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States lack standing under a federal statute to seek injunctions blocking health management organizations from limiting the types of prescription drugs pre-approved for reimbursement, the 2nd U.S. Circuit Court of Appeals has ruled. The 2nd Circuit found that the state of Connecticut cannot sue to obtain an injunction under the Employment Retirement Income Security Act, (ERISA), either as an “assignee of certain rights” by plan participants, or in its parens patriae capacity. In State of Connecticut v. Physicians Health Services Inc., 00-7986, Connecticut had sought to block the HMO’s use of a drug “formulary” that the state claimed prevented plan participants from receiving drugs prescribed by their physicians. The state claimed that the formulary system violated ERISA provisions that imposed on Physicians Health Services a fiduciary duty toward plan participants, a duty to disclose the full details of its plans, and a duty to give participants adequate notice of the reasons why reimbursement was denied. The state sued under 18 U.S.C. � 1132(a)(3), which allows a “participant, beneficiary or fiduciary” to bring a civil action for equitable relief to block violations of the act. Connecticut wanted a court order requiring Physicians Health Services to continue providing the medicine initially prescribed by a physician until the court approved a medicine substitution plan. It also wanted a court order requiring greater disclosure to plan participants and written notices explaining to patients why reimbursement was denied. U.S. District Judge Stefan R. Underhill of the District of Connecticut dismissed the case for lack of standing, holding that the state could not pursue the case either as the assignee of claims by eight plan participants, or under parens patriae: the doctrine that allows a state to bring suit on behalf of its citizens. Underhill found the state lacked standing because “the civil enforcement provisions of ERISA are exclusive” and apply only to participants, beneficiaries or fiduciaries. But on the appeal, 2nd Circuit Judge Robert D. Sack said the court did not reach that issue. “Rather, we conclude that the state, in its capacity as an assignee of the right to bring suit for equitable relief, did not suffer an injury of the nature that would confer standing under Article III of the Constitution,” he said. Article III, Sack said, requires “injury in fact,” but the state “does not bring suit here as a party injured itself, but as an assignee of others who assert injury.” “Through the assignments, the State has acquired only the right to control the equitable portion of a lawsuit seeking redress of the assignor-participants’ rights under ERISA,” Sack said. “None of the remedies being sought would flow to the State as assignee.” Sack said the first question to ask in examining whether a state has parens patriae standing under a federal statute is whether Congress intended to allow states to sue under the statute. And while there are sections of ERISA that allow a state to enforce compliance with a medical child support order or acquire third-party rights for the limited purpose of recouping payments made under state medical assistance plans, he said, “Nowhere else in Section 1132 are states authorized to bring suit.” “By holding that the State lacks parens patriae standing because Section 1132(a)(3) does not expressly provide for such standing, we do not of course intend to imply that states may only sue in their parens patriae capacity when a statute specifically provides for suits by states,” Sack said. He added that there is “considerable authority” for the power of state attorneys general to sue to enforce federal statutes that “do not specifically provide standing … .” The difference here, he said, was that � 1132 of ERISA “carefully limits the parties who may seek relief.” Connecticut, in briefs to the court, argued that its “parens patriae capacity is an essential attribute of the inherent sovereignty of states that may not be diminished in light of the principles of federalism that are reflected in the Constitution and the Tenth Amendment.” But Sack said the 10th Amendment, which reserves to the states all the powers not delegated to the federal government by the Constitution, does not bar federal statutes, like ERISA, “validly enacted under one of Congress’s enumerated powers.” Those statutes cannot violate the 10th Amendment, he said, “unless they commandeer the states’ executive officials.” “Section 1132 does not commandeer any branch of state government because it imposes no affirmative duty of any kind on any of them,” he said. Second Circuit Judge Amalya Kearse and Southern District of New York Judge Jed S. Rakoff, sitting by designation, joined in the opinion. Assistant Connecticut Attorney General Charles C. Hulin represented Connecticut. Daly D.E. Temchine, Stephanie W. Kanwitn and Davis S. Poppick of New York-based Epstein, Becker & Green represented Physicians Health Services.

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