Horvath v. Keystone Health Plan , 333 F.3d 450 ( 2003 )

Opinions of the United
2003 Decisions States Court of Appeals
for the Third Circuit
6-23-2003
Horvath v. Keystone Health Plan
Precedential or Non-Precedential: Precedential
Docket No. 02-1731
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PRECEDENTIAL
Filed June 23, 2003
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
No: 02-1731
DONNA HORVATH,
on behalf of herself and
all others similarly situated
v.
KEYSTONE HEALTH PLAN EAST, INC.
DONNA HORVATH, on behalf of herself
and the proposed class she seeks
to represent,
Appellant
Appeal from the United States District Court
for the Eastern District of Pennsylvania
(D.C. Civil Action No.00-cv-00416)
District Judge: Honorable Ronald L. Buckwalter
Argued on October 18, 2002
Before: ROTH, GREENBERG, Circuit Judges
and WARD,* District Judge
(Opinion filed: June 23, 2003)
* Honorable Robert J. Ward, District Court Judge for the Southern
District of New York, sitting by designation.
2
H. Laddie Montague, Jr., Esquire
Jerome M. Marcus, Esquire (Argued)
Jonathan Auerbach
Berger & Montague, P.C.
1622 Locust Street
Philadelphia, PA 19013
COUNSEL FOR APPELLANT
Edward F. Mannino, Esquire
(Argued)
David L. Comerford, Esquire
James L. Griffith, Esquire
Akin, Gump, Strauss, Hauer
& Feld, L.L.P
One Commerce Square
2005 Market Street, Suite 2200
Philadelphia, PA 19103
COUNSEL FOR APPELLEE
OPINION OF THE COURT
ROTH, Circuit Judge:
Health Maintenance Organizations (HMOs) routinely
utilize financial incentives to encourage physicians to ration
care in a cost-effective manner. This case presents the
question whether, when the existence of such a plan has
been disclosed, the Employee Retirement Income Security
Act (ERISA), 29 U.S.C. § 1001, et seq., requires HMOs
automatically to disclose further information on these
incentives to plan beneficiaries. Because we conclude that,
under the circumstances of this case, neither our own
precedents nor the canons of statutory construction
support the imposition of such a duty, we will affirm the
District Court’s grant of summary judgment to the
defendant HMO.
I. Facts
Plaintiff-appellant Donna Horvath is the benefits
administrator at a law firm and a member of the HMO of
3
defendant-appellee Keystone Health Plan East, Inc. The
Keystone HMO is the only healthcare plan offered to
employees of Horvath’s firm. The firm pays all premiums
directly to Keystone as an employee benefit and does not
make any specific healthcare deductions from employees’
paychecks.
Horvath, both as a member of the Keystone HMO and as
her firm’s benefits administrator, was provided with
information regarding the plan’s structure. Specifically, she
received a letter from Keystone disclosing its practice of
attempting to “[c]ontrol the increase of health care costs
through negotiated agreements with health care providers,
doctors, hospitals, pharmacy, and ancillary providers,” as
well as a Doctor and Hospital Directory that included a
description of the physician compensation plan.1 Horvath
also received literature, the Keystone Health Plan East
Member Handbook and the September 1999 Letter to
Benefits Administrator, which provided that she could
request additional information regarding physician
compensation. She concedes she never made any effort to
do so.
II. Procedural History
Horvath’s complaint was filed on January 21, 2000, as a
proposed class action. It alleges that Keystone is a
“fiduciary,” as that term is defined under ERISA,2 and that
1. Horvath admitted during her deposition that she never read the
information contained in the Doctor and Hospital Directory but stated
that, if she had read the information, she “might have questioned a
physician’s recommendation for a particular service or treatment.”
