Horvath v. Keystone Health Plan East, Inc.

• Decision Date: 23 June 2003
• Docket Number: No. 02-1731.,02-1731.
• Citation: 333 F.3d 450
• Parties: Donna HORVATH, on behalf of herself and all others similarly situated v. KEYSTONE HEALTH PLAN EAST, INC. Donna Horvath, on behalf of herself and the proposed class she seeks to represent, Appellant.
• Court: U.S. Court of Appeals — Third Circuit

333 F.3d 450 Donna HORVATH, on behalf of herself and all others similarly situated
v.
KEYSTONE HEALTH PLAN EAST, INC.
Donna Horvath, on behalf of herself and the proposed class she seeks to represent, Appellant. No. 02-1731. United States Court of Appeals, Third Circuit. Argued on October 18, 2002. Filed June 23, 2003.

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H. Laddie Montague, Jr., Jerome M. Marcus, (Argued), Jonathan Auerbach, Berger & Montague, P.C., Philadelphia, PA, for Appellant.

Edward F. Mannino, (Argued), David L. Comerford, James L. Griffith, Akin, Gump, Strauss, Hauer & Feld, L.L.P, Philadelphia, PA, for Appellee.

Before ROTH, GREENBERG, Circuit Judges and WARD,^* District Judge.

OPINION OF THE COURT

ROTH, Circuit Judge.

Health Maintenance Organizations (HMOs) routinely utilize financial incentives to encourage physicians to ration care in a cost-effective manner. This case presents the question whether, when the existence of such a plan has been disclosed, the Employee Retirement Income Security Act (ERISA), 29 U.S.C. § 1001, et seq., requires HMOs automatically to disclose further information on these incentives to plan beneficiaries. Because we conclude that, under the circumstances of this case, neither our own precedents nor the canons of statutory construction support the imposition of such a duty, we will affirm the District Court's grant of summary judgment to the defendant HMO.

I. Facts

Plaintiff-appellant Donna Horvath is the benefits administrator at a law firm and a member of the HMO of defendant-appellee Keystone Health Plan East, Inc. The Keystone HMO is the only healthcare plan offered to employees of Horvath's firm. The firm pays all premiums directly to Keystone as an employee benefit and does not make any specific healthcare deductions from employees' paychecks.

Horvath, both as a member of the Keystone HMO and as her firm's benefits administrator, was provided with information

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regarding the plan's structure. Specifically, she received a letter from Keystone disclosing its practice of attempting to "[c]ontrol the increase of health care costs through negotiated agreements with health care providers, doctors, hospitals, pharmacy, and ancillary providers," as well as a Doctor and Hospital Directory that included a description of the physician compensation plan.¹ Horvath also received literature, the Keystone Health Plan East Member Handbook and the September 1999 Letter to Benefits Administrator, which provided that she could request additional information regarding physician compensation. She concedes she never made any effort to do so.

II. Procedural History

Horvath's complaint was filed on January 21, 2000, as a proposed class action. It alleges that Keystone is a "fiduciary," as that term is defined under ERISA,² and that it therefore has a duty to disclose to plan beneficiaries "all material facts relating to the insurance benefits" it provides. Horvath contends this duty was violated when Keystone failed to disclose information on physician incentives that she believes have the potential to impact healthcare decisions made by its physicians and thus decrease the overall level of care provided. However, Horvath does not allege that she has been personally affected by the existence of the incentives or that the care she received from the Keystone HMO was defective or substandard in any way. As a remedy for the alleged breach of fiduciary duty, Horvath seeks, inter alia, (1) injunctive relief requiring the disclosure of information regarding physician incentives, and (2) restitution and/or disgorgement of the amount she and other members of the putative class allegedly overpaid as a result of Keystone's failure to disclose such information. She defines this amount as the difference between the value of the plan as she perceived it (i.e., without a physician incentive structure) and the value of the plan as actually configured (i.e., with physician incentives).

The District Court denied Keystone's motion to dismiss. The court subsequently denied Horvath's motion for class certification but granted her leave to renew the motion at the close of the discovery period. During the course of discovery, Keystone turned over numerous documents in response to Horvath's requests for production. However, Keystone withheld many other documents, objecting to requests as overly broad and not reasonably calculated to lead to the production of admissible evidence.

