:: A Primer On Venue Choice In ERISA Claim Disputes

Plaintiffs originally filed their complaint in the Court of Common  Pleas of Philadelphia County, Pennsylvania. Defendants then removed the action to federal court. The plaintiffs’ choice of venue is generally accorded great weight, but other factors such as where the underlying events occurred and where the plaintiffs reside can override this concern.

Schoonmaker v. Highmark Blue Cross Blue Shield, 2009 U.S. Dist. LEXIS 101088 (E.D. Pa. Oct. 30, 2009)

This district court opinion features an ample discussion of an important preliminary issue that is often taken for granted – choice of venue.   One of the advantages of modern medical advances has been the proliferation of centers of excellence for various diseases.  On the other hand, access to these facilities often requires travel.

What factors should a court take into account in determining proper venue in a dispute over benefit payment?  The Court in Schoonmaker reviews this question in considerable detail.

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:: Health Care Reform By The Numbers – Factoring In The Argument From Statistics

“There are three kinds of lies: lies, damned lies, and statistics.”

– Benjamin Disraeli, British politician (1804 – 1881)

An article appearing in the Wall Street Journal yesterday gives context to the frequently cited U.S. health care spending statistics.

Consider these two widely published observations:

#1 Over the past eight years, the percentage of firms offering health benefits to employees has dropped from 69% to 60%.

#2 Measured as a share of Gross Domestic Product (GDP) spent on health care, “a metric of health system performance and value that some consider definitive”, the U.S. spends far more on health than other countries.

Should these points provide impetus for a universal government-run health care system? Would this solution enhance national competitiveness?

No, says John Graham, Director of Care Studies at the Pacific Research Institute in the WSJ article, “The Health Cost Myth” (November 13, 2007). Here’s why.

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:: Retail Industry Leaders Association Takes Out Another “Pay Or Play” Mandate Through ERISA Preemption Challenge

The United States District Court for the Eastern District of New York handed down another victory for the Retail Industry Leaders Association. In this decision, filed July 14, 2007, the district court ruled that ERISA preempted the Suffolk County, New York Fair Share Act. The reasoning of the opinion essentially follows that in Retail Industry Leaders Association v. Fielder, — F.3d —-, 2007 WL 102157, C.A.4 (Md.) (January 17, 2007)

From the RILA press release:

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:: Reluctant Massachusetts Tax Collector Has Good Reasons

Taxpayers are bearing a larger share of the cost of the expansion of healthcare coverage than expected because the state has not yet collected a penny from businesses that do not help insure their workers. Penalties on those businesses were expected to bring in $95 million this fiscal year and $76 million next year, according to the Legislature’s estimates when the bill was signed into law a year ago. “Mass. Has Yet to Collect Fees From Firms for Healthcare”, The Boston Globe (May 10, 2007)

The Massachusetts taxpayers bought into a much bigger financial obligation than they were told.

Here’s what the deal was supposed to be.

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:: The Real Obstacles To Health Care Reform: A Checklist

Health care reform proposals typically find expression in blue-sky manifestos with political flavor and little practical foundation. The following is a list of problems that must be addressed for real improvement in the delivery of health care.

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:: Maryland Bows To ERISA’s Preeminence

After very careful and thorough consideration, the Office of the Attorney General will not seek review before the Supreme Court on the Fair Share Health Care Act. Statement of Maryland Attorney General.

In a previous article on this site, the Fourth Circuit decision in Retail Industry Leaders Association v. Fielder has been reviewed. See, :: Retail Industry Leaders Association v. Fielder: Case of Preemption Over Federalism Now the Maryland Attorney General has thrown in the towel.

Good retrospective comment can be found on several sites. For example, The Jurist, Stephen Roseberg’s ERISA blog and Paul M. Secunda’s article on Workplace Prof Blog. The Maryland legislation was dead on arrival and, like several similar initiatives, evokes the obvious question – why? Not why were the proposals DOA – that should have been clear from a cursory review of the ERISA preemption precedent. Rather, why did the public officials not undertake more legal analysis before drafting the legislation? In any event, absent Congressional intervention, odds are in favor of several more preemption decisions within the next year involving health initiatives contrived with little regard to ERISA’s preemptive force. See, e.g., :: California’s Universal Health Coverage Proposal Unveiled; and Pennsylvania Business Journal article “Does the proposed 3% tax on employers violate ERISA?”

:: Denial of Long Term-Care Claims Brings Insurance Carriers Under Public Scrutiny

Companies like Conseco, Bankers Life and Penn Treaty were aggressively signing up clients who were not in the best health at rates far below their competitors’ in order to win more business, former agents said. From 1991 to 1999, long-term-care sales helped drive total revenue gains of roughly 500 percent each at Penn Treaty and Conseco, including its affiliate Bankers Life.

Cracks in the business, however, soon started to appear. Insurance executives began warning they had underestimated how long policyholders would live after entering nursing homes. The costs of treating Alzheimer’s, Parkinson’s and diabetes ballooned. “Aged, Frail and Denied Care by Their Insurers”, New York Times (3/26/2007)

The current series in the New York Times spotlights the claims payment practices of several large insurers. The article notes that certain companies are standouts when the subject is complaints in relation to market share. The supporting data are derived from the National Association of Insurance Commissioners website.

