Community Health Partners v. Commonwealth of Ky.

• Decision Date: 02 June 1998
• Docket Number: No. CIV.A. 1:96-CV-202-M.,CIV.A. 1:96-CV-202-M.
• Parties: COMMUNITY HEALTH PARTNERS, INC. and Reservoir Park Health Services, Inc. d/b/a Center Care Plaintiffs v. COMMONWEALTH OF KENTUCKY, ex rel. George NICHOLS III, Commissioner of Insurance Defendant
• Court: U.S. District Court — Western District of Kentucky

14 F.Supp.2d 991

COMMUNITY HEALTH PARTNERS, INC. and Reservoir Park Health Services, Inc. d/b/a Center Care Plaintiffs v. COMMONWEALTH OF KENTUCKY, ex rel. George NICHOLS III, Commissioner of Insurance Defendant

No. CIV.A. 1:96-CV-202-M.

United States District Court, W.D. Kentucky, Bowling Green Division.

June 2, 1998.

COPYRIGHT MATERIAL OMITTED

Shaun T. Orme, Julie Mix McPeak, Kentucky Dept. of Insurance, Frankfort, KY, for Commonwealth of Kentucky, George Nichols, Commissioner of Insurance.

Quinten B. Marquette, Bell, Orr, Ayres & Moore, Murry A. Raines, English, Lucas, Priest & Owsley, Bowling Green, KY, Daniel M. Mulholland, III, Harty, Springer & Matern, Pittsburgh, PA, for Community Health Partners, Inc., Reservoir Park Health Services, Inc. d/b/a Center Care.

MEMORANDUM OPINION AND ORDER

McKINLEY, District Judge.

This matter is before the Court on Cross-Motions for Summary Judgment by Plaintiffs, Community Health Partners, Inc. [hereinafter "Community Health"] and Reservoir Park Health Services, Inc. d/b/a Center Care [hereinafter "Center Care"], and Defendant, Commonwealth of Kentucky, ex rel. George Nichols III, Commissioner of Insurance [hereinafter "Defendant"]. [DN32] [DN33] Plaintiffs seek declaratory and injunctive relief based on allegations that Kentucky's "Any Willing Provider" law, KRS 304.17A-110(3), is pre-empted by the Employee Retirement Income Security Act, 29 U.S.C. §§ 1001, et seq. [hereinafter "ERISA"]. The Court's jurisdiction over this matter is based on federal question pursuant to 28 U.S.C. § 1331.

I. STATEMENT OF FACTS

Plaintiffs, Community Health and Center Care, are networks of select health care providers — physicians, hospitals and others — which contract to provide health care services to beneficiaries of health care plans, either directly or through insurance companies and health maintenance organizations [hereinafter "HMOs"].¹ Community Health and Center Care contract with health care providers to participate in their networks.² Providers agree to provide health care services at predetermined rates, which the providers are usually willing to discount in return for the guarantee of a high volume of patients. Plaintiffs then market their provider networks to consumers — either directly or through employers, insurance companies, HMOs and other groups — and offer consumers economic incentives to patronize their network providers.

Enacted in 1994 as part of a comprehensive legislative effort to reform the state's health care industry, Kentucky's "Any Willing Provider" [hereinafter "AWP"] law states that

[h]ealth care benefit plans shall not discriminate against any provider who is located within the geographic coverage area of the health benefit plan and is willing to meet the terms and conditions for participation established by the health benefit plan.

KRS 304.17A-110(3). As used in the statute, the term "health benefit plan" means

any hospital or medical expense policy or certificate; nonprofit hospital, medical-surgical, and health service corporation contract or certificate; a health benefit plan offered by a provider-sponsored integrated delivery network; a self-insured plan or a plan provided by a multiple employer welfare arrangement, to the extent permitted by ERISA; health maintenance organization contract; and standard and supplemental health benefit plan as established in KRS 304.17A-160.

KRS 304.17A-100(4)(a).

At the time of the AWP statute's enactment, Center Care had an exclusive agreement with an affiliate of CHA HMO, Inc. [hereinafter "CHA"] for the provision of health care providers for certain CHA products. CHA is a licensed Kentucky HMO. During the fall of 1996, Community Health attempted to negotiate an exclusive agreement with CHA for provision of a different managed care product. Community Health was unable to solidify an agreement with CHA after Defendant determined that the CHA/Community Health agreement would violate the AWP law. Defendant maintained that the CHA/Community Health agreement would violate the AWP statute by preventing an excluded provider, who was otherwise willing to accept the terms and conditions of the CHA/Community Health agreement, from providing services to CHA enrollees.

In response, Plaintiffs filed the present action. Plaintiffs maintain that Kentucky's "Any Willing Provider" law threatens their existence by effectively preventing them from contracting with any entity mentioned in KRS 304.17A-100(4) for the provision of selective provider services. Plaintiffs ask the Court to find the AWP preempted by ERISA and to enjoin Defendant from enforcing the statute.

