ERISA Preempts State Statutes Allowing Tort Lawsuits When HMOs Refuse To Cover Doctor-Recommended Drugs and Procedures

In Aetna Health v. Davila (2004) 542 U.S. 200, 124S.Ct.2488, 159 L.Ed.2d 319, plaintiffs, a participant and an unrelated beneficiary in employee benefit plans regulated by the Employee Retirement Income Security Act of 1974 (ERISA), sued their respective health maintenance organizations (HMOs), alleged that defendants' refusal to pay for a prescribed drug and to extend a hospital stay violated a duty imposed by a Texas statute to exercise ordinary care when making health care treatment decisions and that this violation proximately caused their injuries. Plaintiffs sued in state court, but defendants, arguing that the causes of action were preempted by ERISA, removed to federal court. The district court agreed and declined to remand the cases to state court. On appeal, the Court of Appeals for the Fifth District reversed. Held, judgment of the Court of Appeals reversed.

(a) Congress enacted ERISA to protect the interests of participants in employee benefit plans and their beneficiaries by setting out comprehensive regulatory requirements for these plans and by providing for appropriate remedies, sanctions, and ready access to the federal courts. Hence, essential to the purpose of creating comprehensive regulation is an integrated system of procedures for enforcement. ERISA §502(a), which contains six carefully integrated civil enforcement procedures, clearly indicates that Congress did not intend to authorize other remedies that it forgot to expressly incorporate. Hence, any state law cause of action that duplicates, supplements, or supplants the ERISA civil enforcement remedy conflicts with the clear Congressional intent to make the ERISA remedy exclusive, and is thus preempted. (124 S.Ct. 2495, 159 L.Ed.2d 326, citing Pilot Life Ins. Co. v. Dedeaux (1987) 481 U.S. 41, 107 S.Ct. 1549, 95 L.Ed.2d 39, 7 Summary (10th), Constitutional Law, §14.)

(b) The preemptive force of ERISA is made still stronger by the fact that its language is similar to §301 of the Labor-Management Relations Act of 1947 (LMRA; see 3 Summary (10th), Agency and Employment, §537, 538). And because LMRA, §301 is one of those provisions with "extraordinary preemptive power" that converts state causes of action into federal ones for purposes of determining the propriety of removal (see Avco Corp v. Machinists (1968) 390 U.S. 557, 88 S.Ct. 1235, 20 L.Ed.2d 126), so too does ERISA §502(a). (124 S.Ct. 2497, 159 L.Ed 2d 329.)

(c) ERISA §502(a)(1)(B), the relevant portion of §502(a), provides for a civil action to recover benefits due under the plan, to enforce plan rights, and to clarify the right to future rights. Under this provision, a participant or beneficiary who believes that benefits promised under the plan are not being provided may bring suit seeking provision of those benefits. It follows that if an individual brings suit complaining of a denial of coverage, the cause of action falls within ERISA §502(a)(1)(B), at least where the individual is entitled to such coverage only because of the terms of the plan and where no legal duty independent of ERISA or the plan terms is violated. Here, by alleging that defendants failed to pay for a drug prescribed by a primary care physician and refused to authorize more than a single day of hospital care despite the advice of the treating physician, it is clear that plaintiffs are complaining only about denial of coverage. (124 S.Ct. 2497, 159 L.Ed 2d 329.)