The complaint in Derks v. Conseco, which provided the thematic organization for the article, may be viewed on this site.

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:: Senator Clinton Remains Vague On Proposals In Town Hall Meeting

I’m going to pass universal health care that lowers costs for Americans. Families and businesses are drowning in skyrocketing health care premiums. There’s a lot of wasted money in our health care system . . .

My goal is to have a health care system that provides quality, affordable care to every American. On way to achieve this goal is to have a national health care system where there is only one source of care and the government runs it . . .

While I haven’t proposed a specific health care plan this early in the campaign I have proposed two pieces of legislation in the Senate that would expand access and care for immigrants. from “ABCNews.com Exclusive: Sen. Hillary Clinton Answers Your E-Mails”

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:: PBM’s Defeated In Bellwether District Court Decision Over Transparency Statute

Like the UPDPA, Title II imposes a fiduciary duty on PBMs with respect to ERISA plans, D.C.Code § 48-832.01(a). And, like the UPDPA, the D.C. statute’s requirement that PBMs disclose conflicts of interest and payments from drug manufacturers does not involve any discretion on the part of the PBMs and is a purely ministerial duty. D.C.Code § 48-832.01(c)(1)(A). The plaintiff’s arguments, additionally, are the same arguments that were considered and rejected by the First Circuit. Pharmaceutical Care Management Ass’n v. District of Columbia, — F.Supp.2d —-, 2007 WL 666319 ) (D.D.C.)

In the battle for PBM transparency, the PBM’s just lost in a highly significant decision. On remand from the Court of Appeals for the District of Columbia Circuit, the issue before the district court was whether the First Circuit decision in Pharmaceutical Care Management Association v. Rowe, 429 F.3d 294 (1st Cir.2005), cert. denied, 126 S.Ct. 2360 (2006) ( “ Rowe ”), precluded the PBM trade association from litigating the validity of Title II of the AccessRx Act of 2004, D.C.Code §§ 48-831.01 et seq. (“Title II”).

The district court held that the PBM’s could not litigate the validity of Title II and granted the defendants’ motion to vacate the injunction and its supplemental motion for summary judgment.

To understand the significance of the decision, consider that some 36 states and the District have recently introduced legislation regulating PBM’s. Thus, state lawmakers are taking seriously the allegations of fraud and abuse by PBM’s and are doing something about it. Continue reading

:: Military Hospital Lapses Have Politicians On The Move

The VA hospitals are not good either except for the staff who work so hard. It brings tears to my eyes when I see my brothers and sisters having to deal with these conditions. I am 70 years old, some say older than dirt but when I am with my brothers and sisters we become one and are made whole again. ‘It Is Just Not Walter Reed’, Washington Post (March 5, 2007)

The current scandal over military hospitals stands in stark contrast to the praise bestowed on the VA hospitals by a recent survey also reported in the Washington Post. For example, the Post has reported:

The Department of Veterans Affairs medical system once epitomized poor-quality care. But after a series of changes, the system has been hailed in recent years as a model for health care reform.

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:: Connecticut Democrats Propose Health Care Plan Based On Vanity Taxes, Provider Taxes & Subsidies

Democratic lawmakers unveil a comprehensive health care proposal designed to provide coverage for virtually all uninsured in the State. Package price for universal care is set at $900 million. The program is called the Connecticut Healthy Steps Program. The idea is to address specific areas of the health care system rather than overhaul the entire system.

According to state House Deputy Majority Leader Michael Christ (D), the proposal would involve a combination of financing sources including a proposed 3% provider tax, a vanity tax for optional cosmetic surgery, increasing the state cigarette tax, tax subsidies to help workers pay for employer-based health coverage and tax incentives where employers provide coverage.

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:: A Skeptic’s View: Removing The Ideological Obstacles To Health Care Reform

Health care, as currently funded and delivered, is unsustainable. It is taking up an ever-increasing share of our financial resources, while its outcomes consistently show room for improvement when compared with other developed countries . . .

Another dismal report on the U.S. healthcare system one might surmise at first glance.

Actually that is a quote from Glen Roberts, Director of Health Programs, in a 2004 press release, “Canadian Health Care is Unsustainable as Currently Organized”, published by the Conference Board of Canada, concerning the report Understanding Health Care Cost Drivers and Escalators published for Alberta Health and Wellness. The report, available on the Conference Board website, benchmarks Canada’s performance to that of 23 other Organisation for Economic Co-operation and Development (OECD) countries, using a range of 24 health-related indicators.

How did Canada fare?

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:: Reflecting On The Delaware Battle of the Titans – Are The Pharmarcy Benefit Managers Really Helping Health Plans?

A Delaware corporate law judge Friday refused to stand in the way of a shareholder vote on the proposed combination of Caremark Rx Inc. and drug store operator CVS Corp. . . .

With a $26.8 billion rival offer already on the table from Express Scripts Inc. Caremark’s rival in the business of pharmacy-benefits management, the threat of an appraisal lawsuit from Caremark shareholders who say the CVS deal is too cheap could be a potent factor in the three-way takeover fight.

Wall Street Journal, Judge Refuses to Halt Deal Between Caremark-CVS (February 26, 2007)

Pharmacy benefit managers, or “PBM’s”, continue the path of consolidation which led to the dominance of the major players in the early 1990’s. The three way fight described in the WSJ represents yet another step in consolidation of the industry. In essence, the struggle is over Express Scripts Inc. competition with CVS Corporation in an attempt to acquire Caremark Rx Inc.

