CENTER; NORTHERN OCEAN HOSPITAL SYSTEM;
COMMUNITY MEDICAL CENTER; HOSPITAL CENTER AT
ORANGE; HUNTERDON MEDICAL CENTER; WARREN
HOSPITAL; CENTRASTATE MEDICAL CENTER;
SOMERSET MEDICAL CENTER; ROBERT WOOD JOHNSON
UNIVERSITY; THE MEDICAL CENTER OF OCEAN
COUNTY; JERSEY SHORE MEDICAL CENTER;
COLUMBUS HOSPITAL; JOHN F. KENNEDY MEDICAL
CENTER; CLARA MAASS MEDICAL CENTER
(Newark New Jersey District Civil No. 92-00426)
TEAMSTERS LOCAL 641 WELFARE FUND; CARLOS
ROCHA; GEORGE KOESTER; CARMELA FERENS;
KHOONRAJIE RAGHUBANS; PHILLIP SAVITTIERI; EARL
PATTERSON; ROBERT REEDER
v.
FRANCES J. DUNSTON, in her capacity as New Jersey
Commissioner of Health; NEW JERSEY STATE DEPARTMENT
OF HEALTH; NEW JERSEY HOSPITAL RATE SETTING
COMMISSION; MEDICAL CENTER OF OCEAN COUNTY;
ST. BARNABAS MEDICAL CENTER; CLARA MAASS
13a
MEDICAL CENTER; ST. ELIZABETH HOSPITAL; PASSAIC
GENERAL HOSPITAL
(Newark New Jersey District Civil No. 92-00526)
LOCAL 1245 HEALTH FUND; LOCAL 1245 BAKERY AND
SPECIALTY HEALTH FUND; JAMES ARBOLINO;
ANTHONY ROCCO; HAROLD POLSKY; NEVIO MANCIINI:
WILLIE SCONIERS; IRENE HICKEY; KATHLEEN
RODRIGUEZ; WILLIAM CLACK WORTHY; EDWARD
NELSON; PATRICIA CONRAD; RONALD COZZO; HOLLY
ANN CULBERT; JOACHIM SCHAFFRANIETZ; HUBERT
CHASE; ROBERT BAUMAN; RUSSELL SCHWARTZ: JEAN
JACQUES KERVAN; ARTHUR BEYER
¥.
FRANCES J. DUNSTON, in her capacity as New Jersey
Commissioner of Health; NEW JERSEY STATE DEPARTMENT
OF HEALTH; NEW JERSEY HOSPITAL RATE SETTING
COMMISSION; DOVER GENERAL HOSPITAL; THE
MEDICAL CENTER OF OCEAN COUNTY; SAINT
BARNABAS MEDICAL CENTER; UNION HOSPITAL; JOHN
F. KENNEDY MEDICAL CENTER; ENGLEWOOD
HOSPITAL; MORRISTOWN MEMORIAL HOSPITAL;
CENTRASTATE; SAINT PETER’S MEDICAL CENTER;
SAINT MARY’S HOSPITAL; MEADOWLANDS HOSPITAL
AND MEDICAL CENTER; JERSEY SHORE MEDICAL
CENTER; KENNEDY MEMORIAL HOSPITAL; PASSAIC
GENERAL HOSPITAL
(Newark New Jersey District Civil No. 92-00728)
ANTHONY RIZZO; JOSEPH ABBATE; JOSEPH MASSOUD;
RALPH MASTRANGELO, as Trustees of the Local 945, 1.B.T.
Welfare Fund
V.
BARNERT MEMORIAL HOSPITAL CENTER; BAYONNE
HOSPITAL; BAYSHORE COMMUNITY HOSPITAL; BERGEN
PINES COUNTY HOSPITAL; CENTRASTATE MEDICAL
CENTER; CHILTON MEMORIAL HOSPITAL; CHRIST
HOSPITAL; CLARA MAASS MEDICAL CENTER;
COLUMBUS HOSPITAL; COMMUNITY MEMORIAL
HOSPITAL; DOVER GENERAL HOSPITAL & MEDICAL
l4a
CENTER; ELIZABETH GENERAL MEDICAL CENTER;
GREENVILLE HOSPITAL; HACKETTSTOWN COMMUNITY
HOSPITAL, HOLY NAME HOSPITAL; IRVINGTON
GENERAL HOSPITAL; JERSEY SHORE MEDICAL CENTER;
JOHN F. KENNEDY MEDICAL CENTER; KENNEDY
MEMORIAL HOSPITALS AT SADDLE BROOK; KIMBALL
MEDICAL CENTER; MERCER MEDICAL CENTER;
MONTCLAIR COMMUNITY (HOSPITAL); MORRISTOWN
MEMORIAL HOSPITAL; NEWTON MEMORIAL HOSPITAL;
OVERLOOK HOSPITAL; PALISADES GENERAL HOSPITAL,
PASCACK VALLEY HOSPITAL; PASSAIC BETH ISRAEL
HOSPITAL; RAHWAY HOSPITAL; RARITAN BAY MEDICAL
CENTER/PERTH AMBOY DIVISION; RIVERVIEW MEDICAL
CENTER; ROBERT WOOD JOHNSON UNIVERSITY
HOSPITAL; SOUTHERN OCEAN COUNTY HOSPITAL; ST.
MARY’S HOSPITAL (PASSAIC); ST. JOSEPH’S HOSPITAL &
MEDICAL CENTER; ST. FRANCIS MEDICAL CENTER; ST.
ELIZABETH HOSPITAL; ST. PETER’S MEDICAL CENTER;
THE GENERAL HOSPITAL CENTER AT PASSAIC; UNION
HOSPITAL; UNIVERSITY HOSPITAL; UNIVERSITY OF
MEDICINE & DENTISTRY OF NEW JERSEY; VALLEY
HOSPITAL; WALLKILL VALLEY HOSPITAL AND HEALTH
CENTERS; WARREN HOSPITAL; WAYNE GENERAL
HOSPITAL; FRANCES J. DUNSTON, in her capacity as New
Jersey Commissioner of Health; NEW JERSEY STATE
DEPARTMENT OF HEALTH; NEW JERSEY HOSPITAL RATE
SETTING COMMISSION
(Newark New Jersey District Civil No. 92-00849)
NEWCOMB MEDICAL CENTER
v.
JENNIS CARPENTER; ALICE CARPENTER, his wife, jointly,
severally and in the alternative
Defendants/Third Party
Plaintiffs
v.
FRANCES J. DUNSTON; NEW JERSEY STATE
DEPARTMENT OF HEALTH; NEW JERSEY HOSPITAL RATE
SETTING COMMISSION; ADMINISTRATOR OF THE NEW
JERSEY HEALTH CARE TRUST FUND; NEW JERSEY
DEPARTMENT OF HUMAN SERVICES, DIVISION OF
el
15a
MEDICAL ASSISTANCE AND HEALTH SERVICES
Third Party Defendants
(Newark New Jersey District Civil No. 92-01282)
NEWCOMB MEDICAL CENTER
Vv.
SHANA TRIPP; CHARLES TRIPP, jointly, severally and in the
alternative
Defendants/Third Party
Plaintiffs
Vs
NEW JERSEY STATE DEPARTMENT OF HEALTH; NEW
JERSEY HOSPITAL RATE SETTING COMMISSION:
ADMINISTRATOR OF THE NEW JERSEY HEALTH CARE
TRUST FUND; NEW JERSEY DEPARTMENT OF HUMAN
SERVICES, DIVISION OF MEDICAL ASSISTANCE AND
HEALTH SERVICES; FRANCES J. DUNSTON, in her capacity
as New Jersey Commissioner of Health
Third Party Defendants
(Newark New Jerseys District Civil No. 92-01454)
NEWCOMB MEDICAL CENTER
v.
FRED KUEKEN
Defendant/Third Party
Plaintiff
v.
FRANCES J. DUNSTON; NEW JERSEY STATE
DEPARTMENT OF HEALTH; NEW JERSEY HOSPITAL RATE
SETTING COMMISSION; ADMINISTRATOR OF THE NEW
JERSEY HEALTH CARE TRUST FUND; NEW JERSEY
DEPARTMENT OF HUMAN SERVICES, DIVISION OF
MEDICAL ASSISTANCE AND HEALTH SERVICES
Third Party Defendants
(Newark New Jersey District Civil No. 92-01455)
New Jersey Hospital Association; Bayshore Community Hospital;
Monmouth Medical Center; Pascack Valley Hospital; Riverview
Medical Center; Kennedy Memorial Hospitals at Saddle Brook,
Inc.; William B. Kessler Memorial Hospital; St. Francis Hospital;
l6a
South Jersey Hospital System; Helene Fuld Medical Center;
Newton Memorial Hospital; The Medical Center of Ocean
County; Bayonne Hospital; Kennedy Memorial Hospitals-
University Medical Certer; South Amboy Memorial Hospital;
Underwood Memonial Hospital; Muhlenberg Regional Medical
Center; Englewood Hospital; Zurbrugg Memorial Hospital; St.
Mary Hospital; Community Medical Center; Hunterdon Medical
Center; St. Michael’s Medical Center; The Mercer Medical
Center; St. Peter’s Medical Center; Jersey Shore Medical Center;
Irvington General Hospital; John F. Kennedy Hospital; Our Lady
of Lourdes Medical Center; Overlook Hospital; Raritan Bay
Medical Center; St. Elizabeth Hospital; Wayne General Hospital;
Barnert Hospital; Atlantic City Medical Center; Dover General
Hospital & Medical Center; Holy Name Hospital; The Hospital at
Orange; St. Clare’s/Riverside Medical Center; Clara Maas
Medical Center; Deborah Heart & Lung Center; Rahway
Hospital; West Jersey Health System; Hackensack Medical
Center; Newark Beth-Israel Medical Center; St. James Hospital;
St. Joseph’s Hospital & Medical Center; Christ Hospital; Chilton
_ Memorial Hospital; East Orange General Hospital; Columbus
Hospital; Cooper Hospital/University Medical Center; Memorial
Hospital of Burlington County Memorial Health Alliance;
Medical Center at Princeton; St. Joseph’s Hospital; Shore
Memonial Hospital; Robert Wood Johnson University Hospital;
Burdette Tomlin Memorial Hospital; Somerset Medical Center;
Mountainside Hospital; Union Hospital; United Hospitals Medical
Center at Passaic; and Morristown Memorial Hospital,
Appellants
On Appeal From the United States District Court For the
District of New Jersey
(D.C. Civil Action Nos. 90-02639, 90-03640, 91-00073,
91-00336, 91-02190, 91-03280, 91-03286, 91-03897, 91-03910,
91-04078, 91-04259, 91-04700, 91-05362, 92-00085, 92-00426,
92-00526, 92-00728, 92-00849, 92-01282, 92-01454, 92-01455)
Argued September 18, 1992
BEFORE: STAPLETON, SCIRICA, and NYGAARD, Circuit
Judges
(Opinion Filed May 14, 1993)
nena nea
17a
Robert J. Del Tufo
Attorney General of New Jersey
Edward J. Dauber
Executive Asst. Attorney General
Benjamin Clarke (Argued)
Senior Deputy Attorney General
Michael J. Haas
Todd A. Wigder
Deputys Attorney General
R.J. Hughes Justice Complex
CN 112
Trenton, New Jersey 08625
Attorneys for State Appellants
Frank R. Ciesla (Argued)
Elizabeth Dusaniwsky
Girodano, Halleran & Ciesla
125 Half Mile Rd.
P.O. Box 190
Middletown, NJ 07748
Attorneys for Appellant New
Jersey Hospital Association and
the Appellant Hospitals
Harold Kreiger (Argued)
Sanford Browde
Kreiger & Browde
921 Bergen Avenue
P.O. Box 6669
Jersey City, NY
Attorneys for Plaintiffs-
Appellees, Local 464A,
United Food and Commercial
Workers Union Group
Reimbursement Welfare Plan,
Frank Lacatena and
Dolores Lacatena
Albert G. Kroll
25 Pompton Avenue
Suite 309
Verona, NJ
Attorney for New Jersey
18a
Carpenters Welfare Fund and
District Council of Ironworkers
of Northern New Jersey Welfare
Fund
Donato Caruso (Argued)
C. Peter Lambos
Lambos & Giardino
29 Broadway, 9th Floor
New York, NY 10006
Ernest L. Mathews, Jr.
Kevin Marrinan
Law Offices of Thomas W. Gleason
26 Broadway, 17th Fl.
New York, NY 10004
Co-Counsel to Plaintiffs-Appellees-
Cross-Appellants
NYSA-ILA Welfare Fund and Its
Trustees
Ronald E. Wiss (Argued)
Herbert New
1373 Broad Street
Clifton, NJ 07012
Attorneys for Appellee-Cross-
Appellant
Local 807 Labor-Management Health
Fund
David A. Schrader
Wolff & Samson, P.A. e
280 Corporate Center
5 Becker Farm Road
Roseland, NJ 07068
Attorneys for Plaintiff-Appellees
United Wire, Metal & Machine
Health and Welfare Fund and
Operating Engineers
Local 825 Welfare Fund
19a
Thomas V. Jardine
Jardine & Pagano
11 Cleveland Place
Springfield, NJ 07081
Attorney for District
Council of Ironworkers of Northern
New Jersey Welfare Fund, et al.
OPINION OF THE COURT
STAPLETON, Circuit Judge:
Appellees, several self-insured employee benefit plans and a
number of individual participants in those plans (“the plans”),
brought this action seeking an injunction against the application to
them of New Jersey’s then current statutory scheme for setting hos-
pital rates. They also sought restitution of monies paid under pro-
test pursuant to that statutory scheme. Appellees argue both that
the New Jersey statute was preempted by the Employee Retirement
Income Security Act of 1974, 29 U.S.C. § 1002 et seg., as amended
(“ERISA”), and that the statute worked an unconstitutional taking
of property without just compensation. Appellants are numerous
New Jersey hospitals, various agencies and officials of the state of
New Jersey and, as an intervening party, the New Jersey Hospital
Association (“the defendants”).
The district court entered summary judgment in favor of the
plans on their ERISA preemption claim and enjoined the enforce-
ment of the statute as it applied to them. The injunction was stayed,
pending this appeal. The district court also entered summary judg-
ment in favor of the defendants on the plans’ constitutional claims,
and declined to reach the question of restitution. The defendants
appeal, and the plans cross-appeal.
We will reverse the summary judgment on the ERISA preemp-
tion claim and vacate the injunction. We will affirm the summary
judgment on the constitutional claims, and remand the case to the
district court with instructions that judgment be entered for the
defendants.
20a
I.
The statutory and regulatory regime in question is found in the -
New Jersey Health Care Facilities Planning Act of 1971, as
amended by the Health Care Cost Reduction Act of 1978, N.J. Stat.
Ann. 26:2H-1 et seg, (both shal! be collectively referred to as
“Act”) and the attending regulations. N.J. Admin. Code 8:31B
et seq.
In 1978, New Jersey enacted a revised rate setting system. Chap-
ter 83, the dual purpose of which was to “contain the rising costs of
health care services, and to ensure the financial solvency of hospi-
tals.” N.J. Stat. Ann. 26:2H-1. Under this prospective rate-setting
system, various medical procedures are divided into “diagnostic re-
lated groups” (“DRGs”), and a rate is assigned to each DRG. A
particular hospital’s DRG rate consists of a weighted average of the
costs incurred by the hospital in treating a given condition and the
average cost incurred by hospitals throughout the state to treat that
condition. The system thus penalizes hospitals that incur costs
greater than the state wide average and rewards hospitals that pro-
vide more efficient service for a particular DRG. Patients in the
same DRG at a particular hospital pay the same bill regardless of
the duration of their stays and the demands they make on the re-
sources of the hospital.
The DRG rate is the base rate under New Jersey’s system. A
patient’s bill will have other components, and it is these compo-
nents that the plans challenge as inconsistent with ERISA. Hospi-
tals in New Jersey are required by law to provide treatment for pa-
tients who cannot pay their bills. N.J. Admin. Code 8:436-5.2(c).
Emergency services for the indigent are required by federal law as
well. Thus, one cost of doing business for New Jersey hospitals is
the cost of providing “uncompensated care.” In order to pay for this
care and to provide financial relief to those hospitals that provide
more than their share of uncompensated care, a state wide charge is
added to the DRG, and the resulting revenue is distributed in pro-
portion to the uncompensated care provided by each hospital.
An additional surcharge is designed to compensate hospitals for
the losses they incur when treating patients covered by Medicare.
Hospitals that treat Medicare patients can charge those patients only
the amount allotted by the federal Medicare agency for the particu-
lar treatment provided. Medicare now provides reimbursement at
levels below the DRG rates. To enable New Jersey hospitals to
make up for the resulting revenue shortfall, the current New Jersey
2la
system allows hospitals to include in their billings to non-Medicare
patients an amount necessary to recover the difference between the
Medicare rate of payment and the DRG rate.
Chapter 83 also grants discounts to certain classes of payors.
The relevant section provides in part:
All payment rates shall be equitable for each payor or class of
payors without discrimination or individual preference except
for quantifiable economic benefits rendered to the institution
or to the health care delivery system taken as a whole. In ad-
dition to other such benefits which the commission may con-
sider, it shall consider the following, if found to be quantifi-
able: (1) degree of promptness and volume of payments to
hospitals so that hospitals are provided with funds for current
financing of their services, and (2) broad provision of health
insurance coverages which are not self-supporting. In deter-
mining the quantifiable economic benefits to which consider-
ation shal! be given in approving payment rates, the commis-
sion may consider overall financial benefits to society which
are provided by programs offered by a payor or class of
payors.
26:2H-18b N.J. Stat. Ann. Pursuant to this provision, the commis-
sion granted a 2.2% discount to high-volume plans such as Blue
Cross and granted an 11% discount to plans with open enrollment.
Patients who do not belong to plans that received these discounts
are billed at an increased rate to allow hospitals to recover the in-
come lost by virtue of the discount. One of the plaintiff plans has
applied for a discount under this portion of Chapter 83, but the
commission has not yet ruled on its application.’
