Legal Considerations

  • John D. Blum
Part of the Industry and Health Care book series (SSIND, volume 6)

Abstract

Corporations attempting to restructure employee health benefit plans may encounter certain legal problems, depending on the nature of the specific changes contemplated and on whether those changes are to be undertaken as sole or joint ventures. Because of the diversity of corporate approaches to employee health care, this chapter can only serve to outline some general areas of the law that need to be considered in restructuring health plans. Specifically, it addresses antitrust, preemption of state regulation under the Employee Retirement Income Security Act (ERISA), and confidentiality of medical records. These areas do not exhaust the legal questions companies could encounter in their efforts to reduce health care expenditures, but each is a major legal problem area and serves to highlight the complex ramifications under law that could result from misdirected use of corporate power in the health care system.

Keywords

Income Marketing Lime Kelly Alan 

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Notes

  1. 1.
    15 USC §§ 1–7.Google Scholar
  2. 2.
    15 USC §§ 12–27.Google Scholar
  3. 3.
    15 USC §§ 41–51.Google Scholar
  4. 4.
    Lawrence A. Sullivan, Antitrust, chap. 3, “Horizontal Restraints of Trade,” pp. 186–189.Google Scholar
  5. 5.
    Ibid, pp. 196–197. A successful monopoly challenge which demonstrates that the defendants control prices and/or exclude competition is contingent on their having considerable market power.Google Scholar
  6. 6.
    Legal actions in the medical price-fixing area have focused on physician organizations that issue price guidelines to their competitor members. See Remarks of Jonathan E. Gaines, Assistant Director, Bureau of Competition, Federal Trade Commission, before the Professional Associations Council of the American Society of Association Executives, Washington, D.C., February 10, 1978.Google Scholar
  7. 7.
    Restraint of trade can be achieved in other arrangements besides fee schedules; utilization review or second opinion programs, for example, may adversely affect competition.Google Scholar
  8. 8.
    Webster County Memorial Hospital, Inc. v. United Mine Workers of America Welfare and Retirement Fund 536 F2d 419 (1976).Google Scholar
  9. 9.
    Sullivan, Antitrust, chap. 1.Google Scholar
  10. 10.
    Ibid., pp. 30–35.Google Scholar
  11. 11.
    It is interesting to note that the hospital in Webster never raised the issue of monopsony which may have proven to be a more persuasive argument than restraint of trade.Google Scholar
  12. 12.
    415 F. Supp. 343 (1976).Google Scholar
  13. 13.
    481 F2d 80 (1973).Google Scholar
  14. 14.
    Newsletter of the American Council of Otolaryngology, vol. 9, no. 6 (December 1977). In any joint or single corporate health plan a key legal consideration will be the development of contractual arrangements. It is important that companies develop contracts with providers that allow sufficient flexibility in cost control efforts. It is further important that corporate-provider agreements are drawn in such a fashion that they cannot be classified as adhesion contracts.Google Scholar
  15. 15.
    15 USC §§ 1011–1015.Google Scholar
  16. 16.
    See McIlhinney v. American Title Insurance Co. 418 F. Supp. 364 (1977).Google Scholar
  17. 17.
    424 F. Supp. 657 (1976).Google Scholar
  18. 18.
    415 F. Supp. 343 (1976).Google Scholar
  19. 19.
    Indeed, the majority of federal courts have refused to deny the application of McCarran-Ferguson to professional service plans because they involve the delivery of products and services rather than indemnity. Case precedent and legislative history both seem to indicate that activities constituting the “business of insurance” under McCarran-Ferguson are broader than what constitutes insurance under state law.Google Scholar
  20. 20.
    46 L.W. 4971 (1978).Google Scholar
  21. 21.
    481 F2d 80 (1973).Google Scholar
  22. 22.
    561 F2d 262 (1977).Google Scholar
  23. 23.
    C. B. Renfrew, “Fiduciary Responsibilities under the Pension Reform Act,” Business Law, vol. 32, p. 1829 (July 1977).Google Scholar
  24. 24.
    Jeffrey Fuller, “The Use of Self-Funded Plans: The Emerging Principles for Affiliated Corporations, Trade Associations and METs,” “Discussion of Certain Tax Problems Presented by Self-Funded Employee Welfare Benefit Plans,” Practicing Law Institute Eighth Annual Employee Benefit Institute, New York, April 1978, pp. 306–307.Google Scholar
  25. 25.
    Robert E. Kelly, “Self-Funding Welfare Plans, or, There Is No Insurance in Group Insurance,” Proceedings of the 1976 Annual Educational Conference, International Foundation of Employee Benefit Plans, vol. 18.Google Scholar
  26. 26.
    See Florida Lime and Avocado Growers, Inc. v. Paul 373 U.S. 132 (1963); Rice v. Santa Fe Elevator Corp. 331 U.S. 218 (1974).Google Scholar
