From Tue Dec 29 17:51:39 1998
Date: Tue, 29 Dec 1998 11:07:00 -0500
To: The Insurer Crime Outline 
Subject: ERISA on the ropes

We cover P&C mostly, and although they destroy lives, most of the  time 
they don't actually kill people.  HMOs do, so it's good to hear  that 
ERISA is on the ropes in Pennsylvania.  Of course, the  Supreme Court 
still has to make the right decision.  Now if only  they could dump 

We normally don't send out this many posts at once, but  everything seems 
to be breaking loose as we approach the New  Year.  The ERISA battle 
should be a big story come 1999 if the  media can get out of Clinton's 

Jim and Paula

From the PA law network at

Pa. High Court: No ERISA Preemption of MedMal Case

By Michael A Riccardi 
The Legal Intelligener 
Monday, December 28, 1998

In a decision that may have a long-term impact on medical  malpractice 
litigation in Pennsylvania, the state Supreme Court  handed down its 
long-awaited ruling on ERISA preemption just  before Christmas. 

Under the Court's broadly worded decision, claims of medical  negligence 
against health maintenance organizations are not  preempted by ERISA. 

The Court based its ruling on recent decisions in the U.S. Supreme  Court 
which have significantly narrowed that Court's reading of the  ERISA 
preemption provision, although not in the context of a  medical 
malpractice claim. 

The Pennsylvania Court acknowledged that the U.S. Supreme  Court has yet 
to squarely address the issue of whether a  negligence claim against a 
health maintenance organization  "relates to" an ERISA plan. 

The Court's ruling in Pappas v. Asbel, PICS Case No. 98-2701 (Pa.  Dec. 
23, 1998) Cappy, J.; Nigro, J. concurring (16 pages), means  that the 
third-party claim against U.S. Healthcare brought by  defendant Haverford 
Hospital can go forward. The claim was  dismissed on summary judgment. 

The majority's finding against preemption in the medical  malpractice 
context is broader than the Third Circuit's formulation  of the issue in 
Dukes v. U.S. Healthcare, Inc., 57 F.3d 350 (3d Cir.  1995). 

In that case, the court distinguished between claims challenging  the 
denial of benefits as opposed to the quality of care provided.  Under 
Dukes, the former type of claim is preempted, while claims  challenging 
the quality of health care are not. 

Pappas presented at the emergency  room of Haverford Community Hospital at 
11:00 a.m. on May 21,  1991 with complaints of paralysis and numbness in 
his extremities.  The physician on duty, Stephen Dickter, determined that 
an  epidural abscess was pressing on the spine and that immediate  
transfer to a university hospital was required. 

Dickter quickly arranged for transfer to Thomas Jefferson University  
Hospital in Philadelphia, but when the ambulance arrived Dickter  was 
informed that Pappas' HMO, U.S. Healthcare, wouldn't  authorize the 

Although the HMO subsequently approved transfer to another  hospital, the 
delay of several hours allegedly caused Pappas to  suffer permanent 

Pappas sued his primary physician and Haverford for malpractice.  The 
claim against Haverford centered on the inordinate delay in  transferring 
him to an appropriate hospital. Haverford then filed a  third party 
complaint against U.S. Healthcare for its refusal to  authorize the 

U.S. Healthcare moved for summary judgment asserting that the  claim 
against it was preempted by ERISA. The trial court granted  the motion, 
dismissing all claims against the HMO. 

The Superior Court reversed, finding that ERISA did not preempt  the 
claim. It concluded that the decision by U.S. Healthcare was in  essence a 
business decision. The court found that the cost- containment mechanisms 
in HMOs did not exist when ERISA was  enacted, and therefore Congress 
could not have intended to  preempt state law claims on that basis. 

In its December 23rd opinion, the Pennsylvania Supreme Court  affirmed the 
Superior Court, but on different grounds, finding ERISA  preemption 
unjustified in any medical negligence action against an  HMO. 

issue as whether negligence claims such as  those against U.S. Healthcare 
in this case are expressly  preempted by the Section 1144(a) of ERISA. 

The ERISA preemption clause states that "the provisions of this  title ... 
shall supersede any and all State laws insofar as they may  now or 
hereafter relate to any employee benefit plan ...." 

