I. Introduction: A New Day in HMO Liability
Texas recently became the first state in the nation to adopt legislation creating liability for negligence in health care decisions made by health care providers.' On September 1, 1997, Senate Bill 386 (SB 386) became effective, amending Title 4 of the Civil Practice and Remedies Code by adding Chapter 88.2 The purpose of the legislation was to make health care providers responsible for any medical decisions they may make.3 At least twenty states are in the process of enacting similar laws, and state legislatures are increasingly beginning to consider the issue.4 The merits of consideration and adoption of this type of legislation has generated an enormous debate in the media.5
This Note considers the validity of Texas Senate Bill 386 in light of the broad preemption of state law malpractice claims under the Employee Retirement Income Security Act of 1974 (ERISA). Part II examines the ERISA statute and the development of the broad preemption doctrine. Part III highlights the recent Supreme Court decision in New York State Conference of Blue Cross and Blue Shield Plans v. Travelers Insurance Group, which added several significant considerations to the preemption doctrine. Finally, Part IV discusses SB 386 under the current federal law, and provides analysis on the likelihood that the legislation will survive judicial scrutiny.
II. ERISA: The Dawn of a New Era in Regulation of Employee Benefit Plans
ERISA was enacted in 1974 in response to the rapid "growth in size, scope, and numbers of employee benefit plans. "6 The legislation was enacted to provide for regulation of employers' health, medical, and pension-related services to their employees throughout the United States.7 The purpose of ERISA was to protect interstate commerce and the interests of participants in employee benefit plans and their beneficiaries, by requiring the disclosure and reporting to participants and beneficiaries of financial and other information with respect thereto, by establishing standards of conduct, responsibility, and obligation for fiduciaries of employee benefit plans, and by providing for appropriate remedies, sanctions, and ready access to the Federal Courts.8
Another principal reason for the enactment of ERISA was to establish uniform standards regarding the administration of benefit plans and the communication of information regarding the benefit plans to concerned employees.9 To effectuate the uniformity of regulation, Congress included a broad preemption clause to supersede state laws.10
To further the goals of the statute, section 1132(a) provides for civil remedies in the event of a statutory violation of ERISA.II Outside of the listed remedies, however, no other actions against an ERISA plan may be maintained.l2 Common law state malpractice claims are not among those actions allowed by the statute.13 While the statute does provide for ready access to the federal courts, extra-contractual damages are limited under ERISA.14 So, plaintiffs face two insurmountable barriers when asserting a state common law claim that involves an employee benefit or welfare plan. First, the federal preemption will most likely render their state cause of action moot. Second, even if the plaintiff can establish a violation of the ERISA statute, the recovery of damages will be limited to the amount of premiums paid into the plan,15 an amount substantially less than the generous tort law of most states for medical malpractice.
III. ERISA Preempts State Laws that "Relate to" ERISA Plans
The preemption provision of ERISA, commonly referred to as 514(a), has three basic sections. The first section, which is the focus of this Note, is the actual preemption clause that supersedes state laws that "relate to" a qualified ERISA plan.l6 Specifically, the statute states that "[t]he provisions of this subchapter. . . shall supersede any and all State laws insofar as they may now or hereafter relate to any employee benefit plan."? When a plaintiff asserts a cause of action under state law that involves an employee benefit plan, the court should consider ERISA. Under the statute, an employee benefit plan means "an employee welfare benefit plan or an employee pension benefit plan or a plan which is both .. ."ls A welfare benefit plan is further defined as
any plan, fund or program which was. . .established or maintained by an employer or by an employee organization, or by both, to the extent that such plan, fund or program was established or is maintained for the purpose of providing for its participants or their beneficiaries. . .medical, surgical or hospital care or benefits, or benefits in the event of sickness, accident, disability, death or unemployment . 19
ERISA further defines state laws to include "all laws, decisions, rules, regulations or other state action having the effect of law, of any State."20
The second section of the preemption provision is commonly referred to as the "savings clause." Under the savings clause, state laws that regulate insurance are exempt from preemption.21 The third section of the preemption provision is known as the "deemer clause." Under the deemer clause, a self-insured employee benefit plan cannot be deemed insurance so as to fall within the purview of the savings clause.22 Therefore, state laws may not regulate ERISA plans that are self-insured. Despite the apparent clarity of the statutory language, there have been substantial difficulties in interpreting which laws relate to an employee benefit plan.
