Corporate Health Ins. v. Texas Dept. Ins.

• Decision Date: 20 June 2000
• Docket Number: No. 98-20940,98-20940
• Citation: 215 F.3d 526
• Parties: (5th Cir. 2000) CORPORATE HEALTH INSURANCE, INC.; AETNA HEALTH PLANS OF TEXAS, INC.; AETNA HEALTH PLANS OF NORTH TEXAS, INC.; AETNA LIFE INSURANCE COMPANY, Plaintiffs - Appellees - Cross-Appellants, v. THE TEXAS DEPARTMENT OF INSURANCE, Defendant - Cross-Appellee, JOSE MONTEMAYOR, Commissioner of the Texas Department of Insurance; JOHN CORNYN, Attorney General, State of Texas, Defendants - Appellants - Cross-Appellees
• Court: U.S. Court of Appeals — Fifth Circuit

Page 526

215 F.3d 526 (5th Cir. 2000)

CORPORATE HEALTH INSURANCE, INC.; AETNA HEALTH PLANS OF TEXAS, INC.; AETNA HEALTH PLANS OF NORTH TEXAS, INC.; AETNA LIFE INSURANCE COMPANY, Plaintiffs - Appellees - Cross-Appellants, v. THE TEXAS DEPARTMENT OF INSURANCE, Defendant - Cross-Appellee, JOSE MONTEMAYOR, Commissioner of the Texas Department of Insurance; JOHN CORNYN, Attorney General, State of Texas, Defendants - Appellants - Cross-Appellees.

No. 98-20940

IN THE UNITED STATES COURT OF APPEALS FOR THE FIFTH CIRCUIT

June 20, 2000

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Appeal from the United States District Court For the Southern District of Texas

Before HIGGINBOTHAM and PARKER, Circuit Judges, and ATLAS, District Judge.^*

HIGGINBOTHAM, Circuit Judge:

Large changes in the delivery systems for medical services, including the growth of health maintenance organizations ("HMOs") and managed care organizations ("MCOs"), came as rapid responses to rising costs for medical services and to the growth of medical expense reimbursement for employees. These new entities injected an intermediary between doctor and patient in setting medical care charges and making payments; at the same time, the insurance industry began to offer administrative services to employers and to contract with doctors for services at set rates. Billions of dollars now flow through these structures, generating equally large difficulties of governance and daily tensions between quality and quantity.

Through much of this period, the preemptive reach of ERISA made regulation of this market largely a federal enterprise, shared with the states at its juncture points with insurance. Today we decide questions regarding the ability of the State of Texas to regulate the quality of health services when such efforts impose a duty of care upon service providers to ERISA plans.

I

This suit is a preemption challenge to Texas's Senate Bill 386.¹ Through that legislation, Texas asserted its police power to protect its citizens in regulating the new field of managed health care in three ways. First, it created a statutory cause of action against managed care entities that fail to meet an ordinary care standard for health care treatment decisions (the "liability" provisions). Second, it established procedures for the independent review of health care determinations to decide whether they were appropriate and medically necessary (the "independent review" provisions). Finally, it protected physicians from HMO-imposed indemnity clauses and from retaliation by HMOs for advocating medically necessary care for their patients.

The plaintiffs, Corporate Health Insurance, Inc., Aetna Health Plans of Texas, Inc., Aetna Plans of North Texas, Inc. and Aetna Life Insurance Company,² are not ERISA plans. Aetna Health Plans of Texas is an HMO licensed by the State of Texas that contracts with more than 2,900 independent health care providers and 39 hospitals. Aetna Life Insurance Company sells various health insurance products to employers, including programs available through a preferred provider organization. In Texas, nearly one million individuals participate in a managed care program of Aetna or one of its affiliated entities.

Senate Bill 386 became effective on May 22, 1997. Aetna promptly filed suit in the United States District Court, claiming that the Act was preempted by ERISA's general preemption clause, section 514, which preempts "any and all state laws insofar as they . . . relate to any employee benefit plan"³ and by the Federal Employees Health Benefit Act ("FEHBA").⁴ The plaintiffs named as defendants John Cornyn, the Attorney General of Texas, Jose Montemayor, Commissioner of the Texas Department of Insurance, and the Department of Insurance itself. The Commissioner remains a party, but the Department of Insurance has been dismissed.⁵

The parties filed cross-motions for summary judgment, which the district court granted in part and denied in part. The district court found no FEHBA or ERISA preemption of the liability provisions of Senate Bill 386 but found that ERISA preempted the anti-retaliation, anti-indemnification, and independent review provisions of the legislation. Both Aetna and Texas appeal.