' Individuals and third party payors can challenge a bill, through appeal, for such
things as an alleged incorrect assignment of a DRG. Only an uninsured individual
whose DRG bill exceeds his or her itemized medical costs by $250 may appeal “in
exceptional cases of DRG assignments which, although technically correct, may
produce grossly inequitable or excessive payments . . . . Upon demonstration, by
substantial evidence, that application of the DRG system would result in inequita-
ble consequences for the patient, the qualified utilization review organization may
direct that payment be based on an alternative to the DRG rate (for example,
charges).” N.J. Admin. Code 8:31B-3.78(a)viii. Unlike the surcharges to offset the
costs of indigent care, Medicare, and payor discounts, the provision of Chapter 83
that allows some uninsured individuals to reduce their bills does not result in a
specific surcharge that is added to the bills of other paying customers. This equita-
ble over-ride for some uninsured individuals does not single out participants in
ERISA plans for special treatment. It is not available to any individual who is
entitled to reimbursement of medical expenses from any third party payor.
22a
At the threshold of our consideration we must determine whether
this case is moot. The regulatory scheme we have just described
was superseded by new state legislation on January 1, 1993. As we
have noted, however, the plans seek not only an injunction against
enforcement of the (now superseded) Act, but also restitution of
monies paid by appellees pursuant to the Act while it was in effect.
If the Act is infirm for either of the reasons asserted, the claim of
restitution remains viable even though an injunction is no longer
necessary. In order to adjudicate the merits of the restitution claim,
we must determine if the monies were paid pursuant to an unlawful
statutory scheme.? We thus turn our attention to an evaluation of
the lawfulness of the Act.
III.
For the reasons set forth by the district court in its opinion, we
find that the extra costs paid by the plans pursuant to the Act do not
constitute an unlawful taking of property without just compensa-
tion. See, United Wire, Health & Welfare Fund v. Morristown, 794
=. Supp. 524, 540-42 (D.N.J. 1992).
In Penn Central Transporiation Co. v. New York City, 438 U.S.
104 (1978), the Supreme Court utilized a three prong analysis to
determine whether a governmental regulation constituted a taking.
The Penn Central analysis directs our attention to (i) the character
(Continued)
The record does not disclose how many uninsured individuals have filed appeals
under the equitable over-ride provision, and we find no record basis for the sugges-
tion that the “transparent goal ... of this appeal process” is to impose “the lion's
share of [the cost of caring] for the uninsured” on New Jersey's ERISA plans.
Dissenting Op., pp. 39, 41.
2 The plans assert that 29 U.S.C. § 1132(a) and federal common law give them a
right to recover the amounts they have paid to the hospitals under protest. The
district court did not expressly determine whether § 1132(a) or the federal common
law provided a right to restitution under the circumstances of this case. Its opinion,
however, states that it “declines to exercise its pendent and supplemental jurisdic-
tion over plaintiffs’ restitution claims,” 793 F.Supp. at 542, perhaps indicating that
the district court may have viewed state law as providing the plaintiffs’ only possi-
ble remedy. In view of our ultimate conclusion that chapter 83 is not preempted,
we have no occasion to reach this issue. It is sufficient for our purposes to note
that a case or controversy remains between the parties; the preemption issue is not
moot because the plaintiffs make a claim for restitution, and an essential element
of that claim is that ERISA’s preemption provision has been violated.
ii
23a
of the governmental action; (ii) the economic impact of the regula-
tion on the claimant; and (iii) the extent to which the regulation has
interfered with investment backed expectations. Penn Central at
124. Regarding the character of the government action, we con-
clude that New Jersey “does not physically invade or permanently
appropriate any of the [plan’s] assets for its own use,” but rather
“adjusts the benefits and burdens of economic life to promote the
common good”. Connolly y. Pension Guaranty Corp., 475 U.S.
211, 225 (1986). Similarly, the economic impact of the Act upon
the appellees indicates that no taking has occurred. While appellees _
have been deprived of money by operation of the Act, the determi-
nation of the amount owed was not randomly generated, but was
rather “directly related to the individual [appellee’s] hospital bill.”
United Wire, 793 F.Supp. at 542. Finally, given the historically
heavy and constant regulation of health care in New Jersey, we can-
not say that the Act interfered with the plans’ “investment backed
expectations.” We thus affirm the district court’s summary judg-
ment for the defendants on the constitutional claim.
IV.
Whether the Act is preempted by ERISA is a somewhat thornier
question. Section 514(a) of ERISA provides that, with some excep-
tions that do not apply in this case, ERISA “shall supersede any and
all State laws insofar as they may now or hereafter relate to any
employee benefit plan” covered by ERISA. It is undisputed that the
plans are covered by ERISA, and so the question to be determined
is whether the Act “relate[s] to” the plans in a way that necessitates
preemption. We find that the Act does not relate to the plans in a
way that triggers ERISA’s preemption clause.
The preemption clause of ERISA is notable for its breadth, and
manifests Congress’s intention to establish pension plan regulation
as an exclusively federal concern. Alessi v. Raybestos-Manhattan,
Inc., 451 U.S. 504 (1981). The Supreme Court has noted that a
state law “relates to” an ERISA governed plan, within the meaning
of § 514(a)’s preemptive reach, “if it has a connection with or refer-
ence to such a plan.” Shaw v. Delta Airlines, 463 U.S. 85, 97
(1983). The Court in Shaw noted, however, that “{s]ome state ac-
tions may affect employee benefit plans in too tenuous, remote, or
peripheral a manner to warrant a finding that the law “relates to”
the plan. 463 U.S. at 100, n. 21.
24a
In determining whether the New Jersey scheme of regulating
hospital rates is preempted by ERISA, “as in any preemption analy-
sis, ‘the purpose of Congress is the ultimate touchstone.’ ” Metro-
politan Life Ins. Co. v. Massachusetts, 471 U.S. 724, 747 (1985)
(quoting Malone v. White Motor Corp., 435 U.S. 497, 504 (1978)).
The Supreme Court discussed at length the Congressional intent be-
hind the ERISA preemption clause in Fort Halifax Packing Co. v.
Coyne, 482 U.S. 1 (1987). In Fort Halifax the Court was faced with
the question of whether ERISA preempted a Maine statute requir-
ing employers, in the event of a plant closing, to provide a one-time
severance payment to employees not covered by an express contract
providing for severance pay. In the course of holding that the
Maine statute was not preempted, the Court explained the Congres-
sional intent behind ERISA’s preemption clause:
[A]n employer that makes a commitment systematically to pay
certain benefits undertakes a host of obligations, such as de-
termining the eligibility of claimants, calculating benefit
levels, making disbursements, monitoring the availability of
funds for benefit payment, and keeping appropriate records in
order to comply with applicable reporting requirements. The
most efficient way to meet these responsibilities is to establish
a uniform administrative scheme, which provides a set of
standard procedures to guide processing of claims and dis-
bursement of benefits. Such a system is difficult to achieve,
however, if a benefit plan is subject to differing regulatory re-
quirements in differing States. A plan would be required to
keep certain records in some States but not in others; to make
certain benefits available in some States but not in others; to
process claims in a certain way in some States but not in
others; and to comply with certain fiduciary standards in some
States but not in others.
see eee &
It is thus clear that ERISA’s pre-emption provision was
prompted by recognition that employers establishing and
maintaining employee benefit plans are faced with the task of
coordinating complex administrative activities. A patch-work
scheme of regulation would introduce considerable inefficien-
cies in benefit program operation, which might lead those em-
ployers with existing plans to reduce benefits, and those with-
out such plans to refrain from adopting them. Pre-emption
25a
ensures that the administrative practices of a benefit plan will
be governed by only a single set of regulations.
Fort Halifax, 482 U.S. at 9, 11. It is with this Congressional pur-
pose in mind that one must read the myriad of ERISA preemption
cases that have been decided in the courts since ERISA was
adopted. It informs the following analysis of these cases.
A tule of law relates to an ERISA plan if it is specifically de-
signed to affect employee benefit plans, if it singles out such plans
for special treatment,‘ or if the rights or restrictions it creates are
predicated on the existence of such a plan.’ Because we are here
dealing with a statute of general applicability that is designed to
establish the prices to be paid for hospital services, which does not
single out ERISA plans for special treatment, and which functions
without regard to the existence of such plans, the cases which have
cordoned off this area of preemption are inapplicable.®
* See, e.g., Bricklayers Local 33 v. America’s Marble Source, 950 F.2d 114 (3d
Cir. 1991) (ERISA preempts a New Jersey statute that regulates the payment of
fringe benefits); McMahon v. McDowell, 794 F.2d 100 (3d Cir. 1986) (ERISA
preempts a Pennsylvania statute that allowed employees to collect unpaid ERISA
plan benefits directly from the officers of a company, thus adding to the employee
plans another means of collecting benefits), cert. denied, 479 U.S. 971 (1986).
* See, e.g., Mackey v. Lanier Collection Agency and Service, Inc., 486 U.S. 825
(1988) (a portion of Georgia’s garnishment statute “which singles out ERISA plan,
by express reference, for special treatment is preempted.” /d., at 838, n. 12:
McCoy v. Massachusetts Institute of Technology, 950 F.2d 13, 19 (ist Cir. 1991)
(ERISA preempts a Massachusetts lien statute which “expressly singles out ERISA
plans for special treatment.”), cert. denied, 112 S.Ct. 1939 (1992).
* E.g., District of Columbia v. Greater Washington Bd. of Trade, 113 S.Ct. 580
(1992) (ERISA preempts a District of Columbia statute that required employers
who provide health insurance for their employees to provide equivalent health in-
surance coverage for injured employees eligible for workers’ compensation bene-
fits); Ingersoll-Rand Co. v. McClendon, 111 S.Ct. 478 (1990) (ERISA preempts
employee's state law wrongful discharge claim where claim was based on allega-
tion that discharge was motivated by employer’s desire to avoid making contribu-
tions to employee's pension fund).
* As the plans correctly point out, the Supreme Court has declared that the phrase
“relates to” in § 514(a) is used “in the normal sense of the phrase” and has cited
the definition of “Relate” found in Black’s Law Dictionary. That definition in-
cludes “to refer to” as one accepted meaning. Shaw v. Delta Air Lines, Inc., 463
U.S. 85, 97, n. 16 (1983). Nevertheless, we disagree with the plans’ argument that
Chapter 83 is preempted simply because it expressly refers to “self-funded union”
plans as one example of a “third party payor”. Where, as here, a reference to an
ERISA plan can be excised without altering the legal effect of a statute in any way,
we believe the reference should be regarded as without legal consequence for
§ 514(a) purposes. Thus, for example, a state statute providing that “no employer,
including an ERISA plan, shall discriminate on grounds of race or gender” would
not be preempted despite its reference to an ERISA plan. See footmote 11 infra.
sical
26a
This does not end our inquiry, however. A state rule of law may
be preempted even though it has no such direct nexus with ERISA
plans if its effect is to dictate or restrict the choices of ERISA plans
with regard to their benefits, structure, reporting and administra-
tion, or if allowing states to have such rules would impair the ability
of a plan to function simultaneously in a number of states.’
New Jersey’s scheme may increase the charges billed to ERISA
plan participants for hospital services. This will mean that for any
plan which commits to pay all or some lesser percentage of a par-
ticipant’s hospital costs will be called upon to pay more in benefits
than it otherwise would. This effect is no different in kind, how-
ever, from any state regulation that increases the cost of goods or
services that hospitals consume and pass on in hospital costs, i.e.,
utility costs, the wages of its employees, waste disposal costs, etc.
New Jersey’s scheme does not direct ERISA plans to structure their
(Continued)
We also disagree with the dissenting opinion’s suggestion that a statute should
be preempted solely because the participation of ERISA plans is required as a mat-
ter of economics in order for the statute to meet its social goals. This is not what
we understand the Supreme Court to have meant in Greater Washington Board of
Trade when it held that statutes predicated on the existence of ERISA plans “relate
to” such plans. The statute in that case could not be applied without reference to
the “coverage levels set forth in ERISA plans.” As we understand it, it is of no
legal consequence if removing ERISA plans from the scene would diminish the
likelihood that the statute would meet its social goals. Rather, the test for preemp-
tion in this regard is whether the existence of ERISA plans is necessary for the
statute to be meaningfully applied. Greater Washington Board of Trade, 113 S.Ct.
at 583-84.
7 See, e.g., FMC Corp. v. Holiday, 111 S.Ct. 403, 408 (1990) (ERISA preempts a
Pennsylvania antisubrogation statute which prevented Pennsylvania plans “from
being structured in a manner requiring reimbursement in the event of recovery
from a third party”); Alessi v. Raybestos-Manhattan, Inc., 451 U.S. 504 (1981)
(ERISA preempts New Jersey statute insofar as that statute prevents ERISA plans
from decreasing benefits by the amount a recipient is awarded in worker’s com-
pensation subsequent to retirement); Hampton Industries Inc. v. Sparrow, 981 F.2d
726 (4th Cir. 1992); (ERISA preempts a North Carolina antisubrogation statute);
National Elevator Industry, Inc. v. Calhoun, 957 F.2d 1555, 1561 (10th Cir. 1992)
(ERISA preempts administrative interpretation of Oklahoma’s prevailing wage
statute insofar as it determines rates of pay and “may be used to effect change in
the administration, structure and benefits of an ERISA plan”), cert. denied, 113
S.Ct. 406; Michigan Carpenters Council v. C. J. Rogers, Inc., 933 F.2d 376 (6th
Cir. 1991) (ERISA preempts Michigan state corporate reorganization statute that
allows employers unilaterally to alter their obligation to ERISA plans), cert. de-
nied, 112 S.Ct. 585 (1991); Arkansas Blue Cross & Blue Shield v. St. Mary’s Hos-
pital, 947 F.2d 1341 (8th Cir. 1991) (ERISA preempts Arkansas statute regulating
the assignment of benefits to health care providers), cert. denied, 112 S.Ct. 2305
(1992).
27a
benefits or conduct their internal affairs in any particular way. Nor
does it deprive ERISA plans of any alternative they would other-
wise have in these areas. Finally, since the cost of hospital services
will necessarily vary from region to region, we fail to see how state
regulation of hospital pricing like that chosen by New Jersey is
likely to make interstate operation of an ERISA plan more difficult.
Where there is no direct nexus between a state statute and ERISA
plans, no effect on the manner of such plans’ conducting business
or their ability to operate in interstate commerce, statutes have been
upheld despite the fact that they may have the indirect ultimate ef-
fect of increasing plan costs. In Mackey v. Lanier Collection
Agency and Service, Inc., 486 U.S. 825 (1988), for example, the
court held that Georgia’s general statute authorizing garnishment of
obligations due debtors could be utilized by creditors of ERISA
plan participants to require the application of plan benefits to sat-
isfy participants’ personal debts. Georgia garnishment law as so
applied was found not to be preempted by § 514(a) despite the fact
that “benefit plans subjected to garnishment ... incur substantial
administrative burdens and costs” in responding to garnishment
summons.
The most helpful case in the present context is Rebaldo v.
Cuomo, 749 F.2d 133 (2d Cir. 1984), where the court sustained
against a preemption challenge a New York statute setting the rates
that hospitals in that state had to charge patients, including those
who were participants in self-insured employee benefit plans. The
court, after noting the obvious “fact that ERISA plan members and
managers are bound to engage in myriad transactions that Congress
never considered when it drafted § 514,” made the following obser-
vations that seem equally pertinent here:
A preemption provision designed to prevent state interference
with federal control of ERISA plans does not require the crea-
tion of a fully insulated legal world that excludes these plans
from regulation of any purely local transaction.
see ee 4 &
The purchase of hospital service is like the purchase of public
utility service, or of any other service or commodity whose
price is controlled by the State. Insofar as the regulation of
hospital rates affects a plan’s cost of doing business, it also
may be analogized to State labor laws that govern working
conditions and labor costs, to rent control laws that determine
28a
what employee benefit plans pay or receive for rental prop-
erty, and even to such minor costs as the Thruway, bridge and
tunnel tolls that are charged to plans’ officers or employees.
In short, if ERISA is held to invalidate every State action that
may increase the cost of operating employee benefit plans,
those plans will be permitted a charmed existence that never
was contemplated by Congress. Where, as here, a State stat-
ute of general application does not affect the structure, the ad-
ministration, or the type of benefits provided by an ERISA
plan, the mere fact that the statute has some economic impact
on the plan does not require that the statute be invalidated.
Moreover, such indirect economic impact as may result
from State control over hospital rates does not run counter to
ERISA’s aim of national uniformity in plan regulation. See
Shaw v. Delta Air Lines, Inc., supra, 103 S.Ct. at 2890 n. 20.
There is no valid reason why employee benefit plans cannot
be subject to nationally uniform supervision despite dissimi-
larities in their costs of doing business. Indeed, if statutes
such as section 2807-a(6)(b) of New York’s Public Health
Law are held to be preempted by ERISA, every hospital will
be able to set its own rates for ERISA plans, and appellee does
not contend that these rates are, or will be, uniform, even as
between hospitals in the same iocality.
749 F.2d at 138-9.
The plans insist that Rebaldo is no longer “good law” in light of
the Supreme Court’s subsequent decision in Jngersoll-Rand Co. v.
McClendon, 111 S.Ct. 478 (1990). While we agree that a portion of
the Rebaldo court’s analysis was rejected in Ingersoll-Rand, the
above-quoted reasoning remains persuasive and we are confident
that Rebaldo would have been decided in the same way if the court
had had the benefit of the teachings of Jngersoll-Rand.®
* We thus find ourselves unpersuaded by the Southern District of New York’s
recent opinion in 7ravelers Insurance Co. v. Cuomo, 813 F. Supp. 996, which sug-
gested that Rebaldo has been entirely eroded by opinions of the Supreme Court.
The opinion proceeds from what appears to us to be a misconstruction of the Su-
preme Court’s opinion in FMC Corp. v. Holliday, 111 S. Ct. 403 (1990). The
court in that case seems to understand FMC to have been concerned with present-
ing uniform costs of doing business to plan administrators. By our reading, how-
ever, FMC was concerned to prevent a state statute from forcing decisions regard-
ing the internal design and structure of benefit plans (e.g. who may collect, and
how, and from whom).
29a
In Ingersoll-Rand, the Supreme Court addressed the issue of
whether § 514(a) preempts a state cause of action in favor of an
employee terminated to prevent the vesting of his or her pension
benefits. It was confronted with an argument that the phrase “relate
to any employment benefit plan” should be read in the context of
§ 514 as a whole and that the wording of §514(c)(2) indicates that
§ 514 preempts only a state law which “purports to regulate, . . .
directly or indirectly, the terms and conditions of employee benefits
plans.” 29 U.S.C. §1144(c)(2).° If § 514(c)(2) did so limit the
scope of § 514, the state cause of action at issue would not be pre-
empted because it did not purport to regulate the terms and condi-
tions of ERISA plans. The Supreme Court determined, however,
that §514 preemption was not so limited and that it extended to a
state cause of action predicated on the existence of an employee
benefit plan. Since one of the elements of the state cause of action
was the existence of such a plan, the Supreme Court had “no diffi-
culty in concluding” that it was preempted. Jd. at 483. It explained,
... We are not dealing here with a generally applicable statute
that makes no reference to, or indeed functions irrespective of,
the existence of an ERISA plan. Nor is the cost of defending
this lawsuit a mere administrative burden. Here, the existence
of a pension plan is a critical factor in establishing liability
under the State’s wrongful discharge law. As a result, this
cause of action relates not merely to pension benefits, but to
the essence of the pension plan itself.
