Karen A. Jordan Karen Jordan is a Professor of Law at the Brandeis School of Law at the University of Louisville. Professor Jordan joined the Brandeis School of Law faculty in 1993, following work at the Indiana University School of Law - Indianapolis, and a year in private practice. Her research and teaching interests are primarily in the areas of health and administrative law, and civil procedure. Professor Jordan has published extensively on the topic of federal preemption of state health law and policy. Additionally, she has presented at national conferences sponsored by the American Society of Law, Medicine and Ethics and the Association of American Law Schools, and served as Visiting Professor for the Health Law and Policy Program at Seton Hall University School of Law. Karen Jordan may be contacted at the following: Phone: (502) 852-5292, or e-mail: karen.Jordan@louisville.edu. REcENT MODJFICATIONS TO TilE PREEMPTION DOCIRINE & THEIR IMPACT ON STA'IE HMO LIABH.ITY LAws Karen A. Jordan* INIRODUCTION For years, significant attention has been devoted to problems arising from medical necessity determinations made by managed care organizations ("MCOs") such as health maintenance organizations ("HMOs"). That is, decisions by an HMO that medical services or treatments recommended by subscribers' treating physicians are "not medically necessary," and thus not covered by the HMO plan. When an HMO subscriber subsequently suffers injury or death as a consequence of a denial of coverage, legal barriers have precluded the subscriber from holding the HMO accountable for the negligent medical necessity determination. Most predominantly, for many years the preemption provisions of the Employee Retirement Income Security Act of 197 4 ("ERISA")1 presented a formidable barrier to redress for such injuries for most subscribers who obtained their health coverage through employer provided benefit plans ("ERISA plans").2 Since 1995, however, the courts have painstakingly worked through the common law developments of the law of ERISA preemption, and some lower courts have finally allowed lawsuits to proceed against HMOs for negligent denials of coverage. 3 For example, in * Professor of Law, Louis D. Brandeis School of Law at the University of Louisville; J.D., 1990, summa cum laude, Indiana University School of Law-Indianapolis. 1. Employee Retirement Income Security Act of 1974, Pub. L. No. 93-406, 88 Stat. 832 (codified as amended at 29 U.S.C. §§ 1001-1461 (2003)). ERISA's general preemption provision broadly preempts "any and all State laws insofar as they ... relate to any employee benefit plan." 29 U.S.C. § 1144(a) (2003). 2. Id. § 1002(1). ERISA defines employee benefit plans to include both pension and welfare benefit plans; welfare benefit plans include plans established or maintained by employers for the purpose of providing medical, surgical, or hospital care benefits. ld. § 1 003(b )(1 )-(5). ERISA does not extend to certain plans, however. These plans include govern­ mental plans, church plans, excess benefit plans, plans maintained solely for the purpose of complying with applicable workmen's compensation, unemployment compensation or disability insurance laws, and plans maintained outside of the United States primarily for the benefit of persons who are non-resident aliens. Id. See generally Karen A. Jordan, Coverage Denials in ERISA Plans: Assessing the Federal Legislative Solution, 65 Mo. L. REV. 405 (2000). Courts have historically found that ERISA preemption extends to state law civil actions against HMOs or other managed care entities if the claim asserted therein arises from a coverage determination even if the determination at issue was based on a finding that recommended treatment is not medically necessary. Id. 3. SeeCiciov. Does, 321 F. 3d 83 (2dCir. 2003)(holdingthatanegligenceclaimagainst an HMO challenging a medical decision by the HMO about appropriate treatment is not preempted by ERISA§ 514). See also Pappas v. Asbel, 768 A.2d 1089 (Pa. 2001). Other courts have answered only part of the preemption issue. See, e.g., Land v. CIGNA Healthcare 54 INDIANA HEALTH LAW REvlEW [Vol. 1:51 Cicio v. Does,4 the Second Circuit Court of Appeals held that ERISA did not preempt an ERISA plan beneficiary's medical malpractice claim against an HMO which made an allegedly negligent medical decision to deny medical care recommended by the claimant's treating physician. 5 The Second Circuit acknowledged that other courts addressing similar facts had concluded that "malpractice claims based on utilization review" are preempted because a medical necessity determination is "part and parcel" of a coverage determina­ tion.6 However, the court explained that those decisions had been rendered before the Supreme Court's "retrenchment of ERISA preemption's margins;"7 and, in particular, before Pegram v. Herdrich,8 in which a unanimous Court explained that a "mixed eligibility and treatment decision"-a utilization review determination based on medical necessity-"cannot be untangled from physicians' judgments about reasonable medical treatment."9 The Second Circuit, in Cicio, construed Pegram as "demonstrat[ing] that the mere presence of Fla., 339 F.3d 1286 (11th Cit. 2003) (using the same analysis as in Cicio, but holding only that a medical malpractice claim against an HMO was not completely preempted, reserving the issue of§ 514 preemption to the state court); Lazorko v. Pa. Hosp., 237 F.3d 242 (3d Cit. 2000). 4. Cicio, 321 F.3d at 83. 5. In Cicio, the plaintiff decedent's physician, on January 28, 1998, had recommended ''high dose chemotherapy supported with peripheral blood stem cell transplantation, in a tandem double transplant, for [Mr. Cicio's] diagnosis of multiple myeloma." ld. at 87. The HMO's medical director, Dr. Spears, on February 23, 1998, denied the request for preauthorization of Cicio's physician, Dr. Samuel. I d. at 88. Dr. Spears noted that the procedure was not covered because Cico's health benefit plan stated that experimental or investigational procedures were not covered. ld. On March 4, 1998, after unsuccessful attempts to contact Dr. Spears by telephone, Dr. Samuel wrote an appeal for reconsideration, noting that the recommended treatment was a well-established and effective treatment. Id. On March 25, 1998, Dr. Spears approved a single stem cell transplant, but again denied the original request for tandem stem cell transplant. ld. By March 25, 2003, Cicio was no longer a candidate for the transplant. Cicio, 321 F.3d at 88. Mr. Cicio died on May 11, 1998. ld. On appeal, the remaining claims challenged the timeliness of Dr. Spears' decisions, the allegedly misleading nature of the HMO' s representations about Cicio's health benefit plan, and the quality of the medical decision made by the HMO and the physi¢an medical director, both of whom were named as defendants. Id. at 90. ' Interestingly. the Court of Appeals noted that the HMO' s abstract determination that a double stem cell transplant to treat the condition was experimental might lack the "significant application of medical judgment" and thus represent a decision simply about the scope of benefits. Id. at 91. However, the Court of Appeals read certain allegations in the complaint as more clearly challenging the appropriateness of a medical decision by the HMO because Dr. Spears reviewed a thorough case history of Mr. Cicio's illness and the decision thus, could have rested on an analysis of the appropriate treatment for Mr. Cicio's specific condition. Id. The court noted that, "[b ]y denying one treatment and authorizing another that Dr. Samuel had not specifically requested, Dr. Spears at least seems to have been engaged in a patient-specific prescription of an appropriate treatment .... " Id. 6. Cicio, 321 F.3d at 100 (citing Corcoran v. United HealthCare, Inc., 965 F.2d 1321 (5th Cir. 1992); Jass v. Prudential Health Care Plan, Inc., 88 F.3d 1482 (7th Cit. 1996); Totton v. Am. Biodyne, Inc., 48 F.3d 937 (6th Cit. 1995)). 7. Cicio, 321 F.3d at 100. 8. Pegram v. Herdrich, 530 U.S. 211 (2000). 9. Cicio, 321 F.3d at 100 (quoting Pegram, 530 U.S. at 229). 2004] REcENT MODIFICATIONS romE PREEMPTION DOCTRINE ss of an administrative component in a health care decision no longer has determinative significance· for purposes of preemption analysis when the decision also has a medical component."10 Accordingly, the court held that § 514(a) of ERISA did not preempt the claimant's medical malpractice claim because the claim simply did not ''relate to" ERISA plans.11 The question of the day, however, is whether the Supreme Court will ultimately agree with this emerging perspective of the scope of ERISA pre­ emption, including both the outcome and the analysis leading to the outcome. Two recent cases shed some ·light on the answer to the question, but predictably, also raise new questions. Continuing along the path begun in 1995,12 the Supreme Court in Rush Prudential HMO, Inc. v. Moran 13 ("Rush") and Kentucky Association of Health Plans, Inc. v. Miller14 ("KAHP"), drew additional lines marking the boundaries of the preemption of state law by ERISA. More specifically, in both decisions the Court broadened the scope of ERISA' s "savings clause."1' Further, the Court in KAHP streamlined the basic savings clause standards16 and the Court in Rush provided an intricate analysis, which ultimately limited or narrowed the scope of the conflict preemption exception to the savings clause.17 Both opinions can readily be construed as drawing lines that are consistent with the path taken by the Court in recent years, and consistent with the view held by many, that ERISA should not be construed as preempting state law claims against managed care organizations for negligent medical necessity detenninations. However, the cases suggest an analysis that differs from that used in Cicio and different from that advocated by some ERISA scholars. 10. /d. at 103. 11. /d. at 104 ("[W]e conclude that§ S14 preemption does not obtain with regard to those claims predicated on the violation of a state tort law by a failure to meet a state-law defined standard of care in diagnosing or recommending tmdment of a plaintiff patient's constellation of symptoms."). 12. In 1995, the Supreme Court issued an ERISA preemption decision that, for the first time, began detailing the limitations on the scope of ERISA preemption. See N.Y. State Conference of Blue Cross &: Blue Shield v. Travelers Ins. Co., 514 U.S. 645 (1995). See generally Karen A Jordan, Travelers Insurance: New Support for the Argument to Restrain ERISA Pre-emption, 13 YALE J. ON REG. 255 (1996) (analyzing the Travelers Insurance decision and applying the more restrained view·to emerging preemption issues). 13. Rush Prudential HMO, Inc. v. Moran, 536 U.S. 355 (2002). 14. Ky. Ass'n of Health Plans, Inc. v. Miller, S38 U.S. 329 (2003). 15. Through ERISA's savings clause, Congress expressly exempted from the reach of ERISA preemption state laws that MgUlate insurance. ERISA' s savings clause prescribes that ERISA shall not "be construed to exempt or relieve any person from any law of any State which regulates insurance .•.. " 29 U.S.C. § 1144(b)(2)(A) (2003). The Supreme Court traditionally has declared that ERISA's savings clause should be broadly construed, but in reality has kept the scope of the exemption relatively D81TOW. See supra notes 74-88 and accompanying text for a discussion on broadening. 