A. The Expansive Definition of "Relate to" as Interpreted by the Supreme Court The Supreme Court first addressed the "relate to" language of the ERISA statute in Alessi v. Raybestos Manhattan, Inc.23 The case concerned employee pension plans subject to federal regulation under ERISA providing that an employee's retirement benefits shall be reduced, or offset, by an amount equal to any workers' compensation awards for which the individual was eligible.24 The plans, as maintained by Raybestos-Manhattan and General Motors, the defendants in the action, conflicted directly with the New Jersey Worker's Compensation Act (NJWCA), which stated that "[t]he right of compensation granted by this chapter may be set off against disability pension benefits or payments but shall not be set off against employees' retirement pension benefits or payments."25 The plaintiffs each brought suit challenging their respective pension plans under the NJWCA.
The Supreme Court faced the issue whether the New Jersey statute was preempted under ERISA. Justice Marshall began the preemption analysis by addressing 29 U.S.C. 1144(a), noting that Congress "meant to establish pension plan regulation as exclusively a federal concern. "26 The Court stated that the "relate to" language gave rise to confusion in situations such as the one at hand because there was an assertion that the "state law ostensibly regulated a matter quite different from pension plans. "27 However, the Court reasoned that the NJWCA related to pension plans because it eliminated one method for calculating pension benefits specifically articulated under ERISA.28 The opinion in Alessi thus clarified the "relate to" language by making it clear that "even indirect state action bearing on private pensions may encroach upon the area of exclusive federal concern. "29 ERISA was interpreted broadly to prevent the states from avoiding the preemptive provision by clever statutory drafting.30
The Court continued this expansive interpretation of the "relate to" language in 514(a) in Shaw v. Delta Air Lines, Inc. 31 The case concerned the viability of the New York Human Rights Law, which forbade discrimination in employment on the basis of pregnancy, including discrimination in employee benefit plans.32 In addition, the case also addressed the state's Disability Benefits Law, which required employers to pay sick leave benefits to employees unable to work because of pregnancy or other nonoccupational disabilities.33 Justice Blackmun began the preemption analysis for the Court by attempting to determine the legislative intent behind the laws,34 focusing on whether they related to employee benefits under sec. 514(a) and whether any ERISA exception prevents their preemption.35
The Court concluded that both laws related to employee benefit plans.36 According to the decision, 514(a)'s language indicates its broad application.37 Any law relates to an employee benefit plan if it has a connection or reference to that plan.38 The Court cited the Congressional intent to use the words "relate to" in a broad sense, and that to do otherwise would ignore the remainder of 514(a).39 The extent of the holding, however, was limited to the express terminology of ERISA. The Court ultimately held that
New York's Human Rights Law is preempted with respect to ERISA benefit plans only insofar as it prohibits practices that are lawful under federal law .... We further hold that the Disability Benefits Law is not preempted by ERISA, although New York may not enforce its provisions through regulation of ERISA-covered benefit plans.'
The expansive framework in Shaw has been the basis for most of the Supreme Court's decisions interpreting the "relate to" language of 514(a).
In Metropolitan Life Insurance Co. v. Massachusetts,41 the Court further articulated the Shaw standard. The state statute in question required that "minimum mental-health-care benefits be provided a Massachusetts resident who is insured under . . . an employee healthcare plan that covers hospital and surgical expenses."42 Massachusetts argued that under the insurance saving clause the law was saved from the preemption provision of ERISA.43 Justice Blackmun, writing for the majority, relied on the broad scope of the preemption clause as articulated in Shaw, and the indirect effect of state action bearing on private pensions encroaching upon federal concerns under Alessi, to find that 47B of the Massachusetts law related to welfare plans covered by ERISA.44 The Court held that "[t]hough 47B is not denominated a benefit-plan law, it bears indirectly but substantially on all insured benefit plans, for it requires them to purchase the mental-health benefits specified in the statute when they purchase a certain kind of common insurance policy. "45 Relying upon the plain language of the saving clause, its relationship to the other ERISA preemption provisions, and the traditional understanding of insurance regulation, the Court concluded "that mandated-benefit laws such as 47B are saved from preemption by the operation of the saving clause."46
A unanimous Court in Pilot Life Insurance Co. v. Dedeaux? first addressed whether an action under state common law related to an ERISA-regulated benefit plan.48 The case presented the question whether ERISA preempts state tort and contracts lawsuits by plaintiffs who allege that claims under their employee benefit plans were improperly handled.49 The Court stated that there was no dispute that the common law causes of action raised in this case related to an employee benefit plan and therefore fell under the purview of the preemption clause of ERISA.50 The Court thus addressed whether these causes of action fell under an exception to preemption, namely the saving clause.51 Justice O'Connor distinguished Metropolitan Life by employing a common-sense view of the term "regulates insurance. "52 Under this framework, the Court stated that "in order to regulate insurance, a law must not just have an impact on the insurance industry, but must be specifically directed toward that industry. "53 The Court also considered the legislative intent behind the saving clause as a whole.54 The Court ultimately held that the common law suit asserting improper processing of a claim was not saved by sec.514(b)(2)(A), and was therefore preempted by 514(a).55 While the decision added little to the preemption analysis, it was a demonstrable signal that the Court would adhere to an expansive interpretation of the "relate to" language.
