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Prepared by: Marla Rothouse, Esq., Senior Policy Specialist, NCSL Health Committee

Corporate Health Insurance v. Texas Department of Insurance
Appeals
Plocica v. NYLCare of Texas Inc.: First Case Filed Citing the Statute

Aetna Health Plans of Texas filed suit against the Texas Department of Insurance challenging the law on June 16, 1997. Aetna filed a complaint for declaratory judgment and permanent injunction while the Department of Insurance filed a motion for summary judgment. On April 24, 1998, Judge Vanessa D. Gilmore of the U.S. District Court in Texas heard oral arguments on the case. On September 18, 1998 the court rendered its decision to uphold an enrollee's right to sue its health plan for damages for harm that result from the plan's failure to exercise ordinary care.

The suit involved Corporate Health Insurance Inc., Aetna Health Plans of Texas Inc., Aetna Health Plans of North Texas, Inc., and Aetna Life Insurance Company as the plaintiffs, and the Texas Department of Insurance, the Commissioner of Insurance and the Attorney General of the state of Texas as defendants.

Plaintiffs argued that the law violates both the Employment Retirement Income Security Act (ERISA) and the Federal Health Benefit Act (FEHBA). In July 1997, the defendants filed a motion to dismiss the suit for failure to state a claim and to dismiss the Department of Insurance and the Commissioner of Insurance as improper parties.

In April 1998, the court held a hearing on the defendants' motion to dismiss and the plaintiffs' motion for summary judgment. At the hearing the court changed the defendants' motion to dismiss to a motion for summary judgment. In May, the plaintiffs added the Attorney General of Texas as an additional defendant.

The legal standards for deciding if a party is improperly named to a lawsuit include: 1) whether state statutes and case law view the agency as an arm of the state; 2) the source of the entity's funding; 3) whether the entity is concerned with local or statewide problems; 4) the degree of the agency's authority which is independent from the state; 5) whether the entity can sue and be sued in its own name; and 6) whether it has the right to hold and use property. Under these factors, the court dismissed the Department of Insurance. Because of the Ex Parte Young doctrine, which provides that, as long as a suit is brought against a person in their official capacity as an agent of the state and the relief being sought is declaratory or injunctive, and the Commissioner's role in approving the IRO procedure, the Commissioner of Insurance is a proper party to this lawsuit.

With regard to ERISA, the court had to first determine if the Act is saved from preemption by ERISA's insurance savings clause. The court used the test that was created under Metropolitan Life Ins. Co. v. Massachusetts, 471 U.S. 724 (1985). The court concluded that the statute failed to meet the third factor under Metropolitan--whether the practice is limited to entities within the insurance industry. The court stated that the statute failed this test because it specifically names HMOs or other managed care entities for a health care plan as groups covered under the law.

The court next determined whether the statute was preempted by Section 514(a) of ERISA. The court began its analysis by examining what constitutes an ERISA plan and then determining whether the statute related to any employee benefit plan. The court found that the plaintiffs "are operating health plans, but that they are not operating ERISA plans that would be preempted by ERISA." The statute specifically regulates health insurance carriers, HMOs and managed care entities by specifically addressing their health plans and not the ERISA plans of employers. The definition under the statute for a managed care entity "does not include an employer purchasing coverage or acting on behalf of its employees or the employees of one or more subsidiaries or affiliated corporations of the employer."

The plaintiffs admitted in the suit that the coverage they provide to employees who are enrolled in ERISA and FEHBA plans in Texas is not established or maintained by the employer.

However, in accordance with prior law established in the fifth circuit, the court found it inconsequential whether the plaintiffs are ERISA plans because severable provisions of the statute "relate to" ERISA employee benefit plans.

The court next determined that the statute covers an area of law--the regulation of matters of health and safety--that is traditionally covered by state laws.