While the court in Rebaldo did suggest that § 514(c)(2) could be
read to limit the scope of § 514 preemption," this was not the
touchstone of its analysis. Unlike the court in Ingersoll-Rand, the
Rebaldo court was “dealing ... with a generally applicable statute
that makes no reference to, [and] functions irrespective of, the exis-
tence of an ERISA plan.” /d. at 483, and that affects such plans only
by increasing their costs of doing business. As the above-quoted
portions of the opinion bear witness, it was the absence of a direct
nexus to ERISA plans and the limited nature of the statute’s impact
on such plans that put the pricing regulation in Rebaldo beyond the
scope of § 514 preemption."!
. Section 514(c)(2) reads in full:
The term “State” includes a State, any political subdivisions thereof, or
any agency or instrumentality of either, which purports to regulate, directly
30a
In summary, we, too, have before us a generally applicable law
which (1) is not intended to regulate the affairs of ERISA plans, (2)
neither singles out such plans for special treatment nor predicates
rights or obligations on the existence of an ERISA plan, and (3)
does not have either the effect of dictating or restricting the manner
in which ERISA plans structure or conduct their affairs or the effect
of impairing their ability to operate simultaneously in more than
one state. We have found no case that has held such a law to be
preempted by § 514(a), and we decline to so hold.
As we analyze the issue before us, we are not troubled, as was the
district court, by what the plans refer to as the cost shifting aspects
of New Jersey’s program. The district court accepted the plans’
argument that New Jersey was requiring them to act in a manner
inconsistent with their obligation under ERISA to apply fund assets
only for the benefit of fund participants. Were this the case, New
Jersey’s statute would, of course, be preempted as applied to the
plans. But plaintiffs purport to understand ERISA to impose upon
them a burden which would be an intolerable one and which we are
confident Congress never intended ERISA plans to bear.
The plans argue that their fiduciary duty to apply fund assets
only for the benefit of fund beneficiaries forbids them from paying
for hospital services received by those beneficiaries if any portion
of the price paid can be viewed as attributable to the cost of provid-
ing services to others, such as indigent and Medicare patients. As
(Continued)
or indirectly, the terms and conditions of employee benefit plans covered by
this subchapter.
29 U.S.C. § 1144(c\(2).
© The infirmity of this portion of the Rebaldo opinion is noted by the Court of
Appeals for the Second Circuit in Smith v. Dunham-Bush, Inc., 959 F.2d 6, 9 n. 3
(2d Cir. 1992).
'! The reasoning of the court in Rebaldo parallels that in Lane v. Goren, 743 F.2d
1337 (9th Cir. 1984) which held that the application of California’s anti-discrimi-
nation laws to the employment practices of an ERISA plan’s trustees is not pre-
empted by ERISA. The court so held because the California law affected the trus-
tees only in their “capacity as an employer, and in a way that all other employers
were affected,” Jd. at 1340, because the only effect was to increase the trustee’s
costs of doing business. The court noted:
That argument does not withstand scrutiny. So too, for example, do state
law and municipal ordinances regulating zoning, health, and safety increase
the operational costs of ERISA trusts, but no one could seriously argue that
they are preempted.
See, also, Shaw v. Delta Air Lines, Inc., 463 U.S. 85, 97 n. 17 (1983) (New York’s
anti-discrimination law as applied to ERISA plans is not preempted “insofar as it
prohibits employment discrimination in hiring, promotion, salary, and the like”).
i nciiiiiiiiialiihitsiiaiiaaiaiihitt a iaatee
3la
the plans appear to us to concede, however, it would be impossible
to have a requirement that ERISA plans must “look through” to the
pricing structure of every health care provider to assure that the
price of the services rendered a particular patient directly correlates
with the costs of those services. We think an ERISA plan meets its
ERISA responsibilities when it pays whatever portion of the price
charged by the health care provider the plan has assumed.
First, the plans do not challenge the base DRG rate feature of
New Jersey’s price control program even though it is inherent in
this approach that a patient having an appendectomy who winds up
in intensive care for two weeks pays the same amount as another
patient who has an appendectomy and leaves the hospital the fol-
lowing day. The plans do not challenge this aspect of the plan be-
cause they acknowledge that it is not feasible in any real sense to
isolate the costs attributable to any particular patient. The plans
understandably add that if they have enough appendectomy patients
over the years the costs they pay on behalf of others theoretically
will be offset by the costs other pay on behalf of plan participants.
It nevertheless remains true that the portions of the New Jersey
scheme unchallenged by the plans recognize the prohibitive transac-
tions costs associated with matching any particular disbursement of
fund assets to cover a hospital bill with the actual costs of treating
that particular patient.
More importantly, there are many forms of state regulation under
the police power which result in increases in the cost of doing busi-
ness and corresponding increases in prices where the beneficiaries
of the regulation are not those who are paying the increased prices.
States have recently begun to regulate the disposal of medical
wastes, for example, in order to protect those who otherwise would
be adversely affected by socially irresponsible disposal. Such regu-
lations can significantly increase a hospital’s cost of doing business
and, accordingly, its billings to plan participants. We are confident,
however, that ERISA was not intended to foreclose a state regula-
tion of this kind. New Jersey’s decisions to require hospitals to
treat indigents and to treat Medicare patients for the Medicare reim-
bursement seem to us to be similar exercises of its police power.
In short, we are unwilling to attribute to Congress and §514 an
intent to frustrate the efforts of a state, under its police power, to
| regulate health care costs. In particular, we are unwilling to infer
32a
from ERISA’s prohibition against applying fund assets for the ben-
efit of others a Congressional intent to foreclose health care cost
regulation of the kind here challenged.
v.
Having concluded that the challenged portions of Chapter 83 are
not preempted by § 514(a) and are not unconstitutional, we will re-
verse the judgment of the district court, vacate the injunction, and
remand with instructions that judgment be entered for the
defendants. '?
NYGAARD, Circuit Judge, dissenting.
This is a close case because it tests the outer limits of ERISA
preemption. Although my decision is made more difficult because
the New Jersey regulatory scheme (the “Act”) is admirable for its
intended purpose and goals, I think Congress intended to preempt
these kinds of statutes. The issue is: Whether a statute of pur-
ported general applicability “relates to,” in the ordinary and broad
sense of that term, ERISA plans if it disproportionately impacts
upon ERISA plans, presupposes the existence of ERISA plans, and
depends on funds extracted from ERISA plans to implement its leg-
islative mandate. Because I believe that the district court correctly
concluded that such a statute is preempted, see United Wire, Metal
& Machine Health and Welfare Fund v. Morristown Memorial
Hosp., 793 F.Supp. 524, 531-37 (D.N.J. 1992), I respectfully
dissent.
I,
Congress enacted ERISA to subject employee benefit plans to a
uniform system of federal laws governing disclosure, reporting,
standards of conduct, remedies, sanctions, and access to federal
courts. Since uniformity cannot be achieved if ERISA plans are
subject to varying state regulations, Congress preempted “any and
all State laws insofar as they . . . relate to any employee benefit
plans.” ERISA § 514(a), 29 U.S.C. § 1144(a) (emphasis added).
12 It appears that there are plaintiff plans which have not asserted a claim for
restitution. As to any such plaintiff, the passage of the new statute rendered its
case moot. The district court should dismiss the claims of any such plaintiffs be-
fore entering judgment for the defendants on the remaining claims.
ee
33a
Section 514(a) is deliberately expansive and “conspicuous for its
breadth.” FMC Corp. v. Holliday, 498 U.S. 52, 111 S.Ct. 403, 407
(1990). It is “virtually unique” among federal preemption statutes,
Franchise Tax Bd. v. Construction Laborers Vacation Trust, 463
U.S. 1, 24 n.26, 103 S.Ct. 2841, 2854 n.26, as it is “one of the
broadest preemption clauses ever enacted by Congress.” Evans v.
Safeco Life Ins. Co., 916 F.2d 1437, 1439 (9th Cir. 1990).
The term “relate to” must be given a “broad common-sense
meaning.” Pilot Life Ins. Co. v. Dedeaux, 481 U.S. 41, 107 S.Ct.
1549, 1553 (1987). A state law relates to an ERISA plan “in the .
normal sense of the phrase, if it has a connection with or reference
to such a plan.” Shaw v. Delia Air Lines, Inc., 463 U.S. 85, 103
S.Ct. 2890, 2900 (1983). Any connection may trigger preemption,
and preemption is not limited to laws relating to the specific sub-
jects covered by ERISA. Pilot Life, 481 U.S. at 47-48; Shaw, 103
S.Ct. at 2900. That a state law may be “consistent with ERISA’s
substantive requirements” or was enacted to “effectuate ERISA’s
underlying purposes” does not save it from preemption. Metropoli-
tan Life Ins. Co. v. Massachusetts, 471 U.S. 724, 105 S.Ct. 2380,
2388-89 (1985); Mackey v. Lanier Collection Agency & Serv., 486
U.S. 825, 108 S.Ct. 2182, 2185 (1988). A state law may relate to a
benefit plan even if it is not specifically designed to affect such
plans, or its effect is only indirect. Pilot Life, 107 S.Ct. at 1552-53;
Shaw, 103 S.Ct. at 2900; Alessi v. Raybestos-Manhattan, Inc., 451
U.S. 504, 101 S.Ct. 1895, 1907 (1981); Ingersoll-Rand Co. v. Mc-
Clendon, 498 U.S. 133, 111 S.Ct. 478, 483 (1990).
Since no law exists in a vacuum and arguably many laws could be
held to “relate to” ERISA plans, without some limits Section 5 14(a)
could become a legal blackhole with an attractive force no state law
could resist. Hence, some laws are said to affect ERISA plans in
“too tenuous, remote, or peripheral a manner to warrant a finding
that [they] relate to’ the plan.” Shaw, 103 S.Ct. at 2901 n.21. See,
e.g., Mackey, 108 S.Ct. at 2191 (garnishment statute of general ap-
plicability is not preempted). The task then is to determine the pre-
cise relationship between the Act and ERISA plans. Mackey, 108
S.Ct. at 2186.
Il.
The declared public policy of the Act is to “contain the rising
costs of health care services, and to ensure the financial solvency of
hospitals.” N.J.S.A. § 26:2H-1. The linchpin in this scheme is the
34a
DRG rate, which is a statistical average of costs incurred by hospi-
tals to perform a particular medical procedure. The DRG is the rate
hospitals must bill for particular services. Thus, it functions as both
a price cap and an incentive to reduce costs.
The plans do not challenge the validity of the DRG rate scheme,
but only attack three surcharge components incorporated into the
DRG. They are costs for uncompensated care and bad debts.
Medicare cost shifts, and costs related to discounts given to certain
payer groups. Only hospital patients, not the general public, pay
these costs. The New Jersey scheme is, quite simply, a cost-shifting
mechanism whereby those who do not have deep pockets or are fa-
vored by the law are given discounts or free services. Since these
discounts and services cause state-mandated financial losses to hos-
pitals, the Act remunerates hospitals by shifting these losses
through the DRG resulting in additional 19.7% and 7% surcharges
in uncompensated and Medicare costs shifts to those with deep
pockets — commercial insurers and ERISA plans.
ERISA plans play a critical role in this scheme, to the point
where without them it would fall apart. They comprise a major
segment of the paying hospital service users who subsidize those
favored by the Act. The structure of the scheme indicates in not-so-
subtle ways that the New Jersey legislature was well aware of the
pivotal role ERISA plans would play in its scheme. Upon pain of
not receiving reimbursements for their uncompensated care costs,
the Act requires hospitals to screen patients to determine whether
they are covered by a commercial insurer or a “union welfare plan.”
N.J.S.A. § 26:2H-18.31(c)(2). Also, under the appeal policy ex-
isting at the time, while individual patients as well as third-party
payors could have appealed mistakes in the assignment of a particu-
lar DRG, only individual patients could have appealed an assign-
ment of a DRG that was technically correct but may have been ex-
cessive. “The third-party payer (commercial insurer, self-funded
union, etc.)” was specifically excluded from appealing a correct but
excessive charge. A vast majority of appeals, about 85%, were
based on excessive charges, and only about 1% of them were de-
nied. Thus, the goal is transparent and little explanation is needed
to see what this appeal process was designed to do.
In October 1990, the New Jersey Governor’s Commission on
Health Care Cost submitted a report that plainly concluded: “Only a
portion of New Jersey businesses, those who purchase insurance for
their workers, pay the lion’s share of caring for the uninsured.” It
35a
summarized the impact on employee benefit plans: “It was apparent
that rapidly rising health insurance costs were a significant burden
to both the business community and the labor force in this State
with the potential to negatively affect New Jersey citizens . . . that
the Uncompensated Care Trust Fund while affording access to hos-
pital services was unfairly financed on the backs of those who had
health insurance... .”
Last, the State concedes that the scheme is not “viable”’without
money from the plans as they “represent a major segment of the
bill-paying public, to the point that it is impossible to devise a via-
ble hospital rate-setting scheme if that segment is excluded or ex-
empted from the scheme.” Br. 2 (emphasis added). This concession
dispels any doubt that the effect of the Act is to reach into the deep
pockets of ERISA funds.
The Act provides a conduit by which money is transferred from,
among others, ERISA plans to hospitals. Rather than spend its own
general funds, New Jersey implemented a money transfer scheme
where ERISA plans subsidize the medical bills of those who are
favored by law. One affidavit accurately concluded: “Indeed, if the
State of New Jersey were to assume the uncompensated care and
the Medicare cost shift as social obligations from its general reve-
nues, for example, the average hospital bill would decrease on a pro
rata basis by this amount and these shifts would no longer be re-
flected in New Jersey hospital bills.”
Ill.
The majority believes that the connection between the Act and
ERISA plans is too tenuous and remote “fbJecause we are here
dealing with a statute of general applicability that is designed to
establish the prices to be paid for hospital services, which does not
single out ERISA plans for special treatment, and which functions
without regard to the existence of such plans . . . ."Majority type-
script at 27. The majority relies in part on Mackey v. Lanier Col-
lection Agency & Serv., 108 S.Ct. 2182 (1988), to suggest that
where there is no direct nexus, or where a statute does not directly
affect the administration of ERISA plans, the statute is not pre-
empted despite any “indirect ultimate effect of increasing plan
costs.” Majority typescript at 29.
In Mackey the issue was whether a generally applicable Georgia
garnishment statute was preempted by ERISA. The Court first rec-
ognized that a statute need not specifically single out, mention, or
36a
have a direct nexus to ERISA plans to be preempted. 108 S.Ct. at
2186, citing Pilot Life, 107 S.Ct. at 1552-53, and Shaw, 103 S.Ct. at
2900. The Court held, however, that the statute was not preempted.
In light of certain ERISA provisions, one of which provides a plan
may “sue or be sued” as an entity, 29 U.S.C. § 1132(d)(1), the
Court reasoned that money judgments against ERISA plans must be
collectable in some way and that garnishment is one permissible
method. 108 S.Ct. at 2188 & n.9, citing FHA v. Burr, 309 U.S.
242, 60 S.Ct. 488, 491 (1940) (where Congress provides that an
entity may “sue or be sued” all civil processes incident to legal pro-
ceedings including “garnishment and attachment” may apply).
Thus, Mackey does not stand for the proposition that a generally
applicable statute should not be preempted even though it may re-
sult in some “indirect economic impact.” It stands for the proposi-
tion that where Congress intended for state law to apply to ERISA,
that law will not be preempted even though it may otherwise relate
to ERISA plans by placing indirect financial or administrative bur-
dens on them.!
The majority nowhere shows how any provision in or the struc-
ture of ERISA suggests that Congress did not intend these kinds of
statutes to be preempted. See Malone v. White Motor Corp., 435
U.S. 497, 504 (1978) (“purpose of Congress is the ultimate touch-
stone”). Where Congress adopts a broad preemption provision, the
“task of discerning congressional intent is considerably simplified.”
Ingersoll-Rand, 111 S.Ct. at 482.
Although any connection may suffice, the task is made easier
when the statute refers to or specifically singles out ERISA plans.
The Act requires hospitals to ask patients whether they belong to a
“union welfare plan,” and it expressly excludes “self-funded union”
plans from appealing hospital bills. The majority, however, brushes
these references aside by concluding that they “can be excised with-
out altering the effect of [the]statute in any way,” and therefore they
“should be regarded as without legal consequence for § 514(a) pur-
poses.” Majority typescript at 27 n.6.
' Without the congressional intent derived specifically from the structure of
ERISA, Mackey would probably have been decided differently. Both the majority
and the dissent in Mackey observed that the garnishment law subjected the plans to
“substantial” and “significant administrative burdens and costs.” See 108 S.Ct. at
2186, 2192. Because “plans face the repetitious and costly burden of monitoring
controversies involving hundreds of beneficiaries and participants in various
States.” /d. at 2193, Justices Kennedy, Blackmun, O’Conner, and Scalia
dissented.
37a
The majority underestimates the significance of these references.
New Jersey has implicitly classified all hospital users into two
groups: those who are able to pay and those who are not. This sim-
ple dichotomy then determines “whether the patient is eligible for
participation in a public assistance program,” N.J.S.A. § 26:2H-18-
31(c){3), whether one must pay the three surcharges, and whether
and what one may appeal. A large segment of the small percentage
of patients who are able to fully pay for medical services are plan
beneficiaries, and hence New Jersey requires hospitals to ask
whether a patient belongs to a “union welfare plan.” Thus, the con-
clusion that the references to ERISA plans in the Act “can be ex-
cised without altering the effect of [the] statute in any way” is with-
out support.
Even assuming, arguendo, that the Act does not expressly single
out ERISA plans for special treatment, it does so as applied. One
cannot ignore the practical consequences produced by this statute, a
consequence that according to the report commissioned by the State
resulted in ERISA plans having paid “the lion’s share of caring for
the uninsured.” See Mackey, 108 S.Ct. at 2185 (it is “virtually
taken [] for granted that state laws which are ‘specifically designed
to affect employee benefit plans’ are pre-empted under § 514(a)”).
