The most significant barrier to recovery for injuries caused by cost containment activities may be the Employee Retirement Income Security Act of 1974 (ERISA). [FN315]

*66 A. Background

ERISA was enacted by Congress in 1974 to bring uniformity to the state laws governing private pension and benefit plans. [FN316] ERISA establishes minimum standards regulating the content of pension plans with respect to participation, benefit accrual, vesting, benefit payment, fiduciary status and conduct, reporting and disclosure, and funding. [FN317] In addition, ERISA requires nonpension employee benefit plans (e.g., employer provided health insurance) to comply with ERISA's fiduciary, reporting, and disclosure requirements. [FN318] Finally, ERISA empowers participants, beneficiaries, and fiduciaries to initiate civil actions in federal court to enforce the requirements of ERISA or to enforce the terms of a pension or welfare plan. [FN319] While states enjoy concurrent jurisdiction in actions to enforce the terms of a plan, in all other actions the federal courts have exclusive jurisdiction. [FN320] The principal purpose of ERISA was “to protect ... the interests of participants in employee benefit plans ... by establishing standards of conduct, responsibility, and obligation for fiduciaries of employee benefit plans, and by providing for appropriate remedies ... and ready access to the Federal courts.” [FN321]

ERISA also contains an explicit preemption clause, which provides that ERISA supersedes all state laws that apply to employee benefit plans. [FN322] Notwithstanding several exemptions,*67 the Supreme Court has held that the clause is to be construed broadly. [FN323] In particular, preemption is extended to state laws whenever they have a connection with or reference to an employee benefit plan. [FN324]

Where there has been a violation of ERISA, the beneficiary is ordinarily entitled to recover only contractual damages. [FN325] ERISA, however, provides for “other appropriate equitable relief”:

(a) A civil action may be brought ... (3) by a participant, beneficiary, or fiduciary (A) to enjoin any act or practice which violates any provision of this subchapter or the terms of the plan, or (B) to obtain other appropriate equitable relief (i) to redress such violations or (ii) to enforce any provisions of this subchapter or the terms of the plan .... [FN326]

Nevertheless, whether extracontractual or punitive damages are available to a beneficiary under ERISA is still an open question. [FN327] Consequently, without extracontractual or punitive damages, a plaintiff injured by a utilization review activity through the denial of services can recover only contract damages-the cost of the denied service or substituted services.

*68 B. Corcoran v. United Health Care

Although the concept of imposing liability on third-party payers for utilization review activities and financial risk shifting is only beginning to be explored, [FN328] Corcoran v. United HealthCare, Inc. [FN329] raised the issue of the limitations imposed by ERISA on claims against third-party payers and utilization review organizations.

Mrs. Florence Corcoran was a long-time employee of South Central Bell Telephone Company (Bell). Mrs. Corcoran was a member of Bell's Medical Assistance Plan (MAP). [FN330]

She became pregnant in early 1989. [FN331] This was Mrs. Corcoran's second pregnancy and, like the first pregnancy, several medical problems made the pregnancy high risk. Late in the pregnancy, her obstetrician recommended that she have complete bed rest during the final months of her pregnancy. As in the first pregnancy, [FN332] he recommended that Mrs. Corcoran be hospitalized so that the condition of the fetus could be monitored twenty-four hours a day. [FN333]

In accordance with MAP's requirements, [FN334] Mrs. Corcoran applied to Bell for temporary disability benefits for the remainder of her pregnancy. [FN335] Based on a utilization review performed by United Healthcare (United), Bell denied the disability benefits. Her obstetrician wrote Bell explaining Mrs. Corcoran's medical condition. Nevertheless, Bell denied the disability benefit a second time, even though a second opinion solicited by Bell suggested that “the company would be at considerable risk denying her doctor's recommendation.” [FN336] Despite the obstetrician's recommendation, United decided that *69 hospitalization was not necessary and ten hours per day of home health care would suffice. During the time when the home health nurse was not on duty, the fetus went into distress and died. [FN337]

Mrs. Corcoran and her husband filed a state action alleging various claims, including wrongful death; the lost love, society, and affection of their unborn child; aggravation of a preexisting depressive condition; and the loss of consortium caused by that aggravation. [FN338] The defendants removed the action to federal court on the ground that it was preempted by ERISA. [FN339] They then moved for summary judgment. The defendants characterized the relationship between them and Mrs. Corcoran as existing solely as a result of an ERISA plan. [FN340] According to the defendants, the plaintiffs' cause of action was one of “improper handling of a claim” and therefore the claims were preempted by statute. [FN341] The plaintiff, on the other hand, argued that (1) the case boiled down to one for malpractice against United HealthCare, (2) the claims pertained to state law of general application, and (3) preemption would leave them without a remedy and thus contravene the purpose of ERISA. [FN342]

