Filed: Jun. 02, 1997
Latest Update: Mar. 02, 2020
Summary: REVISED United States Court of Appeals, Fifth Circuit. No. 95-50807. TEXAS PHARMACY ASSOCIATION, et al., Plaintiffs, Texas Pharmacy Association, formerly known as Texas Pharmaceutical Assn., Ron's Apothecary, Inc., Tri Cities' Pharmacy, Inc., City Pharmacy, Hamlin Pharmacy, Anderson Drug, Twelve Oaks Pharmacy, South Houston Pharmacy, Davila Pharmacy, Medical Center Pharmacy, Eilers Discount Pharmacy, Professional Pharmacy, Hart Pharmacy, Hays Hometown Pharmacy, Ward's Pharmacy, Good's Pharmacy,
Summary: REVISED United States Court of Appeals, Fifth Circuit. No. 95-50807. TEXAS PHARMACY ASSOCIATION, et al., Plaintiffs, Texas Pharmacy Association, formerly known as Texas Pharmaceutical Assn., Ron's Apothecary, Inc., Tri Cities' Pharmacy, Inc., City Pharmacy, Hamlin Pharmacy, Anderson Drug, Twelve Oaks Pharmacy, South Houston Pharmacy, Davila Pharmacy, Medical Center Pharmacy, Eilers Discount Pharmacy, Professional Pharmacy, Hart Pharmacy, Hays Hometown Pharmacy, Ward's Pharmacy, Good's Pharmacy, K..
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REVISED
United States Court of Appeals,
Fifth Circuit.
No. 95-50807.
TEXAS PHARMACY ASSOCIATION, et al., Plaintiffs,
Texas Pharmacy Association, formerly known as Texas
Pharmaceutical Assn., Ron's Apothecary, Inc., Tri Cities' Pharmacy,
Inc., City Pharmacy, Hamlin Pharmacy, Anderson Drug, Twelve Oaks
Pharmacy, South Houston Pharmacy, Davila Pharmacy, Medical Center
Pharmacy, Eilers Discount Pharmacy, Professional Pharmacy, Hart
Pharmacy, Hays Hometown Pharmacy, Ward's Pharmacy, Good's Pharmacy,
Klein's Discount Pharmacy, Avondale Pharmacy, Home Care Associates,
Inc., Winn's Pharmacy, Tomball Atrium Pharmacy, Rosebud Pharmacy,
Maxwell Pharmacy, Save-Mor # 1 Pharmacy, McCrory's Pharmacy,
Nichols Southside Pharmacy, Nichols Westwood Pharmacy, Pfenning
Prescriptions Pharmacy, Bel-Aire Drugs, S & L Drug Mart and
Prescription Lab of Spring Branch, Plaintiffs-Appellees,
v.
The PRUDENTIAL INSURANCE COMPANY OF AMERICA, Defendant-Appellant.
Feb. 14, 1997.
Appeal from the United States District Court for the Western
District of Texas.
Before REAVLEY, GARWOOD and BENAVIDES, Circuit Judges.
REAVLEY, Circuit Judge:
This appeal concerns whether a Texas "any willing provider"
statute applicable to pharmacies is preempted by the Employee
Retirement Income Security Act (ERISA).1 The Texas Pharmacy
Association (TPA) and several pharmacies brought suit in Texas
state court seeking a declaratory judgment that the statute compels
appellant Prudential Insurance Company of America (Prudential) to
contract with any pharmacy in Texas willing to accept Prudential's
1
29 U.S.C. §§ 1001-1461.
contractual terms and conditions. Prudential removed the case to
federal court, claiming that the statute is preempted by ERISA.
The district court ruled by summary judgment that the 1991 statute
is not preempted because it regulates insurance under ERISA's
savings clause. We hold that the current statute is preempted, but
we agree that the statute prior to 1995 amendments is not
preempted.
BACKGROUND
The essential facts are few and undisputed. Prudential offers
group health insurance policies to employers in Texas. It also
contracts to provide administrative services only to self-funded
employer health plans. For participants and beneficiaries of both
types of plans—the employees and their covered family
members—Prudential maintains several health care networks,
including pharmacy networks. In these networks, Prudential
contracts with certain pharmacies and allows participants to fill
their prescriptions at these pharmacies at predetermined dispensing
fees and drug prices. Prudential claims that the networks provide
for quality control and lower prices.