Moreover, the assumption that the Act “functions without regard
to the existence of such plans” is puzzling in light of the State’s
concession that the Act is not “viable” without ERISA plans. The
Act was designed with ERISA funds in mind. In this sense, it has
been eminently successful; the financial drain on ERISA funds has
been enormous. The surcharges are paid not by the general public
at large, but by the less than 25% of the population who use hospital
services. Of those 25%, about 75% receive the uncompensated care
assessments challenged here. ERISA plan participants comprise
only about 15% of the hospital patients, but pay about 40% of the
more than $1.1 billion shortfall generated by the state-mandated
cost shifts.
In Ingersoll-Rand Co. v. McClendon, 111 S.Ct. 478 (1990), an
employee sued in Texas state court, alleging that he was fired be-
cause his employer did not want to contribute to his pension fund.
He sought damages under various tort and contract theories, but did
not plead an ERISA cause of action. The Texas Supreme Court
recognized a cause of action for wrongful discharge based upon
“the employer’s desire to avoid contributing to or paying benefits
under the employee’s pension fund.” The Supreme Court reversed
38a
and held that the cause of action is preempted because it was pre-
mised on the existence of a pension plan. It reasoned that “to pre-
vail, a plaintiff must plead, and the court must find, that an ERISA
plan exists and the employer had a pension-defeating motive in ter-
minating the employment. Because the court’s inquiry must be di-
rected to the plan, this judicially created cause of action ‘relates to’
an ERISA plan.” Jd. at 483.
Similar to the Texas cause of action, the New Jersey statute is
predicated on the existence of ERISA plans and its mandates cannot
be carried out without ERISA funds. See /d. at 484 (“there simply
is no cause of action if there is no plan”) (emphasis in original).
Also, the costs associated with the New Jersey regulatory scheme
are not qualitatively the same as those in either Mackey or Inger-
soll-Rand. In Mackey, the four dissenting Justices opined that the
administrative burdens of allowing ERISA benefits to be garnished
were so “significant” as to warrant preemption of a generally appli-
cable garnishment statute. 108 S.Ct. at 2192. In Jngersoll-Rand, a
unanimous Supreme Court noted that the litigation costs of defend-
ing against a cause of action predicated upon the existence of an
ERISA plan were substantial. 111 S.Ct. at 483. No one will dis-
pute that these costs pale in comparison to the hundreds of millions
of dollars extracted from ERISA funds under the Act. And while
the majority may classify these costs as “the limited nature of the
statute’s impact on such plans,” I do not.
One may argue that nothing in the Act establishes the level of
benefits or structure plan benefits to include these shifted costs and
that each plan is free to cover all, some or none of these costs. This
argument is unpersuasive. In General Elec. Co. v. New York Dep’t
of Labor, 891 F.2d 25 (2d Cir. 1989), a New York labor law of
general application provided that wages and “supplements”
(nonwage benefits which included ERISA plans) on a public works
contract must at least equal the prevailing rate and benefits paid in
the locality. Where the cost of a benefit provided by an ex-locality
contractor did not match those of a similar prevailing local benefit,
the statute required the contractor either to bring the benefit into
conformity with the local benefit, or to make up the difference
through cash payments to its employees. Nothing in the statute,
however, required a contractor to alter the benefits to match those in
the locality, and the contractor was free to pay cash instead. But the
Court of Appeals for the Second Circuit held that ERISA pre-
empted the labor law. It reasoned that the law clearly related to
39a
ERISA plans in that to conform to the statute contractors had to
maintain “schedules of supplements and wages and to make its
books and records pertaining to wages, supplernents and hours of
labor available for inspection.”’/d. at 29-30.
The Act is analogous to the New York labor statute because it
requires ERISA plans either to pay the surcharges or to restructure
their benefits to avoid them. Since no one likes to pay for benefits
or services one did not receive or benefit from, it is reasonable to
expect that some plans may change their terms to exclude these
costs, just as it was reasonable to expect that some New York con-
tractors would restructure ERISA plans instead of paying cash ben-
efits. Implicit, then, is the assumption that an ERISA plan, if it
does not want to pay for the direct cost of services provided to
nonbeneficiaries, “structure all its benefit payments in accordance
with New Jersey [hospital rates], or to adopt different payment for-
mulae for employees inside and outside of the State.” See Fort Hal-
ifax, 107 S.Ct. at 2217; Alessi, 101 S.Ct. at 1907. This is the pre-
cise reason why Congress enacted such a broad preemption
provision: so that employee benefit plans would not be subject to
the vagaries of state regulations. Jngersoll-Rand, 111 S.Ct. at 484;
Fort Halifax, 107 S.Ct. at 2217.
Because New Jersey has asked ERISA plans to carry ¢’ ~ brunt of
the burden of keeping hospitals financially afloat and, in fact, to
largely subsidize its venture into hospital price regulation, and be-
cause the State admits that result before this court, I agree with the
district court’s conclusion that there is a definite, palpable connec-
tion between the Act and the plan. See United Wire, 793 F.Supp. at
531-37.
IV.
Much attention in this appeal has been focused on Rebaldo v.
Cuomo, 749 F.2d 133 (2d Cir. 1984). The New York statute pro-
vided that the state must establish for each hospital an “inpatient
revenue cap,” which was a price cap with additional allowances
made for bad debts and charity care. The statute allowed certain
programs, like Blue Cross, to get discounts, but certain ERISA
plans did not qualify. The Court of Appeals for the Second Circuit
first reasoned that because Section 514(c)(2) defines “State” as any
agency, instrumentality or political subdivision that “purports to
40a
regulate, directly or indirectly, the terms and conditions of em-
ployee benefit plans.” 29 U.S.C. § 1144(c)(2), this restriction modi-
fies Section 514(a)’s broad preemption provision. 749 F.2d at 137.
The court held that where “a State statute of general application
does not affect the structure, the administration, or the type of bene-
fits provided by an ERISA plan, the mere fact that the statute has
some economic impact on the plan does not require that the statute
be invalidated.” Jd. at 139. This holding is now infirm as the Su-
preme Court has since rejected the view that the definition of
“State” restricts the scope of Section 514(a). Ingersoll-Rand, 111
S.Ct. at 484?
The Rebaldo court justified its holding with an economic/policy
argument. It reasoned that the regulation of hospital rates are anal-
ogous to any state regulations that increase the cost of doing busi-
ness for hospitals. 749 F.2d at 138. Thus, for example, the court
opined that ERISA plans could not contend that they are exempt
from price increases as a result of increased labor, utility, or rent
costs, or from such minor costs as the bridge and tunnel tolls that
are charged to plan officers or employees. Jd. Moreover, it opined
that since ERISA plans can be subject to nationally uniform super-
vision despite dissimilarities in hospital prices, any “indirect eco-
nomic impact” would be consistent with ERISA’s aim of national
uniformity in plan regulation. Jd. at 139.
Recently, even this economic rationale, for whatever worth it had,
has been eroded. Although the Rebaldo court suggested that “State
labor laws that govern working conditions and labor costs . . . that
[have] some economic impact on the plan”would not be preeiapted,
id. at 138-39, the Court of Appeals for the Second Circuit has since
retreated from this position and has preempted a generally applica-
ble statute governing labor costs that imposed upon ERISA plans
indirect financial and administrative burdens. General Electric,
891 F.2d at 29-30.’
2 Although the majority recognizes that Jngersoll-Rand overruled Rebaldo, at
least in part, it distinguishes Jngersoll-Rand on the basis that the Rebaldo court
dealt with “‘a generally applicable statute that makes no reference to, [and] func-
tions irrespective of, the existence of an ERISA plan.’” Majority typescript at 32,
quoting /ngersoll-Rand, 111 S.Ct. at 483. Of course, that is the question here.
3 Indeed, although Judge Van Graafeiland authored both Rebaldo and General
Electric, the dissent in General Electric considered Rebaldo controlling:
The majority does not attempt to distinguish Rebaldo and Aetna Life nor,
in my view, could it sensibly do so. Like the statutes we upheld in those
decisions, New York’s prevailing wage statute is a law of general application
ee
4la
Despite the Supreme Court’s rejection of the holding in Rebaldo
and the Court of Appeals for the Second Circuit’s implicit rejection
of what appears to be the rest, the majority nonetheless relies heav-
ily on it. Faced with Section 514(a)’s sweeping preemption provi-
sion and the cause-and-effect financial connection between the Act
and ERISA funds, the majority justifies its decision by reasoning
that the Act is analogous to any number of state laws that may indi-
rectly increase the cost of doing business, such as regulations gov-
erning labor, utility, or rent costs. Majority typescript at 29. It
suggests as an example that regulations concerning the disposal of
medical waste would not be preempted though their implementation
may net higher medical bills as a result of the increased cost of
doing business. Jd. at 33.
I agree with the majority insofar as ERISA plans do not lead a
“charmed existence.” Rebaldo, 749 F.2d at 139. They are, of
course, not exempt from paying rent, tolls, or even the many over-
head costs associated with hospital management. The DRG takes
into account both direct costs, such as hospital employees’ salaries
and benefits, and indirect costs, such as institutional overhead ex-
penses for management, research, education and maintenance. The
plans, however, do not argue that the entire DRG system is incom-
patible with ERISA; they do not argue that they must only pay the
“actual costs” for medical services; they do not argue that any laws
that increase the cost of doing business for hospitals do not apply to
them; nor do they argue that they are entitled to pay to the penny
only their pro rata share of overhead and incidental costs. They
argue instead that the three surcharges differ from ordinary over-
head costs in two important ways: first, plan participants derive no
benefit from these surcharges; second, these surcharges are not eq-
uitably distributed to the general population, or to the State, or to
even hospital users, but are placed squarely on the shoulders of
commercial insurers and ERISA plans. As a result, they contend
(Continued)
whose tangential effects on employee benefits plans are negligible and
wholly incidental to the law’s primary purpose.
891 F.2d at 31.
The rejection of Rebaldo is understandable. It is not so much attributable to
inconsistent decision making as to the court’s recognition that ERISA preemption
is as broad as the statute would suggest. The Court of Appeals for the Second
Circuit decided Rebaldo in 1984, without the benefit of, among other cases. Hol-
liday, Pilot Life, Metropolitan Life, Mackey, and Ingersoll-Rand
42a
that they are forced to subsidize nonparticipant patients with
ERISA funds.
The majority largely ignores these distinctions, choosing instead
to sweep all state-mandated costs under the general penumbra of
“overhead” costs. When states regulate, for example, utility, labor,
education or medical sanitation, they increase the cost of doing bus-
iness. To remain solvent and be able to provide services, businesses
must be able to incorporate into prices these increases. In a market-
based system, each consumer will pay for costs attributable to run-
ning the business, so overhead is part of the indirect costs associ-
ated with the purchase of goods and services. Since it is adminis-
tratively impossible to isolate the precise actual costs attributable to
any particular patient, many of the direct and indirect costs incorpo-
rated into the DRG such as overhead for management and mainte-
nance are proper. The plans do not contend otherwise.
The surcharges are a different story, however. They are not indi-
rect costs associated with any hospital services to plan benefi-
ciaries. They are the direct cost of hospital services rendered to
other patients, which have then been shifted to ERISA plans. One
can argue, as the appellants do, that even businesses incorporate
losses involved in stolen merchandises and bad debts into their
prices. But the issue is not whether ERISA protects plans from the
imposition of these kinds of costs because ERISA preempts only
“state law” and not private action, or whether ERISA plans are enti-
tled to nationally uniform hospital prices because that is impossible.
The issue is whether state regulations have interfered with the oper-
ation of ERISA plans to the point where the plans have suffered
large financial losses.
The argument that plans are affected the same way without regu-
lations is based on questionable applications of economic assump-
tions. In a free market system, as well as most regulated systems,
no business would knowingly sell to one who cannot in full or in
part pay, whereas here New Jersey requires hospitals to provide
services regardless of the ability to pay and then places the losses
squarely on a small class of patients. Without the Act, the financial
calculus and its effects on ERISA funds would change drastically.
Since each hospital will have different rates depending in part upon
their total losses, with urban hospitals, for example, incurring more
losses from indigent care and bad debts, the plans would be free to
select hospitals with the lowest prices. And even if hospitals dis-
tribute their losses by overcharging ERISA plans, the plans would
el
»+e4 Js ce, Sas r
a
— m
43a
have an alternative: they would normally be free to negotiate with
various hospitals for group rates just as some groups under the Act
are able to negotiate lower rates (the difference of which ERISA
funds have been forced to defray). Under the Act, however, the
plans are in effect precluded from negotiating group rates because,
as the State concedes, the Act takes away any incentive to negotiate
when it prohibits hospitals from passing on to other patients any
revenue shortfall caused by a digression from the DRG rates. But
see Majority typescript at 29-30 (“Nor does [the Act] deprive
ERISA plans of any alternative they would otherwise have in these
areas.”’),
Moreover, in both market-based and regulated systems, busi-
nesses generally pass losses to all customers. Here, the object of
the Act is to pass hospital losses inequitably to a small segment of
hospital consumers. The surcharges are neither paid by the State
nor the public at large; they are not even paid by all hospital users.
The State created these surcharges with the specific intention that,
in essence, only a small group of the hospital users — a large ma-
jority of whom comprise ERISA beneficiaries — would pay for
them. While the plans do not derive any benefit, real or abstract,
from the surcharges, the Act takes a substantial chunk of money
belonging to ERISA beneficiaries, and all because New Jersey does
not want to expend its general funds to pay for the health care costs
of others who are less fortunate. As one affidavit summarized: “In
effect, New Jersey requires the hospitals to give the service but will
pay for it using other people’s money, i.¢., other users of the hospi-
tals rather than a broader base revenue source such as general
taxation.”
Thus, the surcharges here are anything but “ordinary” overhead
costs that indirectly increase the cost of doing business, and the ar-
gument that the Act simply sets prices does not sufficiently credit
the direct financial impact on ERISA plans. The majority is correct
insofar as states may regulate, for example, the disposal of medical
waste and allow hospitals to pass these costs off to patients; but if
States require hospitals to pass off these costs only or largely to
“commercial insurers and self-funded union plans,” such regula-
tions must be preempted.
V.
I fear that the majority gives States free reign to spend and exper-
iment with ERISA funds, held in trust for the many workers who
OOOO oooooorroeEeEeEeEeEeEeEeEeEeEeEeEe—uG0Gy707—”e_e.
|
44a
have labored long for their security, in the noble pursuit of health
care reforms so long as States exercise a minimum degree of imagi-
nation by couching their statutes in “generally applicable” terms.
When I consider the financial impact and other causal effect on
ERISA funds in a common sense manner, the connection between
ERISA plans and the Act is not too tenuous, remote or peripheral at
all. The Act refers specifically to ERISA plans, divests enormous
sums of money from ERISA plans, and is predicated on the exis-
tence of ERISA plans. In my opinion the Act “relates to” ERISA
plans when that term is construed in its ordinary and broad mean-
ing, and I dissent.
A True Copy:
Teste:
Clerk of the United States Court of Appeals
for the Third Circuit
45a
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
Nos. 92-5317/5319/5320/
534 1/5343/5345/5352/5354/5355
UNITED WIRE, METAL AND MACHINE HEALTH AND
WELFARE FUND; JACK STOLL; ESTHER BORJA; JAVIER
RESTREPO; UNITED FOOD AND COMMERCIAL WORKERS
INTERNATIONAL UNION LOCAL 464A, AFL-CIO GROUP
REIMBURSEMENT WELFARE PLAN; FRANK LACATENA;
DOLORES LACATENA; NEW JERSEY CARPENTERS
WELFARE FUND; LOCAL #807 LABOR-MANAGEMENT
HEALTH FUND; TRUSTEES OF THE LOCAL #807 LABOR-
MANAGEMENT HEALTH FUND; PROSPER ALEXANDER:
MARIE ALEXANDER; DISTRICT COUNCIL OF
IRONWORKERS OF NORTHERN NEW JERSEY WELFARE
FUND; ARCHIE G. FERGUSON; RONALD W. JENSEN;
JOHN J. IRVINE; WALTER PHILLIPS; MICHAEL J.
MCDERMOTT; SAMUEL PACICH; ALBERT J. IRWIN;
NICHOLAS J. ANDRETTA, SR.; GARY UGARO; WALTER F.
STEINMETZ; JOHN D. MULVANY; MICHAEL W.
FEATHERSON; FRANCIS E. ARNY; JOHN J. CLARK, SR.;
RONALD W. WILLIAMS; DANIEL J. PEREZ; KEITH E.
ZDEP; EDWARD WEIDLER; LOUIS ROCCO; RAYMOND J.
