The Aetna v. Davila Decision:Implications For Hmos, Consumers, And States

• Author: Christine Naglieri
• Position: JD candidate at American University Washington College of Law
• Pages: 04

Christine Naglieri is a third-year JD candidate at American University Washington College of Law, where she is a Student Articles Editor of the Business Law Brief and Co-Chair of the Student Health Law Association. Ms. Naglieri has an undergraduate degree in Health and Society from the University of Rochester in Rochester, N.Y.

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I Introduction

FOR THE FOURTH TIME IN FOUR YEARS, the United States Supreme Court analyzed the extent to which the Employment Retirement Income Security Act of 1974 (ERISA) preempts state laws regulating health insurance.¹ On June 21, 2004, in a unanimous decision, the Supreme Court issued its opinion in the consolidated cases of Aetna Health Inc. v. Davila and CIGNA HealthCare of Texas, Inc. v. Calad (collectively, "Aetna"). The Court held that ERISA completely preempts state law claims of wrongful denial of healthcare benefits by ERISA-governed employee health plans.² The Aetna decision has important implications for HMOs, consumers, and states that may not be obvious from the Court's opinion. Despite being a positive development for HMOs, the decision does not foreclose plaintiffs from suing HMOs, and it does not destroy states' authority to draft healthcare regulation. In fact, plaintiffs may still sue HMOs under various liability theories, and have several alternatives to bringing a benefits claim in federal court under ERISA. Also, state laws permitting patients to sue HMOs for medical malpractice are not entirely preempted after Aetna. The Aetna decision sets forth ERISA standards and clarifies preceding ERISA jurisprudence for the healthcare community. Aetna also has significant implications for the healthcare industry, leaves doctrinal questions unanswered, and sets the stage for future ERISA litigation.

II ERISA Preemption and Jurisprudence

A What is ERISA?

ERISA is federal legislation that sets minimum standards for most voluntarily established employee health and pension plans. Congress enacted ERISA in order to promote commerce and protect employees by federalizing employee retirement programs. ³ Specifically, Congress sought a balance between ensuring fair and prompt enforcement of rights under a health or pension plan and encouraging the creation of such plans. ERISA (1) requires that health and pension plans provide participants with plan information, (2) establishes fiduciary responsibilities for those who manage and control plan assets, (3) establishes a grievance and appeals process for participants to petition for the proper benefits, and (4) gives participants a right to sue for benefits and breach of fiduciary duty. ERISA does not cover all group health plans. Examples of those plans not covered by ERISA are: plans established or maintained by government entities or churches for their employees; plans maintained solely to comply with applicable workers compensation, unemployment, or disability laws; and plans maintained outside of the United States primarily for the benefit of nonresident aliens or unfunded excess benefit plans.

B ERISA Preemption

In Aetna, the Court explicitly states Congress' purpose and intent in enacting ERISA legislation and creating ERISA's preemptive provisions. Congress enacted ERISA to ?protect . . . the interests of participants in employee benefit plans and their beneficiaries' by setting out substantive regulatory requirements for employee benefit plans and to ?provid[e] for appropriate remedies, sanctions, and ready access to the Federal courts. The purpose of ERISA is to provide a uniform regulatory regime over employee benefit plans. To this end, Page 16 ERISA includes expansive preemption provisions . . . which are intended to ensure that employee benefit plan regulation would be exclusively a federal concern.⁴ ERISA's broad preemption clause supersedes "any and all State law insofar as they may now or hereafter relate to any employee benefit plan."⁵ This preemption provision determines when federal courts have subject matter jurisdiction over certain state law claims brought by employee health plan beneficiaries in state court.

The preemption provision is divided into two sections, ß502(a) and ß514(a).⁶ ERISA ß502(a) provides for "complete" preemption, and allows ERISA participants or beneficiaries to bring causes of actions against ERISA plans. ERISA ß514(a) applies to state laws that are "conflict" preempted, and provides that "ERISA supersedes any and all States laws insofar as they may now or hereafter relate to any employee benefit plan described in section 1003(a) of this title."⁷

III The Davila Decision

A Juan Davila and Ruby Calad

The facts of Aetna focus on two Texas plaintiffs, Juan Davila ("Davila") and Ruby Calad ("Calad"), who brought separate cases against their HMOs in the U.S. District Court for the Northern District of Texas. Both Davila and Calad alleged that their HMOs' denial of benefits constituted a failure "to exercise ordinary care" required under the Texas Health Care Liability Act ("THCLA"),⁸ and that this failure proximately caused their injuries. They also alleged that the HMOs' systems made substandard care more likely, and the HMOs acted negligently in making decisions of medical necessity. The first plaintiff, Davila, suffers from long-term effects of polio. He is a participant in Aetna, the HMO that provides coverage for his employer's health plan. Davila's physician prescribed Vioxx, an anti-inflammatory medication, for his arthritis and inflammation based on studies showing that Vioxx causes fewer gastrointestinal problems than other pain medications on Aetna's formulary. Aetna refused to cover the Vioxx prescription, instead covering a drug called Naprosyn. Aetna insisted that Davila first try two less expensive medications, and would only cover Vioxx if Davila had an adverse reaction to the less expensive medications.⁹ Davila did not appeal Aetna's decision denying Vioxx.

After taking Naprosyn for three weeks, Davila suffered bleeding stomach ulcers, was hospitalized for five days, required transfusion of seven units of blood, and nearly suffered a heart attack. Currently, he can no longer take pain medication that is absorbed through the stomach. Davila alleged that Aetna's adherence to its policies on the use of Vioxx constituted a violation of the THCLA, and Aetna was liable for punitive damages because it knew its policy involved a risk of serious injury or death. The second plaintiff, Calad, is a beneficiary of CIGNA Healthcare of Texas, a Texas HMO, through her husband's employer. She underwent a hysterectomy performed by a CIGNA physician and was discharged from the hospital earlier than the physician recommended. CIGNA stated that Calad did not meet the plan's criteria for approving a longer hospital stay, that the standard one-day hospital stay was sufficient, and that it would not pay for additional inpatient treatment. Similar to Davila, Calad did not appeal the CIGNA decision. She left the hospital and returned a few days later for additional treatment after becoming seriously ill. Calad alleged that CIGNA's conduct violated the THCLA since her illness was a result of CIGNA's decision to deny her a longer initial hospital stay.

B The Arguments

When the consolidated case was filed in district court, Aetna and CIGNA requested to remove the case to federal court. The HMOs argued that because the plaintiffs' health coverage existed under employer-sponsored ERISA plans, the case was completely preempted by ERISA and could only be litigated in federal court. In addition, the HMOs argued that Davila and Calad could have sought alternative remedies, such as paying for treatment and seeking reimbursement or obtaining a preliminary injunction. Davila and Calad argued against the case being removed to federal court because they would have to argue their case under federal law.¹⁰ They claimed that the HMOs violated legal duties that arise independently of ERISA and the terms of the employee benefit plans. In particular, they argued that the duty of "ordinary care" imposed by the THCLA was an independent legal duty that should allow the case to proceed in state court. This duty arose independently of any duty imposed by ERISA and the plan terms, and any civil action to enforce this duty was not within the scope of ERISA civil enforcement.

C The Supreme Court's Ruling

The U.S. Supreme Court unanimously held that states may not provide ERISA health plan beneficiaries or...