In 1991, the Texas legislature passed an "any willing
provider" statute pertaining to pharmacies. The statute was
amended in 1995 and now provides in part:
Sec. 2. (a) A health insurance policy or managed care plan ...
may not:
(1) prohibit or limit a person who is a beneficiary of the
policy from selecting a pharmacy or pharmacist of the person's
choice to be a provider under the policy to furnish
pharmaceutical services offered or provided by that policy or
interfere with that person's selection of a pharmacy or
pharmacist;
(2) deny a pharmacy or pharmacist the right to participate as
a contract provider under the policy or plan if the pharmacy
or pharmacist agrees to provide pharmaceutical services that
meet all terms and requirements and to include the same
administrative, financial, and professional conditions that
apply to pharmacies and pharmacists who have been designated
as providers under the policy or plan;
(3) require a beneficiary of a policy or participant in a plan
to obtain or request a specific quantity or dosage supply of
pharmaceutical products.2
The emphasized portions of the statute were added by the 1995
amendments. The amendments also added a section broadly defining
a "managed care plan" to include "a health maintenance
organization, a preferred provider organization, or another
organization that, under a contract or other agreement entered into
with a participant in the plan ... provides health care
benefits...."3
The parties argue the effect of the 1995 statute in this
appeal and, unless otherwise announced, it is that current statute
we will discuss.
The effect of the statute is that any pharmacist willing to
abide by the terms of a Prudential network contract must be
admitted to the network. The statute declares void any provision
of a health insurance policy or managed care plan that conflicts
with it.4 The statute does however exempt from the
any-willing-provider requirement "a self-insured employee benefit
plan that is subject to [ERISA]."5
2
TEX. INS.CODE ANN. art. 21.52B, § 2 (West Supp.1997).
3
Id. § 1(6).
4
Id. § 3.
5
Id. § 5.
DISCUSSION
A. ERISA's Preemption Clause
Prudential argues that the Texas statute is preempted by
ERISA. We agree that the current statute is preempted. ERISA's
preemption clause provides that it preempts any and all state laws
which "relate to" an ERISA benefit plan.6 The Supreme Court has
held that this preemption clause is "deliberately expansive"7 and
that a state law relates to an ERISA plan "if it has a connection
with or reference to such a plan."8 We have held that the
preemption clause "is to be construed extremely broadly."9
As the district court found and as the TPA concedes, the state
statute relates to ERISA benefit plans under the preemption clause.
Garden variety employer health insurance plans, which are regulated
by the Texas statute, are "employee benefit plans" under ERISA,
defined to include "any plan ... established or maintained by an
employer ... for the purpose of providing ... through the purchase
of insurance or otherwise ... medical, surgical, or hospital care
or benefits, or benefits in the event of sickness...."10 In CIGNA
6
29 U.S.C. § 1144(a).
7
Pilot Life Ins. Co. v. Dedeaux, 481 U.S. 41, 46,
107 S. Ct.
1549, 1552,
95 L. Ed. 2d 39 (1987).
8
Shaw v. Delta Air Lines, Inc., 463 U.S. 85, 96-97,
103
S. Ct. 2890, 2900,
77 L. Ed. 2d 490 (1983).
9
Corcoran v. United HealthCare, Inc., 965 F.2d 1321, 1328
(5th Cir.), cert. denied,
506 U.S. 1033,
113 S. Ct. 812,
121
L. Ed. 2d 684 (1992).
10
29 U.S.C. § 1002(1)(A).
Healthplan of Louisiana v. Louisiana,11 discussed below, we held
that a Louisiana any-willing-provider statute fell within the
preemption clause.12 As with the Louisiana statute at issue in
CIGNA, the Texas statute relates to ERISA plans because it
"eliminates the choice of one method of structuring benefits,"13 by
prohibiting plans from contracting with pharmacy networks that
exclude any willing provider.