While the Delaware judge refused to halt the sale, the court did require Caremark to hold up on a vote until advised shareholders more about factors that may sway their decision.

PBM’s promise to deliver cost savings to health plans through plan design, effective purchases of appropriate pharmaceuticals, disease management and various ancillary services. The PBM’s dictate the formularies that drive traffic toward certain drugs and away from others based on reimbursements that the PBM’s specify. Inasmuch as the big are posed to get even bigger, these current events present an occasion to reflect on the utility and effect of the PBM mechanism in the American health care system.

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:: Financing Healthcare Reform After Retail Industry Leaders Association v. Fielder – An Occasion To Reconsider

The McKinsey Global Institute (“MGI”), a private think tank, released a study on the United States health care system that is receiving a great deal of attention. In the report, the authors note that the United States spends more of its wealth on health care than any other developed country. Entitled Accounting for the Cost of Health Care in the United States (January 2007), the statistical findings indicate that the United States spent 16 percent of GDP on health care in 2005, up 1% from the previous year.

The reasons for the higher rate of expenditures, according to the report, are attributable to several factors, few (if any) of which form any part of current reform proposals. For example, the report suggests that the use of outpatient treament centers constitute a huge component of inefficiency.

In outpatient centers, higher operational expenditures are in large part explained by subscale operations and a lack of value-consciousness on the part of consumers and providers. Outpatient centers benefit from a cost base that is to 30 percent lower, while receiving reimbursement that is frequently similar to that of inpatient providers. Outpatient centers have grown rapidly by capturing less-acute and high-margin procedures from hospitals. The high profitability of the emerging outpatient centers has driven investors and physicians to fund a rapid expansion in the number of these facilities, which has resulted in subscale operations and redundancy in capacity . . . The fee-for-service reimbursement system creates an incentive for physicians to see more patients. This is magnified by physician co-ownership of these facilities, which offers a strong incentive to self-refer cases— physicians who own imaging equipment refer between two and eight times more tests than their peers without equity interest. Furthermore, manufacturers of imaging and diagnostic equipment advertise to physicians the financial advantages of pursuing additional testing.

While the conclusions drawn from the data can be debated, the report deserves critical review as it seeks to offer empirical data as a starting place for evaluating proposed reform proposals. If only the current proposals began with such analytical focus, the American public might have some basis for coherent discussion of the issue. Unfortunately, an impoverishment of empirical data represents the one common element in virtually all proposals under discussion, from the analysis of the problem to the proposals for a solution.

The plans for financing the various reform proposals share the same flaw. While the concept of State innovation may be appealing from the standpoint of federalism, a failure to appreciate the legal issues implicated in conscripting employers to pay for the proposals will lead to more more disappointments such as that experienced with the Maryland Fair Share initiative. Continue reading

:: “Run Silent, Run Deep”: The Role of Silent PPO’s In the Health Care Delivery System (Unit 1)

For some of these PPOs, the aim is no longer to steer patients to providers in return for certain financial concessions; it’s to shop around their discounts, often without doctors’ knowledge. Collectively, these are known as “silent PPOs.” Medical Economics, “The Secret World of Silent PPO’s”

Healthcare provider challenges to “silent PPO” arrangements have faced a number of obstacles. In some cases, the issues have turned on the authority the providers conferred in the contractual documents. See, e.g., :: Arbitration of Provider Reimbursement Disputes

In a more recent set of cases, providers are running afoul of the new class action legislation designed to limit access to this collective remedy. For example, in Coy v. Country Mut. Ins. Co., Slip Copy, 2006 WL 3487653 (S.D.Ill.) (December 04, 2006), the providers challenged the taking of discounts without steerage. Continue reading

:: John Edwards Calls For Tax Hikes To Pay For Universal Health Care Plan

Yes, we’ll have to raise taxes. The only way you can pay for a health care plan that costs anywhere from $90 [billion] to $120 billion is there has to be a revenue source.

“Edwards’s healthcare plan entails tax increase”, Boston Globe (Feb. 5, 2007) (boston.com)

According to the foregoing Associated Press article printed in the Boston Globe, John Edward’s health care reform proposal will entail higher taxes to fund his concept of universal health coverage. The article, based upon his appearance on Meet the Press [watch here], may be summarized as follows: Continue reading

:: Hillary on Health Care Reform: For Now, Just “Stay Tuned”


A Clinton spokesman, asked for details last night, would only say, “stay tuned,” followed by a smiley face emoticon. Mrs. Clinton said she wanted to “tackle problems of coverage” so everyone is insured for health care; has access to quality care; and can afford the insurance.

from The New York Times Blog

Senator Clinton’s rival, Sen. Barack Obama, stepped forward with his views during a speech at the annual Families USA Conference in Washington. (Long on charm, short on facts according to the WSJ)

Radioactive for more than a decade, universal health insurance emerged Thursday as a 2008 Democratic presidential primary issue for chief rivals Barack Obama and Hillary Rodham Clinton.

The Chicago Sun-Times Continue reading

:: President Advocates Tax Code Reform As Basis For Healthcare Reform

As promised, last night President Bush aired his proposals for making private health insurance more available and affordable. In his State of the Union address, the President emphasized his commitment to the private insurance systems as the best way to accomplish health care goals.