16. See infra notes 89-123 and accompanying text 17. See infra notes lSl-96 and accompanying text 56 INDIANA HEALm LAw REviEw [Vol. 1:51 Rather than avoiding preemption by a finding that state HMO liability laws do not impermissibly "relate to" ERISA plans, Rush and KAHP suggest that the resolution of the issue ultimately may hinge on application of the conflict preemption exception. Justice Souter's opinion in Rush, which was joined by a majority of the Justices, seemed to clear the way for state HMO liability laws by carefully describing the holdings in key precedential cases in an effort to delimit the preemptive force of§ 502(a).18 Unfortunately, despite Justice Souter's care, some language in the majority opinion could be construed as supporting. the exact opposite view: that Rush supports ERISA preemption of state legislative attempts to impose liability on managed care plans for violation of a duty of ordinary care in arranging for medically necessary services.19 Indeed, that opposite view was highlighted in the December 2002 publication of the American Bar Association's Health Law Section.20 Accordingly, this Article analyzes the KAHP and Rush refmements to the law of ERISA preemption, highlights the key doctrinal and policy implications, and then applies the refinements to the question whether ERISA preempts civil actions that are essentially "medical malpractice" lawsuits against MCOs for negligent denials of claims based on "medical necessity determinations." As noted, the crux of the analysis may well hinge on application of conflict preemption principles and, specifically, on the Court's view of the preemptive force of ERISA' s civil enforcement provisions. This Article concludes, using Justice Souter's analysis, that state HMO liability laws fall outside the scope of the preemptive force of§ 502(a). I. SIDE BAR: CERTIORARI GRANTED ON THE NARROWER "COMPLETION PREEMPriON" IsSUE Notably, as this Article was going to print, the Supreme Court granted certiorari in two consolidated cases in which Aetna and CIGNA policyholders (Calad and Davila) sued their HMOs for their alleged negligence or failure to use ordinary care in denying coverage for the medical care recommended by the claimants' physicians (hereafter the "Davila case").21 In the cases, 18. See infra notes 275-93 and accompanying text. 19. See David M. Humiston et al., Navigating the Shoals of ERISA: The Effect of ERISA Preemption on New State Laws Creating Tort liability Against Managed Care Entities, 14 HEALTH LAw 1, 8 (2002) (opining that, even in light of Pegram and Rush, ERISA preempts state statutory liability for delays and denials of requested benefits; although state laws holding HMOs liable for negligent acts of agents or employees while providing direct medical services to plan participants will survive preemption). 20. Gregory Pimstone & Michele Johnson, Rush Prudential: Savior of Pilot Life?, HEALTH LAW., Dec. 2002, at 7. See infra notes 276-79 and accompanying text (describing the views set forth in this Article). 21. See Aetna Health, Inc. v. Davila, 124 S. Ct. 462 (2003); CIGNA Healthcare of Tex., Inc. v. Calad, 124 S. Ct. 463 (2003). Davila and Calad filed complaints which expressly set forth claims based on state law-the law of negligence generally and the more specific HMO 2004] RECENT MODIFICATIONS TO THE PREEMPTION DOCTRINE 57 however, the issue addressed in this Article, § 514 preemption, is not squarely before the Court. Nonetheless, § 514 considerations may play a key role in the Davila decision. In the Davila case, the Fifth Circuit Court of Appeals held that the removal to federal court by Aetna and CIGNA of the negligence-based actions filed by Davila and Calad was not proper.22 More specifically, the Fifth Circuit held that the claims of Davila and Calad did not fall within the scope of the "complete preemption" doctrine, a doctrine that allows the removal of actions involving state law claims due to the special preemptive force of certain federal laws. 23 The doctrine applies and allows removal if the state law cause of action falls "within the scope of§ 502(a)(1)(B)."24 Mere preemption (a§ 514(a) defense) is insufficient to confer removal jurisdiction. Importantly, although the § 514 issue is not squarely before the Court, the § 514 preemption analysis may be implicated in two ways. First, if the Court disagrees with the Fifth Circuit and finds that the cases were properly removed, the Court necessarily also resolves the broader § 514 preemption question: a claim that is completely preempted is preempted and must be pursued, if at all, as a§ 502(a) claim. Indeed, this has been the trend in the lower courts for years. For example, in Corcoran v. United Healthcare, Inc.,25 the Fifth Circuit held that ERISA preempted a state law negligence claim against an HMO arising out of a medical necessity determination. The Corcoran holding was primarily guided by the Supreme Court's statement in Pilot Life Insurance Co. v. Dedeaux, 26 in which the Court first emphasized § 502(a)'s role in the preemption analysis. In Pilot Life, the Court stated that § 502(a)(l)(B) provides the exclusive vehicle for claims alleging improper liability law enacted by the legislature of Texas. Davila, 124 S. Ct. at 462; Calad, 124 S. Ct. at463. 22. See Roark v. Humana,lnc., 307 F.3d 298, 306-08 (5th Cir. 2002), cert. granted sub. nom., Aetna Health, fuc. v. Davila, 124 S. Ct. 462 (2003); CIGNA Healthcare of Tex., Inc. v. Calad, 124 S. Ct. 463 (2003). 23. Thus, although Calad and Davila chose to bring claims created by or based on state law, their actions would nonetheless be removable if they fell within the scope of the complete preemption exception. Under the general rules, an action is removable only if the action is one that could have been filed in federal court. 28 U.S.C. § 1441 (2003). Generally, then, an action between non-diverse parties would not be removable unless the action involved a claim falling within "federal question" jurisdiction. ld. Under the long-established ''well-pleaded complaint" rule, whether a claim falls within federal question jurisdiction depends on whether the plaintiffs stated claim or cause of action is created by or based on federal law. See Louisville & Nashville R.R. v.Motley,211 U.S.149,152(1908). Afederalissueraisedbythedefendantasadefense, or a defense anticipated by the plaintiff and expressly raised in the complaint, is insufficient to support an exercise of federal question jurisdiction. ld. The complete preemption doctrine is an exception to the general removal rules. ld. 24. See Metropolitan Life v. Taylor, 481 U.S. 58 (1987). See also BeneficialNat'l Bank v. Anderson, 539 U.S. 1 (2003) (involving preemption by the National Bank Act); Franchise Tax Bd. v. Constr. Laborers Vacation Trust, 463 U.S. 1 (1983) (involving ERISA preemption). 25. Corcoran v. United Healthcare,lnc., 965 F.2d 1321, 1331 (5th Cir. 1992). 26. Pilot Life fus. Co. v. Dedeaux, 481 U.S. 41 (1987). 58 INDIANA HEALTH LAW REVIEW [Vol. 1:51 processing of a claim for benefits. 27 The court in Corcoran held that, although a denial based on "no medical necessity" is different from a pure coverage decision of the type in Pilot Life, the medical decision is still made as "part and parcel" of a benefit determination; thus, the Concorans' claim fell within the scope of§ 502(a)(l)(B)'s preemptive sweep.28 Under that rationale, courts have found actions such as those in Davila as being removable via complete preemption and preempted. Similarly, although the Third Circuit in Dukes v. U.S. Healthcare, Inc. 29 refined the test for complete preemption to carve out removal of claims challenging the ''quality" of care provided, the court adhered to the view in Corcoran that § 502(a)(1 )(B) of ERISA preempts and thus completely preempts a claim arising from a denial of benefits. 30 So, if the Court finds that the claims in Davila are within the complete preemption doctrine and thus properly removed, the Court will also resolve the § 514 preemption issue. Second,§ 514 preemption may also be implicated if the Court agrees with the Fifth Circuit's approach in Davila and finds that the cases were not properly removed. The implication is not necessary or absolute, however, given that the Court could simply affirm the appropriateness of remand­ which would leave the issue of§ 514(a) preemption to the state court. The issue of§ 514(a) preemption remains because the scope of state law causes of action completely preempted due to § 502(a) is not necessarily co-extensive with the scope of state law causes of action preempted by § 514(a) or preempted due to a mere conflict with § 502(a). · Rather, courts have repeatedly recognized, even beyond the context of ERISA, that state claims that are not completely preempted may nonetheless be preempted. For example, the Third Circuit in Dukes explained that, although not removable under the complete preemption doctrine, state negligence claims challenging the quality of care provided by an HMO to an ERISA plan participant might nonetheless be preempted by ERISA.31 Nonetheless,§ 514 preemption may well play a key role in the Court's complete preemption analysis given the existence of an important corollary. State claims that are not preempted are also not completely preempted. This corollary is important because of one aspect of the recent Supreme Court cases highlighted in this Article-the majority's narrowing of the preemptive force of§ 502(a) in Rush Prudential as is explained in Part ID(A)(1) of this Article. The narrower view of§ 502(a) adopted by the majority in Rush suggests that at least some of the Justices lean towards the position that Congress did not intend for ERISA to preempt claims against HMOs challenging allegedly negligent medical necessity determinations, even when the claims are brought 27. /d. at 56-57. 28. Corcoran, 965 F.2d at 1332. 29. Dukes v. U.S. Healtbcare, Inc., 57 F.3d 350 (3d Cir. 1995). 30. /d. at 357. 31. /d. 2004] RECENT MODIFICATIONS TO THE PREEMPTION OOCI'RINE 59 by ERISA plan participants and beneficiaries and are asserted against entities such as HMOs which serve as administrators of ERISA health benefit plans. If that view prevails in the Davila case, § 514(a) preemption considerations may drive the decision of the complete preemption issue. That is, although not squarely before the Court, the Davila opinion may reflect the position (fleshed out later in this Article) that§ 514(a) does not preempt the claims of Calad and Davila-and thus, a fortiori, the claims also are not completely preempted and remand was proper. 32 32. Although it is beyond the scope of this Article to thoroughly address the complete preemption issue, the author believes the case law favors Davila and Calad. Notably, the Supreme Court cases do not expressly discuss how to determine whether a state claim is within the scope of§ 502(a). Nonetheless, the Supreme Court cases addressing complete preemption have impliedly answered the question. For example, in Franchise Tax Board v. Construction Laborers Vacation Trust, 463 U.S. 1 (1983), the Court held that, although ERISA may support complete preemption, it was not available in that case because the claim by the state was not within the scope of§ 502(a). Franchise Tax Board involved an action by a state tax enforce­ ment agency brought in state court against a multi-employer trust that had been established to administer a collective bargaining agreement. /d. The claim was not within the scope of § 502(a) because § 502(a) does not create a cause of action in favor of state governments to enforce tax levies. Rather, § 502(a) creates various causes of action for plan participants or beneficiaries, plan administrators or fiduciaries, or the Secretary of the Department of Labor, to be brought against plan administrators or fiduciaries to enforce rights under the terms of the plan or rights under ERISA See 29 U.S.C. § 1132(a) (2003). In Franchise Tax Board, the claimant's cause of action did not even come reasonably close to duplicating or looking like a cause of action authorized by § 502(a). Franchise Tax Bd., 463 U.S. at 1. In other Supreme Court cases addressing complete preemption, the claimants stated causes of action, which clearly did fall within the scope of the relevant federal statute. For example, in Metropolitan Ufe v. Taylor, 481 U.S. 58 (1987), the case in which the Court expressly held that the preemptive force of ERISA also supports complete preemption removal, the plaintiff sought re-implementation of disability benefits and insurance coverage, as well as damages for "money contractually owed." ld. at 61. As such, the plaintiff's claim clearly duplicated the cause of action explicitly authorized by ERISA-§ 502(a)(l)(B) provides a vehicle to protect a plan participant's contractual rights to benefits. Although the plaintiff also sought additional remedies beyond those allowed by ERISA, the claim was still within the scope of§ 502(a)(l)(B). The same was true in Beneficial National Bank v. Anderson, 123 S. Ct. 2058 (2003), the Court's most recent complete preemption case in which the Court extended the doctrine to the claims within the scope of the National Bank Act. In that case, the plaintiff sought, through a claim based on a state usury law, damages from a national bank for allegedly charging excessive interest. Yet, the National Bank Act governs the rate of interest that a national bank may lawfully charge and provides a private right of action for certain remedies against national banks that charge an excessive rate. See id. at 2061 (citing the National Bank Act, 12 U.S.C. §§ 85-86 (2003)). Thus, the federal statute protects the right to a "non-excessive" interest rate and the plaintiff's state law claim in Beneficial National Bank clearly duplicated the cause of action provided by the federal statute to protect that right. As in Taylor, although the plaintiff also sought remedies not allowed by the federal statute, removal was deemed proper. The Davila and Calad claims fall somewhere between the claims in the Supreme Court cases. That is, on the one hand they are not so clearly not within the scope of§ 502(a) as the claim in Franchise Tax Board. Rather, several aspects of the claims make them resemble a§ 502(a)(l)(B) claim. State negligence-type claims of the sort in Davila are claims brought by ERISA plan participants and beneficiaries against HMOs that serve as administrators or fiduciaries of the ERISA plan through which the plaintiffs' health coverage is provided. 