B. An Attack on the Expansive Interpretation of "Relate to": A Minor Retreat
The Court retreated somewhat from the expansive interpretation of "relate to" in Fort Halifax Packing Company, Inc. v. Coyne,56 decided just two months after Pilot Life. In Fort Halifax, one of the issues was whether ERISA preempted a Maine law requiring employers to make a one-time severance payment in the event of a plant closure.57 The Court held that the statute was not preempted because it "neither established, nor required an employer to maintain, an employee welfare benefit 'plan' under ERISA."58
The Court first stated that ERISA's preemption provision did not refer to state laws that regulated "employee benefits," but to state laws relating to "employee benefit plans."59 Case law did not support the appellant's position that the word "plan" should be read out of the statute. Next, the Court stated that "preemption of the Maine statute [did] not further the underlying purpose of ERISA preemption," by providing uniform administration of employee benefit plans.bl The Maine statute thus failed to implicate the regulatory concerns of ERISA and its preemption provision.62 More specifically, "the focus of the statute was on the administrative integrity of benefit plans-which presumed that some type of administrative activity was taking place."63 In this particular instance, a one-time severance payment under the Maine statute would not require administrative activity, and hence did not involve the regulatory concern of ERISA.
In a sharp dissent, Justice White criticized the majority's analysis by arguing that the opinion created "a loophole in ERISA's preemption statute. The Court's rule requiring an established `administrative scheme' as a prerequisite for ERISA preemption will allow States to effectively dictate a wide array of employee benefits that must be provided by employers by simply characterizing them as `non-administrative.'"64 Relying upon the Shaw analysis of "relate to," the dissent argued that the "Maine statute clearly creates an employee benefit plan, and having created an ERISA plan, the statute plainly `relates to' such a plan."6 The dissent also criticized the majority's reliance upon the "extent to which an employer exercised administrative foresight in preparing for the eventual payment of employee benefits. "66
C. Returning to the Broad Horizon of the "Relate to" Interpretation The Court once again returned to the expansive reading of "relate to" in FMC Corp. v. Holliday.67 In that case, the Court found that a state anti-subrogation statute that precluded reimbursement from a claimant's tort recovery for benefit payments by a program, group contract, or other arrangement related to an employee benefit plan within the meaning of ERISA's preemption provision because it had both a connection with and a reference to such a plan.68 The statute had a connection to an employee welfare plan because it would risk subjecting plan administrators to conflicting state regulations. Moreover, there was explicit reference to an employee welfare plan because the anti-subrogation law included "benefits payable by a hospital plan corporation or professional health service corporation. "69 This return to the expansive reading under the Shaw standard signaled that the Court would be interpreting the section's preemptive scope "as broad as its language."? This trend would continue largely untouched until the Court's recent decision in New York State Conference of Blue Cross & Blue Shield Plans v. Travelers Insurance Co.1
D. The Supreme Court Narrows Preemption in Blue Cross & Blue Shield Plans v. Travelers Insurance Co.
The state statute addressed in the Travelers decision required "hospitals to collect surcharges from patients covered by a commercial insurer but not from patients insured by a Blue Cross/Blue Shield plan," and it subjected "certain health maintenance organizations (HMOs) to surcharges .... In determining whether the New York statute related to an employee benefit plan, the Court began the preemption analysis by examining the Congressional intent behind ERISA through the text of that provision, and the structure and purpose of the Act.73 The Court explained the Shaw standard by stating that "a law `relates to' an employee benefit plan if it has a `connection with' or `reference to' such a plan."74 In this case, the latter alternative was ruled out because the surcharges under the New York law were imposed upon patients and HMOs regardless of whether their membership was predicated upon the existence of an employee benefit plan.75 As such, the Court held that the surcharge statutes did not make "reference to" ERISA plans in any manner.76 Until this point in the decision, the Court had not deviated from the Shaw standard as interpreted by subsequent decisions. With respect to the "connection with" analysis, however, the Court changed the course of substantive analysis underlying the Shaw standard of ERISA preemption determinations.