Highlights of the President’s views: Continue reading

:: Senator Clinton’s Health Care Reform Proposal

For balance, I have contacted Senator Clinton’s office for details on her proposal. The Albany office referred me to the D.C. office and there I was referred to the legislative department.  For the present, the Senator’s position consists of highlights on her website here. I do anticipate I will have a more comprehensive summary of her proposals very shortly. They will be posted as an article upon receipt.

:: President Bush Will Propose Health Care Plan Of Tax-Based Aid for Consumers

President Bush outlined a proposal for improvement in the health care delivery system in his radio address this weekend. The proposal features a tax deduction for people who get health coverage either at work or on their own. On the other hand, employer-provided health insurance would be counted as income and thus would become taxable – constituting a tax increase for an estimated 20% of employees.

The President will add additional detail in his State of the Union address.

The text of the radio address is set forth below or available through a link to the White House website. (In the text, I supplied emphasis to those concepts which appear central to the proposal.)

The remarks begin with an affirmation of commitment to the present Medicare and Medicaid programs, and specifically the State Children’s Health Insurance Program. (Speaking yesterday at the Ryan Chelsea-Clinton Community Health Center on Manhattan’s West Side, Senator Clinton also claimed the latter issue, stating “it is simply wrong for any child in America to go without health insurance.” Continue reading

:: Retail Industry Leaders Association v. Fielder: A Case of Preemption Over Federalism

The Maryland General Assembly, in furtherance of its effort to require Wal-Mart to spend more money on employee health benefits and thus reduce Wal-Mart’s employees’ reliance on Medicaid, enacted the Fair Share Act. Not disguised was Maryland’s purpose to require Wal-Mart to change, at least in Maryland, its employee benefit plans and how they are administered. This goal, however, directly clashes with ERISA’s preemption provision and ERISA’s purpose of authorizing Wal-Mart and others like it to provide uniform health benefits to its employees on a nationwide basis. Were we to approve Maryland’s enactment solely for its noble purpose, we would be leading a charge against the foundational policy of ERISA, and surely other States and local governments would follow. As sensitive as we are to the right of Maryland and other States to enact laws of their own choosing, we are also bound to enforce ERISA as the “supreme Law of the Land.” U.S. Const. art. VI. Retail Industry Leaders Association v. Fielder, — F.3d —-, 2007 WL 102157, C.A.4 (Md.)(January 17, 2007)]

In ten pages, the Fourth Circuit delivered delivered the news to Maryland that ERISA still reigns king over the employee benefits economic sector. The Maryland legislation, enacted on January 12, 2006, requires employers with 10,000 or more Maryland employees to spend at least 8% of their total payrolls on employees’ health insurance costs or pay the amount their spending falls short to the State of Maryland. Continue reading

:: Universal Health Plan Touted: Kennedy Presents A Solution

The “Medicare for All” plan will make health care coverage available to every American by expanding the Medicare program to the under 65 population. To promote competition and choice, enrollees will also have the option of choosing any of the plans offered to members of Congress, the President, and Federal employees.

from Senator Kennedy’s “Medicare For All” proposal

Ted Kennedy drew attention to his proposal for universal medical verage in his first hearing Wednesday as chairman of the Senate Health, Education, Labor and Pensions Committee. With some obvious exultation, Kennedy opened with praise for the Democratic legislators in his home state who worked with Republican Gov. Mitt Romney in crafting a universal coverage plan. Kennedy now joins the Democratic ranks seeking universal coverage by setting forth a national plan. Continue reading

:: California’s Universal Health Coverage Proposal Unveiled

Gov. Schwarzenegger presented his plan to provide universal health coverage yesterday. The proposal can be reviewed at the governor’s website. There you can view a live video Q & A session on the proposal or just read the proposal text.

The highlights, as presented: Continue reading

:: The Enrollment Challenge: A Big Task Ahead For Massachusetts

Massachusetts hospitals and community health centers are joining a major campaign to enroll residents with low and moderate incomes in subsidized insurance plans that are a key part of the state’s sweeping healthcare initiative . . . But even as they take to the radio waves, prepare to distribute brochures written in multiple languages, and mail out flyers, hospital executives are finding their jobs complicated by a major problem: Few uninsured residents know anything about the landmark initiative, and fewer still understand that the new law requires them to purchase health coverage beginning July 1. The Boston Globe, January 4, 2007

The success of the enrollment will depend largely on provider efforts and particularly hospitals according to observers. One of the biggest hurdles appears to be getting the people that need the program to identify themselves and actually apply.

For more information on the status of the enrollment (a little over 28,000 as of year-end), visit the website of the Commonwealth Health Insurance Connector Authority, “an independent authority created, under c. 58 of the Acts of 2006, as part of the sweeping reform designed to increase access to health care in Massachusetts.” The site contains an insurance broker presentation in Power Point, health care quality and cost information (such as mortality rates by institution), and other items that are simply interesting to read through.

Critical view of the program can be found on several sites including the Heritage Foundation website, NPR’s website, and several articles in the Boston Globe. A Kaiser Foundation factsheet is available for a quick overview. For a larger collection of articles, visit the News search tool on BenefitsLink and simply type “Massachusetts”.

