"Any Willing Provider" laws not preempted by Employee Retirement Income Security Act (ERISA). Kentucky Association of Health Plans, Inc. et. al. v. Miller, Commissioner, Kentucky Department of Insurance

"Any Willing Provider" laws are not preempted by ERISA because they are state laws regulating insurance if they are (1) specifically directed toward entities engaged in insurance and (2) substantially affect the risk-pooling arrangement between the insurer and the insured. Thus, a state may prohibit health maintenance organizations (HMOs) from creating exclusive "provider networks" of doctors, hospitals and other health care providers by excluding other providers who are "willing and able" to comply with all the HMO's contractual terms if the law meets the new two-prong test established by the Supreme Court in this case. The Court made a "clean break" from using the McCarran-Ferguson Act factors for determining whether certain practices constitute "the business of insurance," when deciding when they regulate insurance for purposes of ERISA preemption.     

COBRA notice--bankruptcy--stay. Buchanan v. Golden Casting Corporation Hourly Health Benefit Plan

In an absence of special circumstances, the automatic stay that protects an employer from suit while its bankruptcy is pending does not apply to an action brought against its employee welfare benefit plan under ERISA because the plan, not the employer, is the proper entity to sue for benefits. Similarly, the employer's automatic stay does not apply to the individual fiduciary sued for breach of fiduciary duty in administering the plan. The bankrupt employer has no property interest in either the plan assets or the assets of the individual fiduciary and, therefore, the stay does not protect them from suit.     

HMOS--independent medical review--preemption. Rush Prudential HMO,Inc. v. Moran

A state statute can require an HMO to provide for an independent medical review of a denial of a request for a particular treatment as not medically necessary and to provide the treatment if the reviewing physician determines the covered service is reasonably necessary. The statute is exempt from ERISA preemption as a law that regulates insurance.     

Collectively bargained public health benefit plans

The marketplace for health benefits for public sector employees is large and complex with a great variety of approaches for providing care and a difficult patchwork of regulatory and collective bargaining regulation to deal with in designing a plan. Public sector workers' plans are subject to an additional constraint provided by the political nature of the process. The products sold to public sector plans are not regulated as ERISA plans, given the exclusion of government plans and the differential regulation of collectively bargained plans under the HMO act. This article attempts to guide the reader through some of the difficulties of this marketplace, pointing out pitfalls and opportunities where they appear.     

Failure to exhaust administrative remedies. Ravencraft v. UNUM Life Insurance Company of America

Ravencraft v. UNUM Life Insurance Company of America, 212 F.3d 341 (6th Cir. 2000): Although ERISA does not explicitly require it, the Sixth Circuit and most of the others require that a participant pursue all plan remedies before bringing suit. An action against a plan or plan fiduciary will be dismissed if the participant fails to exhaust the administrative remedies available to it under the plan unless he or she can show that pursuing those remedies would be futile, such as where the available remedies are inadequate or unfair. If a participant's case is dismissed solely because of the failure to follow the procedural steps for review under the plan, the dismissal should be without prejudice so that the participant can file suit again, if necessary, after he or she goes back to pursue the remedies available under the plan.     

Health benefits--reimbursement--state law claim not preempted. Providence Health Plan v. McDowell

A claim to enforce a reimbursement provision or a separate promise to reimburse a plan out of recovery from a responsible third party cannot be brought in federal court under ERISA, because it is a legal claim for monetary damages and ERISA allows fiduciaries to bring suit only for equitable relief However, a claim for reimbursement of medical benefits paid from a third-party settlement is a state law breach-of-contract claim that cannot be removed to federal court and is not preempted by ERISA. Thus, a plan can bring an action in state court for breach of contract against a participant or beneficiary who fails to reimburse the plan for medical benefits paid when he or she recovers from a third party in a settlement or through a judgment, as required by a reimbursement provision in the plan and/or a separate reimbursement agreement.     

