The HMOs removed the cases to Federal Court arguing that the respondents' causes of action were completely preempted by ERISA §502(a), 29 U.S.C. §1132(a). Because the respondents refused to amend their complaints to bring explicit ERISA claims and pursued solely the THCLA causes of action, the underlying District Courts dismissed the two complaints with prejudice.

The Supreme Court held that removal to Federal Court was proper because ERISA pre-empted the respondents' state law causes of action. Noting that the purpose of ERISA is to provide a uniform regulatory regime over employee benefit plans, the Court ruled that any state law cause of action that duplicates, supplants or even supplements the ERISA civil enforcement remedies conflicts with the clear Congressional intent to make ERISA the exclusive remedy and is therefore preempted. Id. at *6. Where, as here, suit is brought for the denial of coverage for medical care and the claimant is entitled to such coverage only because of the terms of an ERISA regulated employee benefit plan, the suit falls "within the scope of ERISA" and is preempted by ERISA unless it is premised on the breach of a legal duty (state or federal) independent of ERISA. Id. at *7. "Congress' intent to make the ERISA civil enforcement mechanism exclusive would be undermined if state causes of action that supplement the ERISA §502(a) remedies were permitted, even if the elements of the state cause of action did not precisely duplicate the elements of an ERISA claim." Id. at *10.

Respondents contended that their causes of action were premised on the breaches of duties that arose independently of ERISA or the terms of the employee benefit plans. Both respondents had brought suit under the THCLA alleging that the HMOs "controlled, influenced, participated in and made decisions which affected the quality of the diagnosis, care, and treatment provided" in a manner that violated the duty of ordinary care set forth in the THCLA Id. at *8. They contended that the duty of ordinary care under the THCLA was a legal duty independent of ERISA, but the Supreme Court disagreed. According to the Court, the interpretation of the terms of the benefit plans formed an essential part of the THCLA claims and THCLA liability existed only because of the petitioners' administration of the ERISA regulated plans. The respondents brought suit only to rectify wrongful denials of benefits promised under ERISA-regulated plans and did not intend to remedy any violation of a legal duty independent of ERISA. Because the HMOs' potential liability under the THCLA derived entirely from the rights and obligations established by the plans, the claims were preempted by ERISA. Id. at *8-9.

The Court also addressed and broadened the scope of ERISA's "preemption clause," ERISA §514(a), 29 USC §1144(a), which states that ERISA supercedes any and all state laws that relate to any employee benefit plan, except laws which regulate insurance, banking or securities. According to the Court, "even a state law that can arguably be characterized as 'regulating insurance' will be preempted if it provides a separate vehicle to assert a claim for benefits outside of, or in addition to, ERISA's remedial scheme." Id. at *11.

Lastly, the Court clarified its previous ruling in Pegram v. Herdrich, 530 U.S. 211, 120 S. Ct. 2143 (2000), in which it stated that HMOs would not be treated as fiduciaries where, acting through their physicians, they make mixed medical care and eligibility decisions. In Pegram, the plaintiff had sued her physician-owned-and-operated HMO for both medical malpractice and the breach of its fiduciary duty under ERISA. The plaintiff's treating physician was the person charged with administering her benefits and deciding whether certain treatments were covered under the plan.

Justice Thomas recognized that benefit determinations are "part and parcel of the ordinary fiduciary responsibilities connected to the administration of a plan." Davila, supra, at *11. The fact that the determination of benefits is "infused with medical judgments does not alter that result." Id. The Court concluded that "mixed eligibility decisions" are not fiduciary in nature and, thus, are not preempted, where the same person or entity makes both the medical and coverage decisions. In Davilia, neither Aetna nor CIGNA were respondents' treating physicians or the employers of respondents' treating physicians. Consequently, their coverage decisions were deemed to have been pure eligibility decisions even though they involved medical judgments and were, thus, preempted.

Justices Ginsburg and Breyer filed a concurring opinion highlighting their growing concern over the "encompassing interpretation of ERISA's preemptive force with a cramped construction of the 'equitable relief' allowable under §502(a)(3)," as a result of which they believe a "regulatory vacuum" has grown to exist. Id. at *13. Justice Ginsburg (and Justice Breyer) expressed her joinder with "greater enthusiasm" in "the rising judicial chorus urging that Congress and this Court revisit what is an unjust and increasingly tangled ERISA regime." Id.

Significant for those in the Third Circuit particularly is Justice Ginsburg's citation to Judge Becker's concurring opinion in DiFelice v. Aetna U.S. Healthcare, 346 F.3d 442, 453 (3d Cir. 2003), in which Judge Becker opined that "ERISA has evolved into a shield that insulates HMOs from liability for even the most egregious acts of dereliction committed against plan beneficiaries" and that "ERISA jurisprudence creates a monetary incentive for HMOs to mistreat beneficiaries, who are often in the throes of medical crises and entirely unable to assert what legal rights they possess." Id.

In his strongly worded opinion, Judge Becker (and, thus, presumably, Justices Ginsburg and Breyer) believed that the remedies contained in §502 are incapable of making victims whole and create incentives for HMOs to mistreat their plan participants. Prior rulings by the Supreme Court and other Courts have held that Section 502(a)(1)(B) only allows plan participates to seek benefits to which they are contractually entitled and does not permit extra-contractual damages, whether consequential or punitive. According to Judge Becker, this has prevented participants and beneficiaries from retaining attorneys on a contingency fee basis, without which, according to Judge Becker, very few lawyers would be willing to undertake the complex task of litigating ERISA claims. Additionally, the Court's prior rulings have made it very difficult for an injunction to be brought to enforce a participant's rights. This, according to Judge Becker, has created an incentive for HMOs to deny claims in bad faith since "the greatest cost it could face is being compelled to cover the procedure, the very cost it would have faced had it acted in good faith." Id. at 459.

Judge Becker concluded his opinion by stating:

The vital thing. . . is that either Congress or the Court act quickly, because the current situation is plainly untenable. Lower courts are routinely forced to dismiss entirely justified complaints by plan participates who have been grievously injured by HMOs and plan sponsors, all because of ERISA, the very purpose of which was to safeguard those very participants. Our dockets grow increasingly crowded with cases where participants offer myriad varieties of artful pleadings in their desperate attempts to circumvent ERISA's procrustean reach, and our case law grows massively inconsistent due to the shear complexities of the subject and lack of any meaningful guidance. There must be a better way.

Id. 467.

Whether ERISA undergoes the revisions promoted by Judge Becker and Justice Ginsburg remains to be seen.

Should you have any questions regarding this matter, please call or e-mail John P. Davis, III at (412) 261-6400 or jpd@jpcg.com.