2. In their submissions below, the parties did not vigorously contest the
issue of whether Keystone qualifies as a “fiduciary” under ERISA. See
Horvath v. Keystone Health Plan East, Inc., No. CIV.A. 00-0416, 2002 WL
265023, at *2-*3 (E.D. Pa. Feb. 22, 2002). Accordingly, the District
Court, citing Pegram v. Herdrich, 530 U.S. 211, 228 n.8 (2000), assumed
arguendo that Keystone was a fiduciary but held that it need not
specifically reach the issue because of its conclusion that ERISA imposed
no duty to disclose information on physician incentives. Horvath, 2002
WL 265023, at *3. We agree with this approach and therefore take no
position with respect to whether Keystone is a fiduciary as defined by
ERISA.
4
it therefore has a duty to disclose to plan beneficiaries “all
material facts relating to the insurance benefits” it provides.
Horvath contends this duty was violated when Keystone
failed to disclose information on physician incentives that
she believes have the potential to impact healthcare
decisions made by its physicians and thus decrease the
overall level of care provided. However, Horvath does not
allege that she has been personally affected by the
existence of the incentives or that the care she received
from the Keystone HMO was defective or substandard in
any way. As a remedy for the alleged breach of fiduciary
duty, Horvath seeks, inter alia, (1) injunctive relief requiring
the disclosure of information regarding physician
incentives, and (2) restitution and/or disgorgement of the
amount she and other members of the putative class
allegedly overpaid as a result of Keystone’s failure to
disclose such information. She defines this amount as the
difference between the value of the plan as she perceived it
(i.e., without a physician incentive structure) and the value
of the plan as actually configured (i.e., with physician
incentives).
The District Court denied Keystone’s motion to dismiss.
The court subsequently denied Horvath’s motion for class
certification but granted her leave to renew the motion at
the close of the discovery period. During the course of
discovery, Keystone turned over numerous documents in
response to Horvath’s requests for production. However,
Keystone withheld many other documents, objecting to
requests as overly broad and not reasonably calculated to
lead to the production of admissible evidence.
Horvath filed a motion to compel the production of
additional documents, which on March 13, 2001, the
District Court denied without prejudice. In doing so, the
court noted its belief that the requests at issue were overly
broad and therefore instructed Horvath to “specify with
regard to each discovery request explicitly how it is relevant
to the need for disclosures and not merely how it adds to
[her] understanding of Keystone’s operational structure.”
On July 13, a second motion to compel was granted in part
and denied in part. Horvath then deposed two Keystone
employees but took no other steps to obtain additional
5
information prior to the close of the discovery period. She
does not appeal the District Court’s denials of her motions
to compel.
Keystone filed its motion for summary judgment on
September 21, 2001, arguing that Horvath lacked standing
to assert her ERISA claim and that no material facts were
in dispute. The District Court did not expressly rule on the
issue of standing but granted summary judgment to
Keystone, based primarily upon the court’s belief that our
prior decisions regarding fiduciary disclosure under ERISA
did not require Keystone to disclose information on its
physician incentive structure. This appeal followed.
III. Jurisdiction and Standards of Review
The District Court exercised subject matter jurisdiction
over this case pursuant to 28 U.S.C. § 1331. We have
jurisdiction to consider Horvath’s appeal of the District
Court’s final order pursuant to 28 U.S.C. § 1291.
Our review of Horvath’s standing to assert her claim is
plenary. General Instrument Corp. of Del. v. Nu-Tek Elec. &
Mfg., Inc., 197 F.3d 83, 86 (3d Cir. 1999). We review the
District Court’s refusal to delay its ruling on Keystone’s
summary judgment motion for abuse of discretion, but our
review of the order itself is plenary. St. Surin v. Virgin
Islands Daily News, Inc., 21 F.3d 1309, 1313 (3d Cir.
1994). “Summary judgment is appropriate ‘if the pleadings,
depositions, answers to interrogatories, and admissions on
file, together with the affidavits, if any, show that there is
no genuine issue as to any material fact and that the
moving party is entitled to judgment as a matter of law.’ ”
Chisolm v. McManimon, 275 F.3d 315, 321 (3d Cir. 2001)
(quoting Fed. R. Civ. P. 56(c)). Summary judgment is not
appropriate, however, “if a disputed fact exists which might
affect the outcome of the suit under the controlling
substantive law.” Josey v. John R. Hollingsworth Corp., 996
F.2d 632, 637 (3d Cir. 1993).