60 INDIANA HEALTii LAW REVIEW [Vol. 1:51 IT. INTRODUCTION TO .KAHP AND RUSH AND THE PREEMPTION ISSUES Both Rush and KAHP involved ERISA preemption challenges to state laws enacted in response to managed care strategies used by health insurers or other health coverage providers. In both cases, the Court resolved the preemption issue through analysis involving only ERISA's savings clause.33 This part of the Article first explains the state laws challenged in the cases and then provides a general sketch of the basic principles of ERISA' s preemption and savings clause doctrines. A. The Rush Case The state law at issue in Rush was a provision in the Illinois Health Maintenance Organization Act ("the HMO Act") requiring HMOs to provide independent and external review ("IER") of the question whether a covered service is medically necessary when a dispute arises between the primary care Further, the claims arise, at least in part, from a denial of benefits. Thus, according to many lower courts, such claims fall within the scope of § 502(a)(l)(B), which provides a cause of action to plan participants and beneficiaries to recover benefits due. However, the claims also are not so clearly within the scope of the federal statute as in Taylor and Beneficial National Bank. Claimants such as Davila and Calad are seeking compensatory damages as a remedy for harm caused by a negligent decision, recommending that services or treatments are not medically necessary; they are not seeking benefits due under the plan, however, they are challenging medical decisions and not merely a denial of coverage. Moreover, the state cause of action protects a right that is not protected by ERISA. A § 502(a)(l)(B) action protects primarily a contractual right to benefits promised under the plan; whereas, the state claim protects the right to have a medical necessity decision made in accord with a standard of reasonable care. The issue, then, is whether a claim by plan participants, such as Calad and Davila, against HMOs which administer their benefits should be characterized as "within the scope of § 502(a)(l)(B)" whenever the factual allegations involve a denial of coverage and the claim arises from that denial of coverage, even though the state law claim is regulating conduct that ERISA does not regulate (the exercise of medical discretion) and is protecting rights not addressed by ERISA. In the author's view, the Supreme Court complete preemption cases suggest that the proper inquiry does not focus on the factual circumstances giving rise to the claim. The inquiry, rather, focuses on the claim asserted: whether the purported state claim duplicates a cause of action explicitly authorized by the federal statute by regulating conduct that is regulated by the federal statute and protecting a right protected by the federal statute. Additionally, the focus in the Supreme Court cases was not on the remedy sought; although, an obvious consequence of asserting a claim within the scope of a federal cause of action is that the plaintiff is thereby limited to the remedies allowed by the federal statute. Under this view, the state claims in Davila are not within the scope of the complete preemption doctrine. 33. Through ERISA's savings clause, Congress expressly exempted from the reach of ERISA preemption state laws that regulate insurance. ERISA' s savings clause prescribes that ERISA shall not "be construed to exempt or relieve any person from any law of any State which regulates insurance .... " 29 U.S.C. § 1144(b)(2)(A). The Supreme Court traditionally has declared that ERISA's savings clause should be broadly construed, but in reality has kept the scope of the exemption relatively narrow. 2004] RECENT MODIFICATIONS TO THE PREEMPTION DocrRINE 61 provider of a plan subscriber and the HMO and to cover services deemed medically necessary by the independent reviewer. 34 The plaintiff, Debra Moran, was a beneficiary of an ERISA health benefit plan. Moran's ERISA plan contracted with Rush Prudential HMO, Inc. ("Rush HMO"), to provide medical services for plan participants and beneficiaries. 35 Moran's primary care physician recommended that Rush HMO approve of a particular treatment for Moran's condition; however, Rush HMO denied the request on the ground that the procedure was not medically necessary, and Moran invoked the IER provision. 36 After being compelled by a state court, Rush HMO submitted Moran's claim for IER. The independent reviewer decided that the recommended treatment was medically necessary, but Rush HMO continued to deny Moran's claim.37 Moran, who had proceeded with her treatment pending the process, sought reimbursement for the cost of the treatment by filing a civil action in state court. Rush HMO removed Moran's claim to federal court, under the lllinois IER provision, and the district court properly treated the claim as a suit under ERISA for benefits due. 38 The district court denied the claim on the ground that ERISA preempted the lllinois IER law; no other basis for the claim for benefits was at issue.39 The Seventh Circuit reversed.40 A majority of the Supreme Court affirmed the Seventh Circuit's decision and held that ERISA did not preempt the IER law.41 The Court first summarily concluded that it was "beyond serious dispute" that the law relates 34. See Rush Prudential HMO, Inc. v. Moran, 536 U.S. 355, 359-61 (2002). The IER law provides: Each Health Maintenance Organization shall provide a mechanism for the timely review by a physician holding the same class of license as the primary care physician, who is unaffiliated with the Health Maintenance Organization, jointly selected by the patient ... , primary care physician and the Health Maintenance Organization in the event of a dispute between the primary care physician and the Health Maintenance Organization regarding the medical necessity of a covered service proposed by a primary care physician. In the event that the reviewing physician determines the covered service to be medically necessary, the Health Maintenance Organization shall provide the covered service. See lllinois HMO Act, 215 IlL. COMP. STAT. 125/4-10 (2000). The Act defines a health maintenance organization as "any organization formed under the laws of this or another state to provide or arrange for one or more health care plans under a system which causes any part of the risk of health care delivery to be borne by the organization or its providers." Id. 125/1-2. 35. Rush, 536 U.S. at 359. 36. Moran's primary care physician ''recommended that Rush approve surgery by an unaffiliated specialist ... who had developed an unconventional treatment for Moran's condition." Id. at 360. 37. Id. at 361-62. 38. Id. at 362. 39. Id. at 363. 40. Jd. 41. Rush, 536 U.S. at 387 ('"The savings clause is entitled to prevail here, and we affinn the judgment."). 62 INDIANA HEALTH LAW REVIEW [Vol. 1:51 to employee benefit plans.42 The Court noted that the law "bears 'indirectly but substantially on all insured benefit plans' ... by requiring them to submit to an extra layer of review for certain benefit denials if .they purchase medical coverage from any of the common types of [HMOs] covered by the state law's definition of HM0."43 The Court thus viewed the preemption analysis as hinging on the ERISA savings clause analysis. B. The KARP Case Two any-willing-provider laws ("A WP statutes") were at issue in KAHP, one regulating benefit plan relationships with health care providers generally44 and one regulating their relationships with chiropractic providers.45 Both statutory provisions prohibited discrimination by health care benefit plans against health care providers willing to meet the terms and conditions and other standards established by the plans for participation in the plans.46 The laws thus interfered with the managed care strategy of contracting with networks of selected health care providers in order to control costs and quality. The Court noted that, pursuant to a contract between the HMO and providers, the providers "agree[ d] to render health-care services to the HMOs' subscribers at discounted rates and to comply with other ... requirements. In return, they receive the benefit of patient volume higher than that achieved by 42. Id. at 365. 43. /d. (quoting Metro. Life Ins. Co. v. Massachusetts, 471 U.S. 724,739 (1985)). While the relation to ERISA plans was fairly obvious, the opinion would have been clearer if the Court had explained the law's impermissible connection with ERISA plans. The law acts directly on HMOs. Many of the regulated HMOs contract with ERISA plans. Accordingly, the require­ ment of IER adds a step in the process of claims administration for those ERISA plans that contract with HMOs. The process of administering claims for benefits for ERISA plan partici­ pants and beneficiaries is at the heart of administration of an ERISA benefit plan. Accordingly, the IER law can readily be characterized as a law that mandates or binds administration of the ERISA benefit plans and therefore constitutes an impermissible connection with ERISA plans. As explained more fully infra, for precisely this reason, however, many students of the ERISA preemption doctrine believed that the Court would fmd the law preempted, notwithstanding the savings clause analysis. The dissenting Justices also noted this point. ld. at 387-89. 44. KY. R.Ev. STAT. ANN. § 304.17A-110(3) (Banks•Baldwin 1994) (repealed 1999) ("Health 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."} (emphasis added). See /d. § 304.17A-l00(4)(a). Health benefit plan is defined to mean any "hospital or medical expense policy or certificate; non-profit hospital, medical-surgical, and health service corporation contract or certificate; 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 [certain) standard and supplemental health benefit plan(s)." /d. 45. /d. § 304.17 A-171 (2) ("[A) health care benefit plan that includes chiropractic benefits shall . . . [p )ermit any licensed chiropractor who agrees to abide. by the tenns, conditions, reimbursement rates, and standards of quality of the health benefit plan to serve as a participating primary chiropractic provider to any person covered by the plan.") (emphasis added). 46. See supra notes 44-45 and accompanying text. 2004] REcENT MODIFICATIONS TO niB PREEMPTION DOCTRINE 63 nonnetwork providers who lack aecess to [the HMOs'] subsaibers.'t47 HMOs are often opposed to AWP statutes because they interfere with an HMO's ability to limit the nuniber of providers in a network and thus impair the "ability to use the assurance of high patient volume as the quid pro quo for discounted rates;" thereby frustratifig an HMO's cost and quality control.48 Accordingly, HMOs licensed under the laws of Kentucky and a Kentucky-based association of liMOs sought an injunction against enforce­ ment of the A WP statutes, arguing that they were preempted by ERISA.49 The district court and Sixth Chtuit Court of Appeals concluded that the laws relate to ERISA plans within the meaning of ERISA's preemption clause, but the laws were saved from p~mption because they regulate insurance. 