The Supreme Court has previously held that "... where a State's law acts immediately and exclusively upon ERISA plans ... or where the existence of ERISA plans is essential to the law's operation ... that 'reference' will result in pre-emption." In analyzing the Texas statute, the court held that the statute places a standard of ordinary care on health insurance carriers and HMOs regardless of whether the coverage is through an ERISA plan. Plaintiffs argued that although the statute does not specifically refer to ERISA plans, certain terminology such as health care plan and health maintenance organization should result in the ERISA preemption. The court determined that the "existence of an ERISA plan is not essential to the operation of the Act." The court also determined that the statute does not "work immediately and exclusively upon ERISA plans." As a result of such determinations, the court concluded that the statute "cannot be said to make a reference to ERISA plans in any manner."

After determining the statute failed to meet the "relates to" test of ERISA, the court examined whether the statute met the "connection with" test. If a state statute has a connection to the ERISA law, it still may be preempted. In this case, the plaintiffs argued that the Texas law has several connections with ERISA, including imposing state liability laws on ERISA entities. The court distinguished this case from Corcoran v. United HealthCare Inc., 965 F.2d 1321 (5th Cir. 1992), and found that a suit brought under the Texas statute would relate to the quality of benefits from a managed care entity and not the withholding of benefits, and therefore not be preempted under ERISA.

The court concluded that the statute does not improperly impose state law liability on ERISA entities.

The plaintiffs also argued that the statute would improperly dictate the structure of plan benefits and their administration. The plaintiffs contend that the statute "imposes a negligence standard of review on HMOs and PPOs ... in contravention of the federally mandated abuse of discretion standard of review of a factual benefit determination under ERISA." In its analysis the court concludes that a person may only bring a suit under the statute that challenges the quality of care received and not a benefit determination.

Plaintiffs further argued that the statute tries to change the standard for "appropriate and medically necessary" as it pertains to ERISA plans. In examining this contention, the court reviewed the statute's independent review organization (IRO) provisions. The court concluded that the IRO provisions " ... concern the review of an adverse benefit determination and are therefore, an improper mandate of benefit administration." The court continued to state that the IRO provisions of the statute would have no effect on lawsuits that may be brought under the statute which challenge the quality of a benefit that an enrollee has already received. The court held that the IRO provisions focus on the denial of benefit determinations and not the quality of a benefit. As such, the independent review process is distinct from the quality of care. The court thereby upheld the quality of care provisions and ordered that the IRO provisions can be separated from the statute and that they be severed.

The plaintiffs also argued that the statute binds employers or plan administrators to specific choices. The court agreed that two provisions of the statute bind employers or plan administrators. The two provisions: Section 88.002(f) addresses removing a physician from a plan and Section 88.002(g) addresses hold harmless clauses in health care provider contracts. The court found that these provisions prohibit a plan from structuring itself in a certain manner. The court also determined that these two provisions can be severed from the rest of the statute.

Lastly, the plaintiffs argued that the liability section creates an alternate enforcement mechanism. The court found in its earlier discussion that the liability provisions create a cause of action for the quality of benefits received and do not create an alternate enforcement mechanism for employees to obtain ERISA benefits.

FEHBA preemption is narrower than ERISA preemption. The court concluded that a claim which addresses the quality of a benefit would not relate to a FEHBA plan.

The court ordered the dismissal of the Department of Insurance as a defendant. The court also ordered several provisions to be severed from the statute: Sections 88.002(f), 88.002(g), 88.003(a)(2), 88.003(b), 88.003(c), 88.003(d), 88.003(e), and the relevant language in 88.003(f) and (g).

As a result, the court upheld the right of an enrollee to sue their health plan for damages that result from the failure to exercise ordinary care when making health care treatment decisions. The ruling overturned three sections. The most important provision that was overturned involved the right of an enrollee or a health plan to take a dispute before an independent review prior to filing suit in court. The decision also overturned the hold harmless provisions in contracts between health plans and providers and the provision that prevents a health plan from terminating a physician for advocating for his or her patient.

It should be noted that under Texas law only invalid provisions may be severed, and not unnecessary provisions. In this particular case, the definition of appropriate and medically necessary was not severed, but was unnecessary as it was only referred to in Section 88.002(f) which was severed from the statute.

After the district court issued its ruling, both sides asked the court to stay the order regarding the independent review provisions so that appeals could be sought. The court agreed, and during the time the parties were deciding whether to file appeals, Aetna voluntarily began to conduct independent reviews of disputed claims.