RODGERS; FRANCIS J. AKESSON; DONALD J. BANTA, SR.;
CHARLES W. BIRD; DAVID F. BROWN; CLIFFORD
CROOKS; ROBERT T. CUSICK; JAMES P. FITZGERALD;
JOSEPH A. FUSARO; CHARLES GAMBA; RICHARD
GOUGEON; JOHN KEATING; GERARD MCCLOUD;
ROBERT MCGEE; ALEXANDER MCLELLAN; JOHN
MURPHY; LAURENCE O’BRIEN; PETER O’CONNER; RAUL
RODRIGUEZ; ROBERT SCHWEITZER; ROBERT SICKLES;
ANDREW L. SMITH; RICHARD SPARKS; GEORGE SUDAK;
EDWARD TEDESCO; JAMES TOAL; ENOCH P. MCMAHON;
LOCAL UNION 400; IBEW WELFARE FUND;
46a
BRIAN HRUSKA; WILLIAM MARSH; CHARLES WORK;
HAROLD RUTLEDGE; RALPH ALLEN; THOMAS VADAS;
VINCENT WORTH; TIMOTHY HILL; RONALD RAMSEY;
JOHN IRELAND; JAMES MARTIN; MICHAEL ALMASI;
BEVERLY A. RUBY; PETER NAMOTKA; DANIEL
KENNEDY; GEORGE COLE; WALTER DAVIES; ROBERT
HERMANN; FRANK HERMANN; CHARLES KELLER;
DENNIS JOHNSON; CONNIE J. KOEHLER; FRANK O’DAY;
VINCENT LA STELLA; DONALD MCNEIL; JEAN-LOUIS
POULIOT; NICHOLAS AEMISEGO; ROBERT STAHNKE;
PHILIP CERZA; GARY GIORGIO; EDWARD OSOWSKI];
GLENN HALVORSEN; WILLIAM STADELMAN; DANIEL
JULIO, JR.; FRANCIS ALEXANDER; LEONARD DAHL;
MICHAEL DEVINE; JOSEPH GEORGE; RALPH JENSEN;
DONALD LA BRUTTO; NORMAN GRAMLICH; JUAN
ROMERO; JOSEPH PIWOSKI; HARRY PEASE, JR.; EUGENE
©’ROURKE; PAUL NIEDZINSKI; BERNARD WALL;
STEPHEN KOJAC; CHARLES KRUPKA; WILLIAM
MCCORMACK; MINOR KENNARD; STEPHEN J. SANGLE;
DONALD SCHIRALDO; JOHN GACINA, III; BRIAN
MCCARTHY; CHARLES MCNALLY; ROBERT CZAJOWSKI;
BRIAN WOODALL; JEFFREY STAHNKE; JOHN RYAN;
RALPH ROSAMILIA, SR.; DANIEL MUGAN; EDWARD
MIRONSKI; MICHAEL MIDDINGS; ANDREW MAHASKY;
WALTER JELINSKY; ALBERT GAECHTER; LOUIS DI
MASCIO; ELLIOTT ROSEMAN; TRUSTEES OF THE
OPERATING ENGINEERS LOCAL 825 WELFARE FUND;
RICHARD HORNECKER; TEAMSTERS LOCAL 11 BENEFIT
PLAN; TRUSTEES OF THE TEAMSTERS LOCAL 11
BENEFIT PLAN; KATLUSKA BAIDAL; WILLIAM BARTEL;
GUNTER BLOHM; ANGELO BUINNO; BETTY J. CAIRNS;
FRANK CLOSE; JOSE CRUZ; SANTOS GARCIA; KAREN
GENSURE; DOROTHY LARSON; RICHARD LITCHFIELD;
SANDRA MARINO; JOHN MATUSZKIEWICZ; GEORGE
MCCLAUGHLIN; OLGA MONTES; FERNANDO PEREZ;
SANTO RAMOS; MARTHA SARA; ROXEEN SCALA;
EDMUND SCOTT; CHARLIE TAYLOR; MELISSA TURI,
SANGPO TSULDIN; COSMO VISENTINI; NYSA-ILA
WELFARE FUND; JOHN BOWERS; ALBERT CERNADAS;
FRANK LONARDO; THOMAS POPOLA; JAMES CAPO;
JOSEPH N. BARBERA; BART DIMATTINA; RICHARD H.
oi
ats
Dovid tisha Pew Rid ale BA eR cat
a ee RN ary ee IN SIs See Meee
Oh IER Ae BELL PRI Be LOL ak” alt Sy an a
OE nae
47a
O’NEILL; LABORERS INTERNATIONAL UNION OF NORTH
AMERICA LOCAL 415 HEALTH AND WELFARE FUND;
SHEET METAL WORKERS LOCAL UNION NO. 25
WELFARE FUND; JEFFREY STAJEK; JAMES LUCIANO;
JOHN A. FREUDENREICH, SR.; THOMAS SMIECH; JOSEPH
MCCALLION; DANIEL SMITH, JR.; JAMES MCKAY; MARK
COX; TRUSTEES OF THE TEAMSTERS LOCAL 641
WELFARE FUND; CARLOS ROCHA; GEORGE KOESTER;
CARMELA FERENS; KHOONRAJIE RAGHUBANS; PHILLIP
SAVITTIERI; EAR PATTERSON; ROBERT REEDER; LOCAL
1245, LOCAL 1245 HEALTH FUND; ANTHONY RIZZO;
JOSEPH ABBATE; JOSEPH MASSOUD; RALPH
MASTRANGELO; TRUSTEES OF THE WELFARE TRUST
FUND, LOCAL UNION NO. 475; WILLIE A. BARNES;
HERMAN GEIGER; VINSTON LEE KING; KEVIN E. KLINE;
ROBERT L. ROSA; WILLIAM BRENNAN; JAMES MURPHY,
JR.; PATRICIA MCELLIGOTT; KEVIN MCCORMICK;
PATRICK RYAN, JR.; ANTHONY E. SMITH; ROBERT
LAVERATT; JOHN S. WITTEK; JOHN MCQUILKEN; JOHN
MONTESANO; ROY E. FRANK; JOHN O’NEILL, JR.; FRANK
ROBINSON; DALE SCHAEFER; JOHN J. SERRA; DONALD
SHERIDAN; WENCESLAO SOTO; MICHAEL J. RUSSO;
JOSEPH P. MURPHY, JR.; CALVIN R. SUTTON, III;
RONALD J. ZAKARZEWSKI; FRANK WHITNEY, SR.; JACK
NACHTIGALL; LAWRENCE PARKIN; EDISON RODRIQUEZ;
WILLIAM MORAN; VINCENT DOFFONT; GEORGE STOUT;
BRIAN LUBECK; AMERICO GUGLIELMO; DAVID VADAS;
CHRISTOPHER ANDREWSKI; DAVID JENKINS; ARTHUR
ACKERMAN; KENNETH FINTON; RAMON LORENZO;
WESLEY SANDERSON; CHARLES NEWMAN, III;
LEONARD IAROSSI; GEORGE ROSSI; WILLIAM
SKIECZIUS; JOHN HANCOCK; EDWARD THORNE; JOSEPH
TAGLIADIA; MICHAEL MACHANSKA; STEVE PARLACASK
Vv,
MORRISTOWN MEMORIAL HOSPITAL; FRANCES J.
DUNSTON; NEW JERSEY COMMISSIONER OF HEALTH;
NEW JERSEY STATE DEPARTMENT OF HEALTH; NEW
JERSEY HOSPITAL RATE SETTING COMMISSION; NEW
JERSEY COMMISSIONER OF HEALTH; FRANCES
DUNSTON; MEMORIAL HOSPITAL OF BURLINGTON
COUNTY; THE MEDICAL CENTER OF OCEAN COUNTY;
48a
KIMBALL MEDICAL CENTER; MERCER MEDICAL
CENTER; OUR LADY OF LOURDES HOSPITAL;
PRINCETON MEDICAL CENTER; HOSPITAL OF SALEM
COUNTY; NEWCOMB MEDICAL CENTER; RIVERVIEW
MEDICAL CENTER; COMMUNITY MEDICAL CENTER;
SHORE MEMORIAL HOSPITAL; BURDETTE TOMLIN
MEMORIAL HOSPITAL; CHRIST HOSPITAL; NEWARK
BETH ISRAEL MEDICAL CENTER; ST. JOSEPH’S
HOSPITAL; WAYNE GENERAL HOSPITAL; SOUTH JERSEY
HOSPITAL SYSTEM; COOPER HOSPITAL; WEST JERSEY
HEALTH SYSTEMS; ATLANTIC CITY MEDICAL CENTER;
UNION MEMORIAL HOSPITAL; ELIZABETH GENERAL
HOSPITAL; ENGLEWOOD HOSPITAL; ROBERT WOOD
JOHNSON UNIVERSITY HOSPITAL; BARNERT MEMORIAL
HOSPITAL; PASSAIC GENERAL HOSPITAL; RAHWAY
HOSPITAL; VALLEY HOSPITAL; HOLY NAME HOSPITAL;
ST. PETER’S MEDICAL CENTER; SOMERSET MEDICAL
CENTER; OVERLOOK HOSPITAL; ST. ELIZABETH
HOSPITAL; DOVER GENERAL MEDICAL CENTER;
HUNTERDON MEDICAL CENTER; CHILTON MEMORIAL
HOSPITAL; KESSLER MEMORIAL HOSPITAL; FREEHOLD
AREA HOSP.; KENNEDY MEMORIAL HOSPITAL;
UNIVERSITY HOSPITAL; UNDERWOOD MEMORIAL
HOSPITAL; JERSEY CITY MEDICAL CENTER; ST.
JOSEPH’S HOSPITAL; ST. BARNABAS MEDICAL CENTER;
RARITAN BAY MEDICAL CENTER; CLARA MAASS
MEDICAL CENTER; ST. CLARES/RIVERSIDE MEDICAL
CENTER; JOHN F. KENNEDY MEDICAL CENTER;
HACKETTSTOWN COMMUNITY HOSPITAL; ZURBRUGG
MEMORIAL HOSPITAL; JERSEY SHORE MEDICAL
CENTER; MONMOUTH MEDICAL CTR; NEWTON
MEMORIAL HOSPITAL; UNIVERSITY OF MEDICINE &
DENTISTRY OF NEW JERSEY; DEBORAH HEART AND
LUNG CENTER; HOSPITAL CENTER AT ORANGE; DOVER
GENERAL HOSPITAL; WEST JERSEY HEALTH SYSTEM;
RARITAN BAY MEDICAL CENTER; HACKENSACK
MEDICAL CENTER; SOUTH AMBOY MEMORIAL
HOSPITAL; THE MOUNTAINSIDE HOSPITAL; ST. FRANCIS
HOSPITAL; BAYONNE HOSPITAL; MUHLENBERG
HOSPITAL; CENTRASTATE (FAH) HOSPITAL, ST. JAMES
HOSPITAL; KENNEDY MEMORIAL HOSPITAL AT SADDLE
ee
49a
BROOK; ADMINISTRATOR OF THE NEW JERSEY HEALTH
CARE TRUST FUND; NEW JERSEY DEPARTMENT OF
HUMAN SERVICES (DIVISION) OF MEDICAL ASSISTANCE
AND HEALTH SERVICES; ELIZABETH GENERAL
MEDICAL CENTER; DOVER GENERAL MEDICAL CENTER;
IRVINGTON GENERAL HOSPITAL; UNION HOSPITAL;
WARREN HOSPITAL, COLUMBUS HOSPITAL; EAST
ORANGE GENERAL HOSPITAL, FRANCIS DUBEAU;
LILLIAN DUBEAU; BAYSHORE COMMUNITY HOSPITAL;
NEW JERSEY HOSPITAL ASSOCIATION; BERGEN PINES
COUNTY HOSPITAL; COMMUNITY MEMORIAL
HOSPITAL; GREENVILLE HOSPITAL; MONTCLAIR
COMMUNITY (HOSPITAL) PALISADES GENERAL
HOSPITAL; PASSAIC BETH ISRAEL HOSPITAL; RARITAN
BAY MEDICAL CENTER/PERTH AMBOY DIVISION;
RIVERVIEW MEDICAL CENTER; SOUTHERN OCEAN
COUNTY HOSPITAL; ST. MARY’S HOSPITAL; THE
GENERAL HOSPITAL CENTER AT PASSAIC; WALLKILL
VALLEY HOSPITAL AND HEALTH CENTERS; ST. MARY’S
HOSPITAL (PASSAIC); UNITED HOSPITAL; PASCACK
VALLEY HOSPITAL; WEST HUDSON HOSPITAL; JOHNSON
UNIVERSITY HOSPITAL; ADMINISTRATOR OF THE NEW
JERSEY HEALTH CARE TRUST FUND; NEW JERSEY
DEPARTMENT OF HUMAN SERVICES DIVISION OF
MEDICAL ASSISTANCE AND HEALTH SERVICES; NEW
JERSEY HOSPITAL; NEW JERSEY HOSPITAL
ASSOCIATION,
Intervenor-Defendants
(Newark New Jersey District Consolidated Lead Civil
No. 90-02639)
UNITED WIRE, METAL AND MACHINE HEALTH AND
WELFARE FUND; ESTHER BORJA
Vv.
ST. MARY’S HOSPITAL HOSPITAL; NEW JERSEY
COMMISSIONER OF HEALTH; NEW JERSEY STATE
DEPARTMENT OF HEALTH; NEW JERSEY HOSPITAL RATE
SETTING COMMISSION; FRANCES J. DUNSTON;
50a
(Newark New Jersey District Civil No. 90-03640)
UNITED WIRE, METAL AND MACHINE HEALTH AND
WELFARE FUND; JAVIER RESTREPO
V.
ST. JOSEPH’S HOSPITAL AND MEDICAL CENTER;
FRANCES J. DUNSTON, in her capacity as New Jersey
Commissioner of Health; NEW JERSEY STATE DEPARTMENT
OF HEALTH; NEW JERSEY HOSPITAL RATE SETTING
COMMISSION
(Newark New Jersey District Civil No. 91-00073)
UNITED FOOD AND COMMERCIAL WORKERS
INTERNATIONAL UNION, LOCAL 464A, AFL-CIO GROUP
REIMBURSEMENT WELFARE PLAN; FRANK LACATENA;
DOLORES LACATENA
Vv.
WAYNE GENERAL HOSPITAL; FRANCES J. DUNSTON;
NEW JERSEY COMMISSIONER OF HEALTH; NEW JERSEY
STATE DEPARTMENT OF HEALTH; NEW JERSEY
HOSPITAL RATE SETTING COMMISSION
(Newark New Jersey District Civil No. 91-00336)
DISTRICT COUNCIL OF IRONWORKERS OF NORTHERN
NEW JERSEY WELFARE FUND; ARCHIE G. FERGUSON;
RONALD W. JENSEN; JOHN J. IRVINE, WALTER PHILLIPS;
MICHAEL J. MCDERMOTT; SAMUEL PACICH; ALBERT J.
IRWIN, NICHOLAS J. ANDRETTA, SR.; GARY UGARO;
WALTER F. STEINMETZ; JOHN D. MULVANEY; MICHAEL
W. FEATHERSON; FRANCIS E. ARNY; JOHN J. CLARK,
SR.; RONALD W. WILLIAMS; DANIEL J. PEREZ; KEITH E.
ZDEP; EDWARD WEIDLER; LOUIS ROCCO; RAYMOND J.
RODGERS; FRANCIS J. AKESSON; DONALD J. BANTA, SR;
CHARLES W. BIRD; DAVID BROWN; CLIFFORD CROOKS;
ROBERT T. CUSICK; JAMES P. FITZGERALD; JOSEPH A.
FUSARO; CHARLES GAMBA; RICHARD GOUGEON; JOHN
KEATING; GERARD MCCLOUD; ROBERT MCGEE;
ALEXANDER MCLELLAN; JOHN MURPHY; LAURENCE
O’BRIEN; PETER O’CONNER; RAUL RODRIGUEZ; ROBERT
SCHWEITZER; ROBERT SICKLES; ANDREW L. SMITH;
Sla
RICHARD SPARKS; GEORGE SUDAK; EDWARD TEDESCO;
JAMES TOAL; ENOCH P. MCMAHAN
v.
FRANCES J. DUNSTON, in her capacity as New Jersey
Commissioner of Health; NEW JERSEY STATE DEPARTMENT
OF HEALTH; NEW JERSEY HOSPITAL RATE SETTING
COMMISSION; DEBORAH HEART AND LUNG CENTER;
HUNTERDON MEDICAL CENTER; ST. FRANCIS
HOSPITAL; HOSPITAL CENTER AT ORANGE; ST. PETERS
MEDICAL CENTER; ST. CLARES/RIVERSIDE MEDICAL
CENTER; JOHN F. KENNEDY MEDICAL CENTER; DOVER
GENERAL HOSPITAL; ST. BARNABAS MEDICAL CENTER;
VALLEY HOSPITAL; OVERLOOK HOSPITAL; RAHWAY
HOSPITAL; NEWTON MEMORIAL HOSPITAL; WEST
JERSEY HEALTH SYSTEM; RARITAN BAY MEDICAL
CENTER; HACKENSACK MEDICAL CENTER; CLARA
MAASS MEDICAL CENTER; HOLY NAME HOSPITAL;
NEWARK BETH ISRAEL MEDICAL CENTER; BAYONNE
HOSPITAL; CHILTON MEMORIAL HOSPITAL; ST.
JOSEPH’S HOSPITAL; MUHLENBERG HOSPITAL;
COMMUNITY MED CENTER; CHRIST HOSPITAL; SOUTH
AMBOY MEMORIAL HOSPITAL; CENTRASTATE (FAH)
HOSPITAL; WAYNE GENERAL HOSPITAL; PRINCETON
MEDICAL CENTER; ST. JAMES HOSPITAL,a/k/a
CATHEDRAL HEALTH SERVICES, INC.; MOUNTAINSIDE
HOSPITAL; PASSAIC GENERAL HOSPITAL; NEW JERSEY
HOSPITAL ASSOCIATION
Intervenor/Defendant
(Newark New Jersey District Civil No. 91-02190) _
NEW JERSEY CARPENTERS WELFARE FUND
v.
FRANCES J. DUNSTON, in her capacity as New Jersey
Commissioner of Health; NEW JERSEY STATE DEPARTMENT
OF HEALTH; NEW JERSEY HOSPITAL RATE SETTING
COMMISSION; SOUTH JERSEY HOSPITAL SYSTEM:
COOPER HOSPITAL; WEST JERSEY HEALTH SYSTEMS;
ATLANTIC CITY MEDICAL CENTER; MEMORIAL
HOSPITAL OF BURLINGTON COUNTY; THE MEDICAL
CENTER OF OCEAN COUNTY; KIMBALL MEDICAL
CENTER; MERCER MEDICAL CENTER; OUR LADY OF
52a
LOURDES; PRINCETON MEDICAL CENTER; HOSPITAL OF
SALEM COUNTY; NEWCOMB MEDICAL CENTER;
RIVERVIEW MEDICAL CENTER; COMMUNITY MEDICAL 7
CENTER; SHORE MEMORIAL HOSPITAL; BURDETTE |
TOMLIN MEMORIAL; CHRIST HOSPITAL; MORRISTOWN
MEMORIAL HOSPITAL; NEWARK BETH ISRAEL MEDICAL
CENTER; WAYNE GENERAL HOSPITAL; UNION
MEMORIAL HOSPITAL; ELIZABETH GENERAL HOSPITAL;
ENGLEWOOD HOSPITAL, ROBERT WOOD JOHNSON
UNIVERSITY HOSPITAL; BARNERT MEMORIAL
HOSPITAL; PASSAIC GENERAL HOSPITAL; RAHWAY
HOSPITAL; THE VALLEY HOSPITAL; HOLY NAME
HOSPITAL; ST. PETER’S MEDICAL CENTER; SOMERSET
MEDICAL CENTER; OVERLOOK HOSPITAL; ST.
ELIZABETH HOSPITAL; DOVER GENERAL
MEDICAL CENTER; HUNTERDON MEDICAL CENTER;
CHILTON MEMORIAL HOSPITAL; KESSLER MEMORIAL
HOSPITAL; FREEHOLD AREA HOSPITAL; KENNEDY
MEMORIAL HOSPITAL; UNIVERSITY HOSPITAL;
UNDERWOOD MEMORIAL HOSPITAL; JERSEY CITY
MEDICAL CENTER; ST. JOSEPH’S HOSPITAL; ST.