50 The Supreme Court addressed only whether the A WP statutes constitute laws that regulate insurance. C. The Preemption Issues In both Rush and KAHP, the state laws at issue were challenged as being preempted by ERISA. Preemption of state laws by ERISA involves considera­ tion of both § 514 of ERISA, the basic preemption clause, and § 514(b )(2)(A), ERISNs savings clause. Section 514(a) of ERISA provides that ERISA "supersede[s] any and all State laws insofar as they may now or hereafter relate to any employee benefit plan ..• .''51 The Supreme Court has always explained that ERISA's preemption provision reflects broad congressional intent to preempt state laws that have a connection with or reference to ERISA plans.'2 However, in more recent years, the Court has also more clearly refined limitations on the broad scope of ERISA preemption. The Court has determined that the analysis should be guided by the objectives of ERISA and should involve consideration of the nature and purpose, as well as the effect, of the state law at issue. 53 Rather than any mere refetence to an ERISA plan, the Court has stated that a reference will warrant preemption if the state law "acts immediately or exclusively upon ERISA plans, • . • or where the 47. Ky. Ass'n of Health Plans, Inc. v. Miller, 123 S. Ct. 1471,.1474 (2003). 48./d. 49. Ky. Ass'n of Healtlt Plans, Inc. v. NieMI$, 227 F.3d 352, 355 (6th Cir. 2000). so; Jd, at 355,357-63 (p~Ott analysis), 363-72 (savings dause analysis). 51. 29 u.s.c. § 1144(ll)(2003). 52. See, e.g.; Shaw v. Delta Air Lines, Inc., 463. U.S. 85 (1983) (related to :aRISA plans because a mandated benefit requirtment bears indirectly but silbstantialiy on all insured plans); Mackey v. Lanier Collection Agency & Setv., Inc., 486 U.S. 825 (1988) (preempted because the statute refereneed ElUSA plans llnd was specifically designtd to llffect such plans); FMC Corp. v. Holliday, 498 U.S. 52 (1990) (anti·subrogation law contained a reference to benefit plans and had a connection with such plans because it posed the risk of ~bjecting plan administrators to conflicting state regulations). . 53. N.Y. State Coilfetc;nee of Blue Cross & Blue Shield Plans v. Travelers Ins. Co., 514 u.s. 645, 655·51 {1995). . 64 INDIANA HEALTH LAW REVIEW [Vol. 1:51 existence of ERISA plans is essential to the law's operation .... "54 Rather than any mere connection with an ERISA plan, the Court has stated that preemption is warranted if the law .. mandates employee benefit structures or their administration or provides alternative enforcement mechanisms [to ERISA]."55 Further, the Court has emphasized the presumption against preemption of state laws regulating the health and welfare of a state's citizens, an area traditionally within a state's police powers. 56 Through ERISA's savings clause, Congress expressly exempted state laws that regulate insurance from the reach of ERISA preemption. ERISA's savings clause prescribes that ERISA shall not "be construed to exempt or relieve any person from any law of any State which regulates insurance .... "57 The Supreme Court traditionally has declared that ERISA' s savings clause should be broadly construed, but in reality has kept the scope of the exemption relatively narrow. Before KAHP, the scope of the clause was circumscribed by grafting into the analysis the complex tripartite standard originally established under the McCarran-Ferguson Act for determining whether a practice constitutes the .. business of insurance" for purposes of that Act's antitrust exemption. 58 The savings clause analysis therefore included the following basic legal standards: (1) whether the law regulates insurance from a common sense perspective; and (2) whether the law satisfies the McCarran­ Ferguson factors-namely, does it target a practice that (a) has the effect of transferring or spreading a policyholder's risk, (b) is an integral part of the policy relationship between the insurer and the insured, and (c) is limited to entities within the insurance industry.59 In addition, the Court has further narrowed the scope ofERISA's savings clause by injecting into the analysis a moderating factor or exception to saving a law regulating insurance; the conflict preemption exception allows consideration of whether saving the state law would further the objectives of ERISA. For example, in Pilot Life Insurance Co. v. Dedeaux, the Court bolstered its decision that a state law was not saved by explaining that preemption was warranted in order to avoid frustration of congressional objectives underlying ERISA's complex civil enforcement provisions. 60 54. Cal. Div. of Labor Standards Enforcement v. Dillingham Constr. N.A., 519 U.S. 316, 325 (1997) (citing Makey v. Lanier Collection Agency & Serv., Inc., 486 U.S. 825 (1988); District of Columbia v. Greater Wash. Bd. of Trade, 506 U.S. 125 (1992)). 55. Travelers, 514 U.S. at 658. 56./d. 57. 29 U.S.C. § 1144(b )(2)(A) (2003). 58. See, e.g.,MetropolitanLifelns.Co. v.Massachusetts,471 U.S. 724, 743(1985). The factors developed in the McCarran-Ferguson Act cases require an assessment of whether the law targets a practice that has the effect of transferring or spreading a policyholder's risk, is an integral part of the policy relationship between the insurer and the insured, and is limited to entities within the insurance industry. See id. 59./d. 60. Pilot Life Ins. Co. v. Dedeaux, 481 U.S. 41, 52-57 (1987). This Article will refer to the consideration of conflict preemption principles as the conflict preemption exception. 2004] REcENT MODIFICATIONS TO 1HE PREEMPTION DocTRINE 65 The Supreme Court in Rush and KARP addressed only whether the laws at issue were saved from preemption. Because neither case explained in any detail why the laws had a sufficient connection with ERISA plans to warrant preemption and thus trigger the savings clause, the cases add little to our understanding of the application of ERISA's preemption clause. As noted, however, the cases significantly add to our understanding of the application of the savings clause. KARP streamlined the basic legal standards of the savings clause analysis and Rush limited the scope of the conflict preemption exception; both cases reflect a broader view of laws saved from ERISA preemption. The following part of the Article details the doctrinal modifica­ tions of the saving clause analysis and the key policy implications thereof. ill. THE R.EFINEMENTS TO THE BASIC SAVINGS CLAUSE ANALYSIS Prior to KARP, the basic savings clause standards included the common sense test and a consideration of the McCarran-Ferguson Act factors. These basic standards had been applied in countless lower court cases over the years. As noted, the standards have generally been applied in a fairly narrow manner, especially the McCarran-Ferguson factors. As explained in more detail later in the Article, the McCarran-Ferguson factors were developed in cases involving the McCarran-Ferguson Act's antitrust exemption for the "business of insurance."61 In those cases, the Supreme Court appropriately took a narrow view of what constitutes the business of insurance. Lower courts have tended to follow this narrow approach in the ERISA context.62 Additionally, over the years, the savings clause inquiry had become somewhat truncated. In addressing whether a state law satisfies the common sense test, the Supreme Court has traditionally asked whether the law is "specifically directed" towards the insurance industry. For example, in Pilot Life, 63 the Court found that a common law cause of action arising from the insurer's allegedly bad faith refUsal to pay a claim for benefits did not further a "common sense" understanding of ERISA' s saving clause because the action evolved from general principles of tort and contract law which, obviously, were not applicable solely to insurers.64 In recent years, however, lower courts have also asked, in the common sense prong of the analysis, whether the law focuses on the primary elements of insurance-the spreading and underwriting of a policyholder's risk-or whether the law deals with the relationship 61. See infra notes 98-105 and accompanying text 62. See, e.g., Franklin H. Williams Ins. Trust v. Travelers Ins. Co., SO F.3d 144 (2d Cir. 1995); Smith v. Jefferson Pilot life Ins. Co., 14 F.3d 562 (11th Cir. 1994); Tingle v. Pacific Mut. Ins. Co., 996F.2d 105 (5th Cir.l993); McMahan v.NewEnglandMut.Lifeins. Co., 888 F.2d426 (6th Cir. 1989). See generally Karen A. Jordan, ERISA Pre-emption: Integrating Fabe into the Savings Clause Analysis, 21 RUTGERS W. 273 (1996). 63. Pilot Life Ins. Co. v. Dedeaux, 481 U.S. 41 (1987). 64. Id. at 50 ("Any breach of contract, and not merely breach of an insurance contract, may lead to liability for punitive damages under Mississippi law."). 66 INDIANA HEAl-TH LAW RaviBW [Vol. 1:51 between the insurer and insured. In doing so, th~ courts have thereby tended to truncate the analysis by blending the common sense and McCarren­ Ferguson Act factor considerations. Courts have also tende9 to truncate the analysis by stating that an affmnative answer to the questioq whether a law is specifically directed towards the insuran<;e industry also shows that the law satisfies the third McCarran-Ferguson factor; that is, if the law is specifically directed towards the insurpnce industry, the law also is limited to entities within the insurance industry. The Sixth Circuit's opinion iq the KARP case provide$ a good e1t.ample of the truncated analysis. 65 In addressing the COJ.llll\on sense prong of the test, the Sixth Circuit fQund ~t the A WP laws tqet insurance ~ause the laws regulate entities such as insurers and HMOs which engage in the spreading and underwriting of policyholders' risk. and }Jecause the laws deal directly with the relationship between insureds and insurers.66 Both of these considerations are part of the McCarran·Ferguson Act analysis. In~. when engaging in the McCarran-Ferg~on Act analysis, the Sixth Circuit repeated its view that the laws affect ris~ 8preading (since the type of coverage is a component of risk) and regul~te the relationship between the insureP ~insurer; the Court further noted that the third McCarran~Fergu&on factor w~ satisfied for the reasons previously stated in the common sense part of the analysis. 67 ·The savings clause analysis has also been somewhat relaxed in recent years in light of the Supreme Court's clarification in· UNUM life Insurance v. WartfB that the. McCarran~Ferguson Act factors serve as guideposts or checking points and do not constitute separate essential requirqments. 69 Before UNUM, some lower courts rigidly required an affmnative answer to all three of the McC~n .. Ferguson Act factors before finding a law saved from preemption. 70 · The Court in UNUM explained that the factors were '"considerations [to be] weighed'"71 ''and that '[n]one of these criteria is necessarily determinative in itself. "'72 Nonetheless, the Court in UNUM, and later in Rush, continued to address the three McCarran-Ferguson Act factors as part of the basic ~aving$ clause analysis. 73 65. See Ky. Ass'n of Health Plans, Inc. v. Nichols, 227 F.3d 352 (6th Cir. 2000). 66. /d. at 364-68. 67. ld. at 368~ n. 68. UNUM Life Ins. v. Ward, 526 U.S. 358 (1999). 69. Id. at373,74. 70. See, e.g., Tingle v. Pacific Mut. Ins. Co., 996 F.2d 1 OS, 110 (5th Cir. 1993)( deciding that because the state law did •itrary, unreasonable or incorrect, "the liability that results from any misfeasance raises issues [that] cannot be resolved without resort to concepts from the domain of tort law"). 213. See Wickline v. State, 239 Cal. Rptr. 810 (Cal. Ct. App. 1986); Wilson v. Blue Cross of S. Cal., 271 Cal. Rptr. 876 (Cal. Ct. App. 1990). Interestingly, the framework for analyzing HMO negligence may have its roots in cases decided before ERISA preemption became the notorious shield against managed care liability. 