B. ERISA's Savings Clause
1. The Current Statute
Although the state statute relates to ERISA benefit plans
under ERISA's preemption clause, the TPA argues that it
nevertheless is not preempted because of ERISA's savings clause,
which provides that "nothing in this title shall be construed to
exempt or relieve any person from any law of any State which
regulates insurance...."14 The TPA contends that the statute, which
exempts employer self-insured ERISA plans, falls within the savings
clause.
We hold that the statute does not fall within the savings
clause, as this result is compelled by our recent decision in
CIGNA, where we held that a Louisiana any-willing-provider statute
did not fall within the savings clause. The Louisiana statute
provided that any willing provider may join a preferred provider
11
82 F.3d 642 (5th Cir.), cert. denied, --- U.S. ----,
117
S. Ct. 387,
136 L. Ed. 2d 304 (1996).
12
Id. at 647-49.
13
Id. at 648.
14
29 U.S.C. § 1144(b)(2)(A).
organization if he agrees to the terms and conditions of the
contract between a preferred provider organization and its health
care providers.15 We followed the test given in Metropolitan Life
Ins. Co. v. Massachusetts16 in deciding whether the statute fell
within the savings clause:
In [Metropolitan Life ], the Supreme Court delineated the
requirements that a statute must meet to come within the
insurance facet of the savings clause. As we have noted in
prior opinions, the Court took a conjunctive two-step
approach: "First, the court determined whether the statute in
question fitted the common sense definition of insurance
regulation. Second, it looked at three factors: (1) Whether
the practice (the statute) has the effect of spreading the
policyholders' risk; (2) whether the practice is an integral
part of the policy relationship between the insurer and the
insured; and (3) whether the practice is limited to entities
within the insurance industry. If the statute fitted the
common sense definition of insurance regulation and the court
answered "yes' to each of the questions in the three part
test, then the statute fell within the savings clause
exempting it from ERISA preemption." Thus, if a statute fails
either to fit the common sense definition of insurance
regulation or to satisfy any one element of the three-factor
Metropolitan Life test, then the statute is not exempt from
preemption by the ERISA insurance savings clause.17
We held that the statute was preempted because it did not meet
the third requirement of the three-part test, that it apply
exclusively to entities within the insurance industry:
When we begin to apply that test to Louisiana's Any Willing
Provider Statute, we may start and finish with the third
factor of the Metropolitan Life test: On its face,
Louisiana's statute obviously is not "limited to entities
within the insurance industry." Even though the statute lists
insurers as one group covered by its terms, it also specifies,
15
LA.REV.STAT. ANN. § 40:2202(5)(c) ("No licensed provider ...
who agree to the terms and conditions of the preferred provider
contract shall be denied the right to become a preferred provider
to offer health services within the limits of his license.").
16
471 U.S. 724,
105 S. Ct. 2380,
85 L. Ed. 2d 728 (1985).
17
CIGNA, 82 F.3d at 650 (quoting Tingle v. Pac. Mut. Ins.
Co.,
996 F.2d 105, 108 (5th Cir.1993)).
in a non-exclusive list, that it applies to "self-funded
organizations, Taft-Hartley trusts, or employers who establish
or participate in self funded trusts or programs," as well as
"health care financiers, third party administrators,
providers, or other intermediaries." As the statute fails to
meet the third factor of the Metropolitan Life test, we affirm
the district court's holding that the statute is not saved
from preemption by the insurance exception of § 514(b) of
ERISA.18
Id.
Applying the same analysis, the Texas statute in the present
case does not fall within the savings clause because it is not
limited to entities within the insurance industry. Instead, it
also applies to health maintenance organizations (HMOs), preferred
provider organizations (PPOs), and other organizations that provide
health care services. Indeed, since the statute defines managed
care providers to include HMOs, PPOs or "another organization" that
provides health care benefits, it applies to ERISA benefit plans
themselves. The "deemer provision" of ERISA prohibits treating
ERISA employee benefit plans themselves as being engaged in the
business of insurance. It states that "an employee benefit plan
... [shall not] be deemed to be an insurance company or to be
engaged in the business of insurance ... for purposes of any law of
any State purporting to regulate insurance companies...."19
Several examples demonstrate that the statute is not directed
exclusively to insurers. If an individual, outside of his
employment, signs up with an HMO, he may or may not have insurance,
yet under the statute the HMO would be subject to the
any-willing-provider provision. Similarly, a self-insured employer
18
CIGNA, 82 F.3d at 650.
