Quality v. Quantity: Will Erisa Preemption Survive the Third Circuit Test of in Re U.s. Healthcare?

• Jurisdiction: United States,Federal
• Citation: Vol. 34
• Publication year: 1999

34 Creighton L. Rev. 1069. QUALITY V. QUANTITY: WILL ERISA PREEMPTION SURVIVE THE THIRD CIRCUIT TEST OF IN RE U.S. HEALTHCARE?

Creighton Law Review

Vol. 34

Martin V. Klein - '01

INTRODUCTION

Congress enacted the Employee Retirement Income Security Act ("ERISA")(fn1) in 1974 to, in part, regulate employee health care plans of employers.(fn2) The intent of Congress in enacting ERISA was to replace the states' irregular regulation of pension plans with more uniform federal regulations.(fn3) One important element of ERISA is the complete and express preemption provisions, which bar certain state law actions relating to employer-provided health care plans.(fn4) Since the preemption language found in ERISA is so broad, courts often had difficulty defining preemption in state medical malpractice claims dealing with direct and vicarious liability claims.(fn5)

Recently, in In re U.S. Healthcare, Inc.,(fn6) the United States Court of Appeals for the Third Circuit determined that ERISA does not preempt state law direct negligence claims brought against an ERISA-governed health care provider.(fn7) The Third Circuit declared that claims challenging utilization review procedures are a quality of care determination, and therefore not completely preempted by ERISA.(fn8) The court noted the distinction between claims dealing with the quality of care, which are not preempted, and claims dealing with a denial of benefits, or the quantity of care, which are preempted.(fn9) Finally, the court agreed that ERISA also does not preempt state law claims alleging that the Health Maintenance Organization ("HMO") violated a tort duty, rather than violating a contractual promise.(fn10)

This Note will first review the facts and holding of U.S. Healthcare.(fn11) This Note will then examine the pertinent ERISA preemption provisions, and secondary source materials discussing ERISA governed health care plans.(fn12) This Note will also discuss the Third Circuit's prior attempt to address these provisions in Dukes v. U.S. Healthcare, Inc.,(fn13) and pertinent case law from six other Circuit Courts of Appeal.(fn14) Next, this Note will argue that the U.S. Healthcare court was incorrect for five reasons.(fn15) First, the court improperly failed to follow the ERISA exception to the well-pleaded complaint rule.(fn16) Second, the court relied on earlier Third Circuit case law, and failed to analyze independently the exception.(fn17) Third, the court was incorrect because it failed to determine the Baumans' direct negligence claims addressed an administrative determination.(fn18) Fourth, the court did not follow other circuits in finding direct negligence claims regarding utilization review procedures are completely preempted.(fn19) Finally, the U.S. Healthcare court improperly concluded that ERISA did not preempt a negligence claim based on U.S. Healthcare's twenty-four hour discharge policy.(fn20)

FACTS AND HOLDING

In In re U.S. Healthcare, Inc.,(fn21) Steven and Michelle Bauman (collectively, "Baumans") received health insurance through The Health Maintenance Organization of New Jersey, Inc. ("HMONJ"), a subsidiary of U.S. Healthcare.(fn22) U.S. Healthcare provided direct health care services to patients by a network of hospitals, physicians, and other medical providers.(fn23) This network included Kennedy Hospital in Washington Township, New Jersey, and Dr. Kamilah Nemeh, an independent practitioner affiliated with U.S. Healthcare.(fn24) The Health Maintenance Organization ("HMO") promulgated a precertifi-cation policy that required mothers and newborns to be discharged after twenty-four hours.(fn25)

Michelina Bauman was born on May 16, 1995, at Kennedy Hospital.(fn26) The hospital discharged the mother, Michelle Bauman, and her newborn daughter, Michelina, after twenty-four hours, as required by the precertification regulations.(fn27) On May 18, 1995, one day after the hospital discharged Michelina, she contracted a virulent infection.(fn28) After noticing their newborn was ill, the Baumans made several phone calls to Dr. Nemeh, the discharging physician at Kennedy Hospital.(fn29) The Baumans informed Dr. Nemeh their daughter was ill, but Dr. Nemeh did not advise the Baumans to readmit Michelina at Kennedy Hospital.(fn30) The same day, the Baumans also contacted U.S. Healthcare, requesting an in-home visit from a pediatric nurse, but U.S. Healthcare did not provide the requested assistance.(fn31) Michelina had contracted a strep infection, and when it was left undiagnosed and untreated, her illness developed into meningitis.(fn32) Michelina died later that same day.(fn33)