Horvath filed a motion to compel the production of additional documents, which on March 13, 2001, the District Court denied without prejudice. In doing so, the court noted its belief that the requests at issue were overly broad and therefore instructed

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Horvath to "specify with regard to each discovery request explicitly how it is relevant to the need for disclosures and not merely how it adds to [her] understanding of Keystone's operational structure." On July 13, a second motion to compel was granted in part and denied in part. Horvath then deposed two Keystone employees but took no other steps to obtain additional information prior to the close of the discovery period. She does not appeal the District Court's denials of her motions to compel.

Keystone filed its motion for summary judgment on September 21, 2001, arguing that Horvath lacked standing to assert her ERISA claim and that no material facts were in dispute. The District Court did not expressly rule on the issue of standing but granted summary judgment to Keystone, based primarily upon the court's belief that our prior decisions regarding fiduciary disclosure under ERISA did not require Keystone to disclose information on its physician incentive structure. This appeal followed.

III. Jurisdiction and Standards of Review

The District Court exercised subject matter jurisdiction over this case pursuant to 28 U.S.C. § 1331. We have jurisdiction to consider Horvath's appeal of the District Court's final order pursuant to 28 U.S.C. § 1291.

Our review of Horvath's standing to assert her claim is plenary. General Instrument Corp. of Del. v. Nu-Tek Elec. & Mfg., Inc., 197 F.3d 83, 86 (3d Cir.1999). We review the District Court's refusal to delay its ruling on Keystone's summary judgment motion for abuse of discretion, but our review of the order itself is plenary. St. Surin v. Virgin Islands Daily News, Inc., 21 F.3d 1309, 1313 (3d Cir. 1994). "Summary judgment is appropriate `if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law.'" Chisolm v. McManimon, 275 F.3d 315, 321 (3d Cir.2001) (quoting Fed.R.Civ.P. 56(c)). Summary judgment is not appropriate, however, "if a disputed fact exists which might affect the outcome of the suit under the controlling substantive law." Josey v. John R. Hollingsworth Corp., 996 F.2d 632, 637 (3d Cir.1993).

IV. Discussion

A. Background

HMOs provide a variety of specified health care services to members for one fixed fee. Thus, like other insurers, HMOs attempt to control costs by carefully scrutinizing the requests for services. Pegram v. Herdrich, 530 U.S. 211, 219, 120 S.Ct. 2143, 147 L.Ed.2d 164 (2000). As part of this effort, HMOs provide guidance to their physicians regarding appropriate levels of health care. Id. "These cost-controlling measures are commonly complemented by specific financial incentives to physicians, rewarding them for decreasing utilization of health-care services, and penalizing them for what may be found to be excessive treatment." Id. Accordingly, "in an HMO system, a physician's financial interest lies in providing less care, not more." Id.

However, the existence of such interests in no way affects the legitimacy of the HMO structure. As noted in Pegram, "[t]he check on [physicians' financial interests]... is the professional obligation to provide covered services with a reasonable degree of skill and judgment in the patient's interest." Id. Such incentives, in a fixed fee system, are necessary as "no

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HMO organization could survive without some incentive connecting physician reward with treatment rationing." Id. at 220, 120 S.Ct. 2143.

Nevertheless, the presence of rationing in the context of medical care inevitably raises a host of policy questions, many of which are beyond the scope of those typically or easily resolved by federal courts. Indeed, "any legal principle purporting to draw a line between good and bad HMOs would embody, in effect, a judgment about socially acceptable medical risk." Id. at 221, 120 S.Ct. 2143. Thus, questions requiring the exercise of "complicated factfinding" or "debatable social judgment are not wisely required of courts unless for some reason resort cannot be had to the legislative process, with its preferable forum for comprehensive investigations and judgments of social value, such as optimum treatment levels and health-care expenditure." Id; cf. Maio v. Aetna, Inc., 221 F.3d 472, 499 (3d Cir.2000) (rejecting notion that "in the complex world of rate structures a trier of fact, probably a jury" could determine the value of an HMO health insurance product which offers physicians incentives to withhold medical services.)

It is against this backdrop that we consider the claim at issue here.

B. Standing

As a preliminary matter, we must address the threshold issue of standing. It is axiomatic that, in addition to those requirements imposed by statute, plaintiffs must also satisfy Article III of the Constitution, see Warth v. Seldin, 422 U.S. 490, 501, 95 S.Ct. 2197, 2206, 45 L.Ed.2d 343 (1975), which requires as follows:

First, the plaintiff must have suffered an injury in fact — an invasion of a legally protected interest which is (a) concrete and particularized; and (b) actual or imminent, not conjectural or hypothetical. Second, there...