IV. Discussion
A. Background
HMOs provide a variety of specified health care services
to members for one fixed fee. Thus, like other insurers,
6
HMOs attempt to control costs by carefully scrutinizing the
requests for services. Pegram v. Herdrich, 530 U.S. 211,
219 (2000). As part of this effort, HMOs provide guidance to
their physicians regarding appropriate levels of health care.
Id. “These cost-controlling measures are commonly
complemented by specific financial incentives to physicians,
rewarding them for decreasing utilization of health-care
services, and penalizing them for what may be found to be
excessive treatment.” Id. Accordingly, “in an HMO system,
a physician’s financial interest lies in providing less care,
not more.” Id.However, the existence of such interests in no way affects
the legitimacy of the HMO structure. As noted in Pegram,
“[t]he check on [physicians’ financial interests] . . . is the
professional obligation to provide covered services with a
reasonable degree of skill and judgment in the patient’s
interest.” Id. Such incentives, in a fixed fee system, are
necessary as “no HMO organization could survive without
some incentive connecting physician reward with treatment
rationing.” Id. at 220.
Nevertheless, the presence of rationing in the context of
medical care inevitably raises a host of policy questions,
many of which are beyond the scope of those typically or
easily resolved by federal courts. Indeed, “any legal
principle purporting to draw a line between good and bad
HMOs would embody, in effect, a judgment about socially
acceptable medical risk.” Id. at 221. Thus, questions
requiring the exercise of “complicated factfinding” or
“debatable social judgment are not wisely required of courts
unless for some reason resort cannot be had to the
legislative process, with its preferable forum for
comprehensive investigations and judgments of social
value, such as optimum treatment levels and health-care
expenditure.” Id; cf. Maio v. Aetna, Inc., 221 F.3d 472, 499
(3d Cir. 2000) (rejecting notion that “in the complex world
of rate structures a trier of fact, probably a jury” could
determine the value of an HMO health insurance product
which offers physicians incentives to withhold medical
services.)
It is against this backdrop that we consider the claim at
issue here.
7
B. Standing
As a preliminary matter, we must address the threshold
issue of standing. It is axiomatic that, in addition to those
requirements imposed by statute, plaintiffs must also
satisfy Article III of the Constitution, see Warth v. Seldin,
422 U.S. 490, 501, 95 S. Ct. 2197, 2206, 45 L. Ed.2d 343(1975), which requires as follows:
First, the plaintiff must have suffered an injury in fact
— an invasion of a legally protected interest which is
(a) concrete and particularized; and (b) actual or
imminent, not conjectural or hypothetical. Second,
there must be a causal connection between the injury
and the conduct complained of — the injury has to be
fairly . . . trace[able] to the challenged action of the
defendant, and not . . . th[e] result [of] the independent
action of some third party not before the court. Third,
it must be likely, as opposed to merely speculative,
that the injury will be redressed by a favorable
decision.
AT&T Communications of N.J., Inc. v. Verizon N.J., Inc., 270
F.3d 162, 170 (3d Cir. 2001) (quoting Lujan v. Defenders of
Wildlife, 504 U.S. 555, 560-61, 112 S. Ct. 2130, 119 L.
Ed.2d 351 (1992)). Because there is no basis for a challenge
to Horvath’s status as an ERISA beneficiary, and thus no
claim that she lacks statutory standing, see § 502(a)(3)
(permitting requests for injunctions and other equitable
relief to be brought by participants, beneficiaries, and
fiduciaries), the primary inquiry here is whether Horvath
has pled “a violation of [her] ERISA-created rights sufficient
to satisfy Article III’s injury requirement.” Financial Inst.
Retirement Fund v. Office of Thrift Supervision, 964 F.2d
142, 147 (2d Cir. 1992).