Since that time, both the state and Corporate Health Insurance have filed appellate briefs with the court. In addition other parties interested in the outcome of this case have filed amicus briefs with the court, including the Department of Labor. As of July 1999, the court has not decided whether it will accept any of the amicus briefs that have been submitted.

Appellant's Brief (Appellants: Texas Department of Insurance, Commissioner of the Texas Department of Insurance and Attorney General for the state of Texas).

Appellants' argument begins with a review of the intent of Congress in enacting ERISA, that the statute is not intended to displace traditional state health care regulation that addresses quality of health care. Citing Fifth Circuit precedent, appellants contend that "a managed care entity, providing services to an ERISA plan, cannot defeat Congress' intent not to preempt state health quality of care regulation by establishing its own medical standards for appropriate and medically necessary care contrary to state law minimum quality medical standards." The appellant's brief contends that the district court's holding that the anti-indemnity and anti-retaliation provisions of S 386 were preempted by ERISA is an over-expansive interpretation. If such an interpretation were correct, then all state regulations over entities contracting with employers or ERISA plans would be preempted, which conflicts with recent Supreme Court ERISA decisions. Appellants contend that state laws regulating entities that provide services to ERISA plans do not regulate ERISA entities and are not preempted, even if the laws have an indirect impact on ERISA plans. In regard to the independent review provisions, the appellants contend that the law does not address benefit coverage decisions but "provides a regulatory mechanism through the independent review organization to ensure medical necessity decisions are made in accordance with state medical care quality standards." The appellants argue, in the alternative, that even if the independent review provisions are interpreted as relating to coverage determinations, then the provisions would be saved from preemption under the savings clause in ERISA. Appellants argue that if the provisions are reviewed as coverage determinations then the provisions regulate "whether the risk of loss for the cost of the medical treatment is transferred." This would relate the provision to the transfer of risk which falls under the purview of regulating an insurance relationship, and would therefore be saved from preemption. The appellants' brief also contends that S 386 does not regulate ERISA plans nor does it refer to ERISA plans. When an ERISA plan contracts for the provision of medical services with a managed care entity, the entity's decision about which procedures are medically necessary is a decision made by the managed care entity. Appellants contend that the medical decision is what S 386 regulates. The argument is also made that the Texas law operates irrespective of the existence of an ERISA plan. The brief points out that the main element of S 386 is "whether a medical decision by a managed care entity is involved, not whether an ERISA plan is involved.

Appellees' Brief (Appellees: Corporate Health Insurance, Inc., Aetna Health Plans of Texas, Inc., Aetna Health Plans of North Texas, Inc. and Aetna Life Insurance Company)

Appellees begin their argument claiming that although the Texas legislature overstepped itself in mandating external reviews, Aetna supports the concept; however that does not change the way in which the law should be interpreted. Appellees claim that the statute in dispute "intrudes into ERISA's epicenter and is preempted." Appellees' brief focuses on four points: is the act preempted by ERISA and FEHBA; what is the correct standard of review for federal preemption; are the claims under the act arising from coverage determinations preempted; and may preempted provisions be severed from the act. Appellees contended in district court that the act was preempted under each of the ERISA tests set forth by the Supreme Court and the Fifth Circuit. Appellees argue that "the district court construed the act narrowly and carved out an exception to its 'connection with' determination. They contend that the standard of review used by the district court to determine if the act relates to or has a connection with an ERISA plan was erroneous. Referring to a recent Eight Circuit decision of Prudential Insurance Co. v. National Park Medical Center, Inc., 154 F.3d 812, 822 (8^th Cir. 1998) the appellees set out the test they contend should have been used to decide if the act refers to ERISA plans. The appellees then go on to contend that the lower court's holding that the act does not refer to ERISA plans ignores the statutory language. In the text of the statute, managed care entity is defined to exclude employers but not ERISA plans from liability suits. Appellees argue that "if the act does not refer to an employer's health care plan, excluding employers is a meaningless legislative gesture." After making further arguments in support of the premise that the act does refer to ERISA plans, the appellees contend that the act does have a "connection with" ERISA plans. A claim is made that the district court made a narrow exception for "suits brought for 'medical services... actually provided by the health care plan,' as opposed to 'actions brought for damages for benefit claims denial.'" Appellees argue that the reference and use of the words "quality of care" are for claims that are actually based on the dissatisfaction with benefits administration. After citing several Supreme Court cases to show that the Supreme Court does not support a quality of care exception, appellees go on to discuss issues surrounding the preemption concerning the direct liability of managed care entities. The appellees contend that an agency relationship must exist and that to prove such a relationship, references to the terms in the actual plan must be examined. Therefore, making a determination of what is medically necessary would require interpreting the terms of the plan and should subsequently be preempted by ERISA. The appellees then reiterate that the district court was correct in recognizing that the independent review provisions, the anti-retaliation and the anti-indemnity provisions improperly mandate how a plan should administer its plans and should be preempted by ERISA.