II

Texas argues that Aetna lacks standing to challenge the Act's new standards for liability. Texas contends that Aetna has not suffered the requisite injury under Article III because Aetna has thus far been exposed to a duty of care and will have standing only if it defends a private suit for the breach of that duty. Texas concedes that Aetna has standing to challenge the other provisions given the Commissioner's oversight authority.

Aetna replies that it has standing because the liability provisions expose it not only to private suits but also to the regulatory reach of the Attorney General. We agree. This is not a case in which private suits are the only means of enforcing a challenged statutory standard. The Attorney General can pursue Aetna through an action under the Texas Deceptive Trade Practices Act and the Insurance Code.⁶ This regulatory oversight is sufficient to create the requisite imminent injury for standing.

III

We have repeatedly struggled with the open-ended character of the preemption provisions of ERISA and FEHBA.⁷ We faithfully followed the Supreme Court's broad reading of "relate to" preemption under § 502(a) in its opinions decided during the first twenty years after ERISA's enactment. Since then, in a trilogy⁸ of cases, the Court has confronted the reality that if "relate to" is taken to the furthest stretch of its indeterminacy, preemption will never run its course, for "really, universally, relations stop nowhere."⁹ Justice Souter, speaking for a unanimous court in Travelers, acknowledged that "our prior attempt to construe the phrase 'relate to' does not give us much help drawing the line here." Rather, the Court determined that it "must go beyond the unhelpful text . . . and look instead to the objectives of the ERISA statute as a guide to the scope of the state law that Congress understood would survive."¹⁰

In Travelers, a New York statute required hospitals to collect surcharges from patients insured by a commercial carrier but not from certain HMOs. The plain purpose of the surcharge was to encourage the HMOs to provide open enrollment coverage. The Second Circuit found that the surcharges "related to" ERISA plans because they imposed economic burdens with an impermissible impact on plan administration and structure. In rejecting the Second Circuit's approach, and in shifting its own approach, the Court observed that such indirect economic influences "d[id] not bind plan administrators to any particular choice," but rather affected the costs of benefits and the "relative costs of competing insurance to provide them."¹¹ The Court grounded the "relate to" clause in the complex realities of the market for medical services.

Dillingham, the second of the trilogy, came two terms later.

The case challenged a California law which required public works contractors to pay a prevailing wage but allowed lower wages to be paid in qualified apprenticeship programs. A unanimous Court found the law not preempted, holding that regulation of the underlying industry of which the employers were members does not require preemption. The Court began with the "assumption that the historic police powers of the States were not to be superseded by the Federal Act unless that was the clear and manifest purpose of Congress."¹² Justice Scalia, in a concurring opinion joined by Justice Ginsburg, urged the Court to acknowledge directly that it had returned to traditional preemption analysis and that "relate to" states no special test but rather identifies the field in which ordinary field preemption applies.¹³

Four months later, the Court handed down De Buono, upholding New York's tax on gross receipts for patient services at health care facilities. The Court again rejected the theory that the effects of even a direct tax on an ERISA plan required a finding of preemption. The Court was persuaded that the tax was not the type of state law that Congress intended ERISA to preempt.¹⁴

In each of these three cases, the Court was returning to a traditional analysis of preemption, asking if a state regulation frustrated the federal interest in uniformity.¹⁵ This analysis is similar to the Court's approach in determining whether state law is preempted by federal common law¹⁶ - even there, where the conflict between federal policy and state law need not be as sharp as for preemption when Congress legislates in a field that the states have traditionally occupied, the Court has insisted on a significant conflict with an "identifiable federal policy or interest."¹⁷ And significantly for our case, this return has included the observation that a broader reading of "relates to" would sweep away common state action with indirect economic effects on the costs of health care plans, such as quality standards which may vary from state to state.

IV

This brings us to the merits of the claim that Senate Bill 386 is preempted. We turn first to its liability provisions. In Section 88.002, the bill provides:

A health insurance carrier, health maintenance organization, or other managed care entity for a health care plan has the duty to exercise ordinary care when making health care treatment decisions and is liable for damages for harm to an insured or enrollee proximately caused by its failure to exercise such ordinary care.¹⁸

The statute gives "health care treatment decision" a defined meaning:

[A] determination made when medical services are actually provided by the health care plan and a decision which affects the quality of the diagnosis, care, or treatment provided to the plan's insureds or enrollees.¹⁹

The Act also defines the agents for whose health care decisions the entities can be vicariously liable.²⁰ Fur...