2004] REcENT MODIFICATIONS TO THE PREEMPTION DOCTRINE 93 In contrast, legislative HMO liability laws have been adopted in several states. The laws vary from state to state, but the objective of all is to provide a mechanism for holding HMOs accountable when their utilization review decisions constitute, in essence, the exercise of medical judgment. In 1997, Texas became the first state to enact legislation establishing a standard of care, and a cause of action for breaches thereof, for HMO benefit determinations which cause injury.214 To date, at least ten states have codified laws opening the door to managed care liability for inappropriate medical necessity deter­ minations.215 Most impose a duty to exercise ordinary or reasonable care in making such determinations and allow injured plan participants to recover damages beyond the benefit itself. California's statute provides a good example of a state legislative HMO liability law. California's Civil Code Section 3428 provides that managed care entities such as HMOs shall have a duty of ordinary care to arrange for the provision of medically necessary health care service[ s] to its subscribers and enrollees, where the health care service is a benefit pro­ vided under the plan, and shall be liable for any and all harm legally caused by its failure to exercise that ordinary care when both of the following apply: ( 1) The failure to exercise ordinary care resulted in the denial, delay, or modification of the health care service re­ commended for, or furnished to, a subscriber or enrollee[; and] (2) The subscriber or enrollee suffered substantial harm.2J6 California, therefore, has legislatively imposed a tort duty on HMOs to use ordinary care when the HMO is wearing its "provider hat." That is, the duty is imposed as to activities involved "in arranging for the provision of medically necessary health care."217 Through use of this language, the duty extends to actions including denials of, or delays in approving, coverage for recommended medical services. Indeed, the California statute specifically imposes liability on HMOs for a denial of coverage resulting from a failure to 214. See TEX. CIV. PRAC. & REM. CODE ANN. § 88.002 (Vernon 2003) (codifying the Health Care Liability Act). 215. See generally PATRICIA BUTLER, HENRY J. KAISER FAMILY FOUND., KEY CHAR­ ACTERISTICS OF STATE MANAGED CARE ORGANIZATION LIABIUTY LAWS: CURRENT STATUS AND EXPERIENCE (Aug. 2001) (including Arizona, California, Georgia, Maine, Oklahoma, Texas, Washington, and West Virginia), available at http://www.kff.org/insurance/3155- index.cfm. 216. CAL. CIV. CODE§ 3428 (West 2003). 217. Id. 94 INDIANA HEALTH LAW REVIEW [Vol. 1:51 satisfy the tort duty, when the denial legally causes substantial harm to an HMO subscriber or enrollee.218 The December 2002 article in The Health Lawyer specifically cited this California HMO liability law as an example of the type of state law that would be preempted under the author's view of Rush.219 Accordingly, this Article will use California's HMO liability law as the basis for its exploration of the proper application of Rush and KAHP to the preemption analysis. Whether state HMO liability laws are preempted depends on the following: (1) whether the laws relate to ERISA plans and thus fall within the scope of§ 514(a); (2) if so, whether they are laws regulating insurance within the scope of§ 514(b)(2)(A) and, thus, generally are exempt from preemption; and (3) if so, whether the laws should nonetheless be preempted pursuant to conflict preemption considerations. The analysis of ERISA preemption of state HMO liability laws is largely the same regardless of whether the laws are state common law or legislative enactments. Accordingly, the following subsections explore the preemption analysis for both types of state HMO liability laws. B. State HMO Liability Laws "Relate To" ERISA Plans Section 514(a) of ERISA preempts state laws that relate to ERISA plans.220 Although the Supreme Court has acknowledged the breadth of this express preemption language, the Court has clarified that the analysis should be guided by the objectives of ERISA and should involve consideration of the nature and purpose, as well as the effect, of the state law at issue.221 Rather than any mere reference to an ERISA plan, the Court has stated that a reference will warrant preemption if the state law "acts immediately or exclusively upon ERISA plans, ... or where the existence of ERISA plans is essential to the law's operation."222 Moreover, rather than any mere connec­ tion with an ERISA plan, the Court has stated that preemption is warranted if the law "mandate[s] employee benefit structures or their administration [or provides] alternative enforcement mechanisms [to ERISA]."223 Further, the Court has emphasized the presumption against preemption of state laws in areas traditionally regulated pursuant to a state's domain over the health and welfare of its citizens.224 218. Id. 219. See Pimstone & Johnson, supra note 20, at 8 (citing CAL. CIV. CODE§ 3428 (West 2003)). 220. See supra note 49 and accompanying text. 221. See N.Y. State Conference of Blue Cross & Blue Shield Plans v. Travelers Ins. Co., 514 u.s. 645 (1995). 222. See, e.g., Cal. Div. of Labor Standards Enforcement v. Dillingham Constr. N.A., 519 u.s. 316, 325 (1997). 223. See Travelers, 514 U.S. at 658. 224. See id. at 663. 2004] RECENT MODIFICATIONS TO THE PREEMPTION DOCTRINE 95 1. Impermissible "Reference To" Is Unlikely Preemption on the basis of an impermissible reference to ERISA plans will, of course, always depend upon the precise language or terminology of the state of HMO liability law. A review of several state HMO liability laws shows that it is unlikely that such laws will impermissibly reference ERISA plans. The laws typically impose the duty of care on health carriers225 or health insurance carriers, 226 managed care entities, 227 HMOs,228 or organized delivery systems. 229 These terms typically are defined to reach entities with which an employer may contract to provide health coverage for its employees or to provide administrative services for employers that self-insure. As defined, the terms typically do not encompass the ERISA plan itself. 230 The assertion that the laws do not reference ERISA Plans is confmned by the Rush majority's view of an ERISA plan. fu Rush, Justice Souter rejected Rush HMO's argument that differences in state independent review laws would impose impermissible burdens on ERISA Plan administration.231 Writing for the majority, Justice Souter noted that "it is the HMO contracting with a plan, and not the plan itself, that will be subject to these regulations, and every HMO will have to establish procedures for conforming with the local laws, regardless of what this Court may think ERISA forbids.'m2 The dis­ senting opinion reiterated the majority's narrow view of what constitutes the ERISA Plan by noting that the "[majority] isolates the 'plan' from the HMO and then concludes that the independent review provision does not 'threaten 225. See WASH. REV. CODE§ 48.43.545(l)(a) (2003); ME. REV. STAT. tit. 22, § 4313 (l)(A) (West 2003); N.J. REv. STAT. § 2A:53A-33(a) (2003). 226. See TEX. ClV. PRAC. & REM. CODE ANN. § 88.002(a) (Vernon 2003); OKLA. STAT. tit. 36, § 6593(A) (2003). 227. See TEX. ClV. PRAC. & REM. CODE ANN. § 88.002(a) (Vernon 2003); OKLA. STAT. tit. 36, § 6593(A) (2003); N.C. GEN. STAT. § 90-21.5l(a) (2003). 228. See TEX. CIV. PRAC. & REM. CODE ANN. § 88.002(a) (Vernon 2003); OKLA. STAT. tit. 36, § 6593(A) (2003). 229. See N.J. REv. STAT.§ 2A:53A-33(a) (2003). 230. See WASH. REV. CODE§ 48.43.005(18) (2003). For example, Washington's HMO liability law imposes the duty on health carriers and defines that term to include a "disability insurer, ... a health care service contractor, ... or a health maintenance organization." /d. See TEX.CIV.PRAC. &REM. CODE ANN.§ 88.001(8) (Vernon2003). The Texas HMO liability law imposes the duty on, inter alia, "managed care entities" and defines that term to include: I d. [A}ny entity which delivers, administers, or assumes the risk for health care services, with systems or techniques to control or influence the quality, accessibility, utilization, or costs and prices of such services, to a defined enrollee population, but does not include an employer purchasing coverage or acting on behalf of its employees .... 231. Rush Prudential HMO, Inc. v. Moran, 536 U.S. 355, 381 n.ll (2002). 232. ld. 96 INDIANA HEALTH LAW REVIEW [Vol. 1:51 the object of [ERISA]' because it does not affect the plan, but only the HM0."233 Moreover, even if the law did use terminology that could arguably be construed as encompassing the ERISA plan itself, it would be unlikely that the law would reach only ERISA plans, as the laws will primarily target insurers, HMOs, and other entities performing an insurance function. Thus, it is unlikely that any state HMO liability law would be drafted such that it would act "immediately and exclusively upon ERISA plans, ... or [create a situation] where the existence of ERISA plans is essential to the law's operation .... "234 Rather, preemption due to a relation to ERISA plans is likely to result from an impermissible connection with ERISA plans. 2. Rush Suggests an lmpennissible "Connection With" The generally articulated principle is that preemption due to a connection with an ERISA plan is warranted if the law "mandate[s] employee benefit structures or their administration [or provides] alternative enforcement mech­ anisms [to ERISA]."235 Applying this test focuses primarily on the effect of the state law on ERISA plans. However, the nature and purpose of the law are also relevant, and the Court has emphasized the presumption against pre­ emption of state laws in areas traditionally regulated pursuant to a state's domain over the health and welfare of its citizens.236 Interestingly, prior to Rush and KAHP, scholars of ERISA preemption and some lower courts believed that the Supreme Court was signaling that state laws regulating health care, and especially the quality of health care, should not be preempted because such laws did not relate to ERISA plans. 237 Rush and KAHP suggest the same ultimate conclusion, but suggest a different approach to the analysis. For exploration of the "connection with" analysis, the Second Circuit's decision in Cicio provides a useful starting point. Recall that, in Cicio, the 233. Id. at 401 n.9 (Thomas, J., dissenting). The dissent went on to note, "To my know­ ledge such a distinction is novel. ... Its application is particularly novel here, where the Court appears to view the HMO as the plan administrator, leaving one to wonder how the myriad state independent review procedures can help but have an impact on plan administration." Id. However, the majority's view is not as illogical as Justice Thomas implicates. /d. It has long been recognized that the HMO or insurer with whom an employer contracts in order to provide health coverage through an ERISA plan, although often serving as the plan administrator, also functions in other roles, such as administering the HMO's business-distinct from adminis­ trative functions that may constitute "administration of an ERISA plan." Jd. See, e.g., Jordan, supra note 12, at 299-304 (exploring the concept of administration of ERISA plans). 234. See, e.g., Cal. Di v. of Labor Standards Enforcement v. Dillingham Constr. N.A, 519 u.s. 316, 325 (1997). 235. See N.Y. State Conference of Blue Cross & Blue Shield Plans v. Travelers Ins. Co., 514 u.s. 645, 658 (1995). 