Cappy noted that the U.S. Supreme Court has never squarely  addressed 
whether a medical negligence claim against an HMO  "relates to" an ERISA 

In the absence of a ruling directly on point, U.S. Healthcare argued  that 
the high court's interpretation of the ERISA preemption clause  has been 
"deliberately expansive," and should be found to include  state law 
negligence claims such as those in this case. 

Cappy agreed that the high court's interpretation of the preemption  
clause was extremely broad in the 1980s and early 1990s, but was  
persuaded that recent cases marked a deliberate retreat from that  
expansive view. 

Cappy pointed to New York State Conference of Blue Cross & Blue  Shield 
Plans v. Travelers Ins. Co., 514 U.S. 645 (1995), saying that  the court 
"noticeably changed tack" in that decision. 

According to Cappy, the Travelers court unanimously determined  that a New 
York statute requiring hospitals to collect surcharges  from patients 
covered by insurance companies other than Blue  Cross was not preempted by 

In Travelers, Cappy said, the high court finally acknowledged that  the 
"relates to" language of the ERISA preemption provision was  unclear. 

"After years of striving to make sense of the plain language of the  
preemption provision, the Court frankly admitted that the text is  

Cappy said the high court recognized that if taken to its logical  
extreme, the phrase "relates to" would allow unlimited preemption  of 
state laws. 

Changing course, the U.S. Supreme Court in Travelers said that  there 
should be no preemption where the state law "has only a  tenuous, remote, 
or peripheral connection with covered plans,"  Cappy noted. 

Cappy further noted that the Travelers court specifically  acknowledged 
that "nothing in the language of [ERISA] or in the  context of its passage 
indicates that Congress chose to displace  general health care regulation, 
which historically has been a matter  of local concern." 

Cases since Travelers have continued the trend, according to  Cappy: 

In California Division of Labor Standards Enforcement v. Dillingham  
Construction, NA., Inc., 117 S.Ct. 832 (1997), the Court held that a  
California prevailing wage law was not preempted by ERISA. 

In DeBuono v. NYSA-ILA Medical and Clinical Services Fund, 117  S.Ct. 1747 
(1997) the Court held that a New York gross receipts  tax could be applied 
to hospitals operated by ERISA plans. 

Taking these cases together, Cappy found that a recent trend has  emerged 
in the U.S. Supreme Court away from an expansive  reading of the ERISA 
preemption provision. 

Relying on this trend, Cappy rejected U.S. Healthcare's argument  that the 
preemption clause should be read expansively to include  the negligence 
claims in this case. 

"Based upon our interpretation of the Travelers line of cases, we  
conclude that negligence claims against a health maintenance  organization 
do not 'relate to' an ERISA plan. As noted by  Travelers, Congress did not 
intend to preempt state laws which  govern the provision of safe medical 

"Based upon our interpretation of the Travelers line of cases, we  
conclude that negligence claims against a health maintenance  organization 
do not 'relate to' an ERISA plan. As noted by  Travelers, Congress did not 
intend to preempt state laws which  govern the provision of safe medical 

"Claims that an HMO was negligent when it provided contractually- 
guaranteed medical benefits in such a dilatory fashion that the  patient 
was injured indisputably are intertwined with the provision of  safe 
medical care. 

"We believe that it would be highly questionable for us to find that  
these claims were preempted when the United States Supreme  Court has 
stated that there was no intent on the part of Congress  to preempt state 
laws concerning the regulation of the provision of  safe medical care," 
Cappy said. 


Interestingly, the majority opinion authored by Justice Cappy made  no 
mention at all of the Third Circuit's decision in Dukes v. U.S.  
Healthcare, Inc., 57 F.3d 350 (3d Cir. 1995), which sets the  standard for 
the majority of cases in which the preemption issue  arises. 

Typically, the preemption issue comes up after a plaintiff in a state  
court medical malpractice case includes an HMO or other health  insurer as 
a defendant. In numerous such cases, the HMO  removes the case to federal 
court under federal question  jurisdiction. It is on the plaintiff's 
petition for remand that the  preemption issue is examined. 

In Dukes, the Third Circuit distinguished between claims involving  the 
denial of benefits under an ERISA plan, and claims challenging  the 
quality of healthcare provided. 