BARNABAS MEDICAL CENTER; RARITAN BAY MEDICAL
CENTER; CLARA MAASS MEDICAL CENTER; ST.
CLARE’S/RIVERSIDE MEDICAL CENTER; JOHN F.
KENNEDY MEDICAL CENTER; HACKETTSTOWN
COMMUNITY HOSPITAL; ZURBRUGG MEMORIAL
HOSPITAL; JERSEY SHORE MEDICAL CENTER;
MONMOUTH MEDICAL CENTER; NEWTON MEMORIAL
HOSPITAL; NEW JERSEY HOSPITAL, NEW JERSEY
HOSPITAL ASSOCIATION
Intervenor/Defendant
(Newark New Jersey District Civil No. 91-03280)
LOCAL #807 LABOR-MANAGEMENT HEALTH FUND;
TRUSTEES OF THE LOCAL #807 L.sBOR-MANAGEMENT
HEALTH FUND; PROSPER ALEXANDER; MARIE
ALEXANDER
Vv.
UNIVERSITY HOSPITAL; UNIVERSITY OF MEDICINE &
DENTISTRY OF NEW JERSEY; FRANCES J. DUNSTON, in
53a
her capacity as New Jersey Commissioner of Health; NEW
JERSEY STATE DEPARTMENT OF HEALTH; NEW JERSEY
HOSPITAL RATE SETTING COMMISSION
(Newark New Jersey District Civil No. 91-03286)
LOCAL UNION 400, IBEW WELFARE FUND; BRIAN
HRUSKA; WILLIAM MARSH; CHARLES WORK; HAROLD
RUTLEDGE; RALPH ALLEN; THOMAS VADAS; VINCENT
WORTH; TIMOTHY HILL, RONALD RAMSEY; JOHN
IRELAND; JAMES MARTIN
v.
FRANCES J. DUNSTON, in her capacity as New Jersey
Commissioner of Health; NEW JERSEY STATE DEPARTMENT
OF HEALTH; NEW JERSEY HOSPITAL RATE SETTING
COMMISSION; THE MEDICAL CENTER OF OCEAN
COUNTY; RIVERVIEW MEDICAL CENTER; COMMUNITY
MEDICAL CENTER; JERSEY SHORE MEDICAL CENTER;
KIMBALL MEDICAL CENTER; MONMOUTH MEDICAL
CENTER NEW JERSEY HOSPITAL ASSOCIATION
Intervenor/Defendant
(Newark New Jersey District Civil No. 91-03897)
OVERLOOK HOSPITAL
v.
FRANCES DUBEAU; LILLIAN DUBEAU
(Newark New Jersey District Civil No. 91-03910)
LABORERS INTERNATIONAL UNION OF NORTH
AMERICA LOCAL 415 HEALTH AND WELFARE FUND
Vv.
FRANCES J. DUNSTON. in her capacity as New Jersey
Commissioner of Health; NEW JERSEY STATE DEPARTMENT
OF HEALTH; NEW JERSEY HOSPITAL RATE SETTING
COMMISSION
(Newark New Jersey District Civil No. 91-04078)
NYSA-ILA WELFARE FUND, by its Trustees; JOHN BOWERS,
Trustee; ALBERT CERNADAS, Trustee; FRANK LONARDO,
Trustee; THOMAS POPOLA, Trustee; JAMES CAPO, Trustee;
S4a
JOSEPH N. BARBERA, Trustee; BART DIMATTINA, Trustee;
RICHARD H. O’NEILL, Trustee
v.
FRANCES J. DUNSTON, in her capacity as New Jersey
Commissioner of Health; NEW JERSEY STATE DEPARTMENT
OF HEALTH; NEW JERSEY HOSPITAL RATE SETTING
COMMISSION; COLUMBUS HOSPITAL; EAST ORANGE
GENERAL HOSPITAL ST. JAMES HOSPITAL; UNIVERSITY
HOSPITAL, Individually and as Class Representatives of
Hospitals in the State of New Jersey; NEW JERSEY HOSPITAL
ASSOCIATION,
as Class representative of Hospital in the State of New Jersey
(Newark New Jersey District Civil No. 91-04259)
SHEET METAL WORKERS LOCAL UNION NO. 25
WELFARE FUND; JEFFREY STAJEK; JAMES LUCIANQ;
JOHN A. FREUDENREICH, SR.; THOMAS SMIECH; JOSEPH
MCCALLION; DANIEL SMITH, JR.; JAMES MCKAY;
MARK COX
v.
FRANCES J. DUNSTON, in her capacity of New Jersey
Commissioner of Health; NEW JERSEY STATE DEPARTMENT
OF HEALTH; NEW JERSEY HOSPITAL RATE SETTING
COMMISSION; ADMINISTRATOR OF THE NEW JERSEY
HEALTH CARE TRUST FUND; NEW JERSEY DEPARTMENT
OF HUMAN SERVICES (DIVISION) OF MEDICAL
ASSISTANCE AND HEALTH SERVICES; NEW JERSEY
HOSPITAL ASSOCIATION; ST. BARNABAS MEDICAL
CENTER; HOLY NAME HOSPITAL; HACKENSACK
MEDICAL CENTER; WEST HUDSON HOSPITAL;
OVERLOOK HOSPITAL; JOHN F. KENNEDY MEDICAL
CENTER; HUNTERDON MEDICAL CENTER; MORRISTOWN
MEMORIAL HOSPITAL; IRVINGTON GENERAL HOSPITAL;
CLARA MAASS MEDICAL CENTER
(Newark New Jersey District Civil No. 91-04700)
TRUSTEES OF THE OPERATING ENGINEERS LOCAL 825
WELFARE FUND; RICHARD HORNECKER
V.
FRANCES J. DUNSTON, in her capacity as New Jersey
Commissioner of Health; NEW JERSEY STATE DEPARTMENT
- ee ee ae ee ae
55a
OF HEALTH; NEW JERSEY HOSPITAL RATE SETTING
COMMISSION; ADMINISTRATOR OF THE NEW JERSEY
HEALTH CARE TRUST FUND, NEW JERSEY DEPARTMENT
OF HUMAN SERVICES, DIVISION OF MEDICAL
ASSISTANCE AND HEALTH SERVICES
(Newark New Jersey District Civil No. 91-05362)
TEAMSTERS LOCAL 11 BENEFIT FUND; TRUSTEES OF
THE TEAMSTERS LOCAL 11 BENEFIT PLAN; KATLUSKA
BAIDAL; WILLIAM BARTELL; GUNTER BLOHM; ANGELO
BUINNO; BETTY J. CAIRNS; FRANK CLOSE; JOSE CRUZ;
SANTOS GARCIA; KAREN GENSURE; DOROTHY LARSON;
RICHARD LITCHFIELD; SANDRA MARINO; JOHN
MATUSZKIEWICZ; GEORGE MCCLAUGHLIN; OLGA
MONTES; FERNANDO PEREZ; SANTO RAMOS: MARTHA
SARA; ROXEEN SCALA; EDMUND SCOTT: CHARLIE
TAYLOR; MELISSA TURI; SANGPO TSULDIN; COSMO
VISENTINI
V.
BAYSHORE COMMUNITY HOSPITAL; CHILTON
MEMORIAL HOSPITAL; CLARA MAASS MEDICAL
CENTER; DOVER GENERAL HOSPITAL; ELIZABETH
GENERAL MEDICAL CENTER; ENGLEWOOD HOSPITAL;
HOLY NAME HOSPITAL; IRVINGTON GENERAL
HOSPITAL; JERSEY CITY MEDICAL CENTER; PASSAIC
GENERAL HOSPITAL; ST. FRANCIS HOSPITAL; ST.
PETER’S MEDICAL CENTER; SOMERSET MEDICAL
CENTER; UNION HOSPITAL; UNITED HOSPITAL;
UNIVERSITY HOSPITAL; VALLEY HOSPITAL; WARREN
HOSPITAL; FRANCES J. DUNSTON, in her Capacity as New
Jersey Commissioner of Health; NEW JERSEY STATE
DEPARTMENT OF HEALTH; NEW JERSEY HOSPITAL RATE
SETTING COMMISSION
(Newark New Jersey District Civil No. 92-00085)
TRUSTEES OF THE WELFARE TRUST FUND, LOCAL
UNION NO. 475; WILLIE A. BARNES; HERMAN GEIGER;
VINSTON LEE KING; KEVIN E. KLINE; ROBERT L. ROSA;
WILLIAM BRENNAN; JAMES MURPHY, JR.; PATRICIA
MCELLIGOTT; KEVIN MCCORMICK; PATRICK RYAN, JR.;
56a
ANTHONY E. SMITH; ROBERT LAVERATT; JOHN S.
WITTEK; JOHN MCQUILKEN; JOHN MONTESANO; ROY E.
FRANK; JOHN O’NEILL, JR.; FRANK ROBINSON; DALE
SCHAEFER; JOHN J. SERRA; DONALD SHERIDAN;
WENCESLAO SOTO; MICHAEL J. RUSSO; JOSEPH P.
MURPHY, JR.; CALVIN R. SUTTON, III; RONALD J.
ZAKARZEWSKI; FRANK WHITNEY, SR.; JACK
NACHTIGALL; LAWRENCE PARKIN; EDISON RODRIGUEZ;
WILLIAM MORAN; VINCENT DOFFONT
Vv.
FRANCES J. DUNSTON, in her capacity as New Jersey
Commissioner of Health; NEW JERSEY STATE DEPARTMENT
OF HEALTH; NEW JERSEY HOSPITAL RATE SETTING
COMMISSION; ADMINISTRATOR OF THE NEW JERSEY
HEALTH CARE TRUST FUND; NEW JERSEY DEPARTMENT
OF HUMAN SERVICES, DIVISION OF MEDICAL
ASSISTANCE AND HEALTH SERVICES; WEST HUDSON
HOSPITAL; UNIVERSITY OF MEDICINE & DENTISTRY;
OVERLOOK HOSPITAL; MORRISTOWN MEMORIAL
HOSPITAL; UNION HOSPITAL; RIVERVIEW MEDICAL
CENTER; NORTHERN OCEAN HOSPITAL SYSTEM;
COMMUNITY MEDICAL CENTER; HOSPITAL CENTER AT
ORANGE; HUNTERDON MEDICAL CENTER; WARREN
HOSPITAL; CENTRASTATE MEDICAL CENTER;
SOMERSET MEDICAL CENTER; ROBERT WOOD JOHNSON
UNIVERSITY; THE MEDICAL CENTER OF OCEAN
COUNTY; JERSEY SHORE MEDICAL CENTER;
COLUMBUS HOSPITAL; JOHN F. KENNEDY MEDICAL
CENTER; CLARA MAASS MEDICAL CENTER
(Newark New Jersey District Civil No. 92-00426)
TEAMSTERS LOCAL 641 WELFARE FUND; CARLOS
ROCHA; GEORGE KOESTER; CARMELA FERENS;
KHOONRAJIE RAGHUBANS; PHILLIP SAVITTIERI; EARL
PATTERSON; ROBERT REEDER
v.
FRANCES J. DUNSTON, in her capacity as New Jersey
Commissioner of Health; NEW JERSEY STATE DEPARTMENT
OF HEALTH; NEW JERSEY HOSPITAL RATE SETTING
COMMISSION; MEDICAL CENTER OF OCEAN COUNTY;
ST. BARNABAS MEDICAL CENTER; CLARA MAASS
57a
MEDICAL CENTER; ST. ELIZABETH HOSPITAL; PASSAIC
GENERAL HOSPITAL
(Newark New Jersey District Civil No. 92-00526)
LOCAL 1245 HEALTH FUND; LOCAL 1245 BAKERY AND
SPECIALTY HEALTH FUND; JAMES ARBOLINO;
ANTHONY ROCCO; HAROLD POLSKY; NEVIO MANCIINI;
WILLIE SCONIERS; IRENE HICKEY; KATHLEEN
RODRIGUEZ; WILLIAM CLACK WORTHY; EDWARD
NELSON; PATRICIA CONRAD; RONALD COZZO; HOLLY
ANN CULBERT; JOACHIM SCHAFFRANIETZ; HUBERT
CHASE; ROBERT BAUMAN; RUSSELL SCHWARTZ; JEAN
JACQUES KERVAN; ARTHUR BEYER
Vv.
FRANCES J. DUNSTON, in her capacity as New Jersey
Commissioner of Health; NEW JERSEY STATE DEPARTMENT
OF HEALTH; NEW JERSEY HOSPITAL RATE SETTING
COMMISSION; DOVER GENERAL HOSPITAL; THE
MEDICAL CENTER OF OCEAN COUNTY; SAINT
BARNABAS MEDICAL CENTER; UNION HOSPITAL; JOHN
F. KENNEDY MEDICAL CENTER; ENGLEWOOD
HOSPITAL; MORRISTOWN MEMORIAL HOSPITAL;
CENTRASTATE; SAINT PETER’S MEDICAL CENTER;
SAINT MARY’S HOSPITAL; MEADOWLANDS HOSPITAL
AND MEDICAL CENTER; JERSEY SHORE MEDICAL
CENTER; KENNEDY MEMORIAL HOSPITAL; PASSAIC
GENERAL HOSPITAL
(Newark New Jersey District Civil No. 92-00728)
ANTHONY RIZZO; JOSEPH ABBATE; JOSEPH MASSOUD;
RALPH MASTRANGELO, as Trustees of the Local 945, I.B.T.
Welfare Fund
Vv.
BARNERT MEMORIAL HOSPITAL CENTER; BAYONNE
HOSPITAL; BAYSHORE COMMUNITY HOSPITAL; BERGEN
PINES COUNTY HOSPITAL; CENTRASTATE MEDICAL
CENTER; CHILTON MEMORIAL HOSPITAL; CHRIST
HOSPITAL; CLARA MAASS MEDICAL CENTER;
COLUMBUS HOSPITAL; COMMUNITY MEMORIAL
HOSPITAL; DOVER GENERAL HOSPITAL & MEDICAL
58a
CENTER; ELIZABETH GENERAL MEDICAL CENTER;
GREENVILLE HOSPITAL; HACKETTSTOWN COMMUNITY
HOSPITAL, HOLY NAME HOSPITAL; IRVINGTON
GENERAL HOSPITAL; JERSEY SHORE MEDICAL CENTER;
JOHN F. KENNEDY MEDICAL CENTER; KENNEDY
MEMORIAL HOSPITALS AT SADDLE BROOK; KIMBALL
MEDICAL CENTER; MERCER MEDICAL CENTER;
MONTCLAIR COMMUNITY (HOSPITAL); MORRISTOWN
MEMORIAL HOSPITAL; NEWTON MEMORIAL HOSPITAL;
OVERLOOK HOSPITAL; PALISADES GENERAL HOSPITAL,
PASCACK VALLEY HOSPITAL; PASSAIC BETH ISRAEL
HOSPITAL; RAHWAY HOSPITAL; RARITAN BAY MEDICAL
CENTER/PERTH AMBOY DIVISION; RIVERVIEW MEDICAL
CENTER; ROBERT WOOD JOHNSON UNIVERSITY
HOSPITAL; SOUTHERN OCEAN COUNTY HOSPITAL; ST.
MARY’S HOSPITAL (PASSAIC); ST. JOSEPH’S HOSPITAL &
MEDICAL CENTER; ST. FRANCIS MEDICAL CENTER; ST.
ELIZABETH HOSPITAL; ST. PETER’S MEDICAL CENTER;
THE GENERAL HOSPITAL CENTER AT PASSAIC; UNION
HOSPITAL; UNIVERSITY HOSPITAL; UNIVERSITY OF
MEDICINE & DENTISTRY OF NEW JERSEY; VALLEY
HOSPITAL; WALLKILL VALLEY HOSPITAL AND HEALTH
CENTERS; WARREN HOSPITAL; WAYNE GENERAL
HOSPITAL; FRANCES J. DUNSTON, in her capacity as New
Jersey Commissioner of Health; NEW JERSEY STATE
DEPARTMENT OF HEALTH; NEW JERSEY HOSPITAL RATE
SETTING COMMISSION
(Newark New Jersey District Civil No. 92-00849)
NEWCOMB MEDICAL CENTER
v.
JENNIS CARPENTER; ALICE CARPENTER, his wife, jointly,
severally and in the alternative
Defendants/Third Party
Plaintiffs
v.
FRANCES J. DUNSTON; NEW JERSEY STATE
DEPARTMENT OF HEALTH; NEW JERSEY HOSPITAL RATE
SETTING COMMISSION; ADMINISTRATOR OF THE NEW
JERSEY HEALTH CARE TRUST FUND; NEW JERSEY
DEPARTMENT OF HUMAN SERVICES, DIVISION OF
59a
MEDICAL ASSISTANCE AND HEALTH SERVICES
Third Party Defendants
(Newark New Jersey District Civil No. 92-01282)
NEWCOMB MEDICAL CENTER
V.
SHANA TRIPP; CHARLES TRIPP, jointly, severally and in the
alternative
Defendants/Third Party
Plaintiffs
v.
NEW JERSEY STATE DEPARTMENT OF HEALTH; NEW
JERSEY HOSPITAL RATE SETTING COMMISSION;
ADMINISTRATOR OF THE NEW JERSEY HEALTH CARE
TRUST FUND; NEW JERSEY DEPARTMENT OF HUMAN
SERVICES, DIVISION OF MEDICAL ASSISTANCE AND
HEALTH SERVICES; FRANCES J. DUNSTON, in her capacity
as New Jersey Commissioner of Health
Third Party Defendants
(Newark New Jerseys District Civil No. 92-01454)
NEWCOMB MEDICAL CENTER
v.
FRED KUEKEN
Defendant/Third Party
Plaintiff
v.