The Baumans filed their complaint in May 1997, in New Jersey Superior Court, Camden County.(fn34) The complaint named Dr. Nemeh, Kennedy Hospital, and HMONJ, which is a subsidiary of U.S. Healthcare, Inc., as defendants.(fn35) The Baumans named U.S. Healthcare in four of the seven counts included in the petition.(fn36) The first count alleged U.S. Healthcare's policy of requiring twenty-four hour discharge of newborn infants showed U.S. Healthcare acted with disregard for the health and safety of its health plan participants.(fn37) This count included a vicarious liability claim for the negligence of U.S. Healthcare's agents, Dr. Nemeh and Kennedy Hospital, when they discharged Michelina after twenty-four hours, and failed to diagnose her strep infection.(fn38) Count two alleged Michelina was not timely diagnosed and treated for the infection.(fn39) The Baumans stated U.S. Healthcare's twenty-four hour discharge policy showed reckless indif-ference, because HMONJ realized newborns were at risk for developing disease, and this policy delayed diagnosis and treatment.(fn40) Count five charged U.S. Healthcare with direct and vicarious negligence, claiming the HMO adopted hospital utilization procedures that discouraged physicians from readmitting infants when health problems arose.(fn41) The Baumans also alleged in count five that U.S. Healthcare was negligent for failing to exercise the proper care in the supervision, monitoring, selection and/or training of Dr. Nemeh.(fn42) Count six alleged that after Michelina was discharged, U.S. Healthcare failed to provide appropriate care by not allowing a pediatric nurse for an inhome visit.(fn43) The Baumans also alleged in count six that Dr. Nemeh and Kennedy Hospital were negligent for failing to report the birth of Michelina to the HMO, since this would have supported the request for an in-home visit from a pediatric nurse.(fn44)

U.S. Healthcare filed a removal petition to federal court on June 12, 1997, arguing that the Employee Retirement Income Security Act ("ERISA")(fn45) provided federal jurisdiction over the Baumans' claims.(fn46) ERISA section 502(a), on which U.S. Healthcare relied, is the section of ERISA that explains who may bring an action under ERISA.(fn47) U.S. Healthcare argued the Baumans' claims were expressly preempted under ERISA section 514(a),(fn48) or alternatively, for summary judgment.(fn49) Specifically, U.S. Healthcare sought removal on the grounds that ERISA section "502(a) and the 'complete preemption' exception to the 'well-pleaded complaint rule' provided" the district court with subject matter jurisdiction.(fn50) The Baumans moved to remand to statecourt, claiming no federal question was involved because section 502(a) did not govern the action, and the court therefore lacked subject matter jurisdiction.(fn51) Removal was granted by the United States District Court for the District of New Jersey.(fn52)

The district court explained it had jurisdiction over count six, which stated that U.S. Healthcare did not provide an in-home visit by a pediatric nurse.(fn53) The district court reasoned that it had jurisdiction to dismiss count six, because this count was preempted by ERISA section 514(a).(fn54) The court dismissed count six, finding that it stated a claim that fit within ERISA section 502(a).(fn55) The court stated negligence claims against an insurer for failure to provide benefits due fall under ERISA section 502(a).(fn56) The court declared that the Baumans' allegation in count six that the HMO did not provide an in-home physician was a claim for failure to provide benefits under the plan.(fn57) Therefore, the court determined that the claim was preempted under section 502(a).(fn58)

The district court found that counts one, two and five did not provide a basis for federal removal jurisdiction under section 502(a).(fn59) The district court explained that counts one, two, and five were not preempted because these claims were not claims to recover benefits due under the plan.(fn60) Therefore, the court determined that these claims did not fit within section 502(a).(fn61) The court noted that all three of the counts claimed U.S. Healthcare adopted policies that caused physicians to provide inadequate care to patients.(fn62) The court explained these counts focused on the quality of care Michelina received, not whether the plaintiffs received benefits due according to the plan.(fn63) Hence, the court reasoned that such claims involved a dispute over the quality of care, as distinguished from claims disputing whether benefits were due.(fn64) Therefore, the court explained that the plaintiffs did not seek a remedy for U.S. Healthcare's failure to provide benefits, but sought a remedy for the damage caused by how U.S. Healthcare structured its...