Under the decision in Dukes, cases involving a denial of benefits  are 
subject to preemption, while cases challenging the quality of  medical 
care provided under a plan are not subject to preemption. 

In his concurring opinion in Pappas, Justice Nigro said he would  adopt 
the rationale of Dukes and find that the negligence claims  against U.S. 
Healthcare were typical claims covered by state law,  and that such claims 
should not be preempted by ERISA. 

Cases removed to federal court will continue to be decided under  the 
Dukes standard since the question involves interpretation of a  federal 
statute. Not surprisingly, the Dukes standard itself has  given rise to a 
host of arguably conflicting decisions. Recent  examples include the 

In Miller v. Riddle Memorial Hospital, PICS Case No. 98-1223 (E.D.  Pa. 
May 26, 1998), Judge John Padova remanded a case to state  court despite 
the assertion by defendant Aetna-US Healthcare that  the case should be 
seen as one centering on the denial of a benefit  - the transfer to 
another facility. 

The plaintiffs in Miller alleged that following back surgery Diane  Miller 
was sent home despite the recommendations of her doctors  that she be 
transferred to a skilled nursing facility to monitor her  elevated blood 
pressure. She subsequently suffered a stroke. 

Although Aetna-USHC argued that certain paragraphs of Miller's  complaint 
should be construed as allegations challenging a  decision to deny a 
benefit under the plan, Padova said the  paragraphs simply described 
plaintiff's "dissatisfaction with the  conditions of her release." He 
concluded that plaintiff was  challenging "the soundness of a medical 
decision made during the  course of treatment, rather than the 
administrative denial of a  medical benefit due under a plan." 

In Hoose v. Jefferson Home Healthcare Inc., PICS Case No. 98- 0312 (E.D. 
Pa. Feb. 6, 1998), Judge Charles Weiner remanded a  case involving the 
alleged failure to transfer the plaintiff to a  rehabilitation hospital 
following surgery. 

Hoose's leg had been amputated below the knee, but he claimed  that he was 
forced to undergo an additional amputation above the  knee as a result of 
complications resulting from post-surgical care  provided by the 

As in Miller, the defendant wanted the court to construe the claim  as one 
involving the denial of a benefit - transfer to a rehabilitation  hospital 
- which would be preempted under section 502 of ERISA.  But Weiner ruled 
that the complaint went to the quality of the care  received. 

But not all cases evaluated under the Dukes standard have ruled  against 

In Thomas-Wilson v. Keystone Health Plan East HMO, PICS Case  No. 97-0304 
(E.D. Pa. Jan. 23, 1997), Judge Joseph McGlynn  agreed that the 
plaintiff's claim, originally brought in state court  after an HMO stopped 
paying for treatment for plaintiff's Lyme  Disease, was actually one 
challenging the denial of benefits. 

The plaintiff in Thomas-Wilson claimed that she couldn't afford to  pay 
for the expensive antibiotic treatments after Keystone cut off  payment, 
and that as a result she suffered both physical and  emotional injuries. 

McGlynn agreed with the defendant that even though plaintiffs  made no 
mention of ERISA in their complaint, the allegations fell  within the 
scope ERISA preemption because it involved a denial of  benefits. 

Whether the Pennsylvania Supreme Court's decision in Pappas will  have any 
effect at all on federal court decisions on the preemption  issue is 

NEXT STEP U.S. SUPREME COURT? In a seminar given earlier  this year, one 
of the lawyers involved in the case, Stephen Ryan,  said he thought it was 
likely that the U.S. Supreme Court would  take a case that would squarely 
address the issue of whether  medical negligence claims are preempted 
under ERISA. 

Although the Pappas case itself will be limited in its application to  
Pennsylvania state court cases, the breadth of the Court's opinion  on 
preemption suggests that the HMO defendant may not want it  on the books. 

Also significant is the fact that many of the cases decided under  Dukes 
have been cases in which the same defendant - U.S.  Healthcare - has 
removed state court medical malpractice cases to  federal court under the 
claim of preemption. 

Given U.S. Healthcare's aggressive posture in these cases, it  would not 
be surprising to see a petition for certiorari to the U.S.  Supreme Court. 

And if Stephen Ryan is right, the Court just might take it.  

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Created: February 11, 1999
Last Updated: May 28, 2000