Kincade By and Through Linville v. Group Health Services of Oklahoma, Inc.

• Decision Date: 01 July 1997
• Docket Number: No. 87302,87302
• Citation: 945 P.2d 485,1997 OK 88
• Parties: David KINCADE, a minor child, By and Through his mother and next friend, Rebecca LINVILLE, and Rebecca Linville, individually, Appellants, v. GROUP HEALTH SERVICES OF OKLAHOMA, INC., an Oklahoma corporation, d/b/a Blue Cross and Blue Shield of Oklahoma, an Oklahoma corporation, Appellee.
• Court: Oklahoma Supreme Court

Page 485

945 P.2d 485

1997 OK 88

David KINCADE, a minor child, By and Through his mother and next friend, Rebecca LINVILLE, and Rebecca Linville, individually, Appellants, v. GROUP HEALTH SERVICES OF OKLAHOMA, INC., an Oklahoma corporation, d/b/a Blue Cross and Blue Shield of Oklahoma, an Oklahoma corporation, Appellee.

No. 87302.

Supreme Court of Oklahoma.

July 1, 1997.

Rehearing Denied Oct. 7, 1997.

David Little, Jo L. Slama, McCaffrey & Tawwater, Oklahoma City, and Joe E. Lankford, Norman, for Appellants.

Page Dobson, J.R. "Randy" Baker, Holloway Dobson Hudson Bachman Alden Jennings & Holloway, Oklahoma City, for Appellee.

ALMA WILSON, Justice:

¶1 The appellants, David Kincade and his mother, Rebecca Linville, (Kincade) sued the appellee, Group Health Services of Oklahoma, Inc., an Oklahoma corporation, d/b/a Blue Cross and Blue Shield of Oklahoma, an Oklahoma corporation (Blue Cross) for bad faith refusal to pay a valid claim and tortious interference with a physician-patient relationship. Blue Cross moved to dismiss for failure to state a claim upon which relief can be granted. ¹ Concluding that state tort claims are preempted by the Federal Employees Health Benefit Act, (FEHB), ² the district court dismissed Kincade's petition and the Court of Civil Appeals affirmed. The dispositive question is whether the FEHB preempts state-law causes of action. We answer in the negative. We hold that the district court erroneously dismissed Kincade's petition and reverse and remand.

¶2 David Kincade was eleven-and-one-half-years-old and lived with his mother, who was divorced from his father. Almost immediately following the divorce of his parents, Kincade began showing signs of stress, depression and compulsive behaviors. Kincade's mother sought an evaluation and possible treatment at a psychiatric hospital. A board-certified psychiatrist diagnosed Kincade as suffering from an excessive compulsive disorder and recommended in-patient treatment. Kincade was covered by his father's federal employees' health insurance. The coverage and benefits of Kincade's federal health insurance had been contracted between the United States Office of Personnel Management (OPM) and Blue Cross and selected by his father, pursuant to the FEHB. Kincade was admitted to the psychiatric hospital and a claim was submitted to Blue Cross for hospitalization authorization and Blue Cross denied the claim. The psychiatrist, who diagnosed Kincade, wrote a letter asking Blue Cross to reconsider, emphasizing the medical necessity of the hospitalization. Blue Cross again denied the claim, stating it would pay the insurer's share of out-patient treatment. Because neither parent could afford the cost of in-patient treatment, Kincade was discharged from the hospital.

¶3 After one and one-half weeks in an out-patient program, Kincade's condition worsened dramatically. His behavior became suicidal and self-destructive, in that he slit his wrists, scraped the skin off his thigh, and stabbed himself with sharp objects. He was readmitted to the hospital and again authorization for the hospitalization was sought. Blue Cross again denied authorization. The psychiatrist again wrote a letter asking Blue Cross to reconsider, but Blue Cross again denied the claim on the basis of no medical necessity. Kincade was treated at the hospital, as an in-patient for approximately six weeks, which was apparently subsidized by the state, and Blue Cross terminated its contract with Kincade's psychiatrist.

¶4 Kincade's mother filed this suit alleging Blue Cross breached its duty of good faith in its dealings with its insured and wrongfully interfered with the physician-patient relationship. Blue Cross filed motions to dismiss Kincade's claims for relief, to hold the proceedings in abeyance pending exhaustion of administrative remedies, and to grant summary judgment regarding the issue of defendants' liability for bad faith denial of benefits. The district court dismissed the suit with prejudice, without addressing Blue Cross' motion to hold the proceedings in abeyance pending exhaustion of administrative remedies or its motion for summary judgment.