236. See id. 237. See, e.g., Jordan, supra note 2, at 442-49 and infra notes 238-52 and accompanying text. 2004] REcENT MODIFICATIONS TO THE PREEMPTION DOCTRINE 97 Second Circuit held that ERISA did not preempt an ERISA plan beneficiary's common law medical malpractice claim against an HMO, which served as the plan administrator, for an allegedly negligent medical decision to deny medical care recommended by the claimant's treating physician.238 The issue of preemption of the state common law HMO liability claim was one of first impression for the Second Circuit,239 and the court therefore was influenced only by the recent Supreme Court ERISA preemption cases. The court began and ended its analysis with the strong presumption against preemption of state law in the field of health care. In the court's view, based on recent Supreme Court cases, the state common law civil action being pursued by the plaintiff constituted a state law regulating health care and, for that reason alone, was not preempted under§ 514(a) of ERISA. That is, as a law regulating health care, the law simply did not impermissibly relate to ERISA benefit plans. More specifically, the Second Circuit in Cicio viewed the Supreme Court's decision in Pegram v. Herdrich240 as bearing significantly on the pre­ emption issue.241 In Pegram, the claimant argued that the HMO breached the fiduciary duties imposed by ERISA. Thus, the Court addressed only whether the challenged conduct, making UR decisions while influenced by financial incentives, constituted administrative acts triggering imposition of the ERISA fiduciary duties.242 The Court explained that UR decisions made by HMOs (or 238. Cicio. v. Dees, 321 F.3d 83,87-88 (2d Cir. 2003). In Cicio, the plaintiff's physician recommended on January 28, 1998, "high dose chemotherapy supported by peripheral blood stem cell transplantation, in a tandem double transplant, for [Mr. Cicio's J diagnosis of multiple myeloma." /d. The HMO's medical director, Dr. Spears, on February 23, 1998, denied the request of Cicio's physician (Dr. Samuel) for preauthorization. /d. Dr. Spears noted that the procedure was not covered because Cico's health benefit plan stated that experimental/ investigational procedures were not covered. /d. On March 4, 1998, after unsuccessful attempts to contact Dr. Spears by telephone, Dr. Samuel wrote an appeal for reconsideration, noting that the recommended treatment was a well-established and effective treatment. /d. On March 25, 1998, Dr. Spears approved a single stem cell transplant, but again denied the original request for tandem stem cell transplant. /d. By March 25th, Cicio was no longer a candidate for the transplant. Cicio, 321 F.3d at 88. Cicio died on May 11, 1998. /d. On appeal, the claims remaining challenged the timeliness of Dr. Spears's decisions; the allegedly misleading nature of the HMO's representations about Cicio's health benefit plan; and the quality of the medical decision made by the defendants. /d. at 90. 239. /d. at 98. 240. Pegram v. Herdrich, 530 U.S. 211 (2000). 241. Cicio, 321 F.3d at 100-03 (noting that other cases finding medical practice claims preempted were decided before the Court's decision in Pegram, and that Pegram alters the framework used in prior cases by demonstrating that the presence of a medical component to a coverage decision is determinative). 242. In Pegram, the plaintiff Herdrich suffered injury when her physician, Dr. Pegram, discovered an inflamed mass in Herdrich's abdomen, but delayed the allegedly necessary ultrasound diagnostic procedure. Dr. Pegram decided that Herdrich could wait eight days in order to have the ultrasound performed at a facility staffed by Carle Care HMO, the HMO of which Dr. Pegram was both an owner and participating provider. Pegram, 530 U.S. at 215. Carle Care HMO had contracted with Herdrich' semployerto provide health coverage and administrative services for the employer's health benefit plan. Accordingly, Carle Care HMO was subject to certain duties imposed by ERISA. Herdrich alleged that Carle Care HMO 98 INDIANA HEALTH LAW REVIEW [Vol. 1:51 by physician owners of the HMO who also serve as the treating physician) fall into distinct categories: pure eligibility decisions, which tum on the plan's coverage of a particular condition or treatment;243 treatment decisions, which tum on issues of "how to go about diagnosing and treating a ... condition;"244 and "mixed eligibility and treatment decisions," which involve eligibility decisions that "cannot be untangled from physicians' judgments about reasonable medical treatment."245 The conduct challenged in Pegram con­ stituted mixed eligibility and treatment UR decisions,246 and the Court held that UR decisions which constitute mixed decisions do not constitute "administration of the plan," thereby defeating the plaintiffs claim for breach ofERISA's fiduciary duty.Z47 In supporting its decision, the Court in Pegram also noted that no breach of fiduciary duty action could be brought under ERISA because, in part, such an action would be a mere replication of state malpractice actions with HMO defendants. 248 The Court in Pegram also noted that allowing the ERISA claim would raise a "puzzling issue of preemption;" the Court pointed out that allowing the claim would raise a problematic "prescription for preemption," given that Travelers "throws some cold water" on the theory that ERISA pre­ empts medical malpractice claims.249 The court in Cicio therefore noted that the "availability of some state law malpractice actions based on at least some varieties of utilization review decisions was a predicate of the Court's holding [in Pegram]."250 Although not a preemption case, the Second Circuit in Cicio viewed the rationale used by the Court in Pegram as dictating that a mixed eligibility and treatment decision, that is, a UR determination made by a payor denying had breached ERISA's fiduciary duty by devising a system of financial incentives which influenced treatment decisions made by its physician owners. ld. at 215-16, 216 n.3. 243. I d. at 228-29. For example, "whether appendicitis is a covered condition (when there is no dispute that a patient has appendicitis) .... " I d. 244. ld. For example, "given the patient's constellation of symptoms, what is the appropriate medical response?" ld. 245. Pegram, 530 U.S. at 228-29. 246. In Pegram, physician owners of Carle Care HMO also served as treating physicians. Rather than having a process ofUR distinct and separate from the treating physicians' decisions (as in a more typical managed care organization), the Carle Care HMO physicians made treatment decisions and the UR or coverage decision simultaneously. In Pegram, the decision was whether Herdrich required an immediate ultrasound performed at the local hospital or whether it was reasonable to have Herdrich wait eight days for an ultrasound that could be performed at a Carle Care facility. The Court found that this decision and the others mentioned in Herdrich's complaint constituted mixed eligibility and treatment decisions. Id. at 229-30. 247. ld. 248. ld. at 235 (noting that allowing a breach of fiduciary action arising from actions constituting the exercise of medical judgment would "simply apply the law already available in state courts and federal diversity actions today .... "). See also Cicio v. Dees, 321 F.3d 83, lOl (2d Cir. 2003) (quoting Pegram, 530 U.S. at 236). 249. Pegram, 530 U.S. at 236-37. The Court in Pegram of course did not expressly address the preemption issue being explored in Cicio and in this Article. 250. Cicio, 321 F.3d at 101. 2004] REcENT MODIFICATIONS TO THE PREEMPTION DOCTRINE 99 recommended care based on a finding regarding medical necessity or the experimental nature of the treatment for a particular HMO subscriber, con­ stitutes an exercise of medical judgment. 251 Accordingly, the court held that the claimant's medical malpractice action "regulating" that conduct constitutes a state law regulating health care, and thus, is not preempted absent clear and manifest indication of congressional intent. 252 As noted, scholars have similarly viewed the recent Supreme Court cases involving the "connection with" analysis as supporting a finding that a state HMO liability law, as a law regulating health care does not sufficiently relate to ERISA plans to warrant preemption.253 Interestingly, the more recent Supreme Court cases, while supporting a holding that state HMO liability laws are not preempted, may not support Cicio's approach to the preemption analysis. More specifically, it is not clear that Rush supports Cicio's resolution of the issue through a finding that the medical malpractice cause of action, as a regulation of health care, does not sufficiently relate to ERISA benefits plans. In Rush, the IER law at issue could also be characterized as a law regulating health care. Yet, the Court in Rush summarily concluded that the law relates to an ERISA plan and therefore was preempted, unless saved. 254 Indeed, the majority in Rush referred to the IER law as a law regulating health care. The majority noted that the law set in motion a process resemb­ ling the practice of obtaining another medical opinion.255 Additionally, the Court explained that states often regulate insurance in order to safeguard the welfare of their citizens. For example, "Dlinois has chosen to regulate insur­ ance as one way to regulate the practice of medicine, which we have pre­ viously held to be permissible under ERISA. "256 The Court noted, [A]ny lingering doubt about the reasonableness of [the IER law] ... may be put to rest by recalling that regulating insur­ ance tied to what is medically necessary is probably insepar- 251. ld. at 102. The Court noted that decisions regularly made by payers, such as '"whether one treatment option is so superior to another under the circumstances, and needed so promptly, that a decision to proceed with it would meet the medical necessity requirement' in a health benefits contract, 'cannot be untangled from physicians' judgments about reasonable medical treatment'" ld. (quoting Pegram, 530 U.S. at 229). 252. ld. at 102 ("We conclude that a state law malpractice action, if based on a 'mixed eligibility and treatment decision,' is not subject to ERISA preemption when that state law cause of action challenges an allegedly flawed medical judgment as applied to a particular patient's symptoms."). 253. See, e.g., Jordan, supra note 2, at 442-49. 254. See Rush Prudential HMO, Inc. v. Moran, 536 U.S. 355, 365 (2002). ''It is beyond serious dispute ... that the [IER law] 'relates to' employee benefit plans .... " ld. 255. ld. at 383. "The reference to an independent reviewer is similar to the submission to a second physician, which many health insurers are required by law to provide before denying coverage." ld. 256. ld. at 387 (quoting Pegram, 530 U.S. at 237). 100 INDIANA HEALTH LAw REviEW [Vol. 1:51 able from enforcing the quintessentially state-law standards of reasonable medical care. '[I}n the field of health care, a subject of traditional state regulation, there is no ERISA pre­ emption without clear manifestation of congressional pur­ pose.'257 However, as noted, the Court in Rush found that the IER law related to ERISA plans and viewed the determinative issue as whether the law regulated insur­ ance and thus was saved from preemption. 258 Perhaps this was because the Dlinois IER law represented a direct regulation of HMOs and MCOs, 259 as would a state HMO liability law. Accordingly, although the most recent Supreme Court cases support the emerging view that state HMO liability laws are not preempted, they suggest that the outcome lies in the savings clause analysis. C. State HMO Liability Laws Satisfy the Broader View of Laws Regulating Insurance Based on the foregoing discussion, it could be argued that a full-blown savings clause analysis of state HMO liability laws is unnecessary because the Supreme Court's recent precedent at least arguably still suggests simply that, if the law is a law regulating health care, it is not preempted. It is possible that such an argument is correct However, in this author's view, it is far from certain how the Supreme Court will approach the issue of preemption of state HMO liability laws. The Court's discussion in Rush, relating to the inappro­ priateness of preemption of laws regulating health care, could be viewed simply as dicta provided as further support for the majority's conclusion­ which became more important given the view of four dissenting Justices that the IER law was impermissibly in conflict with ERISA • s exclusive enforce­ ment scheme. The more prudent course in any ERISA preemption action in which the validity of a state HMO law is at issue would be to formulate and articulate the full gamut of savings clause arguments. After Rush and KAHP, a law is saved from ERISA preemption if it (1) constitutes a law specifically directed at the insurance industry and (2) sub­ stantially affects the risk pooling arrangement between the insurer and the insured. The crux of the analysis is a parsing of the who and the what of the regulation. Laws are saved from preemption if they regulate entities in the insurance industry with respect to their insurance practices. 