Disability plans--treating physician rule. Black & Decker Disability Plan v. Nord

ERISA does not require the administrator of an employee welfare plan to give special deference to a claimant's treating physician's opinion for purposes of determining eligibility for disability benefits. Nevertheless, administrators may not arbitrarily refuse to credit a claimant's treating physician's opinion or any other reliable evidence.     

Health plans--enforcement of right to reimbursement under ERISA section 502(a)(3). Great-West Life & Annuity Insurance Company v. Knudson

The United States Supreme Court reaffirmed its reluctance "to tamper with [the] enforcement scheme" embodied in ERISA by authorizing remedies not specifically authorized by ERISA's text, and held that section 502(c)(3) does not authorize a plan to bring an action to enforce the plan's reimbursement provisions because recovering monetary damages for reimbursement is not relief typically available in equity and, therefore, is not "other equitable relief" within the meaning of section 502(a)(3). An action to impose personal liability on the Knudsons for a contractual obligation to pay money is an action seeking legal, not equitable, relief and is not authorized by section 502(a)(3).     

A practical guide to preemption for self-insured plans

This article discusses the circumstances under which federal law preempts state law regulating self-insured plans. In particular, the author describes four recent cases in which ERISA preemption was challenged, including relevant issues of debate and conclusions. The article points out that the decisions that result from such cases are contributing to the guidelines that states are developing to regulate ERISA plans.     

Canada's Supreme Court rules no fiduciary obligation towards creditors on insolvency—Peoples Department Stores v. Wise

In Canada, the law is now clear that directors and officers do not owe a fiduciary duty to creditors at the point of insolvency pursuant to corporate and insolvency laws. The Supreme Court of Canada in Peoples Department Stores Inc. v. Wise ruled that the duty of directors and officers under the Canada Business Corporations Act (CBCA) does not change when the corporation is in financial distress and that directors and officers owe their fiduciary duties solely to the corporation at all times. 1 The judgment, which is likely to be the only declaration of Canada's highest court on this issue for some time, leaves a number of unanswered questions for directors and those advising directors of the extent of their obligations both in and outside of insolvency. The Court did find that directors owe a duty of care to creditors, but no fiduciary obligation. The judgment changed the standard of assessment of the duty of care to a purely objective test; enshrined the business judgment rule in Canada; may have provided greater access to the oppression remedy for creditors; and provided direction on the meaning of ‘privy’ with respect to reviewable transactions under the Bankruptcy and Insolvency Act (BIA). 2 These issues are canvassed in this brief case comment. Copyright © 2006 John Wiley & Sons, Ltd.

1 Peoples Department Stores Inc. v. Wise 2004 SCC 68; Canada Business Corporations Act, R.S.C. 1985, c. C‐44, as amended (CBCA).

2 Canada Bankruptcy and Insolvency Act, R.S.C. 1985, c. B‐3, as amended (BIA).

     

Administration--delayed benefits payment; interest. Fotta v. Trustees of the United Mine Workers of America, Health and Retirement Fund of 1974, 165 F.3d.209 (3rd Cir. 1998)

In a case of first impression, the Third Circuit holds that a beneficiary of an ERISA plan may sue the plan for interest on delayed benefits payments under Section 502(a)(3)(B) regardless of whether he also seeks to recover unpaid benefits. A beneficiary is not made whole when a plan pays benefits after delay since he has lost the time value of the money. Interest for delayed benefits payments is appropriate equitable relief that prevents the plan from being unjustly enriched at the beneficiary's expense. Since interest is money damages that is restitutive in nature, it is a form of equitable relief. Interest is not prohibited as "extracontractual" since it is compensation that is part of the contractual obligation.     