Writing for a unanimous Court, Justice Souter narrowed the effect of the Alessi decision by stating that infinite connections could not be the measure of preemption.77 In cases where the text of the statute is not helpful in the "connection with" determination, the Court will "look instead to the objectives of the ERISA statute as a guide to the scope of state law that Congress understood would survive."78 In looking to ERISA's preemption provision, the Court stated that "[t]he basic thrust of the preemption clause . . . was to avoid a multiplicity of regulations in order to permit the nationally uniform administration of employee benefit plans."79
The Court cited previous decisions as examples upholding this new standard and stated that "[i]n each of these cases, ERISA preempted state laws that mandated employee benefit structure or their administration. "so In this case, however, the Court distinguished the New York statute on the basis of the "purpose and effects" of the law.sl The Court stated that "[t]he charge differentials have been justified on the ground that the Blues pay the hospitals promptly and efficiently, and . . . provide coverage for many subscribers whom the commercial insurers would reject as unacceptable risks."82 An indirect influence would not bind plan administrators in a manner that would function as a regulation of an ERISA plan itself.83 Nor would the indirect economic effects on the plans preclude uniform administrative practice.84 As the Court explained, "[i]t simply bears on the costs of benefits and the relative costs of competing insurance to provide them. "s The Court thus held that cost uniformity and laws that have an indirect economic effect on the relative costs of various health insurance plans do not have a connection with employee benefit plans.86 As such, ERISA preemption was not triggered.
The Travelers decision expanded the Court's inquiry under 514, while maintaining the traditional "relate to" analysis. The Shaw decision's "connection with or reference to" standard remains the heart of any ERISA preemption analysis. The interpretation and application of 514 now requires a more comprehensive reading of the statutory language that includes a consideration of those objectives underlying the Act.
IV. The Sun Also Rises: Texas Senate Bill 386
SB 386 created the duty for health insurance carriers, health maintenance organizations, and other managed care entities to exercise ordinary care when making health care treatment decisions.' Ordinary care is essentially the care that a reasonable and prudent HMO would offer under similar circumstances.ss Those entities are "liable for damages for harm to an insured or enrollee proximately caused by the failure to exercise such ordinary care. "89 In fact, the liability of HMOs extends even further to employees, agents, ostensible agents, or representatives who are acting on the HMO's behalf and over whom the HMO exercises influence or control.90 The statute, however, does create several limitations upon the cause of action that an individual may bring. An individual may not maintain a cause of action without going through a lengthy utilization review process.91 In the alternative, before instituting the action, the affected individual or the individual's representative must give written notice of the claim and agree to submit the claim to independent review under Article 21.58 of the Insurance Code.92 Noncompliance with these requirements does not bar the institution of the suit. The statute also gives courts the discretionary power to require parties to submit to an independent review, mediation, or other nonbinding alternative dispute resolution.93
SB 386 established several affirmative defenses for HMOs. If the HMO did not control, influence, or participate in the health care treatment decision, then it cannot be held liable.94 Additionally, the HMO cannot be held liable if it did not deny or delay payment for any treatment prescribed or recommended by a provider to the insured or enrollee.95 This provision thus targets prospective or current utilization reviews by HMOs, not retrospective reviews regarding payment.96 There is, however, no defense under the common law corporate practice doctrine.97
A. Texas SB 386 Under the Federal Law of ERISA: Viability of the Legislation Under the Travelers Standard
The federal courts will be guided by the Supreme Court's preemption analysis as articulated in its jurisprudence previously outlined in this Note. Specifically, any federal court that addresses the issue of preemption with respect to SB 386 must follow the newly articulated analysis in the Travelers decision. The court will have to consider the Shaw "connection with" and "reference to" analysis, as well as the legislative concerns behind the ERISA statute.98 The Fifth Circuit addressed the common law actions for malpractice in Corcoran v. United Healthcare, Inc.99 Of course, this decision predated Travelers, and does not evaluate the specific issues present in SB 386. Nevertheless, the Corcoran decision is illustrative of the route the courts are likely to take when faced with a claim under SB 386.
1. Reference to an employee benefit plan.-The "reference to" analysis of Shaw remained largely unchanged by Travelers. The test is quite simple: does the legislation specifically mention employee benefit plans? In Travelers, the Court held that the law in question did not make reference to employee benefit plans because the hospital surcharges applied regardless of the existence of an employee benefit plan.loo To determine whether the same would be true of SB 386, there must be a textual examination of the legislation to determine whether there is an explicit reference to an employee benefit plan.
