*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, 5th 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 portion of our opinion in which we

concluded that the Independent Review Organization (IRO) provisions

appearing in the Texas Insurance Code were preempted. Texas

contends that the panel factually misunderstood the IRO provisions
1120 S. Ct. 2143 (2000).

2965 F.2d 1321 (5th Cir. 1992).

3120 S. Ct. at 2158.

4See id. at 2157-58.

5Corporate 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 Jass, 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 an analysis of the underlying health

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

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

holding, it was found to be significant. See id. In our panel

opinion, we expressly distinguished that situation and held only

2

and that the recent Supreme Court decision in Pegram v. Herdrich1

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 liability for physicians’ malpractice when making “health

care treatment decisions” and the ensuing vicarious liability for

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

based on the actual negligent provision of medical services. See

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

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

actions based in some part on malpractice committed by treating

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

decisions of their utilization review agents would still be

preempted, as Corcoran held. Because Pegram did not exhaustively

discuss the specific kinds of state causes of action that it

implied were not preempted, we make no additional inferences. 

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

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

9Id. 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 concluded 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 alternative mechanism through which

plan members may seek benefits due them under the terms of the

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

As such, the independent review provisions 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 heart
10Petition for Panel Rehearing, at 13-14 (internal quotation

marks omitted).

11471 U.S. 724 (1985).

12See 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 certain 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.12

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 treatment 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 so
13See Corporate Health, 2000 WL 792345, at *6 & n.40 (citing

TEX. INS. CODE 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, however, IRO determinations result in a practical

determination of coverage only because the HMO elected to define

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 is 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 suggest 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 simply a second opinion on medical

necessity about which reasonable doctors might reach differing

conclusions. 
14Cf. 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 inquiry 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 regulate 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 would constitute medical

malpractice. 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 authorizing 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 benefit decisions and not a system for implementing a
7

mandated term of insurance regulating a minimal standard of care,

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

be 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 (FED. R.

APP. P. and 5TH CIR. R. 35), the Petition for Rehearing En Banc is

also DENIED. 

MOTION FOR PANEL REHEARING and PETITION FOR REHEARING EN BANC

DENIED.