  27. 27.
    Kelly, “No Insurance in Group Insurance.”Google Scholar
  28. 28.
    Fuller, “Certain Tax Problem,” p. 280.Google Scholar
  29. 29.
  30. 30.
  31. 31.
    425 F. Supp. 1294 (1977).Google Scholar
  32. 32.
    In a similar action in Azzaro v. Harnett (515 F. Supp. 473 [1976]), plaintiffs Bakery Drivers Local No. 802 Pension Fund challenged the right of the New York State Division of Insurance to inquire into the benefit status of a pension fund participant. The court supported the plaintiffs’ preemption argument, reasoning that ERISA offers a full range of protection under federal law and thus makes state regulation unnecessary. Regarding the specific state inquiry, the court noted that ERISA requires the administrator of an employee pension benefit plan to furnish any participant a statement of his current status. According to the Azzaro court the role of the state in regulating employee welfare plans should be limited to dealing only with those problem areas still existing that predate the implementation of ERISA.Google Scholar
  33. 33.
    432 F. Supp. 921 (1976).Google Scholar
  34. 34.
    It should be noted, however, that some legal commentators have interpreted Insurer’s Action Council to hold that ERISA does not preempt state laws regulating insurance as applied to insurers only.Google Scholar
  35. 35.
    46 L.W. 2155 (1978).Google Scholar
  36. 36.
    United States Senate Bill No. 3017, introduced May 1, 1978.Google Scholar
  37. 37.
    Fuller, “Emerging Principles.”Google Scholar
  38. 38.
    437 F. Supp. 382 (1977).Google Scholar
  39. 39.
    See Hewlett-Packard v. Barnes, 425 F. Supp. 1294 (1977).Google Scholar
  40. 40.
    In an action similar to Bell, Hemberlin v. V.I.P. Insurance Trust (434 F. Supp. 1196 [1977]), the beneficiaries of a group health and accident policy brought suit alleging violations of ERISA. The legal issue that underlay the action was whether the federal court had subject matter jurisdiction, given that it was questionable whether the plan at issue was covered by ERISA. The insurer of the original V.I.P. Trust, a multiple employer trust, canceled its group coverage, at which point defendant insurance brokers set up a self-funded plan with themselves acting as administrators at a 15 percent commission. The trust was run as a business enterprise of the insurance brokers with employers having no voice in its management, operation, or decisions to terminate; no employer contributions were made on behalf of employees. According to the court, “this trust [V.I.P. Trust] was purely an entrepreneurial plan put together by Galbraith and Green [insurance brokers] to protect business commissions they would have lost if the trust had not been restructured.” The decision continued, “there has been substantial national concern over the increase in the numbers of uninsured multiple employer trusts such as this which have avoided state supervision and failed, leaving sick or injured employees holding any empty bag.” The Hamberlin court ruled that ERISA could not be used as an umbrella to protect purely commercial plans from state regulation; thus the federal court denied that it had jurisdiction under ERISA to consider the merits of the claim.Google Scholar
  41. 41.
    S. 3017 also exempts the interest of an employee in an employee benefit plan from being characterized as a security under the Securities and Exchange Act, another area of jurisdictional controversy. It should also be noted that HMOs, according to the Department of Labor (Press Release 77–188), are to be classified as benefits and not employee benefit plans subject to ERISA. The Labor Department opinion has been supported in the Ninth Circuit opinion of Hewlett-Packard v. Barnes (425 F. Supp. 1294 [1977]).Google Scholar
  42. 42.
    Some insurance companies have refused to grant corporations permission to examine identified employee health insurance records. While part of the reason for the refusal is concern for confidentiality, a more practical consideration is the cost to the insurer of assembling the data.Google Scholar
  43. 43.
    DuPont v. Finklea S.D.W.V. December 20, 1977, No. 88–2059.Google Scholar
  44. 44.
    Fred J. Gregura, “Informational Privacy and the Private Sector,” Creighton Law Review, vol. 11, p. 312 (1977).Google Scholar
  45. 45.
    G. H. Collings, “Medical Confidentiality in the Work Environment,” in The Civil Liberties Review Individual Rights Sourcebook, vol. II, Alan Westin ed. (New York: ACLU 1978), p. 276.Google Scholar
  46. 46.
    503 P. 2d 1366 (1972).Google Scholar
  47. 47.
    John D. Blum, “Corporate Liability for Inhouse Medical Malpractice,” St. Louis University Law Journal, vol. 22 (Summer 1978).Google Scholar

Copyright information

© Springer-Verlag New York Inc. 1979

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  • John D. Blum

There are no affiliations available

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