* This matter is being decided by a quorum, 28 U.S.C. 46(d). IN THE UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

No. 98-20940

Corporate Health Insurance, Inc.;

Aetna Health Plans of Texas, Inc.;

Aetna Health Plans of North Texas, Inc.;

Aetna Life Insurance Company,

Plaintiffs-Appellees-Cross-Appellants,

v.

The Texas Department of Insurance,

Defendant-Cross-Appellee,

Jose Montemayor, Commissioner of the Texas Department of Insurance;

John Cornyn, Attorney General, State of Texas,

Defendants-Appellants-Cross-Appellees.

Appeals from the United States District Court

For the Southern District of Texas

July 27, 2000

ON PETITION FOR REHEARING

(Opinion June 20, 2000, 5 th Cir., 2000 ____F.3d____)

Before HIGGINBOTHAM and PARKER, Circuit Judges. *

PATRICK E. HIGGINBOTHAM, Circuit Judge:

The State of Texas petitions for panel rehearing, urging

reconsideration of that port ion of our opinion in which we

concluded that the Independent Review Organization (IRO) provisions

appearing in th e Texas Insurance Code were preempted. Texas

contends that the panel factually misunderstood the IRO provisions1 120 S. Ct. 2143 (2000).

2 965 F.2d 1321 (5th Cir. 1992).

3 120 S. Ct. at 2158.

4 See id. at 2157-58.

5 Corporate Health v. Texas Dep’t of Ins. , No. 98-20940, 2000

WL 792345, at *4, *5 (5th Cir. June 20, 2000); see also id. at *5

n.34. But see Jass v. Prudential Health Care Plan, Inc. , 88 F.3d

1482 (7th Cir. 1996). In J ass

, the Seventh Circuit held that

vicarious liability claims against an HMO based on the malpractice

of a treating physician were preempted because the necessary agency

determination would require a n analysis of the underlying health

care benefit plan and thus would “relate to” the benefit plan. I d.

at 1493.

The alleged negligence at issue in Jass

, however, was not the

treating physician’s negligent provision of services but rather the

physician’s failure to provide care once coverage had been denied.

While that distinction was not the only basis for the court’s

h olding, it was found to be significant. S ee id. In our panel

opini on, we expressly distinguished that situation and held only

2 and that the recent Supreme Court decision in Pegram v . Herdrich 1

cast doubt on both the panel opinion in this case and this court’s

prior decision in Corcoran v. United HealthCare, Inc. 2

In Pegram

, the Court held that mixed eligibility and treatment

decisions that were made by an HMO acting through its physicians

were not fiduciary acts under ERISA, and therefore no federal claim

under ERISA for breach of fiduciary duty based on such decisions

was stated. 3 Texas points to the Court’s observation that such a

claim would duplicate state malpractice liability. 4

The Court’s holding in Pegram comports with our holding that

certain liability provisions were not preempted, specifically

direct liabil ity for physicians’ malpractice when making “health

care treatment decisions” and the ensuing vicarious liability for

the HMOs. 5 However, we do not read P egram to entail that everythat direct and vicarious liability claims were not preempted when

based on the actual negligent provision of medical services. S ee

Corporate Health , 2000 WL 792345, at *4-5.

6 It may be that state causes of action persist only for

actions based in some part on malpractice committe d by treating

physicians. If so, state causes of actions against HMOs for the

decisions of their utilization re view agents would still be

preempted, as Corcoran held. Because P egram did not exhaustively

discuss the specific kinds of state causes of action that it

implied were not preempted, we make no additional inferences.

7 See 965 F.2d at 1332-33, 1326.

8 See Corporate Health , 2000 WL 792345, at *6.

9 Id. at *7.

3 conceivable state law claim survives preemption so long as it is

based on a mixed question of eligibility and treatment, 6 and

Corcoran held otherwise. 7

In our panel opinion, we conc luded that the IRO provisions

allowed review of “adverse determinations” which included

“determinations by managed care entities as to coverage, not just

negligent decisions by a physician.” 8 We held, however, that the

IRO provisions “create[d] an alternat ive mechanism through which

p lan members may seek benefits due them under the terms of th e

plan–the identical relief offered under § 1132(a)(1)(B) of ERISA.

As such, the independent review pro visions conflict with ERISA’s

exclusive remedy and cannot be saved by the savings clause.” 9

Texas insists that the IRO provisions do not create an

alternative mechanism for seeking benefits and do not improperly

review coverage decisions. According to Texas, the IRO merely

implements “a procedural right to obtain medical care

. . . by

imposing a mandatory insurance contract term that goes to the heart10 Petition for Panel Rehearing, at 13-14 (interna l quotation

marks omitted).