The duty to exercise ordinary care in SB 386 is not predicated upon the existence of an employee benefit plan. The duty of ordinary care as articulated by SB 386 applies to health insurance carriers, HMOs, or managed care entities.101 Under the statute, the duty of ordinary care applies regardless of whether there is a plan governed by ERISA. Since the duty to exercise ordinary care exists whether or not an ERISA plan is in effect, SB 386 does not make a reference to an employee benefit plan under the Travelers analysis. Thus, the legislation is not preempted by the "relate to" language of 514(a). 2. Connection with an Employee Benefit Plan. -As stated previously, the Supreme Court's "connection with" analysis under the Travelers decision was concerned with the legislative policy of uniform administration of employee benefit plans. The central issue with respect to SB 386 is whether creating a duty to exercise ordinary care when making health care decisions affects the uniform administration of employee benefit plans. The question the Fifth Circuit faced in Corcoran was very similar to this issue.
In Corcoran, the court had to decide whether ERISA preempted a state law claim for medical malpractice brought by the beneficiary of an ERISA plan against a company that provided utilization review services to the plan.l0 The suit centered largely on whether the defendant United Healthcare made medical decisions, or in the alternative, whether it merely made benefit determinations. Justice King, writing for the court, concluded that United Healthcare made medical decisions in the context of making a determination about the availability of benefits under the plan.103 This synthesis was critical to the holding in the decision. The Louisiana tort action asserted in the case was held to be preempted by ERISA because it subjected employers to varying standards in violation of the goal of uniformity sought by ERISA.'4
Courts are beginning to distinguish between claims against ERISA health plans that involve the administration of benefits, which are subject to preemption, and claims involving the quality of care administered by an HMO, which may not be subject to ERISA preemption.los In fact, one recent case in Texas addressing a medical malpractice claim against an HMO made this very distinction.
In Blum v. Harris Methodist Health Plan, Inc.,106 the United States District Court for the Northern District of Texas held that the enrollee's claims were based upon a duty that arose outside of the terms of the benefit plan.l07 The court in Blum distinguished Corcoran based upon the distinction between plan administration and the quality of care received under an ERISA plan.los Since lower courts are now articulating this distinction, an examination of the purposes behind SB 386 will be useful in determining whether the legislation would be preempted because it affects the administration of plan benefits.
Senate Bill 386 was drafted specifically to reach health care decisions made by HMOs and to provide for a standard of ordinary care.l09 That is, the legislation was not designed to affect plan administration. But, the distinction between medical decisions that affect plan administration and those that solely involve the quality of care is blurry. The courts, under Travelers, are not likely to take a literal approach and hold that any effect upon an employee benefit plan, fiscal or otherwise, would preempt the legislation under ERISA. In fact, to do so would render the remainder of 514 moot.
Therefore, a cause of action brought under SB 386 will most likely be decided based upon the factual situation presented in the case. In cases where the claims are based upon denial of contractual benefits as defined by an employee benefit plan, the cause of action will likely be preempted by ERISA because the decision to deny benefits involves plan administration, an area of exclusive federal concern.ll More specifically, any decision made as to the allocation of benefits not already given will be struck down. On the other hand, vicarious liability claims that involve the patient and provider, as opposed to a patient-fiduciary relationship where the plan makes administrative decisions, are more likely to be sustained because the definition of plan administration revolves around the decision-making process of the HMO in allocating benefits, not whether ordinary care was exercised once the administrative decision had already been made.lll This is exactly the avenue of analysis taken by the Blum court in evaluating whether SB 386 was preempted by ERISA.
B. Stormy Weather: Challenging the Texas Legislation
The adoption of SB 386 prompted a quick response from several managed care organizations in a lawsuit challenging the legislation.112 In their complaint, the plaintiffs, Corporate Health Insurance Inc., Aetna Health Plans of North Texas Inc., and Aetna Life Insurance Co., argued that the law is preempted by ERISA.113 On July 29, 1997, after the lawsuit had been filed in the Southern District of Texas, the plaintiffs filed a motion for summary judgment, "contending that the Act `impermissibly interferes' with the purpose, structure and balance of ERISA, thereby injecting state law into an area exclusively reserved for Congress."114 The motion for summary judgment relied on several Fifth Circuit decisions said to be on point with respect to the preemption doctrine of ERISA.115
The Texas Department of Insurance filed a motion to dismiss under Federal Rule of Civil Procedure 12(b)(6) for failure to state a claim.ll6 The motion argued that the statute does little more than create a quality of care tort, and, therefore, operates within the traditional realm of state tort law.ll7 Ultimately, the motion to dismiss was converted into a motion for summary judgment.II
On September 18, 1998, Judge Vanessa D. Gilmore issued the court's opinion on both parties' motions for summary judgment."9 Following the Travelers line of decisions, Judge Gilmore upheld several provisions of SB 386, such as those holding managed care entities liable for substandard health care treatment. However, the judge held that several other provisions were preempted by ERISA, such as an independent review process for adverse benefit determinations.l20 An analysis of the Corporate Health Insurance opinion will demonstrate the path that courts are likely to take in evaluating legislation similar to SB 386.