The appellees then proceed into a discussion on why the act violates ERISA's civil enforcement mechanism, which should be the "exclusive remedy for rights under ERISA." The appellees contend that the act, which makes a civil enforcement remedy outside of ERISA, contradicts the federal law's plain language and intent.

The appellees then go on to support the district court's analyses that ERISA's savings clause does not prevent the act from preemption. The appellees refer to court precedent in arguing that the act does not fit the "common sense" definition of insurance regulation and that none of the McCarran-Ferguson factors are met.

The last part of the appellees' brief contends that the district court was incorrect in severing the liability provisions of the act from the independent review provisions. In a 1998 decision, the Fifth Circuit concluded that "whether statutory provisions may be severed is a question of state law." Appellees identify the standard for severability to be that the "statutory provisions be so clearly independent of each other that the court can say that the Legislature would have passed one if the former had been omitted." The appellees then refer back to some of the legislative debate that occurred during the enactment of the act and argue the independent review provisions were intertwined with the liability provisions and neither would have been enacted without the other. When the statute cannot pass the severability test, then the statute as a whole should have failed.

The Department of Labor begins it argument that the liability, anti-retaliation and anti-indemnity provisions do not relate to ERISA plans. The Department contends that legal precedence requires a determination if the act relates to the conduct of managed care entities "in their capacity as providers or arrangers of medical care to ERISA plan participants or in their capacity as administrators of an ERISA plan." In this instance, the act does not subject ERISA plans to state laws that conflict with plan administration; hence the liability provisions should not be preempted. The department cites previous case law to show "that malpractice claims relate only to HMO's capacity as a provider and arranger of health care and not to ERISA plan administration," and should apply equally to the claims under the Texas Act.

The department contends that the anti-retaliation and anti-indemnity provisions should not be preempted because they address the managed care companies conduct as providers of medical service, which falls within the state's purview of health care regulation. Further it is argued that these provisions do not require a plan to offer any specific benefit and thus do not interfere with how a plan structures its benefits, which would be a cause for preemption.

The department next addresses the independent review provisions and why they should be saved from preemption. In its argument, the department contends that these provisions relate to ERISA plans as they "govern a core administrative function of ERISA plans, that is, benefit determinations." However, the department argues that the provisions are saved by the savings clause under ERISA. In its analysis, the department first looks at the common sense test and whether the independent review provisions are specifically directed toward the insurance industry. The statute is drafted so that the independent review provisions apply only to HMOs and HMOs are a type of insurer, therefore the provisions meet the common sense test. The department then addresses the factors under McCarran-Ferguson: spreading risk, integral part of insurer-insured relationship, and limited to entities in the insurance industry. The department concludes that since the independent review provisions do not shift any risk from the insured to the insurer, it does not meet the risk spreading factor. The independent review provisions are an integral part of the insured's relationship with the insurer as it is the method used to determine if the insurer owes benefits to the enrollee. The third factor is met under the same analysis used for the common sense test.

The department's brief continues to argue that the independent review provisions should not be preempted. The department argues that under existing law if the provisions are saved from preemption under the "savings clause," they may still be preempted if they do create an alternate method of recovering ERISA benefits. The department contends that the Texas statute does not create an alternate method of recovering such benefits. Instead, the department argues that the independent review provisions are one of the procedures available to an enrollee before he or she may bring a suit to recover benefits and therefore does not conflict with the civil enforcement remedies available under ERISA.