II. STANDARD OF REVIEW

In order to grant a motion for summary judgment, the court must find that the pleadings, together with the depositions, interrogatories and affidavits, establish that there is no genuine issue of material fact and that the moving party is entitled to judgment as a matter of law. Fed.R.Civ.P. 56. The moving party bears the initial burden of specifying the basis for its motion and of identifying that portion of the record which demonstrates the absence of a genuine issue of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). Once the moving party satisfies this burden, the non-moving party thereafter must produce specific facts demonstrating a genuine issue of fact for trial. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-48, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). Since the Parties do not dispute the material facts in this case, summary judgment is an appropriate means of resolving the legal issues underlying this dispute.

III.

Enacted in 1974, ERISA is a comprehensive statute which subjects employee benefit plans, including pension and welfare plans, to federal regulation. Shaw v. Delta Air Lines, Inc., 463 U.S. 85, 90, 103 S.Ct. 2890, 77 L.Ed.2d 490 (1983). Welfare benefit plans include programs providing benefits to employees for "medical, surgical, or hospital care or benefits, or benefits in the event of sickness, accident, disability [or] death," whether these benefits are provided "through the purchase of insurance or otherwise." 29 U.S.C. § 1002(1); see also New York State Conference of Blue Cross & Blue Shield Plans v. Travelers Ins. Co., 514 U.S. 645, 651, 115 S.Ct. 1671, 131 L.Ed.2d 695 (1995). Thus, ERISA applies both to self-insured employee health benefit plans as well as to plans that purchase health insurance for their participants.

Initially, Defendant challenges whether Plaintiffs have standing to bring the present action. Having rejected this argument in a previous Order, the Court finds no need to further address the standing issue.

A. ERISA Preemption Principles

ERISA supersedes any and all State laws insofar as they "relate to" an employee benefit plan. 29 U.S.C. § 1144(a). However, Congress imposed a limit on ERISA preemption by including a "saving" clause in the Act's provisions. The saving clause exempts from preemption "any law of any State which regulates insurance." 29 U.S.C § 1144(b)(2)(A). Therefore, the Court must first determine whether the AWP law is preempted by ERISA because the law "relates to" an employee benefit plan. If the AWP law "relates to" an employee benefit plan within the meaning of ERISA, the Court must next ascertain whether the law is "saved" from preemption as a law which regulates insurance.

1. "Relates To" Analysis

As previously mentioned, ERISA preempts any and all State laws that "relate to" an employee benefit plan. The Supreme Court has explained that a state law "relates to" an employee benefit plan for purposes of ERISA "if it has a connection with or reference to such a plan." Shaw, 463 U.S. at 97, 103 S.Ct. 2890.

a. "Reference to" an ERISA Plan

It is undisputed that the Kentucky statute makes an express reference to ERISA plans. Plaintiffs argue that this reference, in itself, is sufficient to trigger preemption. To support this argument, Plaintiffs rely on District of Columbia v. Greater Washington Bd. of Trade, 506 U.S. 125, 129, 113 S.Ct. 580, 121 L.Ed.2d 513 (1992). In Greater Washington Bd. of Trade, the Supreme Court considered whether ERISA preempted a state workers compensation law which provided that

[a]ny employer who provides health insurance coverage for an employee shall provide health insurance coverage equivalent to the existing health insurance coverage of the employee while the employee receives or is eligible to receive workers' compensation benefits under this chapter.

Id. at 128, 113 S.Ct. 580. Plaintiffs emphasize the statement in Greater Washington Bd. of Trade that the statute "specifically refers to welfare benefit plans regulated by ERISA and on that basis alone is pre-empted." Id. at 130, 113 S.Ct. 580.

Plaintiffs also argue that the AWP statute "refers to" employee benefit plans because it directly regulates self-insured insurance plans. Plaintiffs point out that, by its terms, the Kentucky statute applies to "self-insured or multiple employee welfare arrangements, to the extent permitted by ERISA." Plaintiffs reason that since ERISA allows for limited state regulation of multiple employee welfare arrangements³ [hereinafter "MEWAs"] but not self-insured ERISA plans, the Kentucky legislature meant the phrase "to the extent permitted by ERISA" to apply only to MEWAs. Therefore, Plaintiffs' argument continues, the AWP statute specifically "refers to" ERISA plans because it explicitly subjects self-insured ERISA plans to its provisions.

Although Kentucky's AWP law does explicitly mention self-insured employee benefit plans and MEWAs,⁴ the Court rejects that mere reference alone is sufficient to trigger preemption. First, the Sixth Circuit specifically rejected this proposition in Thiokol Corp. v. Roberts, 76 F.3d 751, 759 (6th Cir. 1996) (holding that mere reference is not enough to trigger preemption; rather, law must clearly have a significant effect on employee benefit plans), cert....