Stuart Circle Hosp. Corp. v. Aetna Health Management

• Decision Date: 02 June 1993
• Docket Number: No. 92-1964,92-1964
• Citation: 995 F.2d 500
• Parties: , 16 Employee Benefits Cas. 2235 STUART CIRCLE HOSPITAL CORPORATION, Plaintiff-Appellant, v. AETNA HEALTH MANAGEMENT; Aetna Life Insurance Company, Defendants-Appellees. HCA Health Services of Virginia, Amicus Curiae.
• Court: U.S. Court of Appeals — Fourth Circuit

Page 500

995 F.2d 500

61 USLW 2754, 16 Employee Benefits Cas. 2235

STUART CIRCLE HOSPITAL CORPORATION, Plaintiff-Appellant, v. AETNA HEALTH MANAGEMENT; Aetna Life Insurance Company,

Defendants-Appellees.

HCA Health Services of Virginia, Amicus Curiae.

No. 92-1964.

United States Court of Appeals, Fourth Circuit.

Argued March 2, 1993.

Decided June 2, 1993.

Peter B. Edelman, Keck, Mahin & Cate, Washington, DC, argued (Philip L. O'Neill, Keck, Mahin & Cate, Washington, DC, William R. Rakes, J. Scott Sexton, Gentry, Locke, Rakes & Moore, Roanoke, VA, on brief), for plaintiff-appellant.

William Jeffrey Kilberg, Gibson, Dunn & Crutcher, Washington, DC, argued (Paul Blankenstein, Jeffrey T. Gilleran, Gibson, Dunn & Crutcher, Washington, DC, John B. McCammon, Laura G. Fox, Wright, Robinson, McCammon, Osthimer & Tatum, Richmond, VA, on brief), for defendants-appellees.

William D. Iverson, William J. Shieber, Covington & Burling, Washington, DC, for amicus curiae.

Before BUTZNER, Senior Circuit Judge, VOORHEES, Chief United States District Judge for the Western District of North Carolina, sitting by designation, and SPENCER, United States District Judge for the Eastern District of Virginia, sitting by designation.

OPINION

BUTZNER, Senior Circuit Judge:

Stuart Circle Hospital Corporation appeals the district court's grant of summary judgment against it and in favor of Aetna Health Management and Aetna Life Insurance Company. See Stuart Circle Hospital Corp. v. Aetna Health Management, 800 F.Supp. 328 (E.D.Va.1992). The Hospital alleges that the district court erred by holding that Virginia Code § 38.2-3407, which prohibits insurance companies from unreasonably discriminating in establishing preferred provider organizations (PPOs), is unenforceable because it is preempted by Section 514(a) of the Employee Retirement Income Security Act of 1974 (ERISA), 29 U.S.C. § 1144(a). We review the district court's decision de novo. Higgins v. E.I. DuPont, 863 F.2d 1162, 1167 (4th Cir.1988). Because we conclude that ERISA's insurance savings clause, 29 U.S.C. § 1144(b)(2)(A), exempts the Virginia statute from the application of ERISA's preemption clause, we vacate the judgment of the district court and remand the case for further proceedings.

I

To establish an insurer's PPO, an insurance company contracts with hospitals, doctors, and other health care providers for reduced charges. The insurer encourages utilization of these providers by its insureds. Although insureds may use providers other than those which participate in the PPO, they generally must pay a higher fee for the service rendered, as well as be reimbursed at a lower rate.

Virginia regulates the selection of an insurance company's preferred providers by Virginia Code § 38.2-3407:

A. One or more insurers may offer or administer a health benefit program under which the insurer or insurers may offer preferred provider policies or contracts that limit the numbers and types of providers of health care services eligible for payment as preferred providers.

B. Any such insurer shall establish terms and conditions that shall be met by a hospital, physician or type of provider listed in § 38.2-3408 in order to qualify for payment as a preferred provider under the policies or contracts. These terms and conditions shall not discriminate unreasonably against or among such health providers. No hospital, physician or type of provider listed in § 38.2-3408 willing to meet the terms and conditions offered to it or him shall be excluded.

* * * * * *

E. For the purposes of this section, "preferred provider policies or contracts" are insurance policies or contracts that specify how services are to be covered when rendered by preferred and nonpreferred classifications of providers.

This section is one of several statutes found in chapter 34 of the Virginia Code, §§ 38.2-3400 to 38.2-3430, relating to accident and sickness insurance.

In early 1987, Aetna established a PPO in Richmond. Aetna markets its PPO only to employee benefit plans. The hospitals which Aetna selected as providers for its PPO were the same hospitals that were already participating in Aetna's health maintenance organization, HMO CHOICE. Aetna did not designate Stuart Circle Hospital to be one of its PPO provider facilities, although Stuart Circle was willing to meet Aetna's terms.

