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On Aug. 27, the 11th U.S. Circuit Court of Appeals took the unusual step of reversing its earlier decision in Land v. CIGNA Health Care of Florida, 339 F3d 1286 (11th Cir. 2003) ( Land I). In doing so it held that causes of action that were brought as medical malpractice actions were instead claims to remedy the denial of benefits under an Employee Retirement Income Security Act (ERISA) regulated benefit plan and, as such, fell within the scope of, and were completely pre-empted by, ERISA. However, to fully understand the holdings in Land I and Land II, a review of the U.S. Supreme Court jurisprudence on which they were based is essential. ‘LAND I’ Robbie Lee Land was a subscriber through his employer to a health care plan administered as a health maintenance organization (HMO) by CIGNA. After his left hand was bitten by his cat, Land noticed the hand had become swollen and inflamed and soon went to the emergency room (ER) where he was treated by Dr. Crick, a CIGNA-approved specialist. Crick diagnosed Land with cellulites and ordered that he be given an injection of antibiotics. The next day there was no improvement and Crick believed Land was suffering from osteomyelitis, a more serious ailment. Land was then admitted to the hospital and put on intravenous antibiotics. Shortly afterwards, a CIGNA-approval nurse decided that he was suffering from a localized infection that did not require hospitalization. Land was subsequently discharged, the condition worsened and eventually Land’s left middle finger had to be amputated. Land then filed suit against CIGNA alleging that CIGNA was negligent in the care and treatment of his infection. The case was removed to federal court as an ERISA claim where the court determined the state law claims were completely pre-empted by ERISA. The complaint was then dismissed by the district court, presumably for failure to state an ERISA claim. On appeal, however, the 11th Circuit held that Land was alleging state malpractice claims as the claims were based on a mixed-eligibility and treatment decision. Such claims, the court stated, are not claims for the denial of benefits under ERISA �502(a)(1)(B), nor claims for a breach of the HMO’s fiduciary duties under ERISA �502(a)(2). The Land I decision was based primarily on the Supreme Court’s decision in Pegram v. Herdrich, 120 SCt 2143 (2000). In Pegram, the Court addressed the issue of when an HMO is acting as an ERISA fiduciary. In Pegram, a physician-owned HMO made a decision to delay performing an ultrasound at a local hospital and, while waiting eight days for one to be performed at the HMO’s facility, the plaintiff’s appendix ruptured, causing peritonitis. The decision to deny the procedure was made by one of the HMO’s physician-owners. The Court held that such a decision is a mixed decision, involving questions of both eligibility and treatment, and thus not a fiduciary decision under ERISA. In order to lay the groundwork for its decision, the Court first analyzed the role of a fiduciary under ERISA. As defined in ERISA �3(21)(A)(iii), a fiduciary is any person “to the extent that he has any discretionary authority or discretionary responsibility in the administration of an employee benefit plan.” The Court reasoned that although an HMO is not an ERISA fiduciary merely because it administers or exercises discretionary authority over its own HMO business, it may still be a fiduciary to the extent that it administers the plan for the employer that has contracted with the HMO for its employees. It contrasted the role of the common-law trustees who typically wear only the hat of a fiduciary whose fundamental duty is that of loyalty to the trust beneficiaries, to that of ERISA fiduciaries who often wear two hats and may have financial interests adverse to beneficiaries. For example, an employer may be a plan fiduciary responsible for administering an employee plan but in its capacity as plan sponsor may amend or terminate the plan, an act that is adverse to the interests of the plan participants, without violating its fiduciary responsibilities. Thus, according to the Court, “the threshold question is not whether the actions of some person employed to provide services under a plan adversely affected a plan beneficiary’s interest, but whether that person was acting as a fiduciary (that is, was performing a fiduciary function) when taking the action subject to the complaint” ( Pegram at 2152-2153). In order to decide when an HMO becomes a fiduciary in relation to a plan, the Court distinguished between two types of decisions made by physician-owners acting on an HMO’s behalf, which are often inextricably connected. The first type of decision is one of pure eligibility. Such a decision is focused on whether or not the plan in question covers a particular condition or medical procedure for its treatment. Occasionally these are yes or no questions, such as whether a plan covers a