:: Issue Joined Over Future of Healthcare System

Within days of convening, the new Congress will return to some of the biggest battles of the last decade as House Democrats try to rush through legislation requiring the government to negotiate lower drug prices for Medicare beneficiaries and overturning President Bush’s restrictions on embryonic stem cell research. The Medicare proposal highlights the profound differences between Democrats and Republicans over the future of the nation’s health care system, the proper role of government and the role of private markets in securing the best value for the huge sums spent on health care. “Power Shift in Congress Revives Health Debate”, The New York Times, 1/1/2007

The new year brings vows of attention to the working poor and expanded health care in a “mainstream” agenda according to Iowa Democrats. Democratic presidential contender John Edwards is quoted as saying that it is more important to invest in universal health care and lifting people out of poverty than to reduce the budget deficit. Not to be outdone, Republicans such as Charles Crist, the newly-elected governor of Florida, vow to make health insurance more affordable.

Oregon is among the States looking to increase access to health care through legislation. “The goal is to design a new system that provides health care to all Oregonians and use current funding more effectively”. According to one policymaker, “it absolutely is the year for reform. Meanwhile, after “an extraordinary year for health care in Massachusetts”, the citizens of that State contemplate what they are supposed to do under the new legislation. (Boston Globe article, registration required).

Mandating that individuals and employers buy into the existing health insurance structure forces people into a broken and inefficient system, according to Jerry Flanagan, health policy director of the Foundation for Taxpayer and Consumer Rights in Santa Monica. With Massachusetts, Maine and Vermont now in the nascent stages of their universal care legislation, New Jersey is giving the idea consideration.

State lawmakers expect to introduce legislation in the spring that would require all New Jersey residents to have health insurance. The projected first-year cost of covering the 1.4 million uninsured: $1.7 billion.

Newly-elected governor Eliot Spitzer weighed in on the issue at his inauguration yesterday, declaring an end to the “Rip Van Winkle” era in New York. Noting that “some may feel threatened by health-care reforms”, he promised a sometimes “bumpy ride” on the path to reform.

A recent news article takes stock of various State initiatives, including the once-ebullient, now-flagging Tennessee healthcare program (described as currently in “meltdown”). In 2005, Gov. Phil Bredesen (D) had to cut 170,000 enrollees from the TennCare program because of “perennial budget overruns”. Bredesen is quoted as describing the program as “too expensive, too rigid, too hard to control.” Oregon’s present program is in similar straits. Jonathan Oberlander, PhD, associate professor of health policy at the University of North Carolina, is quoted as stating that “for states like Massachusetts, the real challenges have just begun” with cost containment constituting the most difficult hurdle.

So, as the politicians air their lofty goals, we must recall that their agendas are frequently revised and compromised. In such matters their plans for the funding of campaign promises present troublesome details that give rise to obscure observations. For example, with regard to his various benevolent proposals, Senator Edwards opines that he wants to get the country “out of this ditch we’re in fiscally” but acknowledges his plan “means you cannot do about the deficit what you’d like to do, that’s true.”

See also, Bush signs tax bill with mental health parity and HSA provisions (CCH), Congress’ New Priorities (Business Week); :: Healthcare Reform: Agenda of the New Congress; :: Election 2006 – Implications For ERISA

:: History of ERISA’s Enactment

For an insight as to the enactment of the statute, take a look at the BNA Pension and Benefits blog entry today.  Very interesting historical account by

:: The Supreme Court “Dwindling Docket” Phenomenon

Recent attention to the dwindling United States Supreme Court docket finds several explanations in an article by Linda Greenhouse appearing in the Amherst Times. Supreme Court observers state that the shortfall in cases on the Court’s docket may soon be the most significant in modern history. Additional insight into the logistics of calendar and cases may be found on Scotusblog, where the docket dearth is described in more quantitative terms. Continue reading

:: Fourth Circuit Hears Argument Over ERISA Preemption Of Maryland “Fair Share” Legislation

For about 40 minutes in a wood-paneled courtroom overlooking the state capitol, the panel of three judges from the Court of Appeals for the 4th Circuit led by Judge Paul V. Niemeyer considered the appeal of that ruling. They needled with constant questioning an assistant Maryland attorney general defending the state and a lawyer for the Retailers Industry Leaders Association, a trade group including Wal-Mart that challenged the Maryland law.

Baltimore Sun (November 30, 2006)

Under The Fair Share Health-Care Fund Act, Md. Code Ann., Lab. & Empl. § 8.5-101, et seq. (“Fair Share Act”), non-governmental employers of 10,000 or more people that “[do] not spend up to 8% of the total wages paid to employees in the state on health insurance costs, shall pay to the Secretary an amount equal to the difference between what the employer spends for health insurance costs, and an amount equal to 8% of the total wages paid to employees in the State.”

The Maryland legislature passed the legislation in January in an override of Republican Gov. Robert Ehrlich’s veto, but the law was struck down as preempted by ERISA in Retail Leader Associate v. Fielder, (D. Md. 2006) (The Retail Industry Leaders Association is a trade group that represents Wal-Mart.)

According to a Wall Street Journal report, State Solicitor General Steven Sullivan told the appeals court that the law is part of the state’s “ongoing, long-standing efforts to address health care and skyrocketing costs of Medicaid.”