257. Id. 258. See supra notes 41-43 and accompanying text 259. 215 IlL COMP. STAT. ANN. 125/1-2 (West 2003). The lllinois ffiR law defines a Health Maintenance Organization as "any organization formed under the laws of this or another state to provide or arrange for one or more health care plans under a system which causes any part of the risk of health care delivery to be borne by the organization or its providers." Id. 2004] RECENT MODIFICATIONS TO THE PREEMPTION DOCTRINE 1. Are State HMO Liability Laws "Specifically Directed" at the Insurance Industry? 101 As noted, legislatively enacted state HMO liability laws typically impose the duty of care on health carriers260 or health insurance carriers,261 managed care entities, 262 HMOs,263 or organized delivery systems.264 These terms are defined to reach entities with which an employer may contract to provide health coverage for its employees or to provide administrative services for employers that self-insure.265 Both Rush and KAHP took a broad view of the who prong of the analysis and found it was satisfied if the laws primarily target entities which sufficiently engage in insurance activities. Nonetheless, as explored in the following paragraphs, it is not clear whether state HMO liability laws will always pass the test. The Court in Rush specifically held that HMOs sufficiently engage in insurance activities for the IER law to be specifically directed at the insurance industry, despite also engaging in non-insurance activities. According to the Court, HMOs engage in insurance activities because they assume financial risk and underwrite and spread risk among their participants. 266 Further, the Court in KAHP specifically noted that HMOs that provide solely administrative services for self-insured plans sufficiently engage in insurance activities to satisfy the test. Similarly, the other entities often targeted by state HMO liability laws-for example, "managed care entities" or "organized delivery systems" -can readily be characterized as sufficiently engaging in insurance activities. Although their structures may vary considerably, most MCOs oper- 260. See WASH. REV. CODE ANN. § 48.43.545(1)(a) (West 2003); ME. REV. STAT. ANN. tit. 24-A, § 4313 (l)(A) (West 2003); N.J. STAT. ANN.§ 2A:53A-33(a) (West 2003). 261. See TEX. CIV. PRAC. & REM. CODE ANN. § 88.002(a) (Vernon 2003); OKLA. STAT. tit. 36, § 6593(A) (2003). 262. See TEX. CIV. PRAC. & REM. CODE ANN. § 88.002(a) (Vernon 2003); OKLA. STAT. tit. 36,§ 6593(A) (2003); N.C. GEN. STAT. § 90-21.5l(a) (2001). 263. See TEx. CIV. PRAC. & REM. CODE ANN. § 88.002(a) (Vernon 2003); OKLA. STAT. tit. 36, § 6593(A) (2003). 264. See N.J. STAT. ANN.§ 2A:53A-33(a) (West 2003). 265. WASH. REv. CODE ANN.§ 48.43.005(18) (West2003). For example, Washington's HMO liability laws imposes the duty on health carriers and defines that term to include a "disability insurer, . . . a health care service contractor, . . . or a health maintenance organization." ld. See also TEx. CIV. PRAC. & REM. CODE ANN.§ 88.001(8) (Vernon 2003). The Texas HMO liability law imposes the duty on, inter alia, "managed care entities" and defines that term to include: !d. [A]ny entity which delivers, administers, or assumes the risk for health care services, with systems or techniques to control or influence the quality, accessibility, utilization, or costs and prices of such services, to a defined enrollee population, but does not include an employer purchasing coverage or acting on behalf of its employees .... 266. Rush Prudential HMO, Inc. v. Moran, 536 U.S. 355, 365-66 (2002). See also supra notes 74-79 and accompanying text. 102 INDIANA HEALTH LAw REviEW [Vol. 1:51 ate comparably to HMOs: they assume financial risk and underwrite and spread risk among their participants or provide administrative services for self­ insured plans.267 Thus, if Rush and KAHP provide the only precedent. state HMO liability laws can readily be viewed as being specifically directed towards the insurance industry. However, as noted, Rush and KAHP did not address the reasoning articulated in Pilot Life for its determination that a common law bad faith breach of contract action was not specifically directed at the insurance indus­ try. In Pilot Life, the specific cause of action at issue was applicable only to those in the insurance industry; the state law cause action had evolved from general principles of tort and contract law, which. obviously, were not applicable only to insurers.268 This consideration was not relevant in Rush and KAHP because the cases involved state laws enacted by legislatures that did not simply evolve from pre-existing general principles. Because the Court in Rush and KAHP did not expressly or impliedly overrule this aspect of Pilot Life, it is logical to conclude that this reasoning still may be relevant to the inquiry. If so, this aspect of Pilot Life raises one of the harder savings clause issues related to state HMO liability laws. As to a common law, judicially recognized medical malpractice liability claim against an HMO, the better argument may be that Pilot Life precludes a finding that the law is specifically directed at the insurance industry. Such a cause of action represents an evolu­ tion of basic tort law to newly emerging conduct that constitutes an exercise of medical judgment. The analysis is less clear as to legislatively enacted state HMO liability laws. For example, at least one lower court has recently held that a state statute authorizing a civil action for bad faith breach of an insurance contract. which expressly limits the action to the insurance context, is distinguishable from the law in Pilot Life and is fairly characterized as being specifically directed towards the insurance industry. 269 This court. however, still found the statute preempted based on other savings clause standards. 270 Thus, although it is unclear whether the emphasis in Rush and KAHP on the who of regulation diminishes Pilot Life's specifically directed rationale, this factor nonetheless may be satisfied as to a legislatively enacted HMO liability law. 267. See, e.g., Vickie Yates Brown & Barbara Reid Harting, Managed Care at the Crossroads: Can Managed Care OrganiUJiions Survive Government Regulation?, 7 ANNALS HEALTHL. 25,27-29 (1998) (describing various fot'lm of managed care organizations). 268. See supra notes 124-26 and accompanying text 269. See, e.g., Bell v. UNUM Provident Corp., 222 F. Supp. 2d 692, 696-97 (B.D. Pa. 2002) (discussing recent cases and concluding that, under the common sense test Pennsylvania's bad faith statute "regulates insurance" because it is applicable only to insurers in actions arising under an insurance policy and is never applied outside the insurance industry). 270. ld. 2004] RECENT MODIFICATIONS TO THE PREEMPTION DOCTRINE 103 2. The Laws Substantially Affect the Risk Pooling Arrangement In KAHP, Justice Scalia wrote that to be saved from preemption, a state law must also substantially affect the risk pooling arrangement between the insurer and the insured.271 Although the meaning of Justice Scalia's tenninology is not entirely clear, it is arguable that the test broadly encompasses any state law which has a substantial (or important) effect on any health coverage product offered by a health coverage provider. 272 A state law which allows injured subscribers to bring a civil action for damages arising from an HMO' s negligent medical necessity determination would seem to satisfy this test. State HMO liability laws do not directly affect the product offered by health coverage providers-that is, the policy or health coverage itself. However, they arguably produce an indirect effect. If HMOs can be held accountable for coverage decisions that constitute medical decisions and held liable for monetary damages for a breach of a tort duty of care, it is reasonable to conclude that HMOs will use some greater care in the UR process; thereby resulting in an improved health coverage product Additionally, since most insurers strive to make a profit by maintaining predictable and stable levels of risk and by setting premiums at a level tailored to ensure a reasonable profit, 273 it is reasonable to conclude -that a law allowing liability for negligent UR decisions will impact the underwriting and premium setting process. Thus, state HMO liability laws arguably have an important effect on the product offered by health coverage providers. The unknown is whether the above described effects are sufficiently substantial to satisfy Justice Scalia's new test. Language in other relevant Supreme Court precedent perhaps sheds light on this question. In Royal Drug, the Court noted that Congress wanted to preserve state law regulation of insurance because it was concerned with "[t]he relationship between insurer and insured, the type of policy which could be issued, [and] its reliability, interpretation, and enforcement.'m4 Although the Court in KAHP made a clean break: from the McCarran-Ferguson factors developed in Royal Drug, KAHP does not suggest that the Court's general statements in Royal Drug about laws regulating insurance law are no longer relevant. Rather, because the Court in both Rush and KAHP broadened the scope of the savings clause, it is reasonable to conclude that the Court's general language regarding laws regulating insurance (even if made in the context of the narrow antitrust exemption) is still relevant. Thus, if the effect of a state law is to enhance the reliability of coverage decisions or the interpretive process used by a health coverage provider or to strengthen a subscriber's ability to enforce promises 271. See supra notes 118-19 and accompanying text. 272. See supra notes 128-38 and accompanying text. 273. See supra notes 129-36 and accompanying text. 274. See supra notes 107-13 and accOmpanYing text. 104 INDIANA HEALTH LAW REVIEW [Vol. 1:51 made in the health coverage policy, the effect readily seems sufficiently substantial to fall within the scope of Justice Scalia's test. A state HMO liability law has two important effects. Such a law may well make it more likely that an HMO or MCO will promptly approve cover­ age of recommended medical services that are arguably medically necessary. Similarly, a state HMO liability law may enhance the ability of subscribers to deter negligent UR activity. Thus, it is reasonable to argue that the law thereby enhances the reliability of coverage decisions and the interpretive process used by the health coverage provider and moreover, strengthens subscribers' ability to enforce the policy. The effect therefore readily seems sufficiently substantial to warrant exemption from preemption as a law regulating insurance, unless, of course, the law still falls within the conflict preemption exception to the savings clause. D. State HMO Liability Laws Likely Fall Outside Justice Souter's Carefully Drawn Conflict Preemption Exception As discussed in the foregoing sections, Rush and KAHP suggest that the Court may determine that state HMO liability laws relate to ERISA plans, but also constitute laws regulating insurance. As such, the conflict preemption principles may present the crux of the preemption analysis of state HMO liability laws-which is perhaps why Justice Souter took such care in narrow­ ing the role of conflict preemption in the ERISA context. HMOs will strongly urge the Court to find that state HMO liability laws conflict with ERISA's exclusive civil enforcement provisions by impermissibly providing an alterna­ tive cause of action with alternative remedies, thereby warranting preemption despite being characterized as a law regulating insurance. Whether HMOs are successful in this argument depends on whether five Justices again agree with Justice Souter's more narrow view of the preemptive force of ERISA § 502( a). As noted, some have construed Rush as affirming the idea that ERISA preempts state common law and legislative HMO liability laws.275 In the December 2002 article published in the American Bar Association's ("ABA") publication, The Health Lawyer, the authors concluded that Rush "would appear also to invalidate state [common law] and legislative attempts to create additional judicial rights and remedies for ERISA participants under the rubric of 'insurance regulation. "'276 The authors then expressly opined that Rush confirms the broad view of the preemptive force of ERISA' s civil enforcement provisions, and that the preemptive force of Pilot Life would preclude state 275. See Pimstone & Johnson, supra note 20, at 7-9; see also Humiston et al., supra note 19, at 7-8 (viewing Rush as being consistent with the quality-quantity distinction that evolved from the Concoran and Dukes line of cases). 