¶5 The district court found that Kincade's tort claims "relate to a health benefit plan" governed by FEHB and concluded that 5 U.S.C. § 8902(m)(1) of FEHB preempts state-law causes of action. The Court of Civil Appeals concluded that Kincade's tort claims are inseparable from the terms of the FEHB contract and that Congress' mandated uniformity of benefits and cost containment, under the FEHB, can be effective only if state-law causes of action are preempted. In affirming the district court's dismissal, the Court of Civil Appeals specifically refused to follow Howard v. Group Hospital Service, 739 F.2d 1508 (10th Cir.1984), wherein the United States Court of Appeals for the Tenth Circuit determined that denial of an individual claim for benefits based on lack of medical necessity is a private controversy even though the rights are created by federal contract pursuant to the FEHB and the federal district courts have no federal question jurisdiction over the private controversy. We previously granted certiorari to review the unsettled question of federal law.

¶6 At issue is the express preemption in 5 U.S.C. § 8902(m)(1). The fundamental question is what is the scope of the preemption expressed in § 8902(m)(1). The United States Supreme Court has enunciated the principles that guide our interpretation of an express statutory preemption. ³ First are the presumptions "that Congress does not cavalierly preempt state-law causes of action" and that state power is not superseded "unless that was the clear and manifest purpose of Congress." ⁴ Second is the cardinal rule that " '[t]he purpose of Congress is the ultimate touchstone' in every preemption case." ⁵ Congressional purpose and intent is to be discerned from the statutory language and its legislative history, and the statutory framework and surrounding regulatory scheme. ⁶

¶7 We begin with the statutory language of 5 U.S.C. § 8902(m)(1), which, on its face, clearly expresses a limited preemption. Title 5 U.S.C. § 8902(m)(1) reads:

The provisions of any contract under this chapter which relate to the nature or extent of coverage or benefits (including payments with respect to benefits) shall supersede and preempt any State or local law, or any regulation issued thereunder, which relates to health insurance or plans to the extent that such law or regulation is inconsistent with such contractual provisions.

¶8 This preemption language was not in the original Federal Employees' Health Benefits Act of 1959, codified in chapter 89 of title 5, United States Code, which established the FEHB program to provide health insurance coverage for federal employees and annuitants and their dependents. The FEHB sets forth basic health insurance plan and benefits requirements; ⁷ authorizes the OPM ⁸ to negotiate insurance contracts with the various FEHB carriers; ⁹ requires the FEHB carriers to provide the same benefits for the same premium for all enrollees in a particular insurance plan and establish cost-saving measures; ¹⁰ and provides for government contributions. ¹¹ The FEHB contracts detail the coverage and benefits to be provided by the various plans and the premium costs.

¶9 In 1978, Congress added the preemption language to the FEHB. ¹² The congressional report issued less than a month before its enactment indicates that Congress purposely limited the preemption so as to clarify the federal government's authority to regulate implementation of the FEHB, while withholding from the federal government the authority to otherwise regulate the application of state insurance law. ¹³

The congressional report recognized that state requirements on health insurance conflicted with the contracts of the FEHB carriers ¹⁴ and that the states were actively establishing and enforcing health insurance requirements. ¹⁵ The Comptroller General recommended that Congress consider legislation to clarify the applicability of state insurance requirements to FEHB contracts, ¹⁶ although the Civil Service Commission had taken the position that the FEHB implicitly preempts conflicting state law. In commenting on the proposed subsection (m) to be added to § 8902, the Civil Service Commission acknowledged that the proposed statutory preemption was more limited than the position it had taken on preemption, but recommended its adoption because it would be an immediate and permanent solution to maintaining uniformity of benefits to all enrollees. ¹⁷

¶10 The preemption statute provides that FEHB contract provisions "which relate to the nature or extent of coverage or benefits" shall preempt any inconsistent state law. Blue Cross contends that this language was intended to preempt all state-law causes of action, however as noted earlier, the legislative history reveals otherwise. We think Congress intended to limit the preemption to the problem at hand--uniformity in the services covered in any one plan. The problem addressed by Congress--the purpose of the preemption--was the inconsistent state-law requirements that destroyed, from state to state, the uniformity in services covered under the FEHB contracts, such as requiring recognition of certain practitioners not covered by the FEHB contracts. We find nothing in the language of the preemption statute, nor in its most recent legislative history, that reveals an intent to preempt state-law causes of action that may arise in the performance of a health insurance plan contracted under the FEHB. ¹⁸ That is, neither the statute nor its history show that the preemption of state-law causes of action was a "clear and manifest purpose of Congress" in enacting § 8902(m)(1). Accordingly, we reject Blue Cross' argument that state-law causes of action against FEHB carriers are necessarily enveloped in the phrase "relate to the nature and extent of coverage or...