The court's "relate to" analysis, relying heavily upon the language of the Travelers decision, centered around avoiding a multiplicity of regulation in order to permit the uniform administration of employee benefit programs.121 However, the court noted that "ERISA's `relate[s] to' language was not intended to modify the starting presumption that Congress does not intend to supplant state law which falls within areas of traditional state regulation."122 That is, the court should work on 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."23 Given that "[t]he historic powers of the State include the regulation of matters of health and safety," the plaintiffs had "the considerable burden of overcoming `the presumption that Congress did not intend to supplant state law."'124
In addressing whether SB 386 related to an employee benefit plan, the court first considered the "reference to" inquiry. Relying upon the framework established in Travelers, the court held that SB 386 did not make any reference to ERISA plans, because "the Act imposes a standard of ordinary care directly upon health insurance carriers and health maintenance organzations when making health care treatment decisions, regardless of whether the commercial coverage or membership therein is ultimately secured by an ERISA plan. ss 125 In this case, the court found that "as in Travelers, the existence of an ERISA plan is not essential to the operation of the Act. Furthermore, the Act does not work `immediately and exclusively upon ERISA plans.""26 The court, therefore, concluded that SB 386 "cannot be said to make a `reference to' ERISA plans in any manner. "127
The court next addressed whether SB 386 had any connection with ERISA plans. The plaintiffs contended that the Act had several connections with ERISA plans, namely that "the Act improperly imposes state law liability on ERISA entities, impermissibly mandates the structure of plan benefits and their administration, unlawfully binds plan administrators to particular choices, and wrongfully creates an alternate enforcement mechanism."l28 While a discussion of the court's analysis with respect to each of the plaintiffs' contentions is beyond the scope of the Note,129 it is important to note that the portion of the decision upholding an individual's right to sue under the Act was predicated upon the distinction articulated above. More specifically, the court distinguished Corcoran on the basis that any suit brought under SB 386 "would relate to the quality of benefits received from a managed care entity when benefits are actually provided, not denied."130 That is, the court made the distinction between a claim for withholding benefits and a claim about the quality of benefits received. The court summarized the distinction as follows: "Claims challenging the quality of a benefit . . . are not preempted by ERISA. Claims based upon a failure to treat where the failure was a result of a determination that the requested treatment wasn't covered by the plan, however, are preempted by ERISA."131 Since SB 386 only addresses the quality of benefits actually provided, the court concluded that the right to sue under the Act was not precluded by ERISA.132
The Texas Legislature, in response to the lack of HMO accountability to patients for medical malpractice, passed SB 386 creating a duty to exercise ordinary care in medical decisions. The legislation was promptly challenged in federal court under the preemption provision of ERISA, 514(a). For many years, the federal courts had a clearly delineated doctrine to determine whether a state law was preempted under ERISA. However, the Supreme Court's recent decision in Travelers created a reign of confusion regarding preemption analysis.
This Note has argued that SB 386 is not preempted under ERISA 514(a) because the duty created by the legislation does not relate to an employee benefit plan. The duty of ordinary care applies to a health care entity regardless of whether an ERISA plan is involved. Additionally, SB 386 does not affect the uniform administration of plan benefits and therefore should not be preempted by ERISA under the "connection with" analysis. However, since SB 386 could give rise to a situation in which the duty of ordinary care would interfere with the administration of plan benefits, the court will have to evaluate each claim individually to determine whether ordinary care was exercised once an administrative decision to administer benefits had already been made. Claims under SB 386 that challenge HMO decisions that bear directly on the administration of plans, namely the contractual allocation of benefits, are preempted by ERISA. On the other hand, claims that involve the level of care administered by HMOs are not preempted by ERISA.
The road ahead regarding the viability of SB 386, no matter which path it may take, will nevertheless be long and winding. Given the lack of accountability that HMOs have to patients regarding care decisions and the increasing trend to cut back patient care budgets, legislation such as SB 386 appears critical to the health and well-being of the American public. HMOs are not likely to give up the battle without a fight and see their pockets drain from increased costs due to measures taken to prevent malpractice and satisfy judgments. In any event, the Supreme Court sooner or later will undoubtedly be forced to revisit the Travelers decision and decide whether medical malpractice tort damages against an HMO should be preempted under ERISA.
