Opinion ID: 3011217
Heading Depth: 1
Heading Rank: 3

Heading: The Direct Claims Against U.S. Healthcare

Text: A defendant may remove to federal court an action that a plaintiff originally files in state court if the federal court also has jurisdiction at the time of filing. See 28 U.S.C. S 1441(c). Whether removal is proper is governed by the 8 well-pleaded complaint rule. If a federal question appears on the face of the plaintiff 's complaint, the defendant may remove the case to federal court. If, however , the defendant merely has a federal law defense, he may not r emove the case, although he may assert the federal defense in state court. See Franchise Tax Bd. of Cal. v. Construction Laborers Vacation Trust for S. Cal., 463 U.S. 1, 9-12 (1983); Louisville & Nashville R.R. Co. v. Mottley, 211 U.S. 149, 152 (1908). One exception to this rule is for matters that Congr ess has so completely preempted that any civil complaint that falls within this category is necessarily federal in character. Complete preemption creates removal jurisdiction even though no federal question appears on the face of the plaintiff 's complaint. One example of complete preemption is a claim for denial of benefits under an ERISA plan. Such a claim comes under ERISA's civil enforcement provision, S 502(a)(1)(B). See Metropolitan Life Ins. Co., 481 U.S. at 6364. Complete preemption contrasts, however, with another form of preemption, substantive pr eemption, which displaces state law but does not, as a defense, confer federal question jurisdiction. ERISA also contains an express preemption provision, S 514(a), that creates substantive preemption by trumping any and all State laws [that] . . . relate to an ERISA plan. 29 U.S.C. S 1144(a). Unlike the scope of S 502(a)(1)(B), which is jurisdictional and creates a basis for r emoval to federal court, S 514(a) merely governs the law that will apply to state law claims, regardless of whether the case is brought in state or federal court. Much of the District Court's discussion in Lazorko IV centered on the scope of S 514(a). W e do not need, however, to review those conclusions because our intervening decision in In re U.S. Healthcare convinces us that Lazorko's direct claims against U.S. Healthcar e are not completely preempted. These direct claims, as they are presently pled, challenge the soundness of a medical decision by a health care provider rather than the administration of benefits under an ERISA plan. Thus, Lazorko does not seek a remedy for the administrative 9 denial of a benefit under S 502(a)(1)(B). For that reason, the removal of Lazorko's action to the federal court on the basis of complete preemption was improper . This conclusion follows from our decision in In re U.S. Healthcare. There, the plaintif fs, like Lazorko, challenged U.S. Healthcare's financial incentive structure. They claimed it contributed to their newborn daughter's death because she was prematurely dischar ged from the hospital in order that the hospital might avoid monetary penalties. Thus, the infant was denied essential post-natal car e. See 193 F.3d at 156. The plaintiffs br ought their suit against the HMO in New Jersey state court, alleging a variety of state law claims aimed at the influence which U.S. Healthcare's financial incentive system had on medical decisions. As in the case before us, U.S. Healthcare removed the case to federal court, claiming that the failure to provide adequate post-natal care constituted a denial of benefits that was completely preempted by ERISA. Relying on our earlier decision in Dukes v. U.S. Healthcare, Inc., 57 F.3d 350 (3d Cir. 1995), we reasoned that the refusal to offer additional car e, whether couched in terms of direct or vicarious liability, could be a question of the quality of care provided. As such, it did not amount to a claim that benefits to which the plaintif fs were otherwise entitled had been denied by U.S. Healthcare when administering a plan. Instead, the claim concer ned decisions of treatment that were akin to claims for medical malpractice. See In re U.S. Healthcar e, 193 F.3d at 161-62, 164. We had concluded in Dukes that a claim for vicarious liability against an HMO for a doctor's malpractice fell outside the scope of ERISA's complete preemption clause. In In re U.S. Healthcare, we extended that ruling to encompass claims that an HMO was directly liable for arranging inadequate care. In doing so, we r easoned that financial incentives that discouraged care did not deny plan benefits but instead affected the quality of the care provided. See id. at 162-63, 164. Thus, we held that decisions to deny a particular request in the course of providing treatment could be a claim about the quality -- and not the quantity -- of benefits provided. (In all but the details, Lazorko's claims against U.S. Healthcar e fall 10 squarely within this rubric. On appeal, Lazorko argues that his liability claims amount to ones of quality because U.S. Healthcare implicitly caused Dr. Nicklin to misdiagnose and/or mistreat the severity of Ms. Norlie-Lazorko's illness. Thus, such a claim does not fall within the complete preemption