The district court granted the defendants' motion. [FN343] According to the district court, the plaintiffs' state law claim related to the employee benefit plan because “ b ut for the ERISA plan, the defendants would have played no role in Mrs. Corcoran's pregnancy.” [FN344] On a motion for reconsideration, the plaintiffs did not ask the district court to reconsider its preemption ruling. Instead, they contended that the compensatory damages that they sought were within the civil enforcement mechanisms of ERISA as “other appropriate equitable relief.” [FN345] Ignoring authority to the contrary, [FN346] the district court denied the motion, indicating that “ t he vast majority of federal appellate*70 courts have ... held that a beneficiary under an ERISA health plan may not recover under ... ERISA compensatory or consequential damages for emotional distress or other claims beyond medical expenses covered by the plan.” [FN347]

On appeal, United argued that preemption applied because the decision it made was a health benefit decision made in its capacity as a plan fiduciary. [FN348] All it did, it argued, was to determine whether Mrs. Corcoran qualified for the benefits. Consequently, the plaintiffs could not sue in tort to remedy injuries caused by plan benefit decisions. [FN349] The Corcorans argued that preemption did not apply because United's decision was not an erroneous claims decision but an erroneous medical decision. [FN350] Thus, their medical negligence claim was not preempted. [FN351] The appeals court could not “fully agree with either United or the Corcorans”: [FN352]

Ultimately, we conclude that United makes medical decisions-indeed, United gives medical advice-but it does so in the context of making a determination about the availability of benefits under the plan. Accordingly, we hold that the Louisiana tort action asserted by the Corcorans for the wrongful death of their child allegedly resulting from United's erroneous medical decision is preempted by ERISA. [FN353]

Finally, the court rejected an award of extracontractual damages under section 502(a)(3) of ERISA. [FN354] Noting that the Corcorans proved neither a violation of the substantive provisions of ERISA nor a violation of the terms of the plan, the court *71 went on to determine that damages for emotional distress and loss of consortium were simply not available. [FN355]

Given the fundamental differences between prospective and retrospective utilization review decisions on access to care, [FN356] the court had no difficulty characterizing United's refusal to approve hospitalization as the provision of medical services. [FN357] Nor did it accept United's argument that it specifically told beneficiaries that medical decisions were ultimately up to the “beneficiary and his or her doctor.” [FN358] Nevertheless, the court viewed United's medical decisions as “part and parcel of its mandate to decide what benefits are available under the Bell plan.” [FN359] The court recognized that when a utilization review agency or a third-party payer makes a decision, it does so because of the financial ramifications. [FN360]

Despite this view, the court reasoned that finding that the patient's claim was not preempted would undermine the goals of ERISA. [FN361] If utilization review activities were not preempted, state courts might develop different substantive standards applicable to the same conduct. [FN362] Plans and conduct would then necessarily be tailored to the law of each jurisdiction. [FN363] Furthermore, without preemption, there is a significant risk that state liability rules would be applied differently to the same conduct of the same third-party payer with managed care products in different states. [FN364] The court maintained that

*72 the cost of complying with varying substantive standards would increase the cost of providing utilization review services, thereby increasing the cost to health benefit plans of including cost containment features such as the Quality Care program (or causing them to eliminate this sort of cost containment program altogether) and ultimately decreasing the pool of plan funds available to reimburse participants. [FN365]

The court ignored the argument that failure to impose liability on utilization review activities might actually increase the number of poor-quality medical decisions and medical injuries. [FN366] Rather, as noted by one author, the court seemed to imply that because imposing liability would have only a mild “salutary effect of deterring poor-quality medical decisions,” declining to impose liability would not be grave error. [FN367] Nor did the lack of a remedy under ERISA's civil enforcement scheme for medical malpractice committed in connection with a third-party payer's utilization review decision affect the court. [FN368] The court ignored the fact that Congress implemented a comprehensive statute in a time when it could not have predicted the medical utilization review process and could not have contemplated that employee benefit plans would actually make medical decisions contrary to physicians' recommended treatment. [FN369] The court also rejected the argument that preemption was inappropriate because a medical malpractice claim is an “exercise of traditional state authority rather than an area not traditionally regulated by the states.” [FN370]

The court acknowledged that “fundamental changes such as the widespread institution of utilization review would seem to warrant a reevaluation of ERISA so that it can continue to serve its noble purpose of safeguarding the interests of employees.”*73 [FN371] However, it rejected the notion that it had any ability to make such changes. “Our system, of course, allocates this task to Congress, not the courts, and we acknowledge our role today by interpreting ERISA in a manner consistent with the expressed intentions of its creators.” [FN372]

ERISA preemption and the lack of extracontractual damages mean that individuals injured by third-party payers' utilization review activities have no remedy, state or federal. [FN373] With no common law liability and no extracontractual damages, there is little pressure on third-party payers to avoid substandard medical decision making. [FN374]