FRANCES J. DUNSTON; NEW JERSEY STATE
DEPARTMENT OF HEALTH; NEW JERSEY HOSPITAL RATE
SETTING COMMISSION; ADMINISTRATOR OF THE NEW
JERSEY HEALTH CARE TRUST FUND; NEW JERSEY
DEPARTMENT OF HUMAN SERVICES, DIVISION OF
MEDICAL ASSISTANCE AND HEALTH SERVICES
Third Party Defendants
(Newark New Jersey District Civil No. 92-01455)
New Jersey Hospital Association; Bayshore Community Hospital;
Monmouth Medical Center; Pascack Valley Hospital; Riverview
Medical Center; Kennedy Memorial Hospitals at Saddle Brook,
Inc.; William B. Kessler Memorial Hospital; St. Francis Hospital;
60a
South Jersey Hospital System; Helene Fuld Medical Center;
Newton Memorial Hospital; The Medical Center of Ocean
County; Bayonne Hospital; Kennedy Memorial Hospitals-
University Medical Center; South Amboy Memonial Hospital;
Underwood Memorial Hospital; Muhlenberg Regional Medical
Center; Englewood Hospital; Zurbrugg Memorial Hospital; St.
Mary Hospital; Community Medical Center; Hunterdon Medical
Center; St. Michael’s Medical Center; The Mercer Medical
Center; St. Peter’s Medical Center; Jersey Shore Medical Center;
Irvington General Hospital; John F. Kennedy Hospital; Our Lady
of Lourdes Medical Center; Overlook Hospital; Raritan Bay
Medical Center; St. Elizabeth Hospital; Wayne General Hospital;
Barnert Hospital; Atlantic City Medical Center; Dover General
Hospital & Medical Center; Holy Name Hospital; The Hospital at
Orange; St. Clare’s/Riverside Medical Center; Clara Maas
Medical Center; Deborah Heart & Lung Center; Rahway
Hospital; West Jersey Health System; Hackensack Medical
Center; Newark Beth-Israel Medical Center; St. James Hospital;
St. Joseph’s Hospital & Medical Center; Christ Hospital; Chilton
Memorial Hospital; East Orange General Hospital; Columbus
Hospital; Cooper Hospital/University Medical Center; Memorial
Hospital of Burlington County Memorial Health Alliance;
Medical Center at Princeton; St. Joseph’s Hospital; Shore
Memorial Hospital; Robert Wood Johnson University Hospital;
Burdette Tomlin Memorial Hospital; Somerset Medical Center;
Mountainside Hospital; Union Hospital; United Hospitals Medical
Center at Passaic; and Morristown Memorial Hospital,
Appellants
On Appeal From the United States District Court For the
District of New Jersey
(D.C. Civil Action Nos. 90-02639, 90-03640, 91-00073,
91-00336, 91-02190, 91-03280, 91-03286, 91-03897, 91-03910,
91-04078, 91-04259, 91-04700, 91-05362, 92-00085, 92-00426,
92-00526, 92-00728, 92-00849, 92-01282, 92-01454, 92-01455)
|
6la
Present: STAPLETON, SCIRICA, and NYGAARD,
Circuit Judges
JUDGMENT
This cause came to be heard on the record from the United States
District Court for the District of New Jersey and was argued by
counsel September 18, 1992.
On consideration whereof, it is now here ordered and adjudged
by this Court that the judgment of the said District Court entered
May 28, 1992 and amended by order entered June 5, 1992, be, and
the same is hereby reversed. The injunction is vacated and the cause
is remanded to the District Court with instructions that judgment be
entered for the defendants. All of the above in accordance with the
opinion of this Court.
ATTEST:
Acting Chief Deputy Clerk
Dated: May 14, 1993
62a
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
Nos. 92-5317/5319/5320/534 1/5343/5345/5352/5354/5355
UNITED WIRE, METAL AND MACHINE HEALTH AND
WELFARE FUND, ET AL.
V.
MORRISTOWN MEMORIAL HOSPITAL, ET AL.
SUR PETITION FOR REHEARING
BEFORE: SLOVITER, Chief Judge, BECKER, STAPLETON,
MANSMANN, GREENBERG, SCIRICA, COWEN,
NYGAARD, ALITO, ROTH, and LEWIS,
Circuit Judges
The petition for rehearing filed by appellees The trustees of the
teamsters Local 11 Benefit Plan, Katulska Baidal, et al., New
Jersey Carpenters Welfare Fund, District Council of Iron Workers
of Northern New Jersey Welfare Fund, Local Union 400, IBEW
Welfare Fund, Teamsters Local 641 Welfare Fund, Local 1245
Health Fund, Local 1245 Bakery & Specialty Health Fund, Trustees
of the Welfare Trust Fund Local Union 475, et al., Teamsters Local
11 Benefit Plan, United Wire, Metal and Machine Health and Wel-
fare Fund, Operating Engineers Local 825 Welfare Fund, NYSA-
ILA Welfare Fund and Its Trustees, Local 807 and Trustees of Lo-
cal 807, United Food & Commercial Workers International Union
Local 464A, AFL-CIO Group Reimbursement Welfare Pian, Frank
Lacatena and Dolores Lacatena, Sheet Metal Workers Local Union
No. 25 Welfare Fund, Jeffrey Stajek, et al., Laborers International
Union of North America Local 415 Health & Welfare Fund and the
Hotel Employees and Restaurant Employees Welfare Fund, et al., in
the above-entitled case having been submitted to the judges who
participated in the decision of this Court and to all the other availa-
ble circuit judges of the circuit in regular active service, and no
judge who concurred in the decision having asked for rehearing,
and a majority of the circuit judges of the circuit in regular active
63a
service not having voted for rehearing by the court in banc, the peti-
tion for rehearing is denied. Judge Nygaard would have granted the
petition for rehearing.
By the Court,
/s/
Circuit Judge
Dated: JUNE 15, 1993
64a
United States District Court
FOR THE DISTRICT OF NEW JERSEY
UNITED WIRE, METAL & MACHINE
HEALTH AND WELFARE FUND,
et al.,
Plaintiffs,
MORRISTOWN MEMORIAL
HOSPITAL,
et al.,
Defendants.
Civil Action No.
90-2639
(Consolidated)
OPINION
APPEARANCES:
RONALD E. WISS, ESQ.
DAVID A. SCHRADER, ESQ.
WOLFF & SAMSON
280 Corporate Center
5 Becker Farm Road
Roseland, NJ 07068
and
ALBERT G. KROLL, ESQ.
25 Pompton Avenue, Suite 309
Verona, NJ 07044
and
THOMAS W. GLEASON,
ESQ.
26 Broadway, 17th Floor
New York, NY 10004
and
LOUiS PECHMAN, ESQ.
LAMBOS & GIARDINO
17 Academy Street
Newark, NJ 07102
and
DAVID GROSSMAN, ESQ.
SCHNEIDER, COHEN,
SOLOMON,
LEDER & MONTALBANO
1150 Raritan Road
Cranford, NJ 07016
(Attorneys for Plaintiffs)
BENJAMIN CLARKE, ESQ.
SENIOR DEPUTY
ATTORNEY GENERAL
EILEEN C.STOKLEY, ESQ.
DEPUTY ATTORNEY
GENERAL
OFFICE OF THE ATTORNEY
GENERAL
CN 112
Trenton, NJ 08625
(Attorneys for Defendants)
FRANK CIESLA, ESQ.
ELIZABETH
DUSANIEWSKY/J, ESQ.
GIORDANO, HALLERAN &
CIESLA
270 State Highway 35
Box 190
Middletown, NJ 07748
(Attorneys for Defendant/
Intervenor)
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WOLIN, District Judge
Currently before the Court are defendants’ and plaintiffs’ cross-
motions for summary judgment. Initially, this Court finds that the
Eleventh Amendment does not prevent this Court from deciding
any claims brought against the state agencies and the officials em-
ployed by the State of New Jersey. Likewise, this Court finds that
New Jersey’s hospital rate setting mechanism does not constitute a
tax, and therefore the Tax Injunctive Act does not foreclose this
Court from deciding the issues before it.
This Court will grant defendants’ motions for summary judg-
ment as to plaintiffs’ federal constitutional claims. This Court fur-
ther holds, however, that ERISA pre-empts certain provisions in-
cluded in New Jersey’s scheme for regulating hospital rates and the
regulations promulgated thereunder. Therefore, this Court finds that
New Jersey’s hospital rate setting scheme is unenforceable. Due to
the potential impact of its decision, this Court will stay its Order for
a period of ten days to afford the parties an opportunity to appeal
the Court’s ruling to the Third Circuit Court of Appeals.
I. INTRODUCTION
Several self-insured union employee welfare benefit plans (the
“Benefit Plans”) qualified under the Employee Retirement Security
Act 29 U.S.C. § 1002 et seg., as amended (“ERISA”) and their par-
ticipants (the “individual plaintiffs”) (collectively the “plaintiffs’’),
have brought an action in which they seek a declaration that con-
tained New Jersey’s scheme for setting hospital rates is invalid.'
Plaintiffs argue that this Court must strike down the method New
Jersey utilizes for determining hospital rates on both federal and
state constitutional grounds and because ERISA pre-empts the state
statute.
The gravamen of the complaint focuses on charges included
within the hospital billing procedure which are in excess of a pa-
tient’s “actual hospital costs.” These include: costs of care for the
indigent, charges to pay a hospital’s bad debts, subsidies for the
medicare program, and fees to reimburse hospitals for discounts
given by the hospitals to other types of benefit plans.
' This action was consolidated pursuant to order on January 31, 1992.
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This Court has jurisdiction over plaintiffs’ claims brought under
the United States Constitution, ERISA and the Taft-Hartley Act
pursuant to 28 U.S.C. § 1132. This Court has jurisdiction over
plaintiffs’ causes of action that arise under New Jersey’s Constitu-
tion under the principles of pendent jurisdiction and supplemental
jurisdiction, 28 U.S.C. § 1367.
In the exercise of its discretion, however, this Court declines to
consider the Carpenter’s Union’s claim that this Court should force
the Hospital Defendants to reimburse the charges paid by the Car-
penter’s Union under protest. The Court declines to exercise its
pendent jurisdiction and supplemental jurisdiction over this state
law claim in the interest of comity. The Carpenter’s Union argues
that the fees should be reimbursed because they were paid under
compulsion — the hospital rate setting regulation forces a hospital
to institute collection actions against parties who refuse to pay DRG
rates. The New Jersey State Court’s have never faced this issue.
Moreover, the Hospital Defendants commenced related actions,
which are currently pending in New Jersey, in which they seek re-
imbursement from plaintiffs who failed to pay the contested
charges. In view of the interrelatedness of these actions, this Court
will defer to the New Jersey State Courts.? Venue is proper in this
district under 28 U.S.C. § 1391.
Il. BACKGROUND
In 1971 New Jersey enacted the Health Care Facilities Planning
Act (the “Act”), a hospital rate setting scheme for Blue Cross and
certain federally funded programs such as Medicaid. L. 1971 c.
136 § 18. Rates were based primarily on a hospital’s actual costs
for each patient who participated in the programs encompassed by
the law. In 1978, New Jersey passed a statute that amended the
1971 legislation and, in part, mandated rate setting for all payors.
L. 1978 c. 83 (“Chapter 83”). Chapter 83 contained a dual purpose:
? In their brief in opposition to the hospital defendants motion for summary
judgment, piaintiffs concede that they are not asking this Court to apply its deci-
sion retroactively, but merely seek restitution because they paid the DRG rate
under protest and duress. Accordingly, the issue of when to apply a decision retro-
actively under federal law does not confront this court. Thus, this Court can refuse
to exercise its pendent jurisdiction over plaintiffs restitution claims.
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to “contain the nsing costs of health care services, and to ensure the
financial solvency of hospitals.”
Chapter 83 designed an interconnected regulatory system to em-
brace its purposes. Chapter 83 gave the Commissioner of Health
(the “Commissioner’) responsibility for overall supervision and ad-
ministration of the hospital rates. The Commissioner, in conjunc-
tion with the Health Care Administration Board (the “Board”), pro-
poses the rate schedule and determines, in accordance with the
statute, the types of charges that should be included in hospital
rates. Additionally, the law created the New Jersey Hospital Rate
Setting Commission (the “Commission”). The Commission ap-
proves hospital rates. N.J.S.A. 26:2H-4.1; 26:2H-18.1; 26:2H-18.9;
N.J.A.C. 8:31B-3.72; N.J.A.C. 8:31B-3.39. The New Jersey De-
partment of Health (the “DOH”) oversees the Commission and ad-
ministers the rates.
In order to help contain costs, Chapter 83 set hospital rates pro-
spectively, instead of upon actual cost. Under Chapter 83, various
procedures are divided into diagnostic related groups (“DRG”), and
a rate is assigned to each DRG. Instead of charging actual costs
incurred by a hospital for treating an individual patient, the hospital
has to charge the DRG rate which is designated for that classifica-
tion. Despite the calculation of bills without regard to actual costs,
a hospital bill still reflects a charge that previously represented ac-
tual costs. This charge is categorized as “total costs.” A “DRG”
charge also appears on a patient’s bill.
A particular hospital’s DRG rate consists of a weighted average
of the cost incurred by that specific hospital to treat a particular
illness and the average cost incurred by hospitals throughout the
state to treat the condition. Accordingly, this system penalizes a
hospital that incurs costs greater than that allocated to a particular
DRG category and rewards hospitals that provide more efficient |
services for a particular DRG.’
Additionally, as part of its DRG rate, a hospital must include a
charge for uncompensated care. Uncompensated care consists of
’ The costs incurred by a hospital include both direct costs and indirect costs.
Direct costs include salaries and fringe benefits provided to employees engaged in
the direct delivery of patient care, N.J.A.C. 8:31B-3.21, N.J.A.C. 8.31B-3.16. In-
direct costs consists of funds expended by a hospital in order to manage the hospi-
tal, to allow the hospital to engage in research and to provide for the maintenance
needed to upkeep a hospital.
:
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both care to the indigent and expenses that result from bad debts.
N.J.S.A. 26-2H 18.d; N.J.A.C. 8:31B-3.41; 8:31B-7.1. This charge
stems from a hospital’s mandate to admit anyone regardless of his
or her ability to pay.‘ Only hospital patients incur costs for uncom-
pensated care. In order to receive funds for uncompensated care a
hospital must determine whether a patient has any health insurance.
Furthermore, hospitals that treat patients who have Medicare can
recoup only the amount allotted by the Medicare system for the par-
ticular treatment. Medicare invariably pays less than the DRG rate
allocated for a particular condition. N.J.S.A. 26H-18.lc, however,
permits the Commissioner with the approval of the Board, “to ad-
just the DRG rate to account for costs incurred by statutes and regu-
lations that affect the delivery of health care.” Pursuant to this stat-
ute, the Commissioner, with the Board’s approval, enacted N.J.A.C.
8:31B:3.73. This regulation allows the hospitals to include in their
DRG rate an amount necessary to recover the difference between
the Medicare rate of payment and the DRG rate. These costs are
borne by non-medicare patients.
Moreover, Chapter 83 allows the Commission to decrease hospi-
tal costs for certain classes of payors. In particular, the Commis-
sion may grant a “payor differential” if it is supported by a “quanti-
fiable economic benefit such as the degree of promptness and
volume of payment to the hospital.” N.J.S.A. 26:2H-18b. Pursuant
to this provision, the Commission has granted a 2.2% discount to
plans such as Blue Cross. None of the Benefit Plans currently re-
ceive such a discount. Only the Carpenter’s Union Trust Fund (the
“Carpenter’s Union”), has requested such a discount. The Commis-
sion has not yet reached a decision as to the Carpenter’s Union’s
application.
In addition to the 2.2% discount the Commission grants an 11%
discount to plans with open enrollment. Because the Benefit Funds
‘ The 1978 Amendments mandated an inclusion in the DRG rate for uncompen-
sated care costs. The uncompensated care costs attributed to a particular hospital
was borne only by that hospital’s patients. In 1987 New Jersey again amended the
hospital rate setting system. Under the Amendments, hospitals throughout the
state shared equally in the cost of uncompensated care. Thus, the hospital bill of
each patient is increased by the same amount in order to compensate hospitals for
uncompensated care costs. Currently, a hospital increases a patient’s bill 19% for
uncompensated care. The New Jersey Health Care Trust Fund then distributes the
money collected for uncompensated care to each hospital according to that particu-
lar hospital’s needs.
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must limit their enrollment to union members and their families, the
Benefit Funds cannot receive this discount. The bills of patients
who did not belong to plans that received these discounts were in-
creased in order to supply hospitals with the reduced income they
lost because of the discounts. N.J.A.C. 8:31B-3.39.
Regulations, promulgated in accordance with the rate setting
scheme, contain an appeal process for individuals whose DRG costs
exceed their total costs by $250.00. Individuals who have third
party insurance that does not reimburse the hospital according to
DRG rates or that contains a deductible are not eligible to appeal.
Accordingly, none of the individual plaintiffs can avail themselves
of the appeal process.
The Benefit Plans do not provide the same type of payments for
hospital costs incurred by their members. For example, the District
Council of Ironworkers of Northern New Jersey Welfare Fund (the
“IWF”) Benefit Plan covers 95% of the actual hospital costs in-
curred by its members.° The NYSA-ILA Welfare Plan, however,
compensates the hospital for about 75% of the total fees charged to
its participants. Still, other Benefit Plans pay 100% of the DRG
charges.
Plaintiffs instituted their Second Amended Complaint against
certain New Jersey entities and administrators employed by New
Jersey who are associated with the rate setting provisions (the
“State Defendants”). Plaintiffs also sued various hospitals (the
“Hospital Defendants”) (with the State Defendants collectively the
“defendants”). The Hospital Defendants must charge DRG rates in
order to maintain the licenses that permit the hospitals to provide
health care.
* Prior to April 16, 1991, the IWF paid 95% of the DRG rate imposed by the
hospitals. Concurrent with its decision to reimburse only 95% of actual hospital
cost, the IWF instructed its members to submit only the 5% difference in total
costs to the hospitals. Mandated by the Act the hospitals have begun collection
procedures in state court to recoup the unpaid DRG charges. Following its deci-
sion to reimburse only 95% of total costs the IWF placed the difference between
95% of the DRG rate and 95% of total costs into an escrow account.
¢ Specifically, plaintiffs named the DOH, the Commission, the Administrator of
the New Jersey Health Care Trust Fund, the Department of Human Services Divi-
sion of Medical Assistance and Health Services and the Commissioner of Health
as defendants.
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In their complaint, plaintiffs allege that this Court must strike
down New Jersey’s hospital rate setting scheme for the following
reasons: (1) the scheme is pre-empted by § 501(a) of ERISA, 29
U.S.C. § 1132(a), and by § 186(c) of the Taft Hartley Act, 29
U.S.C. § 186(c)’; (2) it deprives plaintiffs of the due process and
equal protection rights guaranteed to them under the Constitutions
of the United States and the State of New Jersey; (3) it constitutes a
taking of property without just compensation under the United
States Constitution; (4) it imposes a special tax law in violation of
the New Jersey Constitution; and (5) it improperly delegates taxing
power to the Commissioner because it gives the Commissioner “un-
checked power” to establish hospital rates.