1. See Courts, States Allowing More Liability Suits Against HMOs, But ERISA Changes Are Key, MANAGED CARE WEEK, Dec. 15, 1997, at 1, available in 1997 WL 14052325 [hereinafter More Liability Suits Against HMOs].
2. Tex. S.B. 386, 1, 75th Leg. R.S. (1997), codified in Tex. Civ. Prac. & Rem. Code Ann. 88.001-.003.
3. According to Senator Sibley, the bill sponsor, "The cornerstone of Senate Bill 386 was simply this ... [i]f the HMOs choose to make medical decisions -- stand in the shoes of the doctor, as it were-they ought to stand in the shoes of the doctor in court, too." Wayne J. Guglielmo, Sharp Shootin ': Texas Doctors Put HMOs in the Malpractice Target Zone, MEDICAL ECONOMICS, Dec. 22, 1997, at 88.
4. See More Liability Suits Against HMOs, supra note 1, at 1; Jane Bryant Quinn, A Prescription for Accountability, WASHINGTON POST, Oct. 5, 1997, at H2. 5. See More Liability Suits Against HMO, supra note 1, at 4 (arguing that laws that "permit enrollees to sue plans could raise managed care premiums .... Premiums for IPA-model HMOs could increase anywhere from .1% to .4%."); Jonathan Gardener, New Threats to HMOs: Bill to Amend ERISA Would Allow Patients to Sue, MODERN HEALTHCARE, Jan. 26, 1998, at 38 (stating that this legislation could become an "explosive issue"); Panel Discusses Pros and Cons of HMO Litigation, BEST WIRE, Nov. 27, 1997 (demonstrating the extreme differences of opinion on HMO malpractice liability).
6. 29 U.S.C. Sec 1001 (1994).
7. See id. Sec 1001(a).
8. Id. Sec 1001(b).
9. See Christopher F. Welthy, Note, New York State Conference of Blue Cross & Blue Shield Plans v. Travelers Insurance Co.: Vicarious Liability Malpractice Claims Against Managed Care Organizations Escaping ERISA's Grasp, 37 B.C. L. REV. 813, 826 (1996) (discussing 29 U.S.C. 1001(b).
10. See id. at 827 (citing H.R. REP. No. 93-533, at 17 (1974), reprinted in 1974 U.S.C.C.A.N. 4639, 4655). "Because of the interstate character of employee benefit plans, . . . it [is] essential to provide for a uniform source of law . . . in lieu of burdensome, multiple administration." Id. 11. See 29 U.S.C. 1132.
12. See id. 13. See id. 14. See id.
15. See id. (stating that the claimant may recover the benefits that are due to him under the plan). 16. 29 U.S.C. 1144(a). 17. Id.
18. Id. 1002(3).
19.Id. Id. 1002(1)(A). 20. Id. 1144(c)(1). 21. See 29 U.S.C. 1144(b)(2)(A). 22. See id. 1144s(2)(B). 23. 451 U.S. 504 (1981). 24. See id. at 507. 25. Id. at 508.
26. Id. at 523. 27. Id. at 523-24.
28. See Alessi, 451 U.S. at 523-24. 29. Id. at 525. 30. See id.
31. 463 U.S. 85 (1983). 32. See id. at 88. 33. See id. 34. See id. at 95. 35. See id. at 96.
36. See Shaw, 463 U.S. at 108-09. 37. See id. at 96-97. 38. See id. 39. See id. at 97. 40. Id. at 108-09. 41. 471 U.S. 724 (1985). 42. Id. at 727. 43. See id. at 733. 44. See id. at 739.
46. Metropolitan Life, 471 U.S. at 744. 47. 481 U.S. 41 (1987). 48. See id. at 44-45. 49. See id. at 43. 50. See id. at 47. 51. See id. at 48.
52. See Pilot Life Ins. Co., 481 U.S. at 48. 53. Id. at 50. 54. See id. at 52. 55. See id. at 57.
56. 482 U.S. 1 (1987). 57. See id. at 3. 58. Id. at 6.