The Sun reports that Niemeyer, joined on the panel by Judges M. Blane Michael and William B. Traxler Jr., spent most of his questioning badgering Sullivan on the issue of whether federal law should trump the contested state law. The following colloquy is of interest:

At one point, Niemeyer asked hypothetically whether the state could pass a law requiring all employers to provide health care benefits for their employees and still not violate federal law. Sullivan answered yes, drawing skepticism from Niemeyer. “I don’t think you help yourself to make that argument,” the judge said.

The “Fair Share” legislation is a part of a growing trend of State activism in forcing employers to pick up the expense of medical care for the uninsured. Recent efforts in this direction were noted in a previous article on this site. The Fourth Circuit decision will be closely watched as a bellweather for whether such efforts have any spark of life outside of the broad blanket of ERISA preemption.

According to the Richmond Times-Dispatch (AP Wire), Sullivan argued that the legislation is not preempted “because it doesn’t force Wal-Mart to offer health care; it gives companies the choice of spending at least 8 percent on employee health benefits or covering the costs with increased taxes.”

The Times-Dispatch reports that Sullivan argued “They have real options; Wal-Mart knows it . . . They were trying to convince the legislature they weren’t as chintzy as their competitors were saying they were.”

RILA attorney William J. Kilberg argued that ERISA does not permit States to compel companies’ health-care spending. Since companies can opt to pay the tax, Niemeyer asked if the legislation was actually mandating benefits. In reply Kilberg stated: “It’s a Hobson’s choice, because no sane employer would make that choice” between increasing its spending and paying more taxes, Kilberg said.

Kilberg characterized the legislation as “an unprecedented, direct assault on ERISA” and, if upheld, the end of a uniform national plan as envisioned by ERISA.

Additional information is available on the RILA website.

:: Healthcare Security Ordinance Challenged As Preempted By ERISA

With the changing fortunes in Congress, pundits have forecast more initiatives to address healthcare concerns. As to the possible form of such proposals, one might review the AFL-CIO “Fair Share Health Care” campaign in which “activists are working with state legislators to win legislation to require corporations to pay their fair share for health care.”

Inevitably, however, State and local initiatives will encounter the preemptive borders of ERISA if employer mandates form a part of the funding of such plans. In the most recent example, the Golden Gate Restaurant Association, described as a nonprofit group representing the interests of restaurant owners, filed suit yesterday in the U.S. District Court in San Francisco alleging that San Francisco’s Worker Healthcare Security Ordinance is preempted by ERISA.

According to an article appearing in the San Francisco Examiner, the ordinance requires businesses with 20 employees or more to invest $1.06 to $1.60 for each employee hour worked for health care.

The complaint alleges that “if implemented, the ordinance would intrude both directly and indirectly upon the administration of such [ERISA] plans.” On the other hand, Ken Jacobs, chairman of the UC Berkeley Center for Labor and Research, is quoted as stating that “This law was written very carefully to avoid pre-emption under ERISA . . .”

Jacobs claims that “[t]his law is like the minimum wage law. It sets standards for spending on health care. The law says nothing about the content of the health services, which is what ERISA addresses.”

The preemption issue is a substantial threat, however, as the District Court of Maryland has only this summer struck down legislation aimed at increasing healthcare spending through employer dollars. On July 19, 2006, the District of Maryland ruled that Maryland’s so-called “Wal-Mart law,” was preempted by ERISA.

Under The Fair Share Health-Care Fund Act, Md. Code Ann., Lab. & Empl. § 8.5-101, et seq. (“Fair Share Act”), non-governmental employers of 10,000 or more people that “[do] not spend up to 8% of the total wages paid to employees in the state on health insurance costs, shall pay to the Secretary an amount equal to the difference between what the employer spends for health insurance costs, and an amount equal to 8% of the total wages paid to employees in the State.” See, Retail Leader Associate v. Fielder, (D. Md. 2006)

The Maryland legislation targeted Wal-Mart in a way distinguishable from the San Francisco ordinance, but it remains to be seen if the financial burden on employer plans may nonetheless find apt analogies in the Fielder decision. (The Fielder decision is reportedly being appealed – see August 2006 Lorman newsletter prepared by McGuire, Woods.)

Presumably, the approach taken by the San Francisco ordinance has been informed by experience gained from observing the fate of the Fair Share initiative in Maryland. For more discussion of the policy driving such legislation, a good resource may be found on The Faculty Law Blog where Saul Levmore provides insight on the Chicago “big-box” retail store ordinance and additional links.

On a related issue, the Los Angeles Times online portal includes an article today, “San Francisco Labor Hails Passage of Sick Leave Measure” (unrelated ordinance):

Cementing its reputation as a progressive haven and further irking business groups, San Francisco has become the first city in the country to mandate paid sick leave for all employees. The ballot measure, which hardly generated discussion here and passed with a resounding 61% of the vote, comes at a time when businesses are reeling from a city plan that requires employers to contribute to universal healthcare and a citywide minimum wage boost phased in over the last few years.

Whatever the outcome of the legal battle in San Francisco, two items are certain -the decision on the ERISA preemption issue in that case will have an impact well beyond its borders – and the City’s “irksome” reputation will undoubtedly stick for some time to come among business groups.