19
29 U.S.C. § 1144(b)(2)(B).
is not subject to the any-willing-provider provision, but if the
employer signed up with an HMO or PPO, those organizations would be
subject to the statute, even if there is no insurance company
involved. If a group of pharmacies wanted to offer discount
prescription services to an employer or other organization, such a
group would constitute a PPO or "other organization" subject to the
any-willing-provider requirement, whether or not an insurance
company was involved. And if an employer offered a medical plan
through an insurance company that did not pay for prescriptions,
but wanted to contract with a pharmacy to provide prescription
services outside of the insurance plan, the employer would be
subject to the statute. Under the statute, the employer would be
"another organization" providing health care benefits and would not
be self-insured under the statutory exception to the
preferred-provider-provision.
The TPA, in the final footnote of its brief, suggests that if
the statute is preempted because it does not apply exclusively to
insurers, then we should find preemption only insofar as the
statute regulates non-insurers. Stated another way, the TPA
suggests that the preempted portions of the statute are severable.
We reject this argument for three reasons. First, CIGNA implicitly
rejected this argument. It did not hold the statute valid as to
PPOs offered by or affiliated with insurers. Second, our court has
recognized as an independent requirement for the applicability of
the savings clause that the state statute "be limited to entities
within the insurance industry."20 This requirement would be
20
CIGNA, 82 F.3d at 650;
Tingle, 996 F.2d at 108.
meaningless if a court could simply sever out those portions of the
statute which applied to noninsurance entities.
Third, the Texas statute is not severable because it so
states. Whether portions of a state statute found to contravene
federal law are severable is a question of state law.21 The Texas
statute, as originally enacted in 1991, provides that "[i]f any
provision of this Act or if application to any person or
circumstance is held invalid, this entire Act is invalid and to
that end the provisions of this Act are not severable."22 There is
no indication in subsequent amendments to the statute that this
provision does not continue to express the intention of the Texas
legislature. Under the Texas Code Construction Act, a Texas
statute should be deemed severable if the invalidity of one
provision does not affect the other provisions, unless it has an
express provision for severability or nonseverability.23 Here there
is an express nonseverability provision.
We note an irony in the result reached. Insurance companies
were no doubt the principal proponents of the McCarran-Ferguson Act
(disguised infra) and the ERISA savings clause, because they did
not want federal regulation of their industry. Here, however, the
insurance company is arguing against state regulation and in favor
of federal preemption. There is room to doubt if ERISA's drafters
intended that it would preempt any-willing-provider statutes. We
21
United States Dep't of Treasury v. Fabe, 508 U.S. 491,
508-10 & n. 8,
113 S. Ct. 2202, 2212 & n. 8,
124 L. Ed. 2d 449
(1993).
22
TEX. INS.CODE ANN. art. 21.52B note (West Supp.1997).
23
TEX. GOV'T CODE § 311.032.
nevertheless conclude that the result in this case is compelled by
the unmistakable breadth of ERISA preemption recognized by the
Supreme Court. A different result will require further guidance
from the Supreme Court or further action from Congress.
2. The Prior Statute
We question whether a ruling on the validity of the old
statute is of much value to the parties, but note that the 1995
amendments apply only to "an insurance policy or evidence of
coverage under a managed care plan that is delivered, issued for
delivery, or renewed on or after January 1, 1996."24 Conceivably
there are unexpired contracts covered by the old statute.
We conclude that the old statute is not preempted by ERISA.
Under the first step of the Metropolitan Life test, discussed
supra, we are satisfied that the statute fits within the common
sense definition of insurance regulation. It directly regulates
the terms of health insurance policies that can be offered in
Texas, by, among other things, disallowing (1) policies that
prohibit a beneficiary from selecting a pharmacy of the
beneficiary's choice, (2) policies that deny willing pharmacists
from participating as a contract provider under the policy, and (3)
policies that require a beneficiary of a policy to obtain or
request a specific quantity or dosage supply of pharmaceutical
products.