An Empirical Examination of Sponsor Influence over the Board of Directors

Investment funds have a unique organization structure in which a fund's board of directors frequently contracts the management of the fund with the fund's sponsor but has a fiduciary duty to act in the interest of the fund's shareholders with regard to decisions such as the shareholder fees charged by the sponsor to manage the fund. For a large sample of closed–end funds, my findings indicate that sponsors exert considerable influence over the board of directors through a variety of mechanisms such as the installation of a sponsor–affiliated board leader, director compensation from service on multiple boards for the sponsor, and control of the director selection process. Furthermore, my examination of closed–end premiums indicates that the market perceives that the absence of sponsor involvement in the director selection process is a credible signal that new directors are not "hand–picked" by the sponsor and that this attribute is positively priced by the market.     

Business in Richmond attacks health care costs

Like a fever that will not break, health care premiums continue to climb relentlessly, yet remedies have been hard to come by. Employers, for the most part, have accepted ever-rising expenditures as the price of good employee relations. And federal regulations designed to control medical costs have proven weak. The road to recovery begins, this author tells us, when a health maintenance organization, or HMO, enters a community, because its prepayment approach upsets the medical profession's conventional fee-for-service rules. Thus it quickly evokes competitive responses from other health care providers, who must become equally cost-conscious or lose their market share. HMOs need advocates, however, to spread as rapidly as their potential warrants. Drawing on recent events in Richmond, Virginia, the author shows how a city's business leadership can become the catalyst for changing the health care system.     

Fiduciary Duties of Corporate Directors in Uncertain Times

Confronting new political uncertainties, heightened challenges, and asserted “best practices,” directors may wonder whether their fiduciary duties have changed. The authors synthesize the latest decisions of the Delaware courts on the standards of conduct for directors and the standards by which their conduct is reviewed. While directors should expect uncertainty to be a fact of corporate life, neither the fiduciary duties of directors nor the protections afforded them have changed. Disinterested and independent directors, acting in good faith to make decisions they deem in the best interests of the corporation, continue to have broad protections under the business judgment rule. This legal framework enables and encourages active directors to make hard choices when they need to do so. The paper includes flowcharts illustrating how the standards of judicial review apply to various categories of business decisions that directors may have to make. It concludes with practical suggestions for directors and General Counsels to establish business judgment rule protection for board decisions or, where applicable, withstand more stringent standards of review.     

Stop making plans; start making decisions

Many executives have grown skeptical of strategic planning. Is it any wonder? Despite all the time and energy that go into it, strategic planning most often acts as a barrier to good decision making and does little to influence strategy. Strategic planning fails because of two factors: It typically occurs annually, and it focuses on individual business units. As such, the process is completely at odds with the way executives actually make important strategy decisions, which are neither constrained by the calendar nor defined by unit boundaries. Thus, according to a survey of 156 large companies, senior executives often make strategic decisions outside the planning process, in an ad hoc fashion and without rigorous analysis or productive debate. But companies can fix the process if they attack its root problems. A few forward-looking firms have thrown out their calendar-driven, business-unit-focused planning procedures and replaced them with continuous, issues-focused decision making. In doing so, they rely on several basic principles: They separate, but integrate, decision making and plan making. They focus on a few key themes. And they structure strategy reviews to produce real decisions. When companies change the timing and focus of strategic planning, they also change the nature of senior management's discussions about strategy--from "review and approve" to "debate and decide," in which top executives actively think through every major decision and its implications for the company's performance and value. The authors have found that these companies make more than twice as many important strategic decisions per year as companies that follow the traditional planning model.     

Employer interference with ERISA rights and benefits. DiFederico v. Rolm Company

DiFederico v. Rolm Company, 201 F.3d 200 (3rd Cir. 2000): A former employee who contended she was terminated because her employer wanted to avoid the cost associated with long-term disability obligations had to prove that her employer had a specific intent to violate Section 510 of ERISA. Section 510 prohibits an employer from interfering with her attainment of rights or benefits associated with an employee benefit plan. Proving specific intent requires proof that the employer made a conscious decision to interfere, and when there is no direct evidence of that intent, courts apply a shifting burden analysis like the one used in employment discrimination cases. After the former employee makes an initial circumstantial showing that she was terminated for a reason that violated Section 510 and the employer articulates a legitimate reason for its action, the former employee must prove that the employer's reason was pretextual.     