scope of S 502(a)(1)(B).6 U.S. Healthcare counters with two basic ar guments, neither of which we find persuasive. First, it ar gues that Dr. Nicklin's refusal to hospitalize Patricia Norlie-Lazorko amounts to a denial of benefits because hospitalization is a benefit under Jonathan Lazorko's HMO plan. W e reject this characterization of the claim. Lazorko is not ar guing that his plan is supposed to permit hospitalizations for mental illness and that U.S. Healthcare refused his wife's request for guaranteed service. Instead, he is arguing that, when confronted with his wife's requests for additional treatment, Dr. Nicklin, influenced by U.S. Healthcar e's financial incentives that penalized a decision to grant additional hospitalizations, made the medical decision not to r eadmit her to the hospital. Because Lazorko's claim is one concerning the propriety of care rather than the administration of that care, the claim is not completely preempted. In other words, the claim her e is that the denial of Norlie-Lazorko's request for hospitalization occurred in the course of a treatment decision, not in the administration of the Lazorkos' plan generally. See In re U.S. Healthcare, 193 F.3d at 164. U.S. Healthcare's second contention is that, in light of the recent Supreme Court decision in Pegram v. Herdrich, 120 S.Ct. 2143 (2000), subjecting an HMO to liability is improper because Pegram recognized the centrality of financial incentives to the operation of an HMO. Pegram, however, does not alter our analysis. In evaluating the question of the circumstances under which an HMO owes a fiduciary duty to the members of an ERISA plan, the _________________________________________________________________ 6. In making this argument, however , Lazorko continues to hedge against the existence of a plan, on which he bases his ar gument that ERISA does not govern this case. As the District Court correctly noted, however, the record evidence supports the existence of a plan, as does the law of the case doctrine. See Lazorko IV, slip op. at 4-6. 11 Pegram court held that mixed eligibility decisions by an HMO (i.e., decisions involving not only the coverage of a particular treatment by the plan but the r easonable medical necessity for the treatment) are not fiduciary decisions under ERISA. The decision in question here, the need to hospitalize Patricia Norlie-Lazorko, appears to be just such a mixed eligibility decision and to the extent that the mixed decision implicates the quality of the care r eceived by Norlie-Lazorko, Pegram does not foreclose the direct claims against U.S. Healthcare. Before our decision in In re U.S. Healthcare, it was not clear whether the denial of a particular type of benefit, such as hospitalization, fell within S 502(a)(1)(B)'s narrow but exclusive scope. This ambiguity was articulated in Dukes: drawing the line between the denial of benefits under a plan and the provision of substandard car e is difficult. See Dukes, 57 F.3d at 358. In ruling on Lazorko's claims here, however, the District Court did not have the benefit of our further analysis in In re Healthcar e. We now conclude that Lazorko's claim, as it has been pled, falls on the standard of care, not the denial of benefits, side of the line. We note, moreover, that since our decision in In re U.S. Healthcare, our district courts have consistently applied its reasoning to determine whether it is the quality of care provided or the denial of a plan benefit that is implicated when treatment is refused. See, e.g., Tiemann v. U.S. Healthcare, 93 F.Supp.2d 585 (E.D. Pa. 2000) (classifying failure to diagnosis and treat disease pr operly as question of benefit quality not quantity); Berger v. Livengrin Foundation, 2000 WL 325957 (E.D. Pa. Mar . 27, 2000) (concluding that refusal to provide inpatient care was question of quality of treatment and not denial of benefit due under plan). Because we conclude that Lazorko's case is not subject to complete preemption, it follows that it was improperly removed from state court. We must therefore vacate the dismissal by the District Court of the direct claims in Count I of the Fourth Amended Complaint and remand those claims to the District Court for remand to state court. When the underlying federal subject matter jurisdiction upon which to remove a case from state court does not 12 exist, the entire case must be remanded. See 28 U.S.C. S 1447(c). On remand, it will be for the state court to further determine whether a S 502 claim of denial of a benefit provided by his plan is lodged in the heart of Lazorko's direct claims in Count I. If such a claim should materialize, that claim will have to be removed once mor e to federal court. Moreover, on remand the state court will also have the task to determine to what extent, if any, Lazorko's claims against U.S. Healthcare are substantively preempted under S 514. See Dukes, 57 F.3d at 355 (When the doctrine of complete preemption does not apply, but the plaintiff 's state claim is arguably preempted under S 514(a), the district court, being without removal jurisdiction, cannot resolve the dispute regarding preemption.).