The Hospital brought this action, alleging that Aetna had failed to comply with Va.Code § 38.2-3407 by excluding it from participation in the Aetna PPO. In its defense, Aetna asserted that the Virginia statute is preempted by ERISA. The district court found that the Virginia statute affects employee benefit plans by regulating the structure of an insurer's PPO. 800 F.Supp. at 331-32. It therefore decided that because the Virginia statute relates to employee benefit plans, ERISA preempts the statute unless it is saved from preemption by the insurance clause. 800 F.Supp. at 333. Concluding that the Virginia statute regulated the business of an insurance company, and not the business of insurance, the district court held that ERISA preempted it. 800 F.Supp. at 333-37. The court granted summary judgment for Aetna, and Stuart Circle appealed.

II

Title 29 U.S.C. § 1144(a) provides that ERISA preempts state laws that "relate to any employee benefit plan," unless the laws are exempted. From time to time the Supreme Court has emphasized the breadth of ERISA's preemption provision. See Ingersoll-Rand Co. v. McClendon, 498 U.S. 133, 138-42, 111 S.Ct. 478, 482-84, 112 L.Ed.2d 474 (1990) (citing cases). It has stated that the "relates to" language should be given its broad common-sense meaning so as to displace state laws which even indirectly concern themselves with employee benefits plans. Pointing out that "the key to [ERISA's preemption clause] is found in the words 'relate to,' " the Court reiterated that a state law may be preempted even though it does not address "the specific subjects covered by ERISA." Ingersoll-Rand, 498 U.S. at 138, 111 S.Ct. at 482. The Court has delineated the breadth of the preemption clause by the statement: "A law 'relates to' an employee benefit plan, in the normal sense of the phrase, if it has a connection with or reference to such a plan." Shaw v. Delta Air Lines, Inc., 463 U.S. 85, 96-97, 103 S.Ct. 2890, 2900, 77 L.Ed.2d 490 (1983). It is not surprising, therefore, that the Court has "virtually taken it for granted that state laws which are specifically designed to affect employee benefit plans are preempted...." Mackey v. Lanier Collection Agency, 486 U.S. 825, 829, 108 S.Ct. 2182, 2185, 100 L.Ed.2d 836 (1988) (citations and internal quotation marks omitted).

We agree with the district court that, contrary to the Hospital's contentions, Va.Code § 38.2-3407 relates to employee benefit plans.

The Virginia statute states that it applies to "health benefit program[s]" operated by insurers. Additionally, it has at its core a provision relating to the benefits which an insured may receive from an insurer's PPO. The statute restricts the ability of an insurance company to limit the choice of providers that otherwise would confine the participants of an employee benefit health plan to those preferred by the insurer. To be sure, a participant can select a provider outside the plan, but only at the expense of forfeiting some of his or her benefits. We conclude that 29 U.S.C. § 1144(a) preempts Va.Code § 38.2-3407 unless ERISA's insurance savings clause applies.

III

ERISA's insurance savings clause, 29 U.S.C. § 1144(b)(2)(A), provides that "nothing in this subchapter shall be construed to exempt or relieve any person from any law of any State which regulates insurance...." The effect of the clause is to save state laws governing the business of insurance from preemption that would otherwise occur by application of 29 U.S.C. § 1144(a). The Hospital argues that this savings clause exempts Va.Code § 38.2-3407 from ERISA preemption because the Virginia statute regulates the business of insurance. Aetna contends, and the district court held, that the Virginia statute is not saved from preemption because it regulates the noninsurance business of insurance companies.

In Metropolitan Life Ins. Co. v. Massachusetts, 471 U.S. 724, 105 S.Ct. 2380, 85 L.Ed.2d 728 (1985), the Supreme Court addressed the savings clause in the context of determining whether a state statute which mandated a minimum level of psychological benefits regulated insurance and was thus saved from ERISA preemption. The Court approached its task by employing a two-part analysis. First, the Court took a "common-sense" approach, finding that the statute at issue regulated insurance contracts and thus logically should be encompassed by the "which regulates insurance" language of the savings clause. Metropolitan Life, 471 U.S at 740-41, 105 S.Ct. at 2389. Second, the Court examined the case law which interpreted the phrase "business of insurance" with respect to the McCarran-Ferguson Act, 15 U.S.C. § 1011 et seq. To illustrate that Massachusetts' mandated benefit law was a regulation of the business of insurance and, therefore, not preempted by ERISA, the Court reiterated:

Congress was concerned [in the McCarran-Ferguson Act] with the type of state regulation that centers around the contract of insurance.... The relationship between insurer and insured, the type of policy which could be issued, its reliability, its interpretation, and enforcement--these were the core of the "business of insurance." [T]he focus [of the statutory term] was on the relationship between the insurance company and the policyholder. Statutes aimed at protecting or regulating this relationship, directly or indirectly, are laws regulating the "business of insurance."

Metropolitan Life, 471 U.S. at 743-44, 105 S.Ct. at 2391 (emphasis deleted) (quoting SEC v. National Securities, Inc., 393 U.S. 453, 460, 89 S.Ct. 564, 568, 21 L.Ed.2d 668 (1969)).

The Court also referred to...