BPS Clinical Laboratories v. Blue Cross & Blue Shield

522 N.W.2d 902, 206 Mich. App. 570

• Court: Michigan Court of Appeals
• Decided: September 6, 1994
• Docket: Docket 145988, 146035, 151162, 151163, 152010, 153383
• Status: Published

Opinions

Michael J. Kelly, J.

Plaintiffs, independent clinical laboratories and two physicians, alleged that they wrongfully were denied the opportunity to participate as panel providers in defendant’s new health care program, Premier plus. On October 9, 1991, the circuit court granted defendant’s motion for summary disposition with regard to all issues except plaintiffs’ claim under the Prudent Purchaser Act (ppa), MCL 550.51 et seq.; MSA 24.650(51) et seq., which the court found defendant had violated. The parties each appeal the court’s summary disposition decision adverse to it. Defendant also appeals an order of March 18, 1992, enjoining operation of Premier plus until defendant filed the criteria for participating in the program with the Insurance Commissioner and reconsidered plaintiffs’ applications, and an order of April 9, 1992, denying defendant’s motion for security pending appeal. The appeals were consolidated. We affirm the order of April 9, 1992, reverse the order of March 18, 1992, and affirm that part of the October 9, 1991, order dismissing all of plaintiffs’ claims except the ppa claim. We reverse the part of the October 9, 1991, order finding defendant in violation of the ppa and order it amended to reflect a grant of summary disposition for defendant in light of defendant’s preemption defense under the Employee Retirement Income Security Act (erisa), 29 USC 1001 et seq.

i

Defendant is a nonprofit health care corporation. It administers General Motors Corporation’s traditional option coverage program under an "administrative services only” contract, which requires General Motors to pay defendant a fee for administering the program and reimburse defendant for all covered health care charges paid by defendant on behalf of program enrollees. Defendant is not an insurer for General Motors’ employees. The Premier Prudent Laboratory Use Program (Premier plus) is a diagnostic laboratory network pilot program developed, marketed, and implemented by defendant. Employees under General Motors’ self-funded, traditional option coverage plan were the first group to enroll in the program when, in 1990 and 1991, the Corporation-Union Committee on Health Care Benefits at General Motors evaluated potential pilot programs for laboratory services and approved Premier plus. Although defendant developed Premier plus in part out of a desire to negotiate contracts with the employee health benefit plans for Ford, Chrysler, AT&T, and Ameritech and planned to use Premier plus in its own employee benefit plan, General Motors is apparently the only entity enrolled in the program at this time. The General Motors traditional option coverage program is an "employee benefit plan” for purposes of the erisa.

Before implementation of the Premier plus program, defendant paid all diagnostic laboratories according to a maximum-fee schedule. Health care providers who drew blood and sent the samples to the laboratories for analysis received a $3 blood-handling fee from defendant.

Under the Premier plus program, defendant established a panel of six provider laboratories, which agreed to discount the rate charged to defendant for services rendered. Physicians who referred blood specimens to nonpanel laboratories would not receive the $3 blood-handling fee. Non-panel laboratories themselves would be reimbursed only fifty percent of the maximum payment scheduled. In addition, the new program differentiated between standard and nonstandard laboratory procedures. Physicians who performed nonstandard procedures would be reimbursed fifty percent of the maximum fee scheduled. The range of services eligible for reimbursement under the program, whether in whole or in part, remained the same.

n

Plaintiffs are health care providers excluded from full reimbursement under Premier plus. On March 27, 1991, plaintiffs sued defendant, alleging that Premier plus violated the Nonprofit Health Care Corporation Reform Act (Act 350), MCL 550.1101 et seq.; MSA 24.660(101) et seq., and resulted in a tortious interference in the established business relationship between plaintiffs and referring physicians. Plaintiff doctors also alleged that Premier plus constituted a breach of contract with defendant.

Plaintiff American Health Resources, Inc., filed a complaint for mandamus on April 25, 1991, requesting that defendant be ordered to comply with the ppa by allowing it to apply for membership as a panel provider in Premier plus. The complaint also alleged an unlawful attempt to establish a monopoly in violation of the Antitrust Reform Act, MCL 445.771 et seq.; MSA 28.70(1) et seq. The two cases were consolidated and assigned to the same circuit judge.

Defendant removed the cases to the federal district court, arguing that plaintiffs’ claims were subject to complete preemption under federal law by the erisa. The federal court, on the basis of the face of the complaints, found that it did not have subject-matter jurisdiction under the erisa and remanded the case to the circuit court on August 7, 1991. It expressly left open the question whether the erisa preempted plaintiffs’ state law claims.