The second step in Metropolitan Life looks to three factors.
The second factor—whether the statute regulates an integral part of
the policy relationship between the insurer and the insured—is met,
24
TEX. INS.CODE ANN. art. 21.52B note (West Supp.1997).
since the statute directly regulates which pharmacist the
beneficiary can select, and the quantity or dosage supply of
pharmaceutical products. The third factor is also met, since,
unlike the statute in CIGNA, the old statute is limited to
insurance policies. It does not regulate entities outside the
insurance industry. The first factor—whether the practice has the
effect of spreading the policyholders' risk—requires further
analysis. Prudential argues that this requirement is not met,
particularly in light of the Supreme Court's decision in Group Life
& Health Ins. Co. v. Royal Drug Co.25
In Royal Drug, an appeal from the Fifth Circuit, the plaintiff
pharmacies sued Blue Shield, an insurance company, for antitrust
violations. Blue Shield claimed that its actions were exempt from
the antitrust laws under the McCarran-Ferguson Act.
In determining the scope of the ERISA savings clause, the
Supreme Court has turned to case law interpreting the McCarran-
Ferguson Act.26 This Act provides that state laws "regulating the
business of insurance" are not preempted by federal law.27 We have
held that deciding whether ERISA's savings clause exempts insurance
regulation from preemption involves the same analysis used in
deciding whether the regulation concerns the "business of
insurance" under the McCarran-Ferguson Act. "The [ERISA] savings
clause preserves the right of States, given by the McCarran-
25
440 U.S. 205,
99 S. Ct. 1067,
59 L. Ed. 2d 261 (1979).
26
Pilot Life Ins. Co. v. Dedeaux, 481 U.S. 41, 48,
107 S. Ct.
1549, 1553,
95 L. Ed. 2d 39 (1987).
27
15 U.S.C. § 1012.
Ferguson Act, to regulate the "business of insurance.'
Consequently, to determine whether a State law is exempt from ERISA
preemption, a court should examine the meaning of the phrase
"business of insurance' in the McCarran-Ferguson Act."28
In Royal Drug, Blue Shield had entered into pharmacy
agreements with participating pharmacies in Texas, as Prudential
has done in the present case. The agreements fixed prices and the
method of reimbursement to the pharmacies. Insureds who went to
participating pharmacies paid only $2 per prescription, and the
pharmacies were then reimbursed by Blue Shield. If on the other
hand the insured selected a pharmacy which did not have an
agreement with Blue Shield, he was required to pay the full cost
and then seek reimbursement from Blue Shield under a fixed formula.
Blue Shield offered the pharmacy agreements to all licensed
pharmacies in the state.29
The Court held that these agreements were not the business of
insurance since they "do not involve any underwriting or spreading
of risk, but are merely arrangements for the purchase of goods and
services by Blue Shield."30 The Court further reasoned that "the
business of insurance relates to the contract between the insurer
and the insured," and that the agreements in issue were separate
contractual arrangements between Blue Shield and pharmacies.31
28
Gahn v. Allstate Life Ins. Co., 926 F.2d 1449, 1453 (5th
Cir.1991) (citations omitted).
29
Royal Drug, 440 U.S. at 209, 99 S.Ct. at 1072.
30
Id. at 214, 99 S.Ct. at 1075.
31
Id. at 215-216, 99 S.Ct. at 1075-1076.