The department concludes its brief with a review of the utilization review agent act with regard to whether the independent review provisions in the act apply to utilization review agents and insurers that perform utilization review for ERISA plans. This issue was not addressed by the district court. Under the current statute, one definition in the law specifically excludes all plans defined in ERISA from coverage under the utilization review agent act, including the independent review provisions. It could therefore be inferred that the independent review provisions cannot be preempted by ERISA because participants in such plans are not entitled to the independent review for benefit determinations under the utilization review agent act. The department concludes that this issue would need further interpretation and analysis and because it was not raised by the lower court it is beyond the scope for the department under this brief.

AARP contends that the district court's decision that the liability portions of the Texas law are not preempted by ERISA should be affirmed and the provisions that were deemed as preempted should be reversed. AARP focuses on recent Supreme Court decisions to show that ERISA should not preempt a state law solely because the law may have an economic effect on an ERISA plan. The recent Supreme Court decisions show that legislative intent and the clear notion that states have the authority to regulate matters related to quality of care should underlie when ERISA preempts a state law. AARP contends that the IRO provisions work to ensure that insurers' health care treatment decisions follow "prevailing practices and standards of the medical profession and community." AARP contends that the indemnity provisions do relate to quality of health care and not benefit determinations. Without the provision, AARP argues that managed care companies could contract their duty to make health care treatment decisions to other parties and thus frustrate the purpose of the law. AARP contends that the anti-retaliation provisions also should not be preempted. Without such provisions, it is feasible a physician would not recommend a certain treatment for fear of losing employment. If the patient is not made aware of what may be a necessary treatment, then the quality of care received is jeopardized, and quality of care is in the purview of state regulation.

AARP then focuses its argument on how the act does not refer to ERISA plans. It is argued that the Texas law acts on managed care plans and not on ERISA plans. AARP contends that the Texas law "does not refer to an ERISA plan because the health insurance carriers and managed care entities covered by the Act are not established by employers."

With regard to the "connection with" test of ERISA preemption, AARP contends that there is not a sufficient connection with the administering of employee benefits to require such preemption. AARP argues that the prerequisites of exhausting administrative remedies and providing proper notification regarding the independent review is a means of dispute resolution in order to avoid litigation and does not involve "mandating administration of employee benefits." AARP also points out that the IRO provisions should not be preempted as mandating the administration of employee benefits because of the company's voluntary nation-wide policy on external reviews. If the company were so concerned about the hampering effects of not having ERISA preemption, then the company would not have begun this voluntary initiative in states that do not mandate external review.

The American Medical Association (AMA) and the Texas Medical Association (TMA) begin their amici brief by supporting the Texas Department of Insurance's arguments in its appellant brief. The AMA and the TMA focus their efforts on justifying why the Texas Health Care Liability Act (Act) is saved from ERISA preemption. In reviewing the district court's opinion, the AMA argues that the judge misinterpreted the test for the savings clause under ERISA. The lower court requires the Act to meet all the elements of the savings clause test. The test requires the challenged law to fit the common sense definition of insurance regulation and to have the effect of spreading policyholders' risk; be an integral part of the relationship between the insurer and the insured; and be limited to entities in the insurance industry. The judge held that if one part of this test is not satisfied then the provisions cannot be saved under ERISA. AMA argues that the congressional intent for the savings clause was only the common sense test regarding the definition of insurance regulation, and the other factors (generally referred to as the McCarran-Ferguson test) are only to be used as guidance when determining if a provision meets the savings clause exception. The AMA contends that when the common sense test is satisfied, a court does not need to look to the McCarran-Ferguson factors in its analysis.

The AMA continues its argument with an analysis of statutory construction and contends that the words of the savings clause should be given their ordinary meanings, and in doubtful situations that federal statutes should be construed against preemption.

Next, the AMA argues that the insurance savings clause and the McCarran-Ferguson Act should be read consistently. It is noted that the McCarran-Ferguson Act addresses the "business of insurance," and the savings clause addresses the "regulation of insurance." While these two concepts are different, there is a substantial amount of overlap that should not cause limitations on the savings clause to counter the congressional intent of the McCarran-Ferguson Act.