On August 27, 1991, defendant moved for summary disposition. The circuit court granted the motion on October 9, 1991, except with regard to plaintiffs’ claim under the ppa, which the court found defendant had violated. With regard to that claim, the court issued a final order requiring defendant to accept applications from plaintiffs for participation in Premier plus. In addition, the court permitted plaintiffs to reinstate their claim for money damages if defendant refused to accept their applications. It also continued a temporary restraining order issued on August 14, 1991, which permitted plaintiffs to be treated as panel providers in Premier plus.

On October 31, 1991, defendant rejected all of plaintiffs’ applications. On November 13, 1991, the circuit court continued the temporary restraining order with regard to BPS Clinical Laboratories, Michigan Clinical Laboratory, and Universal Standard Medical Laboratories, Inc.

On December 20, 1991, the circuit court found that defendant had continued to violate the ppa and also had violated the October 9, 1991, order. It issued an additional final order requiring defendant to submit its standards for panel membership to the Insurance Bureau within sixty days and added that it would enjoin operation of Premier plus if defendant did not comply. The court once again extended the temporary restraining order.

Subsequently, defendant moved for relief from this order and to stay any further proceedings, arguing that the order was void as an improper modification of the October 9, 1991, order and that, nonetheless, it had complied with the December 20, 1991, order. The court denied the motion on March 18, 1992, finding that defendant had not filed its standards with the Insurance Commissioner before reviewing plaintiffs’ applications. The court enjoined operation of Premier plus until defendant filed its standards and considered plaintiffs’ applications in light of those standards.

Defendant moved for security to protect its interests pending appeal. The circuit court denied the motion in an order dated April 9, 1992.

Concurrent with the circuit court proceedings, the Insurance Commissioner also reviewed allegations that defendant had not complied with statutory regulations in implementing Premier plus. Although initially having found that defendant had not violated the law and having noted that the law, as applied to Premier plus, was probably preempted under the erisa, the Insurance Commissioner later issued a notice of opportunity to show compliance, requiring defendant to address claims that it had violated the ppa. On March 19, 1992, the Insurance Commissioner issued a notice of dismissal, finding that defendant had complied with the Insurance Code.

hi

Defendant contends that plaintiffs’ claims are preempted under federal law by the erisa. The circuit court refused to consider defendant’s argument regarding this issue, apparently under the misconception that it had been resolved against defendant by the federal district court.¹ By not addressing the issue, the trial court effectively decided it against defendant. The issue has been thoroughly briefed on a complete record and presents a question of law. We believe that the public interest will best be served by resolving it. See Detroit v Dep’t of Social Services, 197 Mich App 146, 158; 494 NW2d 805 (1992).

Under § 514(a) of the erisa, a state law that "relates to” employee benefit plans is preempted by the erisa, 29 USC 1144(a), Unless it falls under the "savings clause” of § 514(b)(2)(A), 29 USC 144(b)(2)(A). The phrase "relates to” is broadly defined to preempt state laws that have a connection with or reference to an employee benefit plan, even if the law is not specifically designed to affect such plans or the effect is only indirect. Ingersoll-Rand Co v McClendon, 498 US 133, 138-139; 111 S Ct 478; 112 L Ed 2d 474 (1990). "It is not the label placed on a state law claim that determines whether it is preempted, but whether in essence such a claim is for the recovery of an erisa plan benefit.” Cromwell v Equicor-Equitable HCA Corp, 944 F2d 1272, 1276 (CA 6, 1991), cert dis — US —; 120 L Ed 2d 931 (1992). If applicable, the erisa preempts state common law in addition to statutory law. Pilot Life Ins Co v Dedeaux, 481 US 41; 107 S Ct 1549; 95 L Ed 2d 39 (1987).

In Teper v Park West Galleries, Inc, 431 Mich 202, 221; 427 NW2d 535 (1988), our Supreme Court held that a state law "relates to” an employee benefit plan and would be preempted by the erisa if it had the effect of

(1) altering the level of benefits which would be paid out under a given plan from state to state, (2) altering the terms of the plan such as requirements for eligibility, or (3) subjecting the fiduciaries of a plan to claims other than those provided in the erisa itself.

In United Wire, Metal & Machine Health & Welfare Fund v Morristown Memorial Hosp, 995 F2d 1179, 1193 (CA 3, 1993), the court held that a state law may relate to erisa plans if its effect, even if indirect, "is to dictate or restrict the choices of erisa plans with regard to their benefits, structure, reporting and administration, or if allowing states to have such rules would impair the ability of a plan to function simultaneously in a number of states.”