11 471 U.S. 724 (1985).

12 See id. at 731, 758 (holding that a state law mandating the

provision of a particular level of mental health care – viz. , “60

days of coverage for confinement in a mental hospital, coverage for

confinement in a general hospital equal to that provided by the

policy for nonmental illness, and certai n minimum outpatient

benefits” – was saved from preemption).

4 of the insured-insurer relationship.” 10 The distinction is a fine

one: the IRO provisions reflect Texas’s effort to mandate and

regulate the quality of medical care for a covered condition, but

do not detail or provide a mechanism for determining or receiving

benefits.

Under this view, the IRO provisions are alleged to be akin to

the state law at issue in Metropolitan Life Ins. Co. v.

Massachusetts

, 11 which required certain insurers to provide a set

level of mental health care as part of their plan policies. 1 2

Unlike the mandatory benefit provisions in Metropolitan Life , the

IRO provisions allegedly regulate the minimal level of care not

through a previously defined set of rules but through an

interactive procedure involving independent review of proposed

courses of treatment.

A determination by an IRO that a particular treatme nt is

“medically necessary” for a diagnosed condition, however, entails

that the treatment must be provided by the HMO – so long as the

underlying condition is a covered condition under the plan

–

because that level of care has become, in some sense

retrospectively, a mandatory term of the health plan. This is so13 See Corporate Health

, 2000 WL 792345, at *6 & n.40 (citing

T EX

. I NS

. C ODE art. 21.58A § 6A(3)).

5 because Texas requires HMOs through their utilization review agents

to “comply” with the results of the IRO review. 13 According to

Texas, howe ver, IRO determinations result in a practical

d etermination of coverage only because the HMO elected to def ine

obligations under its plan in terms of “medical necessity,” a

standard uniquely within the province of Texas to regulate.

This ambitious spin on the IRO provisions i s accented in

Texas’s petition for panel rehearing. While it is not without some

persuasive force, it does not comport with our view of the record,

which reflects that the IRO process binds HMOs to pay for treatment

the IRO mandates and in so doing substitutes the medical judgment

of a third party physician for the HMO’s, or treating physician’s,

judgment as to medical necessity.

Our panel opinion does not hold or sugges t that when

implementing its police power, Texas cannot deploy an independent

review mechanism to regulate the minimal quality level of medical

care provided for covered conditions. Indeed, we explicitly

approved an exhaustion requirement prerequisite to the filing of

malpractice suits. At the same time, the law is clear that Texas

cannot provide a supplementary claims process by binding the HMO to

pay for a treatment that is sim ply a second opinion on medical

necessity abo ut which reasonable doctors might reach differing

conclusions.14 Cf. UNUM Life Ins. Co. of Am. v. Ward

, 119 S. Ct. 1380, 1390

(1999) (declining to find that an insurer can “displace any state

regulation simply by inserting a contrary term in plan documents”).

6 We acknowledge that there is a powerful argument in support of

an IRO procedure in which the only inquir y is whether a proposed

treatment meets the standard of care demanded by Texas of

physicians

– i.e.

, whether any reasonably prudent physician in the

relevant community could have made the medical decision or

prescribed the course of treatment. The argument is that Texas can

demand this level of care as a mandated term of insurance for

covered conditions regardless of whether an HMO chooses to define

the scope of its coverage in terms of its own definition of medical

necessity. 14

Under this view, what Texas can regulate through malpractice

suits, Texas could also administratively regula te as a mandated

term of insurance. The independent review would not be a second

opinion about which reasonable physicians might disagree. Rather

the inquiry would be confined to whether providing the medical

services found to be necessary woul d constitute medical

m alpractice. The ultimate contention is that Congress never

intended to preempt a state’s power to regulate the quality of

medicine; that so confined the IRO is the natural companion of the

provision aut horizing suits for medical malpractice by treating

physicians and brings symmetry to the structure.

Because the IRO provisions here are plainly a state regime for

reviewing benefi t decisions and not a system for implementing a7

mandated term of insurance regulating a minimal standard of care,

we have no occasion to decide whether that form of regulation could

b e saved, and, if so, implemented by regulations limiting the

standard of review to the question of whether it will be medical

malpractice to deliver the services determined to be necessary in

the decision being reviewed. We remain persuaded that the original

panel decision is sound and panel rehearing is DENIED.

The Petition for Rehearing is DENIED and no member of this

panel nor judge in regular active service on the court having

requested that the court be polled on Rehearing En Banc ( F ED

. R.

A PP

. P. and 5 TH C IR

. R. 35), the Petition for Reh earing En Banc is

also DENIED.

MOTION FOR PANEL REHEARING and PETITION FOR REHEARING EN BANC

DENIED.