(d) Upon the denial of rights, plaintiffs could have paid for the treatment themselves and then sought reimbursement through a §502(a)(1)(B) action, or sought a preliminary injunction. However, plaintiffs contended that (1) defendants' actions violated the duty to use ordinary care, a duty that allegedly arose under a state statute independent of ERISA; and (2) an action to enforce this duty was thus not within the scope of ERISA. This contention is without merit. If a managed care entity correctly concludes that a particular treatment is not covered, the entity's denial of coverage is not the proximate cause of any injuries resulting from that denial. Rather, the failure of the plan itself to cover the requested treatment is the proximate cause. Moreover, the relevant state statute clearly provides that the standards contained therein create no obligation on the part of an HMO to provide coverage that is not covered by the health plan. Hence, plaintiffs bring suit only to rectify a wrongful denial of benefits promised under ERISA-regulated plans, and do not attempt to remedy any violation of a legal duty independent of ERISA. (124 S.Ct. 2498, 159 L.Ed 2d 330, following Allis-Chalmers Corp. v. Lueck (1985) 471 U.S. 202, 105 S.Ct. 1904, 85 L.Ed.2d 206, 3 Summary (10th), Agency and Employment, §551, and distinguishing Caterpillar v. Williams (1987) 482 U.S. 386, 107 S.Ct. 2425, 96 L.Ed.2d 318, 3 Summary (10th), Agency and Employment, Supp., §553.)

(e) Besides the aforementioned independent duty theory, the Court of Appeals based its conclusion on the following reasoning: (1) plaintiffs asserted a tort claim for tort damages rather than a contract claim for contract damages; and (2) Rush Prudential HMO v. Moran (2002) 536 U.S. 355, 122 S.Ct. 2151, 153 L.Ed.2d 375, said that the preemptive force of ERISA §502(a) was limited to situations in which a state cause of action "precisely" duplicated a cause of action under ERISA. Both contentions are without merit: (1) Distinguishing between preempted and nonpreempted claims based on the label affixed to them would elevate form over substance. Moreover, the mere fact that a state cause of action attempts to authorize remedies beyond those authorized by §502(a) does not put the cause of action outside the ERISA civil enforcement mechanism (see Pilot Life, supra, Ingersoll-Rand Co. v. McClendon (1990) 498 U.S. 133, 111 S.Ct. 478, 112 L.Ed.2d 474, 7 Summary (10th), Constitutional Law, §14, and Metropolitan Life Ins. Co. v. Taylor (1987) 481 U.S. 58, 107 S.Ct. 1542, 95 L. Ed.2d 55). (2) The part of the Rush decision relied on was meant to explain why a particular state cause of action was preempted (attempted to convert an equitable remedy into a legal remedy), not to require precise duplication between a state cause of action and one under ERISA. (124 S.Ct. 2499, 159 L.Ed 2d 331.)

(f) Plaintiffs argued that the applicable state statute, being one that regulates insurance, is saved from preemption by ERISA §514(b)(2)(A) (ERISA does not exempt person from state statute regulating insurance). However, §514(b)(2)(A) must be interpreted in light of the Congressional intent underlying the enactment of §502(a), i.e., to create an exclusive federal remedy. Hence, even if a state statute can arguably be characterized as regulating insurance, it will nevertheless be preempted if it provides a separate vehicle (one outside of or in addition to ERISA's remedial scheme) to assert a claim for benefits. (124 S.Ct. 2500, 159 L.Ed 2d 332, citing Pilot Life, supra.)

(g) Plaintiffs' final contention is that, under Pegram v. Hendrich (2000) 530 U.S. 211, 120 S.Ct. 2143, 147 L.Ed.2d 164, 3 Summary (10th), Agency and Employment, §408, causes of action such as theirs do not relate to an employee benefit plan and hence are not preempted. However, in Pegram, the plaintiff sued a physician-owned and -operated HMO, where the treating physician was also the person charged with administering the plaintiff's benefits. The Pegram court concluded that the physician's decisions regarding eligibility and treatment were inextricably mixed and that the defendant HMO was not acting as a fiduciary. However, a benefit determination under ERISA that is not mixed with treatment decisions, as is the situation here, is a fiduciary act, and thus Pegram is not controlling. The fact that a benefits determination is infused with medical judgments does not alter this result. (124 S.Ct. 2500, 159 L.Ed 2d 333.)

Witkin References

On California statute allowing suits against HMOs for breach of duty of ordinary care, see 6 Summary (10th), Torts, §937.

On relations between states and federal government generally, see 7 Summary (10th), Constitutional Law, §8 et seq.

On ERISA, see 2 Summary (10th), Agency and Employment, §406 et seq.; 7 Summary (10th), Constitutional Law, §14.