Even if a state law claim "relates to” the erisa, it may nonetheless be exempt from preemption under the "savings clause” in § 514(b)(2)(A). 29 USC 1144(b)(2)(A). This provision exempts from preemption state laws that regulate the business of insurance, banking, or securities. The savings clause is itself limited by the "deemer clause,” which provides that states may not treat self-insured erisa plans as insurers in order to subject them to state insurance regulation. 29 USC 1144(b) (2)(B).

Thus, states may regulate companies that insure erisa plans, but they may not regulate erisa plans. Lincoln Mutual Casualty Co v Lectron Products, Inc, 970 F2d 206, 210 (CA 6, 1992). A self-funded employee benefit plan is not subject to direct regulation by insurance laws pursuant to the language of the deemer clause. Auto Club Ins Ass’n v Frederick & Herrud, Inc (After Remand), 443 Mich 358, 382; 505 NW2d 820 (1993), quoting FMC Corp v Holliday, 498 US 52, 61; 111 S Ct 403; 112 L Ed 2d 356 (1990).

In this case, plaintiffs allege that defendant’s implementation of Premier plus resulted in: (1) a violation of Act 350, because defendant failed to file the plan with the Insurance Commissioner and thereby indicate the criteria for becoming a panel member; (2) a violation of the ppa, because defendant failed to offer plaintiffs an application for participation in Premier plus; (3) a violation of the Antitrust Reform Act, because Premier plus was designed to exclude competition among independent laboratories and did not fall under the antitrust exception for health maintenance organizations; (4) a breach of contract with referring doctors, because Premier plus unilaterally changed the terms of reimbursement for services and blood-handling fees; and (5) a tortious interference with the business relationship between laboratories and referring physicians.

We believe the erisa preemption clause prohibits plaintiffs’ claims because the specific state law provisions that form the basis for those claims "relate to” a self-funded employee health benefit plan and do not constitute regulation of the business of insurance. In Adnan Varol, MD, PC v Blue Cross & Blue Shield of Michigan, 708 F Supp 826 (ED Mich, 1989), several health care providers alleged that the defendant’s participation agreement for a pilot health care program violated Act 350 and other state laws. The court held the plaintiffs’ state law claims related to an erisa employee benefit plan and were preempted by the erisa. There, the plaintiffs challenged the authorization and concurrent review procedures in the program that the defendant administered for General Motors. The court found particularly relevant the fact that the defendant merely was acting as an administrator for a self-funded employee benefit plan agreed to between General Motors and its employees. Id. at 832.

Plaintiffs’ claims "relate to” an employee health benefit plan under the erisa. The state insurance regulations that plaintiffs seek to impose on defendant would, if applied, force defendant to alter the way it administers an employee health benefit plan adopted and funded by General Motors. Any finding by a court that changes plaintiffs’ standing with Premier plus will affect General Motors’ distributions under the plan. If defendant is ultimately required to consider and accept plaintiffs as panel providers for Premier plus, General Motors’ benefit plan will be required to reimburse more providers than it had anticipated. Opening the program to other providers will also weaken the leverage needed to negotiate lower fees with a select group of providers, which is undoubtedly a key reason to adopt such a program in a self-funded plan. See Stuart Circle Hosp Corp v Aetna Health Management, 995 F2d 500 (CA 4, 1993) (holding that a Virginia statute, which prohibited insurance companies from unreasonably discriminating against providers in establishing preferred provider organizations, related to an employee benefit plan). In addition, because insurance laws vary widely from state to state, applying Michigan law in this case would impair the ability of Premier plus to function simultaneously in a number of states for multijurisdictional employers such as General Motors. See United Wire, supra at 1193.

The next step in the erisa preemption analysis is to determine the effect of the savings clause. We believe the state law provisions that form the basis of plaintiffs’ claims do not regulate the business of insurance under the facts of this case because Premier plus is at this point solely a program for self-funded employee benefit plans. Plaintiffs’ claims for breach of contract, tortious interference, and antitrust violations are clearly not based on laws aimed at insurance regulation. See Pilot Life, supra at 50. The claims under Act 350 and the ppa also do not constitute efforts to regulate an insurance plan. Defendant administers General Motors’ traditional option health care program, which would incorporate Premier plus, under an "administrative services only” contract. This contract requires General Motors to reimburse defendant for all the covered health care charges paid by defendant on behalf of program enrollees and to pay defendant a fee for administering the program. The health plan is self-funded; defendant does not function as an insurer. If plaintiffs were to succeed in this suit, the state laws they invoke would be used essentially to regulate a self-funded erisa plan, not an insurance plan. Thus, plaintiffs may not invoke the savings clause in § 514(b)(2)(A).