AMA further argues that the lower court's interpretation of Metropolitan Life to require each factor of McCarran-Ferguson be met as incorrect. Instead the AMA contends that the factors were meant to determine whether a "practice" is considered in the business of insurance. AMA argues that this court has used the criteria to determine what types of laws regulate insurance, and that "practices" is not laws. The AMA argues that the McCarran-Ferguson test should only be used in close cases to help define the phrase "regulates insurance," but that in most situations the common sense meaning should be the sole test for the insurance savings clause under ERISA.

The AMA proceeds with its argument that the Texas Health Care Liability Act meets the common sense definition of a law that regulates insurance. It is pointed out that the lower court did not find the Act to fail the common sense test for the definition of regulates insurance. Instead the judge held that HMOs and other managed care entities fall outside of the insurance industry and as a result are outside of the Insurance savings clause. The AMA disputes this ruling on two grounds. First, the AMA contends that a statute which regulates HMOs and managed care entities regulates insurance. Even though such entities are not traditional insurance companies, they are still part of the insurance industry. Second, the AMA contends that even if HMOs and managed care entities are determined to not be part of the insurance industry, "that they are close enough to the concept that the Texas Health Care Liability Act can be fairly described as a law which regulates insurance."

The AMA continues its argument with a discussion of the lower court's interpretation of the savings clause and statutory construction. AMA contends that the lower court's analysis that if the Texas act were separated into two laws: one addressing health insurance companies and one addressing other entities, then it would pass the insurance savings clause test. AMA contends that this would cause an "unreasonable and arbitrary distinction."

AMA concludes its brief by reiterating its position that the Texas law should not be preempted by ERISA, but should be saved under the Insurance Savings clause.

TAHP begins its brief by addressing the scope of ERISA preemption and showing that one purpose of ERISA was to simplify plan structure and administration. TAHP contends that the Texas act should be preempted as the liability, anti-retaliation and indemnification provisions direct plan administrators how to administer plan benefits. TAHP then proceeds to address each of these provisions and why they should be preempted individually.

As for the liability provisions, TAHP contends that the statute changes the relationship between the principal ERISA entities and should be preempted. TAHP refers to a line of decisions by the Fifth Circuit, including Corcoran and Rodriguez to demonstrate that when a state tries to "impose liability on managed care entities with respect to the administration of their employee benefit plans and specifically with respect to their heath care treatment decisions," the court has rejected such theories.

TAHP contends that the definitions for medically necessary, health care plan, treatment decision and managed care entity as they are used in the Texas act are enough to independently result in preemption. In highlighting TAHP's argument, the definition of managed care entity does not exclude ERISA plans. Further, the statute provides that medically necessary decisions be determined "by physicians and health care providers in accordance with the prevailing practices and standards of the medical profession and the community. TAHP contends that this definition would require ERISA plans to create "new contractual standards in plans, by replacing the judgment and discretion of the plan fiduciaries and by destroying plan uniformity." TAHP contends that plan uniformity would be ruined because of the requisite to follow local community standards that would be burdensome for plans covering enrollees in multiple localities.

TAHP next argues that the Texas act is preempted under the reasoning used in Travelers. In Travelers, the Supreme Court identified three areas where state laws would be preempted because of ERISA. TAHP contends that the Texas act falls under each area and should be preempted. First, TAHP states that the Texas act mandates both employee benefit structures and administration. Second, TAHP states that the Texas act provides an alternative enforcement mechanism, and third, the act would hold plan administrators to a particular choice. In regard to the alternative enforcement mechanism, TAHP argues that the liability and indemnification provisions create new exposures for ERISA plan entities and the independent review provisions replace existing ERISA appeal procedures with specific Texas procedures. In regard to the particular choice, TAHP argues that by requiring local doctors to determine medical necessity, health plans would no longer have uniformity and would have to comply with the specific choice of the local physician including providing benefits that are not covered under the plan.