276. Pimstone & Johnson, supra note 20, at 8. 2004] RECENT MODIFICATIONS TO THE PREEMPTION DoCTRINE 105 laws such as California's HMO liability law.277 That view of Rush, however, is inconsistent with the majority's careful narrowing of the conflict preemption exception to the savings clause. The authors of the ABA article seemed to focus only on Justice Souter's statements regarding state laws affording remedies, in a judicial forum, other than those specified in ERISA;278 they failed to notice the integral accompanying statements clarifying cases, such as Pilot Life, involving plaintiffs using state laws to enforce claims that were actually available under ERISA. 279 Yet, Justice Souter's careful description of the key precedent, including Pilot Life, must be read as a whole. Recall that the majority opinion in Rush carefully confmed the scope of the conflict preemption exception in accordance with the contours of the key Supreme Court precedent. 280 Read as a whole, Justice Souter's discussion stressed that, in each earlier case, the state law at issue provided a vehicle for a claimant to pursue, in a judicial forum, a claim that was, in essence, actually available under ERISA (claims for breach of the duty to pay benefits due and a claim for discrimination prohibited by ERISA) and yet would have resulted in a remedy other than those specified in ERISA.281 Thus, in determining whether the conflict preemption exception is available, Justice Souter clarified that the focus is .not just on the remedy afforded by the state law but also depends on the claim, as well as the timing and forum of the relief provided by the state law. State HMO liability laws without question allow a remedy other than those specified by ERISA § 502(a). For example, California Civil Code Section 3428 provides that HMOs shall be liable for "any and all harm" caused by the HMO' s violation of the duty imposed, and that damages recoverable for violation of the law include "the amount which will compensate for all detri- 277. /d. (noting that, inter alia, "Rush affinns the continuing vitality and relevance of Pilot Life;" and "[t]he Supreme Court in Rush underscored the 'overpowering federal policy of exclusivity in ERISA's civil enforcement provisions."'). 278. ld. For example, the authors noted that the Court in Rush declared that, in considering whether the preemptive force of§ 502(a) warrants preemption, "a state provision regulating insurance will lose if it allows plan participants 'to obtain remedies ... that Congress rejected in ERISA."' /d. Similarly, the authors noted: "A state law 'that provided a form of ultimate relief in a judicial forum that added to the judicial remedies provided by ERISA, declared the Rush Court, would 'patently violate[]' ERISA's policies and is preempted." /d. 279. ld. This oversight may be attributable to the fact that the authors' focus throughout most of the article was on continued preemption of state bad faith claims. Pimstone & Johnson, supra note 20, at 8. Because bad faith claims are grounded in a duty imposed by contract law (and ERISA imposes comparable duties to conform to the terms of the insurance policy governing the ERISA plan), the argument that ERISA preempts such state laws remains viable after Rush. /d. However, the authors' conclusions went beyond state bad faith claims. /d. 280. See supra notes 158-69 and accompanying text 281. /d. 106 INDIANA HEAL'IH LAW REVIEW [Vol. 1:51 ment proximately caused thereby .... "282 Several Supreme Court cases have expressly held that ERISA does not authorize compensatOry damages.283 State HMO liability laws also provide a vehicle for a claimant to pursue that form of ''ultimate relief' in a judicial forum. In Rush, the majority recog­ nized that any remedy available as a result of the IER law would be attainable only by way of a§ 502(a)(l)(B) action for benefits,due.284 That is, the IER law created a process through which an HMO subscriber attained a right to coverage of a claim for benefits but did not create a private right of action or a vehicle for accessing the ultimate remedy for violation of that right. Unlike the IER law at issue in Rush, state HMO liability laws create both a right to the remedy and a vehicle for accessing the remedy for violation of that right. As with the California law, the right created by state HMO liability laws is the right to have liMOs use ordinary care in making medical necessity deter­ minations. 285 Also, the vehicle for accessing the remedy of compensatory damages is a cause of action or a civil action in a judicial forum. Moreover, many state HMO liability laws specifically provide that, subject to certain exceptions, the cause of action cannot be maintained until the claimant has exhausted all required internal and external review of the medical necessity determination, 286 thereby further indicating that the remedy is a form of ultimate relief. However, state HMO liability laws do not satisfy one key requirement stressed by Justice Souter for application of the conflict preemption exception. The claim created by state HMO liability laws is not a claim that is, in essence, available under ERISA. In Rush, Justice Souter carefully pointed out that the key Supreme Court precedent involved claims that were grounded in duties imposed by ERISA. 287 In Russell and Pilot Life, the plaintiffs sought benefits due under the insurance policies at issue; the plaintiffs' claims therefore predominantly were grounded in breach of ERISA's directive to pay claims due under the terms of an ERISA plan.288 In Ingersoll-Rand, the plaintiff's claim was grounded in conduct that constituted 282. See CAL. Civ. CODE§ 3428(a), (j) (West 2003); see also id.§ 3333. 283. See Rush Prudential HMO, Inc. v. Moran, 536 U.S. 355, 378 (2002) (describing the Court's holdings in Metropolitan Life, Russell, and Pilot Life). 284. /d. at 379-80. 285. See supra note 216 and accompanying text. 286. See, e.g., CAL. CN. CODE§ 3428(k)(1). A person may not maintain a cause of action pursuant to this section against any entity required to comply with any independent medical review system or independent review system required by law unless the person or his or her representative has exhausted the procedures provided by the applicable independent review system Id. Exceptions exist for cases where substantial harm has or will occur prior to completion of the review. See id. § 3428(k)(2)(A)-(B). 287. See supra notes 158-69 and accompanying text. 288. See Rush, 536 U.S. at 378-80. 2004] RECENT MODIFICATIONS TO THE PREEMPTION DOCTRlNE 107 a violation of ERISA's directive prohibiting discrimination in relation to employment benefits.289 In contrast, the state HMO liability laws do not create a claim that is grounded in a duty imposed by ERISA. State HMO liability laws impose on HMOs a tort duty to use reasonable (or ordinary) care when making medical necessity determinations.290 To conclude that the HMO liability tort duty is not, in essence, imposed by ERISA, the Supreme Court's determination in Pegram becomes relevant. As explained, the Court in Pegram held that, even if made by an HMO serving as an ERISA plan administrator, UR decisions based on medical necessity determinations constitute mixed eligibility and treatment decisions and thus are not "administration of the plan" as that phrase is used in ERISA. 291 Rather, such decisions constitute the exercise of medical judgment. Moreover, the Court explained that state law, not ERISA, regulates the exercise of medical judgment.292 Thus, because ERISA imposes no duty or directive comparable to the duty imposed by state HMO liability laws, the claim or cause of action created by state HMO liability laws is not grounded in duties imposed by ERISA and thus is not a claim that is, in essence, available under ERISA. In sum, although state HMO liability laws create a vehicle for accessing, in a judicial forum, a form of ultimate remedy that is not available under ERISA, saving the law from preemption does not impermissibly conflict with ERISA's civil enforcement provisions. Because ERISA imposes no duty or directive comparable to the duty imposed by state HMO liability laws, the claim or cause of action created by state HMO liability laws is not a claim that is, in essence, available under ERISA. Therefore, according to the carefully drawn lines in the majority opinion in Rush, state HMO liability laws are outside the scope of the conflict preemption exception, thereby allowing the laws to be saved from preemption as laws regulating insurance. VI. CONCLUSION Continuing the trend begun in 1995 in Travelers, the Supreme Court in Rush and KAHP has added significantly to the doctrinal aspects of ERISA preemption and, more specifically, to the doctrinal aspects of ERISA' s savings clause. As detailed in this Article, the reworked basic savings clause standards should result in lower courts more readily finding state managed care reform laws to be within the scope of ERISA' s savings clause, thereby strengthening the role of states in regulating activities and strategies of HMOs and other managed care entities. Indeed, because of the Court's rejection of the conflict 289. Ingersoll-Rand Co. v. McClendon, 498 U.S. 133, 142-43 (1990). 290. See supra note 216 and accompanying text. 291. Pegram v. Herdrich, 530 U.S. 211, 229-30 (2000). See supra notes 240-49 and accom­ panying text. 292. Pegram, 530 U.S. at 248-29. 108 INDIANA HEALTH LAW REviEW (Vol. 1:51 preemption principles beyond the preemptive force of ERISA' s civil enforce­ ment provisions, and because the burden of such regulations was found to rest on the HMO or MCO, not on the ERISA plan itself, the cases suggest that states have a role in regulating HMOs and MCOs even as to activities and strategies that constitute administration of ERISA plans. The Court was unconcerned about the "disuniformity" affecting insured ERISA plans operat­ ing in multiple states because that is simply the inevitable consequence of Congress' decision to exempt from preemption state laws regulating insurance. Some issues remain uncertain, of course. Most notably, it is not absolute­ ly clear how the Court would resolve the question whether ERISA preempts emerging state HMO liability laws. Overall, Rush and KAHP seem to support the emerging perspective that ERISA does not preempt state HMO liability laws. However, the crux of the analysis may well hinge on application of conflict preemption principles and, specifically, on the Court's view of the preemptive force ofERISA's civil enforcement provisions. Justice Souter's opinion in Rush, which was joined by a majority of the Justices, seems to clear the way for state HMO liability laws by carefully describing the holdings in key cases in an effort to delimit the preemptive force of§ 502(a). This Article has attempted to explain and emphasize the limitations detailed by Justice Souter. Using Justice Souter's analysis, state HMO liability laws fall outside the scope of the preemptive force of § 502( a). Ultimately, then, the key question is whether a majority of the Court will again join in a narrow view of the preemptive force of ERISA' s civil enforcement provisions.