Plaintiffs argue that, despite its role as administrator in this case, defendant is an insurance company subject to regulation. It cannot wear two hats. According to plaintiffs, when General Motors or any similarly situated entity sought an administrator for its self-funded health benefit plan, it chose a regulated entity and subsequently took the good with the bad in making that choice. We consider such reasoning circuitous and unacceptable. The fact that the administrator of the program is also an insurance company does not automatically trigger the savings clause. Plaintiffs’ argument would create a situation analogous to the one that the deemer clause was created to prevent. Preemption should not depend on the arbitrary distinction between programs with administrators that happen to engage in the business of insurance and those with administrators that do nothing but manage self-funded benefit plans. If there is any arbitrary distinction to be identified, it is whether a plan is self-funded or insured. As the United States Supreme Court stated in Metropolitan Life Ins Co v Massachusetts, 471 US 724, 747; 105 S Ct 2380; 85 L Ed 2d 728 (1985):

We are aware that our decision results in a distinction between insured and uninsured plans, leaving the former open to indirect regulation while the latter are not. By so doing we merely give life to a distinction created by Congress in the "deemer clause,” a distinction Congress is aware of and one it has chosen not to alter.

See also Stuart Circle, supra at 504 (quoting the same Supreme Court case though ultimately holding that preemption applied where the sponsor of a preferred provider plan served as an insurer and the state law applied only to insurers).

On this note, plaintiffs also contend that Premier plus is subject to state insurance laws because it is not strictly a program for self-funded employee benefit plans. Rather, defendant developed Premier plus in an effort not only to satisfy General Motors’ desire to cut costs with a preferred provider program but also to attract business from other major corporate employee benefit plans. However, General Motors’ self-funded plan is apparently the only one enrolled in Premier plus at this time. Because this record closed while Premier plus was purely a program for self-funded employee benefit plans managed by defendant under an administrative services only contract, we find plaintiffs’ claims are preempted under the ERISA.

IV

Defendant’s final two claims of error are arguably rendered moot by our decision regarding preemption. We have reviewed the claims because we anticipate the parties will seek further appellate review in the Supreme Court.

The trial court did not err in modifying its October 9, 1991, order by entering its December 20, 1991, order. The latter order enforced the terms of the former and did not improperly modify it under MCR 2.614(C). Nor did the trial court err in finding defendant in violation of the December 20, 1991, order when it issued the March 18, 1992, order.

The trial court did not err in denying defendant’s motion for security under MCR 3.310(D).² Our review of this issue is limited to determining whether the trial court abused its discretion. Zapalski v Benton, 178 Mich App 398, 404; 444 NW2d 171 (1989). MCR 3.310(D)(1) provides:

Before granting a preliminary injunction or temporary restraining order, the court may require the applicant to give security, in the amount the court deems proper, for the payment of costs and damages that may be incurred or suffered by a party who is found to have been wrongfully enjoined or restrained.

MCR 3.310(D)(1) is limited to security for a preliminary injunction or a temporary restraining order. In re Prichard Estate, 169 Mich App 140, 149; 425 NW2d 744 (1988). Neither of these is at issue in this case. Although the orders of October 9, November 13, and December 20, 1991, provided for a continuation of an earlier temporary restraining order, the March 18, 1992, order granted a permanent injunction regarding Premier plus as long as defendant refused to comply with the ppa. Moreover, where, as here, a full hearing on the merits was held before the issuance of an injunction, the rationale for requiring security is not applicable. See Felton v Wedthoff, 185 Mich 72, 80; 151 NW 727 (1915). Thus, neither the language nor the purpose of MCR 3.310(D)(1) supports defendant’s argument. The trial court did not abuse its discretion in refusing defendant’s request for security.

Affirmed in part and reversed in part.

W. J. Caprathe, J., concurred.

1 Although the federal district court concluded that "complete preemption” did not apply as a basis for subject-matter jurisdiction, it expressly declined to rule on the separate issue whether the erisa preempted plaintiffs’ state law claims.

2 Defendant concedes that it was not allowed security under MCR 2.109 because it was seeking such security to protect it from damages rather than to cover its costs and expenses.