TAHP ends its brief by asserting that the Texas act combines "quality of care" cases with "quantity/benefit cases." TAHP argues that this merger ends any distinction between quality of care and benefit determination cases. TAHP contends that a health plan would be liable under the Texas law whether it is a benefit coverage decision or a physician's malpractice that causes damage or harm to an enrollee. Further, TAHP asserts that the combination of quality of care with benefit determinations changes the relationship between employers, the plan, the plan fiduciary and the enrollees and therefore none of the statute's provisions should be saved from preemption.

In October 1998, the first HMO liability lawsuit was filed in the 141st judicial district of Texas. The lawsuit was filed on behalf of Joe Plocica's estate, his wife Kathryn and their four children against a number of defendants, including NYLCare of Texas Inc. and Merit Behavioral Health.

Joe Plocica was a member of NYLCare's Medicare HMO known as NYLCare 65. Defendant Merit Behavioral Health manages all the mental health issues for NYLCare members. Joe Plocica had a history of depression. A diagnosis by his physician, Dr. Harold Eudaly Jr., on April 2, 1997, was for major depressive order, recurrent and severe. The deceased's depression was being treated through medication until early 1998.

On July 25, 1998, Joe Plocica was admitted to John Peter Smith Hospital due to an overdose. The following day, he was transferred to the psychiatric floor of All Saints Hospital. Despite Dr. Eudaly's objections that the patient still was not medically stable, severely depressed and suicidal, the defendants ordered Joe Plocica's discharge on July 8, 1998. Later that evening, Joe Plocica drank a half-gallon of anti-freeze in an attempt to kill himself. He was taken to All Saints emergency room. He was taken off of life support on July 16 and passed away on July 17, 1998.

Plaintiffs argue that the defendants had a duty to exercise ordinary care in the treatment of Joe Plocica and failed to do so. Plaintiffs argue that the releasing physician, Dr. Gary Keith Neller, acted on behalf of Merit and NYLCare and overruled Dr. Eudaly's requests to keep the deceased in the hospital and to continue treatment until his medications were stabilized. The plaintiffs contend that, had the deceased remained hospitalized, he would be alive today. They argue that the defendants put systems in place such as to make substandard care more likely than not. They contend that Dr. Neller was an agent of Merit and NYLCare and that the defendants should be held accountable for the actions of its agent.

Plaintiffs further contend that:

Those administering the NYLCare Plan are paid incentive compensation based on holding down costs, but they are not rewarded for providing quality health care.

Several barriers to outside referral, outside testing and early necessary hospitalization and treatment exist, creating a practical disincentive to proper diagnosis and treatment.

In addition to the managed care liability claim, the plaintiffs set forth complaints addressing wrongful death and survival action, vicarious liability and gross negligence. Plaintiffs have requested a jury trial and are seeking actual and exemplary damages in addition to prejudgment interest and court costs. In November, the case was moved from state court to federal court because Joe Plocica was a federal Medicare beneficiary. The defendants are arguing that Medicare patients should not be allowed to use the Texas law because Medicare is a federal program. In March 1999, the federal judge rejected this argument and sent the case back to state court.

1. Corporate Health Insurance Inc., et al. vs. The Texas Department of Insurance, et al. Civil Action No. H-97-2072; Decided September 18, 1998.
2. Appellants' Brief, No. 98-20940, February 26, 1999.
3. Appellee's Brief, No. 98-20940 May 28, 1999.
4. Department of Labor Amici Curiae
5. AARP Amicus Curiae
6. American Medical Association Amicus Brief and Texas Medical Association Amicus Brief
7. Texas Association of Health Plans and Health Insurance Association of America Amici Curiae
8. "HMO Suit Under Texas Law Moved to Federal Court," Fort Worth Star-Telegram via NewsEdge Corporation, November 24, 1998.
9. "First HMO Lawsuit Headed to State Court; Judge Rules Against Federal Court Opinion," The Dallas Morning News, March 5, 1999.
10. Gregory Acs, Stephen H. Long, M.Susan Marquis, and Pamela Farley Short, "Self-Insured Health Plans: Prevalence, Profile, Provisions, and Premiums," Health Affairs (Summer 1996):296.