particular procedure, e.g., an appendectomy. The second type of decision is a treatment decision and involves choices on how to go about diagnosing and treating a patient’s condition. In other words, a treatment decision is triggered when the doctor is charged with deciding the appropriate medical response. The Pegram Court held that the kinds of decisions complained of by the plaintiff were mixed-eligibility and treatment decisions. Such decisions include, without limitation, when to use diagnostic tests, seeking consultations and making referrals to physicians and facilities other than those of the HMO. The Court found that the ERISA count did not allege the physician-owner breached a fiduciary duty by making an administrative decision that could be considered a pure eligibility determination. Similarly, the plaintiff’s assertion that the HMO would decide “which claims are covered under the plan and to what extent”was too vague to be deemed an eligibility determination. In holding that mixed-eligibility and treatment decisions by HMO physicians were not fiduciary decisions and, thus, not subject to ERISA, the Court examined the impact on HMOs of a contrary decision. It concluded that the congressional policy of encouraging HMOs could be undermined since it could often be shown that an HMO’s profit incentive to ration care would generally affect mixed decisions, thus subjecting many HMO decisions to challenge under ERISA. The Court did not believe it would be feasible to limit the fiduciary breach cases to those where “the sole purpose”of delaying or withholding treatment was to increase profit as the fiduciary standard demands more than that attempt at a bright-line rule. Furthermore, if accused of breaching such a duty, the HMO would simply argue that the physician was acting for medical and not financial reasons and, thus, the fiduciary standard would be nothing more than the malpractice standard traditionally applied to doctors. Although enabling a beneficiary to sue the HMO in federal court would allow for an additional defendant, and most likely one with deeper pockets than the doctor, the Court explained that ERISA was not enacted out of a concern that physicians were too poor to be sued. Thus, the only advantage that a plaintiff would gain by removing to federal court would be the award of attorney’s fees if they won. The Court reasoned once again that ERISA and its fiduciary obligations were not enacted for this reason and ERISA �502(a)(2) was not breached by the HMO. In relying on Pegram, the Land I court held that the approval nurse’s decision not to authorize the outpatient treatment was a mixed-eligibility and treatment decision. Since such mixed decisions, according to Pegram, would not pre-empt a medical malpractice claim under ERISA �502(a)(2), the Land I court found it unlikely that it was intended that a malpractice claim would nevertheless be pre-empted under �502(a)(1)(B). The Land I court further reasoned that ERISA �502(a)(1)(B) was not applicable because that section addresses claims for benefits due under the terms of a plan which are contractual in nature and Land was asserting a tort claim for failure to diagnose his condition correctly. ‘LAND II’ After Land I, the Supreme Court revisited the issue of pre-emption in the ERISA arena in the case of Aetna v. Davila, 124 SCt 2488 (2004). In Davila, the Court examined two Texas state-court suits stemming from two HMOs’ decisions not to provide coverage for certain treatments recommended by the plaintiffs’ treating physicians. Aetna, the HMO of Mr. Davila, the first plaintiff, refused to pay for Vioxx as prescribed by Davila’s treating physician to remedy his arthritis pain. As a result, Davila required hospitalization after suffering from a severe reaction to Naprosyn, which he took instead. The second plaintiff, Ms. Calad, underwent surgery but, even though it was recommended by her treating physician, was refused coverage for the extended hospital stay based on a CIGNA discharge nurse’s determination that such an extended stay was unnecessary. In both cases, the plaintiffs brought suit in Texas state court under the Texas Health Care Liability Act (the THCLA) alleging that their HMOs’ refusal to cover certain medical services constituted a violation of the HMOs’ duty of care under the THCLA. In both cases, the defendants removed the cases to federal court on the basis that the claims fell within �502(a)(1)(B) of ERISA and were thus completely pre-empted by ERISA. On appeal, the 5th U.S. Circuit Court of Appeals consolidated the cases and concluded, on the basis of Pegram, that the decision involved mixed-eligibility and treatment decisions that were not pre-empted by ERISA. The 5th Circuit’s decision was heavily influenced by the nature of the pleadings in that the plaintiffs’ asserted tort claims rather than seeking reimbursement for benefits denied to them. The Supreme Court viewed the plaintiffs’ claims differently. To the Court, it