:: Election 2006 – Implications For ERISA

“What would happen if Democrats take control of the House of Representatives — and possibly the Senate? This question is on many minds and is the subject of much speculation. . . . Democrats will not pursue a strategy reminiscent of Hillary Clinton’s proposal in the early 1990s. Instead, they will promote grass roots efforts to pass state legislation, similar to recent “fair share” initiatives in Massachusetts, Maryland, Maine, and California. For these efforts to succeed, ERISA (Employee Retirement Income Security Act) must be weakened . . .” Bruce Davis, Health and Group Benefits Consulting National Practice Leader at Findley Davies, Inc., (quoted in October 25, 2006 Drug Newswire article)

In this article, Election 2006: A Shift in Power Spells Trouble for ERISA, Medicare Part D and HSA’s, the author suggests that a swing to Democratic control of Congress could mean a curtailment of ERISA’s preemptive reach thereby opening the door for increased State mandates and initiatives. The present administration’s interest in association plans and has previously been noted here. Regardless of election outcomes, it is apparent that both parties view reform proposals in terms of changes to ERISA’s current structure.

In the case of either party, one has to wonder if their proposals are advanced simply to show that the sponsors are “doing something” about healthcare issues or if they actually constitute well-considered judgments on how the health care delivery system should function. The notion of ad hoc changes to the present system brings to mind the dictum from the Hippocratic Corpus, “first do no harm”.

:: Uncertain Future For Tax Exempt Status of Non-Profit Hospitals

Pressure is mounting from several quarters on non-profit hospitals to justify their tax-exempt status, both from federal and from state and local taxes. For example, the Washington Post reported last month that:

Nonprofit hospitals routinely overcharge or deny care to patients least able to pay, Senate investigators have found, raising questions about whether the institutions should be eligible for tax exemptions that cost the U.S. Treasury billions of dollars a year . . . Several state attorneys general, including those in Illinois, Kansas and Minnesota, are looking into possible abuses by tax-exempt hospitals. In the past two years, lawyers for the poor have filed federal lawsuits in at least 22 states accusing nonprofit hospitals of failing to meet their tax-exempt obligations to provide indigent care.

In a landmark decision, the Illinois state revenue director Brian Hamer ruled that an Urbana medical facility, Provena Covenant Medical Center, did not deserve its property tax exemption. The decision is discussed in an article published in the September 29, 2006 edition of the Chicago Tribune: Continue reading

:: Initiative For Federal Regulation of Life Insurance Opposed

“While we acknowledge that insurance regulation should be streamlined, we believe establishing another federal office to do so is not the answer . . .  Taking power away from the states and centralizing it in Washington will only complicate issues for insurance companies, agents and brokers and, most important, consumers of insurance services ”

Greg Wren, Alabama state legislator, quoted in National Underwriter article (October 5, 2006)

This initiative comes at a time when Senate Majority Leader Bill Frist (R-Tenn.) has already thrown in his support for legislation (S 1995) that would allow small businesses and trade associations to form association health plans across state lines. Under the bill, health insurers could offer AHPs to small businesses and individuals that do not meet current state benefits requirements. Opposed by State regulators, the AHP legislation would curtail State regulation, while enhancing federal jurisdiction (without any appropriate of funds for the purpose).

The strong Republican support for suppression of State regulation in favor of federal jurisdiction over life and health insurance, traditional areas of State concern, must at least raise some question as to ideological coherence.  Whether motiviated by a need to answer the push for health care reform, small business constituencies or some other factor, the preference for federal regulation may backfire in any event if the proposals carry only to find that the promised federal regulatory supervision is unfunded and inadequate.

:: Healthcare Policy Issues In the News

Class Action Suit Charges CareFirst of Maryland With Prematurely Increasing Policyholder Premiums

“A class action suit filed in Baltimore alleges that CareFirst BlueCross BlueShield of Maryland has overcharged policyholders millions of dollars by jumping the gun on premium increases permitted by their health insurance policies.”

Health Care in the News Nationwide The Denver Business Journal reported the local National Federation of Independent Business chapter was “going to Washington” to fight for Association Health Plan legislation that has been endorsed by 8,000 small business owners in Colorado. It’s an uphill fight: As the article reports, the bill was filibustered in the Senate in May and could not be brought to a vote. Coloradans hope to get Sen. Ken Salazar (D-CO) to change his position, with more than 8,000 small business owners in Colorado having signed petitions asking him and bill cosponsor Sen. Wayne Allard (R) to support the measure. Source: “NFIB takes coverage fight to D.C.,” by Amy Fletcher, Denver Business Journal [See coverage on this site here]

United States: Ninth Circuit Charts Unique, Complex Course Involving Plan Administrator With A “Structural Conflict Of Interest”

“In Abatie v. Alta Health & Life Ins. Co., __F.3d__ (9th Cir. 2006), 2006 U.S.App. LEXIS 20829, the Ninth Circuit . . . addressed the commonplace situation where a plan administrator, such as an insurance company, has an inherent conflict of interest because it acts as both the administrator deciding claims reviews and the funding source for benefits.”

September 2006 Health Care News

The September 2006 issue of Health Care News highlights technology in health care, including the Health Information Technology Promotion Act of 2006 (H.R. 4157) and efforts by national and regional health insurers to encourage electronic patient visits by reimbursing providers for establishing secure online visit systems.

Health-Care Consultants Reap Fees From Those They Evaluate

“Who are you working in the best interest of, yourself or the client?”