Materiality in Corporate Governance: The Statement of Significant Audiences and Materiality

Materiality is an elusive, but fundamentally important concept in corporate reporting of all kinds—not only in traditional financial reporting, but in sustainability and integrated reporting as well. In the end, materiality is entity‐specific and based on judgment. Moreover, it is a judgment that should ultimately be made by a company's board of directors, which makes materiality as much a governance as a reporting issue. Whether a given ESG issue is material is in large part a function of the corporate stakeholders, or “audiences,” that the company's board of directors deems to be “significant”—that is, important to the company's ability to create value over the short, medium, and long term. The identification of such audiences—together with the time frames the board uses to evaluate the impact of the company's decisions on these audiences—provides the basis for determining the sustainability issues that corporate management must focus on for performance and reporting purposes. To help ensure that decisions about materiality receive the attention they deserve, the authors propose that corporate boards articulate their views in an annual “Statement of Significant Audiences and Materiality.” Contrary to the prevailing belief that the fiduciary duty of the board is to place shareholders’ interests first, nothing precludes corporate boards from issuing such a statement. Recent research, including the compilation of legal memos on fiduciary duty and nonfinancial reporting for all G20 countries, makes it clear that the board's fiduciary duty is to “the corporation itself.” In exercising this duty, directors have full discretion, under the business judgment rule and other authorities, to decide which audiences, along with the company's shareholders, should be deemed significant.     

HMOs don't have to fail

One of the bright spots in the sometimes black picture that is painted of our national health care system is HMOs. Health maintenance organizations provide health services to an enrolled group of patients for a fixed, prepaid fee. This arrangement induces HMOs to try to keep patients healthy for a competitive rate. Because of its special nature, however, an HMO cannot be managed like a fee-for-service hospital or group practice. And because few managers fully understand them, more and more HMOs are failing. The authors of this article say, however, that some failures can be avoided. Good management techniques can help HMO managers-whether they are community-spirited citizens or seasoned executives-overcome many of the problems that plague HMO plans: out-of-control utilization rates, growth that can occur overnight, conflict between the values of HMOs and of the physicians that staff them, and competitors in the health field.     

The use of earnings and cash flows in investment decisions in the U.S. and Mexico: Experimental evidence

In this study, we investigate which of two accounting performance measures, earnings or cash flows, is used more in valuation decisions by non-professional investors in the United States and in Mexico. This issue is relevant for the Mexican Stock Market (Bolsa Mexicana de Valores) because the Bolsa's growth has stagnated compared with markets of other Latin American countries. Results of the study reveal that the majority of participants in the U.S. rely on earnings while the majority of participants in Mexico rely on cash flows. Results also suggest that the users’ predisposition can be dysfunctional to the extent that they do not consider using the other accounting measure, even when doing so made it easier to arrive at the correct valuation result (i.e. they did not choose to use the more persistent and therefore easier to forecast accounting measure). However, results are mixed for participants using earnings, since we document a higher chance of forecasting errors for participants in both countries when using earnings rather than cash flows in their calculations for the failure of these participants to adjust earnings for depreciation.This study extends the existing international literature by documenting a country-specific predisposition to use cash flows or earnings as a valuation tool by non-professional investors. Moreover, this study also shows that this predisposition can be dysfunctional, leading participants to make incorrect valuation decisions as a result of their failure to consider the differential persistence of the two accounting measures presented in the experiment.     

Managed care, consolidation among health care providers, and health care: evidence from mammography

We discuss the effects of managed care on the structure of the health care delivery system, focusing on managed-care-induced consolidation among health care providers. We empirically investigate the relationship between HMO market share and mammography providers. We find evidence of consolidation: increases in HMO activity are associated with reductions in the number of mammography providers and with increases in the number of services produced by remaining providers. We also find that increases in HMO market share are associated with reductions in costs for mammography and with increases in waiting times for appointments, but not with worse health outcomes.