We conclude that Royal Drug is distinguishable. The focus of
the Court in Royal Drug is clear: "The only issue before us is
whether the Court of Appeals was correct in concluding that these
Pharmacy Agreements are not the "business of insurance' within the
meaning of s 2(b) of the McCarran-Ferguson Act."32 The Court's
ruling, in our view, turned on the fact that "[t]he Pharmacy
Agreements are not "between the insurer and the insured,' "33 and
the Court explained that "[t]his is not to say that the contracts
offered by Blue Shield to its policyholders, as distinguished from
its provider agreements with participating pharmacies, may not be
the "business of insurance' within the meaning of the Act."34
Unlike the third-party pharmacy agreements in Royal Drug, the
prior Texas statute directly regulated the terms of the insurance
policy between the insurer and the insured. Both Metropolitan Life
and Royal Drug explain that in enacting the McCarran-Ferguson Act
Congress was concerned with: "The relationship between the insurer
and insured, the type of policy which could be issued, its
reliability, interpretation, and enforcement—these were the core of
the "business of insurance.' "35 Metropolitan Life goes on to state
that "[n]or is there any contrary case authority suggesting that
laws regulating the terms of insurance contracts should not be
32
Id. at 210, 99 S.Ct. at 1072.
33
Id. at 216, 99 S.Ct. at 1075.
34
Id. at 230 n.
37, 99 S. Ct. at 1082 n. 37.
35
Metropolitan Life, 471 U.S. at 744, 105 S.Ct. at 2391
(quoting SEC v. National Securities, Inc.,
393 U.S. 453, 460,
89
S. Ct. 564, 568-69,
21 L. Ed. 2d 668 (1969); emphasis supplied in
Metropolitan Life); Royal
Drug, 440 U.S. at 215-16, 99 S.Ct. at
1075).
understood as laws that regulate insurance."36
The prior Texas statute regulated the type of policy which an
insurer could offer in Texas. On this basis we find Royal Drug
distinguishable. Further, we believe that the statute would affect
the spreading of risks among policyholders and therefore meets the
first requirement of the Metropolitan Life three-part test. By
requiring policies to give the beneficiary the option of obtaining
pharmaceutical services from any pharmacy, and requiring pharmacy
networks to admit any willing provider, we believe that the prior
statute influenced which costs were ultimately borne by the insurer
and which were borne by the beneficiary, and whether insurers would
be willing to offer pharmacy coverage at all.
In this regard, we agree with the reasoning of the Fourth
Circuit in Stuart Circle Hospital Corp. v. Aetna Health
Management.37 In that case the court held that a Virginia
any-willing-provider statute regulating PPOs was not preempted by
ERISA. The court held that the statute had a sufficient effect on
the spreading of policyholders' risk to satisfy the Metropolitan
Life test:
If a PPO unreasonably restricts the providers of treatment,
even though they meet the insurer's standards, it denies an
insured the choice of doctor or hospital that may best suit
the insured's needs, unless the insured is willing and able to
pay all or part of the cost of the doctor or hospital that is
not preferred by the insurer. This is a restriction of the
insured's benefits. By its prohibition against unreasonable
restriction of providers, the Virginia statute spreads the
cost component of the policyholder's risk among all the
insureds, instead of requiring the policyholder to shoulder
36
Metropolitan Life, 471 U.S. at 744, 105 S.Ct. at 2391
(emphasis in original).
37
995 F.2d 500 (4th Cir.1993).
all or part of this cost when seeking care or treatment from
an excluded doctor or hospital of his or her choice....
[A]lthough facially the statute only directly affects
providers, it indirectly affects the insured's choice of
provider and the consequent cost to the insured if he or she
deems an excluded provider to be better qualified for
treatment of a specific illness or accident. In this way it
affects the risk that an insured must bear.38
We agree with this analysis, and note that the prior Texas statute
had an even more direct effect on the policyholder's choice of
provider. Unlike the Virginia statute, the Texas statute expressly
mandated that insurance policies cannot "prohibit or limit a person
who is a beneficiary of the policy from selecting a pharmacy or
pharmacist of the person's choice to be a provider under the policy
to furnish pharmaceutical services offered or provided by that
policy or interfere with that person's selection of a pharmacy or
pharmacist."39
CONCLUSION
The judgment of the district court is affirmed insofar as it
held that the statute, prior to the 1995 amendments, was not
preempted by the federal ERISA statute. For the reasons explained
above, however, we hold that the current version of the statute is
preempted.
AFFIRMED AS MODIFIED.
38
Id. at 503-04.
39
TEX. INS.CODE ANN. art. 21.52B, § 2(a)(1) (West Supp.1997).
This subsection was not changed by the 1995 amendments.