:: Association Health Plan Bill To Advance

Senate Majority Leader Bill Frist (R-Tenn.) this month hopes to hold a floor vote on a revised version of a bill (S 1995) that would allow small businesses and trade associations to form association health plans across state lines, according to a Frist spokesperson, CongressDaily reports . . . Under the bill, health insurers could offer AHPs to small businesses and individuals that do not meet current state benefits requirements.

Kaiser Health Policy Report (September 18, 2006)

The AHP concept touted by the Bush Administration is opposed by the National Association of Insurance Commissioners.

:: Arnold Will Veto California Single Payer Bill

“California’s flirtation with a universal healthcare system may not lead to marriage, but the state’s action may encourage others to consider walking down the aisle.”

from modernhealthcare.com website (9/4/06)

The cited article discusses California’s proposed single-payer bill which has been touted as an effort to expand healthcare coverage to all of the state’s 36 million residents by replacing the private health insurance market with a government-sponsored healthcare system. California Gov. Arnold Schwarzenegger has stated he will veto the bill.

The author notes a growing trend of attempts at the State level to correct perceived deficiencies in the current healthcare delivery system. Nonetheless, the California legislation appears to be symbolic and is not expected to survive the veto. The inherent, but neglected problem of balancing costs and provision of care (i.e., “rationing”) has been cited as a principal failing of most reform proposals.

:: Class Actions Down According To the Wall Street Journal

“Companies involved in many of the largest and most controversial legal clashes of recent decades are seeing a sharp decline in the number of lawsuits filed against them.” Wall Street Journal, August 26, 2006. The Journal reports the decline results from judicial scrutiny of the methods of large class action law firms. A spokesperson for the trial lawyers responds that “isolated incidents” to evade issues of accountablity of big business for harm to individuals. Continue reading

:: National Insurance Act of 2006

The National Insurance Act of 2006 (S.2509) would radically restructure the current system of state insurance regulation by establishing a federal insurance regulatory authority. Both the National Governors Association (NGA) and the National Conference of State Legislatures (NCSL) oppose the legislation. The National Association of Insurance Commissioners has weighed in against the proposed federal legislation as well.

“The nation’s insurance officials strongly believe that a coordinated, national system of state-based insurance supervision has and will continue to meet the needs of the modern financial marketplace, while enhancing individual and commercial policyholder protections,”, stated the NAIC president, Alessandro Iuppa. Leonard C. Brevik, executive vice president and CEO of the National Association of Professional Insurance Agents, also expressed opposition to the legislation. In an interview before the National Conference of Insurance Legislators, Brevik stated that “[t]he National Insurance Act of 2006 would undermine key insurance consumer protections, constrict the availability of insurance, create market instability and prompt a flood of litigation”.

At issue is the ability of insurer to avoid regulation by the various States. For example, a provision of the proposed legislation provides:

(c) Activities of Federally Licensed Insurance Producers- No State may–

(1) by statute, regulation, order, interpretation, or otherwise, prevent or restrict a federally licensed insurance producer from selling, soliciting, or negotiating insurance in such State on behalf of a National Insurer, State insurer, or United States branch of a non-United States Insurer; or

(2) require such producer to be licensed by reason of engaging in such acts on behalf of a National Insurer, State insurer, or a United States branch of a non-United States Insurer.

Another provision of the proposed legislation relating to reinsurance provides:

No State may prevent a State insurer from–

(1) ceding insurance to a National Insurer or a federally licensed reinsurer; or

(2) establishing an asset or reducing its liabilities as a result of such reinsurance to the same extent as the State would allow such insurer if the insurance were ceded to another State insurer.

The bill is sponsored by Senator John Sununu (R-NH) who claims that:

“Streamlining an overwhelming and tangled web of state rules for financial regulation, licensing, policy forms, rates, and market conduct exams under an ‘optional federal charter’ system will encourage greater competition. Moreover, new and innovative insurance products will become available to the consumer more quickly.”

See, Sununu Press Release.

:: Healthcare Policy Issues In the News

In the Wall Street Journal of interest today,

  • a recent survey by SurePayroll, a Chicago-based online pay service provider, 58% of small businesses have health insurance (most are PPO’s), and of those that offer plans, 56% pay for at least 80% of the overall cost of theirworkers’ health care – but 11% of the small-business owners who currently offer benefits are considering droppingthe plans next year . . .
  • an increasing number of closely-held companies are instituting self-compliance with portions of the Sarbanes-Oxley Act, even though they don’t have to, because of designs to go public later or demands of lenders or investors . . .
  • Medicare announces plans to cut physician-payment rates by 5.1% next year to control costs; and
  • the Centers for Medicare and Medicaid Services said it will fine specialty hospitals as much as $10,000 a day if they fail to timely disclose financial arrangements with physicians.

Also, a good debate concerning the policy behind punitive damages appears in the Journal and in the Journal’s law blog in view of the upcoming U.S. Supreme Court case this fall, Phillp Morris v. Williams. In that case, the Oregon Supreme Court upheld a $79.5 million dollar punitive damages award in a case in which compensatory damages were $1 million dollars.

Can the case withstand scrutiny under the Court’s opinion in State Farm v. Campbell?  It appears doubtful. In Campbell, the Court stated that “few awards exceeding a single-digit ratio between punitive and compensatory damages” will satisfy due process. If the decision is based on the math, the outcome is clear.