was clear that the only complaint was for the denial of benefits promised under the terms of the employers’ plans. Further, the Court noted that the only relationship that the defendants had with the plaintiffs was that they administered their respective employers’plans. In somewhat conclusory fashion and without substantial analysis, the Court found that the duty of ordinary care imposed by the THCLA in the context of these cases did not arise independently of ERISA or the terms of the employers’ plans. In these circumstances, the Court found that “a managed care entity could not be subject to liability under the THCLA for denying coverage for any treatment not covered by the plan it was administering.” Therefore, since the claim could have been brought under ERISA �502(a)(1)(B), it was completely preempted and removable to federal court. In its discussion, the Court disagreed with the 5th Circuit’s conclusions. Significantly, the Court stated, “distinguishing between preempted and non-preempted claims based on the particular label affixed to them would “elevate form over substance and allow parties to evade”the pre-emptive scope of ERISA simply “by relabeling their contract claims as claims for tortuous breach of contract” Davila at 2498 (quoting Allis-Chalmers Corp. v. Lueck, 471 US 202 at 211 (1985)). TREATING DOCTOR AND BENEFITS The Court then distinguished Davila from Pegram based on the fact that in Pegram, the plaintiff’s treating physician was also the person charged with administering the benefits; it was she who decided whether a certain treatment was covered. Such a distinction enabled the Court in Pegram to conclude that the decision was more than merely a benefits eligibility decision, it was also a treatment decision. In Davila, however, the defendants were neither plaintiff’s treating physician’s nor the employers of such physician. Therefore, the decisions must have been pure eligibility decisions since the reasoning of Pegram would only make sense “where the underlying negligence also plausibly constitutes medical maltreatment by a party who can be deemed to be a treating physician or such a physician’s employer”( Davila at 2502) (quoting Cicio v. Does, 321 F3d 83 (C.A.2 2003) at 109)). Therefore, the Court held, the plaintiff’s cause of action was brought to remedy only the denial of benefits under ERISA-regulated benefit plans and, thus, was pre-empted by ERISA. As a result of the Davila decision, the 11th U.S. Circuit Court of Appeals, in Land v. Cigna HealthCare of Florida, 381 F3d 1274 (11th Cir. 2004) ( Land II) revisited its decision in Land I. While the Land I court remanded the case to state court based on the Pegram decision, the Land II court reversed that decision and refused to remand the case on the basis of the holding in Davila. The distinction drawn by the Supreme Court in Davila seems somewhat artificial; namely that, where the action being complained of was taken by an administrator who was not also the patient’s treating physician, it cannot be characterized as a treatment decision. Where an administrator makes a decision to deny a continued hospital stay, contrary to the treating physician’s recommendation, it could be argued that the administrator has assumed the role of treating physician. Decisions like that, because of the economic impact on the patients, often have the effect of treatment decisions since patients may not be able to afford to pay for the continued hospital stay out of their own pockets. Patients in that circumstance are likely to assume that the coverage decision is informed and based on a review of all relevant medical information. Administrators in these circumstances, while they may not be the HMO owners may very well be more economically aligned with the employers who hire them to administer the plans and have as much reason to ration medical care as do HMO owners. To limit the available claims to participants in those cases to a claim for a denial of benefits is to effectively deprive them of any recourse. UNINTENDED SHIELD? The damage in terms of missed medical treatment and the consequences thereof will have been done. While the Pegram court was concerned that ERISA would be used as a sword by plaintiffs in a manner not contemplated by Congress, the effect of Davila could be that it becomes a an unintended shield for defendants. We expect that this is not the last word on this difficult question involving so-called mixed-eligibility and treatment decisions as the courts are left to sort out the contours of the Supreme Court’s holdings on the issue. Donald P. Carleen is a partner and chairs the executive compensation and employee benefits group at Fried, Frank, Harris, Shriver & Jacobson. Matthew Behrens, an associate with the firm, assisted in the preparation of this article. If you are interested in submitting an article to law.com, please click here for our submission guidelines.

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