59. Id. at 7 (emphasis added). 60. See id. at 8.
61. Fort Halifax Packing Co., 482 U.S. at 8-9. 62. See id. at 15. 63. Id.
64. Id. at 23. 65. Id. at 24.
66. Fort Halifax Packing Co., 482 U.S. at 23. 67. 498 U.S. 52 (1990). 68. See id. at 58-59. 69. Id. at 59.
70. Id. (quoting Shaw v. Delta Air Lines, 463 U.S. 85, 98 (1983)). 71. 514 U.S. 645 (1995).
72. Id. at 649.
73. See id. at 655.
74. Id. at 656.
75. See id. at 656.
76. Travelers Ins. Co., 514 U.S. at 656.
77. See id. In Alessi, the Court stated that even indirect action bearing upon private pensions may encroach upon the area of exclusive federal concern. Alessi v. Raybestos Manhattan Inc., 451 U.S. 504, 525 (1981).
78. Travelers Ins. Co., 14 U.S. at 656.
79. Id. at 657.
80. Id. at 658.
83. See Travelers Ins. Co., 14 U.S. at 659.
84. See id.
8. Id. at 660.
86. See id. at 661.
87. See TEX. CIv. PRAC. & REM. CODE ANN. 88.002(a) (Vernon Supp. 1998) (providing a cause of action to insureds or enrollees for harm proximately caused by failure to exercise ordinary care).
88. See id. 88.001(10); see also Douglas H. Ustick, Texas: The New Accountability, HEALTH SYSTEMS REVIEW, Nov./Dec. 1997, at 30. 89. TEX. CIV. PRAC. & REM. CODE ANN 88.002(b.) 90. See id. at 88.002(b)(1)- (4).
91. Id. at 88.003(a)(1) (providing that "[a] person may not maintain a cause of action . . . unless the affected insured, enrollee, or the insured's or enrollee's representative has exhausted the appeals and review applicable under the utilization review requirements").
92. See id. at 88.003(a)(2)(A), (B). 93. See id. at 88.003(d).
94. See TEX. CIV. PRAC. & REM. CODE ANN. 88.002(c)(1). 95. See id. at 88.002(c)(2). 96. See Ustick, supra note 88, at 31.
97. See TEX. CIv. PRAC. & REM. CODE ANN. 88.002)(h) (denying use of state law prohibiting the practice of medicine or being licensed to practice medicine as a defense to claims brought under this section or any other law). The corporate practice doctrine permits only organizations run by physicians to practice medicine and had been interpreted to bar medical malpractice claims against HMOs because they are not licensed to practice medicine. See Panel Discusses Pros And Cons of HMO Litigation, BESTWIRE, November 20, 1997. 98. See discussion, supra Part III. 99. 965 F.2d 1321 (5th Cir. 1992).
100. See supra text accompanying notes 73-76. 101. See TEX. Crv. PRAC. & REM. CODE ANN. 88.002(a) (providing a cause of action against managed care providers for failure to exercise ordinary care). 102. See Corcoran, 965 F.2d at 1322.
103. See id. at 1331. 104. See id. at 1331-33.
105. See Medical Malpractice Claims Against HMOs Are Not Preempted, MANAGED CARE WEEK, Oct. 13, 1997, available in 1997 WL 14052232 (describing a recent trend of courts distinguishing claims against ERISA health plans from claims involving quality of care administered by an HMO and the effect of that distinction on whether ERISA preempts).
106. No. Civ. A. 3:97-CV-0374-P, 1997 U.S. Dist. Lexis 19732, at *10 (N.D. Tex. July 31, 1997). 107. See id. at *10. 108. See id. at *12.
109. See Guglielmo, supra note 3, at 88.
110. See Blum, 1997 U.S. Dist. Lexis 19732, at *7. 111. See id. at *9-*11.
112. See Corporate Health Ins., Inc. v. Texas Dep't. of Ins., 12 F. Supp. 2d 597 (S.D. Tex. 1998).
113. See Ustick, supra note 88, at 32. 114. Corporate Health Ins., Inc., 12 F. Supp. 2d at 602.
115. See Ustick, supra note 88, at 32. 116. See Corporate Health Ins., Inc., 12 F. Supp. 2d at 603. 117. See id. 118. See id. at 602. 119. See id. at 597. 120. See id.
121. See Corporate Health Ins., Inc., 12 F. Supp. 2d at 611. 122. Id. 123. Id.
12. Id. at 612.
126. Corporate Health Ins., Inc., 12 F. Supp. 2d at 614.
129. For an insightful article arguing that the court's decision effectively killed most of the reforms of SB 386, see Brenda T. Strama & Elizabeth Rogers, Splitting the Baby, TEXAS LAWYER, Nov. 30, 1998, at 17 (arguing that the most commonly cited form of managed care abuse, utilization review decisions, continues to be unrestricted and preempted by ERISA).
130. Corporate Health Ins., Inc., 12 F. Supp. 2d at 616-17.
131. Id. at 620.
132. See id.