In addition to contesting each of the allegations asserted by plain-
tiffs, the defendants contend that this Court has no authority to hear
this case. First, the State Defendants assert that the Eleventh
Amendment protects them from the instant lawsuit. Second, the de-
fendants allege that if the hospital rates constitute a tax, the Tax
Injunctive Act prohibits this Court from hearing the instant motion.
III. DISCUSSION
A. State Immunity Under the Eleventh Amendment
The State Defendants allege that they have not consented to suit
and therefore, the Eleventh Amendment forecloses any action
against them. The Eleventh Amendment does not prohibit suits for
prospective injunctive relief and declaratory relief against state
agencies and state officials where plaintiffs contend that actions
‘taken by these agencies and officials, in their official capacity, have
violated the federal constitution or federal statutes. Geis v. Board of
Education of Parsippany-Troy Hills, 744 F.2d 575, 580 (1985).
This exception to immunity applies even if issuing the declaratory
or injunctive relief would reduce state funds. Edelman v. Jordan,
415 U.S. 651-52, 94 S. Ct. 1347 1358-59 (1974). Similarly, suits
that seek injunctive relief and assert that the state exceeded powers
granted to it by its own constitution are not prohibited by the Elev-
enth Amendment. Capitol Industries-Emi, Inc. v. Bennett, 681 F.2d
.
Plaintiffs have offered no support for their preemption claim brought under the
Taft-Hartley Act. Moreover, plaintiffs concede that preemption under § 186(c)
applies more narrowly than under § 501(a) of ERISA. Therefore, this Court rejects
plaintiffs preemption claim under the Taft-Hartley Act.
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1107, 1120 (9th Cir.), cert. denied, 459 U.S. 1087, 103 S. Ct. 570
(1982).
Because plaintiffs seek solely prospective injunctive and declara-
tory relief, the Eleventh Amendment does not bar their action com-
menced against any State Defendant. Moreover, even if this
Court’s ruling decreases funds available to the state with which they
can help defray the costs of medical expenses of its citizens, this
still does not foreclose this action against the State Defendants.
Likewise, the Eleventh Amendment does not preclude plaintiffs’
claim that the Legislature unconstitutionally delegated the taxing
power to the Commission.
B. Application of the Tax Injunction Act (the “TIA”)
Before this Court can consider the merits of the motions be-
fore it, the Court must decide whether the TIA bars any of plain-
tiffs claims. The TIA provides:
The district court shall not enjoin, suspend or restrain the
assessment, levy or collection of any tax under State law
where a plain, speedy and efficient remedy may be had
in the courts of such State.
28 U.S.C. § 1341. Accordingly, in order to determine whether an
action falls under the TIA the Court conducts a two-step analysis.
First, the Court must determine if the charge at issue constitutes a
tax. If the expense is a tax, then the Court must decide whether the
State provides a “plain speedy and efficient remedy.” 28 U.S.C §
13418
At the outset, this Court notes that the TIA clearly applies to the
types of claims and relief that plaintiffs seek. First, it is well settled
that actions for declaratory relief as well as for injunctive relief are
barred by the TIA. See Franchise Tax Board v. Alcoa Aluminum,
Lid., 493 U.S. 331, 110 S. Ct. 661 (1990). Additionally, the TIA
encompasses federal constitutional challenges to the imposition of a
state tax. See Hardwick v. Cuomo, 891 F.2d 1097, 1100 (3d Cir.
1989) (plaintiffs’ equal protection challenge to imposition of non-
resident tax barred by TIA).
* The Third Circuit has held that the TIA is a jurisdictional statute. Sipe v.
Amerada Hess Corp., 689 F.2d 396 (3d Cir. 1982). Hence, the Court cannot hear
any matters that fall within the scope of the TIA.
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Congress enacted the TIA in order to “prevent federal court inter-
ference with the assessment and collection of state taxes” by parties
who brought suits in federal court to enjoin a state or local govern-
ment’s collection of taxes. Hardwick, 891 F.2d at 1105. Congress
recognized tnat states had a “pressing need” to collect revenues. As
a result, state and local governments “would compromise [a party’s
claim] by taking less than the tax due.” Tramel v. Schrader, 505
F.2d 1310, 1315 (Sth Cir. 1975).
The difficult question faced by this Court is whether any of the
costs included in the DRG rate constitute a tax. Initially, this Court
finds that it must conduct its analysis under federal and not state
law. Robinson Protective Alarm Company v. Philadelphia, 581
F.2d 371, 374 (3d Cir. 1978) (“‘[T]ax under state law’ in 28 U.S.C.
§ 1341 should be determined as a matter of federal law by reference
to congressional policies underlying the Tax Injunction Act, rather
than by adoption of state tax labels developed in entirely different
legal contexts.”).?
No bright-line exists between assessments which are “taxes under
state law” and those which are not. Recently, the court in Butler v.
Maine Supreme Judicial Court, 767 F. Supp. 17, 18 (D. Me. 1991),
concisely stated the accepted definition of “taxes.” In general, “as-
sessments imposed primarily for revenue raising purposes are
‘taxes,’ while those levies assessed for regulatory or punitive pur-
poses, even though they may also raise revenues, are generally not
‘taxes.’ ” Id. (citations omitted).
The Third Circuit has followed this definition. For example, in
Robinson, the Third Circuit held that an assessment of 5% of gross
earnings levied upon alarm station companies who used under-
ground wires constituted taxes. The Court examined the character
of the assessments. It found that the taxes were “collected annually
in a manner similar to other gross receipts levied.” Moreover, it
noted that the monies collected were “added to the public fisc rather
than applied exclusively to contractual services owed central alarm
station companies.”'® Thus, the court concluded that Philadelphia
® Accordingly, plaintiffs’ argument that the “add-ons” constitute a tax because
the Commission on Hospital Rates termed them as such is of no moment to this
Court.
‘© Plaintiffs argument that the DRG rates constitute taxes because matching funds
collected from the federal government under the Medicare Program are placed in
the public fisc is simply a red herring. This Court must only determine whether
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taxed the plaintiffs under the TIA. See also Butler, 767 F. Supp. at
17 (D. Me. 1991) (state exacted tax from plaintiffs when it imposed
$300 jury fee on plaintiffs in state court action. Fees collected were
“funnelled into Maine’s general fund [and not] applied directly to
the costs of jury trials.””).
The dictum announced by the Third Circuit supports the conclu-
sion that if Philadelphia applied the revenue collected to the regu-
lated industry, the court would have held that Philadelphia did not
tax the alarm station companies. Cf Rural Telephone Coalition v.
F.C.C., 838 F.2d 1307 (D.C. Cir. 1988) (FCC order to allocate 25%
of traffic sensitive costs from local telephone companies to long
distance telephone did mot impose a tax. Primary purpose of the
ruling was not to raise revenue but only to regulate rates.); Brock v.
Washington Metropolitan Area Transit Authority, 796 F.2d 481
(D.C. Cir. 1986), cert. denied, Washington Metropolitan Transit Au-
thority v. Brock, 481 U.S. 1013, 107 S. Ct. 1887 (1987) (statute that
mandated employers to contribute to special fund from which sev-
eral types of workers compensation payments were made did not
impose taxes on employers. Statute’s primary purpose was to “reg-
ulate liability for industrial accidents” and not to finance the gov-
ernment’s general programs. Fund was segregated from other fees
collected.) Head Money Cases, 112 U.S. 580 (1884) (Duty on im-
migrants collected from shipowners and segregated into its own
fund which was imposed! in order to defray the expense of regulat-
ing immigration and for the care of immigrants did not exact a tax
from shipowners but instead only implicated the Commerce
Clause).
Guided by the dictum in Robinson, this Court holds that the con-
tested costs included in the DRG rate do not constitute a tax. The
state never uses the money collected from plaintiffs for the general
welfare. Additionally, the fees collected are never intermingled in a
general fund. Instead, the fees defray the costs that hospital’s incur
pursuant to state regulation of hospital costs. Hence, this Court
finds the TIA does not apply. Accordingly, this Court has jurisdic-
tion over plaintiffs’ claims.
(Continued)
the costs included within the D)RG rate constitute a tax. Money obtained by New
Jersey from the federal government that are related to some of the DRG costs has
no bearing on this analysis.
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Courts in various circuits have found that special assessments
collected by the government to fund specific programs constitute a
tax under the TIA. For example, in 7ramel, the Fifth Circuit held
that a special street improvement assessment levied on plaintiffs
who owned land which abutted the streets that the City wanted to
improve constituted a tax. 505 F.2d at 1312. The court reasoned
that to hold otherwise would defeat the purposes of the TIA. In
particular, the court held a contrary finding would permit parties to
“delay or to frustrate the revenue collection process by resorting to
federal courts.” Jd. at 1316.
Similarly, the Sixth Circuit held that a state law which required
“parolees to make monthly payments to a supervision fund and to a
victim’s compensation fund,” imposed a tax on parolees. Wright v.
McClain, 835 F.2d 143 (6th Cir. 1987). The Sixth Circuit acknowl-
edged that the funds collected were used only by the Corrections
Department. Jd. at 145. The Sixth Circuit reasoned, however, that
the fees constituted revenue because they were used “[by the gov-
ernment] to defray the cost to the general public of monitoring and
supervising the behavior of convicted offenders and to compensate,
in some measure, victims of criminal misconduct.” Jd. Thus, the
court concluded that even though the funds were earmarked for a
particular use by the state they were taxes.
The decisions discussed above do not disturb the Court’s hold-
ing. Unlike the cases cited above, the charges included in the DRG
rate do not fund special programs financed by New Jersey. Instead,
they allow hospitals regulated by New Jersey to meet their financial
obligations. Therefore, the TIA is-inapplicable to the action before
this Court."!
C. ERISA Pre-emption
Plaintiffs argue that ERISA pre-empts the method New Jersey
utilizes for establishing hospital rates. Initially, plaintiffs contend
that ERISA pre-empts Chapter 83’s method of setting hospital
'! Because this Court finds that costs included in the DRG rates are not taxes,
this Court will not determine whether the TIA applies to actions brought under
ERISA.
|
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rates, determining who is eligible to appeal DRG costs, and decid-
ing who can receive a discounted rate, because these provisions “re-
late” to an employee benefit plan. Plaintiffs further allege that the
charges included in the DRG rates for uncompensated care, Medi-
care, and appeals granted to individuals constitute taxes that are im-
permissible under an express provision of ERISA because they re-
late to an employee benefit plan.'*
ERISA contains an explicit pre-emption provision. Section
514(a) of ERISA pre-empts state laws that “relate to any employee
benefit plan.” 29 U.S.C. § 1144(a) (“§ 514(a)”). The Supreme
Court has consistently interpreted the pre-emption clause broadly.
See FMC v. Holliday Corp., 111 S. Ct. 403, 407 (1990) (“The pre-
emption clause is conspicuous for its breadth. It establishes as an
area of exclusive federal concern the subject of every state law that
‘relates to’ an employee benefit plan governed by ERISA.”); Fran-
chise Tax Board, 463 U.S. 1, 24, 103 S. Ct. 2841, 2854 n.26
(“ERISA’s commodious pre-emption provision is virtually
unique.”). Accordingly the Supreme Court has refused to define
“relate to” narrowly. Instead, the Supreme Court has announced:
A law relates to an employee benefit plan in the normal
sense of the phrase if it has a connection with or refer-
ence to such a plan.
Pilot Life Ins. Co. v. Dedeaux, 481 U.S. 41, 107 S. Ct. 1549, 1552
(1987).
Guided by the broad language contained in the preemption
clause, the Supreme Court has held that ERISA pre-empts a state
law even where a state law affects ERISA indirectly or the law was
not “specifically designed to affect such plans.” Alessi v. Raybes-
tos-Manhattan, Inc., 451 U.S. 504, 525, 101 S. Ct. 1895, 1907
(1981). Similarly, the Supreme Court has held that the preemption
clause does not apply only to “state laws dealing with the subject
matter covered by ERISA: reporting, disclosure, fiduciary respon-
sibility and the like.” Shaw v. Delta Air Lines, Inc., 463 U.S. 85,
97-98, 103 S. Ct. 2890, 2900. Moreover, ERISA pre-empts a state
law even if the law “[is] consistent with ERISA’s substantive re-
quirements.” Metropolitan Life Insurance Co. v. Massachusetts,
2 Because this Court finds that ERISA pre-empts New Jersey’s method of set-
ting hospital rates, regardless of whether the charges challenged by plaintiffs con-
stitute a tax, this Court will not decide the tax issue.
76a
471 U.S. 724, 105 S. Ct. 2380, 2388-89 (1985) (citing) 103 S. Ct. at
2900-2901, or the law was enacted to “effectuate ERISA’s underly-
ing purposes.” Mackey v. Lanier Collection Agency & Service
Inc., 486 U.S. 825, 108 S. Ct. 2182, 2185 (1988).
In Ingersoll-Rand Co. v. McClendon, US. 8th S GS
478, 484 (1990), the Supreme Court recently affirmed the broad
reach of ERISA. In /ngersoll, the defendant contended that §
514(c)(2) of ERISA limited the scope of § 514(a). Section
514(c)(2) provides:
The term State includes a State, any political subdivi-
sions thereof, or any agency or instrumentality of either
which purports to regulate, directly or indirectly, the
terms and conditions of employee benefit plans covered
by this subchapter. 29 U.S.C. § 1144(c)(2).
(Emphasis added). Based on ERISA’s definition of “State,” the de-
fendant in Jngersoll concluded that § 514(a) only applies to state
laws that “affect plan terms, conditions, or administration [of an
ERISA plan].”
The Supreme Court, however, rejected this argument. First, the
Supreme Court explained that Congress expanded the definition of
state in order to enlarge the grasp of ERISA. Hence, defendant’s
restrictive reading of § 514(a) would defeat Congress’s purposes.
Second, the Supreme Court concluded that if Congress intended to
restrict § 514(a) in the manner proposed by defendant it would have
included the limiting language in § 514(a) itself. Jd. Therefore, the
Supreme Court refused to narrow the reach of the plain meaning of
the language contained in § 514(a).
The Supreme Court’s broad reading of ERISA’s preemption
clause stems not only from the plain meaning of the provision itself,
but also from the legislative history of ERISA. Specifically, Con-
gress rejected a pre-emption clause that only “applifed] to state
laws [which] relat[ed] to the specific subjects covered by ERISA.”
Shaw, 103 S. Ct. at 2900; FMC, 111 S. Ct. at 408. Similarly, Con-
gress excluded a state’s “generally applicable criminal laws” from
pre-emption. Jd. Such an exclusion would have been unnecessary if
Congress intended § 514(a) to apply only to “state laws dealing spe-
cifically with ERISA plans.” 103 S. Ct. at 2900; 111 S. Ct. at 408.
77a
Finaliy, the legislative history reveals that Congress enacted
ERISA in order to give federal authorities “sole power to regulate
the field of employee benefit plans.” Pilot Life Ins. Co., 107 S. Ct.
at 1552 (quoting) 120 Cong. Rec. 29197 (1974). Accordingly,
Congress enacted a broad pre-emption clause in order to “eliminate
the threat of conflicting or inconsistent State and local regulation of
employee benefit plans.” /d. (quoting) 120 Cong. Rec. at 29933.
Following the dictates of Congress, the Supreme Court has held
that ERISA superseded state laws that forced a benefit plan to
structure benefits in a specific manner. Similarly, the Supreme
Court has invalidated state laws that could subject an ERISA plan to
inconsistent state regulations. As noted above, whether a state law
mentioned ERISA plans was not a critical factor in the Supreme
Court’s decision.
For example, in Alessi, 451 U.S. at 508-09, 101 S. Ct. at 1898,
New Jersey forbade reducing retirement benefits or payments by
the amount of money a person received under worker’s compensa-
tion. The Supreme Court held that ERISA pre-empted New
Jersey’s law. In particular, the Supreme Court found that New
Jersey’s law impermissibly “eliminate[d] one method for calculat-
ing pension benefits.” As a result, New Jersey’s regulation would
force a pension plan either to change its manner for computing ben-
efits for all plans both within and outside New Jersey or to require
the plan to calculate benefits for New Jersey employees in a manner
different from the manner used for employees outside New Jersey.
Moreover, the Supreme Court reached its conclusion irrespective of
the New Jersey law’s beneficial purposes. Additionally, the Su-
preme Court held that it made no difference that “New Jersey in-
trudes indirectly through workers compensation rather than directly
through a statute called pension regulation.” Importantly, although
the Supreme Court recognized that New Jersey’s law constituted an
exercise of its police powers, the Court still held that ERISA pre-
empted the law.
Likewise, in FMC, 111 S. Ct. at 406, the Supreme Court held
that ERISA pre-empted Pennsylvania’s anti-subrogation law. Penn-
sylvania’s law prohibited a party from subrogating his or her tort
recovery “in an action arising out of the maintenance or use of a
motor vehicle” to any plan that paid the party benefits related to the
accident. Jd. Contrary to Pennsylvania’s law, the benefit plan at
ee
78a
issue in FMC provided that a participant would reimburse the plan
with any recovery obtained from a third party.
In reaching its conclusion, the Supreme Court found that Penn-
sylvania’s law restricted the way in which the plan could provide
benefits. Additionally, the Court reasoned that Pennsylvania’s stat-
ute would subject the plan to inconsistent regulations. This would
“frustrate plan administrators continuing obligation [under ERISA]
to calculate uniform benefit levels nationwide.” Therefore, the Su-
preme Court held that Pennsylvania’s anti-subrogation law was un- ~
enforceable.'"? See also Shaw, 463 U.S. 85, 103 S. Ct. 2890 (1983)
(ERISA pre-empted New York law that mandated benefits for preg-
nancy. Law forced ERISA plans to structure benefits in a particular
manner and subjected plans to inconsistent regulations).
Following the Supreme Court’s interpretation of § 514(a), the
Eighth Circuit held in a recent decision that ERISA pre-empted Ar-
kansas’ general assignment statute. The Arkansas statute made no
reference to an ERISA plan. Instead, the statute provided:
all bonds, bills, notes, agreements, and contracts, in writ-
ing, for the payment of money or property, or for both
money and property, shall be assignable.
‘3 The Supreme Court also found that Pennsylvania’s law related to ERISA be-
cause it referenced employee welfare plans. In particular, the statute encompass
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