In addressing this question, we note that Horvath’s suit
seeks to utilize the enforcement provisions contained in
§ 502(a)(3), 29 U.S.C. § 1132(a)(3), in order to remedy an
alleged violation of the fiduciary duties imposed by § 404,
29 U.S.C. § 1104. Pursuant to the terms of § 502(a)(3),
Horvath is entitled only to equitable relief, see Great-West
Life & Annuity Ins. Co. v. Knudson, 534 U.S. 204, 209-10,
122 S. Ct. 708, 712, 151 L. Ed.2d 635 (2002), which she
8
seeks in the form of requests for restitution, disgorgement,
and an injunction barring Keystone from continuing to omit
information regarding physician incentives from its
disclosures to plan members. For the reasons stated below,
we conclude that Horvath has established a case or
controversy as to her request for injunctive relief but has
failed to do so with respect to her requests for restitution
and disgorgement.
First, with regard to injunctive relief, it is well-established
that “[t]he actual or threatened injury required by Art. III
may exist solely by virtue of statutes creating legal rights,
the invasion of which creates standing.” RJG Cab, Inc. v.
Hodel, 797 F.2d 111, 118 (3d Cir. 1986) (quoting Warth,
422 U.S. at 499-500, 95 S. Ct. at 2205-06) (internal
quotations omitted); see also Kirby v. Department of Hous.
& Urban Dev., 675 F.2d 60, 65 (3d Cir. 1982). Here, the
disclosure requirements and fiduciary duties contained in
ERISA create in Horvath certain rights, including the rights
to receive particular information and to have Keystone act
in a fiduciary capacity. Thus, Horvath need not
demonstrate actual harm in order to have standing to seek
injunctive relief requiring that Keystone satisfy its
statutorily-created disclosure or fiduciary responsibilities.
See Gillis v. Hoechst Celanese Corp., 4 F.3d 1137, 1148 (3d
Cir. 1993) (finding “ERISA does not require that harm be
shown before a plan participant is entitled to an injunction
ordering the plan administrator to comply with ERISA’s
reporting and disclosure requirements”); see also Larson v.
Northrop Corp., 21 F.3d 1164, 1171 (D.C. Cir. 1994)
(holding plaintiff need not demonstrate actual harm in
order to file suit for alleged breach of fiduciary duty under
ERISA § 404); Financial Inst. Retirement Fund, 964 F.2d at
149 (noting that “ERISA’s goal of deterring fiduciary
misdeeds” supports a “broad view of participant standing
under ERISA,” and holding that a violation of § 404 satisfies
the injury requirement of Article III). As noted in Gillis, this
conclusion is further supported “by the Supreme Court’s
statement that ‘Congress’ purpose in enacting the ERISA
disclosure provisions [was to] ensur[e] that the individual
participant knows exactly where he stands with respect to
the plan.’ ” 4 F.3d at 1148 (quoting Firestone Tire & Rubber
9
Co. v. Bruch, 489 U.S. 101, 118, 109 S. Ct. 948, 958, 103
L. Ed.2d 80 (1989)).
However, the same cannot be said regarding Horvath’s
requests for restitution and disgorgement, both of which
are individual in nature and therefore require her to
demonstrate individual loss. See In re Unisys Sav. Plan
Litig., 173 F.3d 145, 159 (3d Cir. 1999) (citing Varity Corp.
v. Howe, 516 U.S. 489, 507-15, 116 S. Ct. 1065, 134 L.
Ed.2d 130 (1996)). Because she concedes that the care and
coverage she received as a member of the Keystone HMO
was never affected by the existence of physician incentives,
Horvath’s claim for individual loss, to the extent she has
one at all, is premised on her argument that her firm
overpaid for the healthcare she received.
We recently rejected a nearly identical claim in Maio v.
Aetna, Inc., 221 F.3d 472 (3d Cir. 2000), albeit outside the
context of ERISA. As in this case, the defendant HMO in
Maio utilized a financial incentive structure designed to
encourage physicians to ration medical care in a cost-
effective manner. 221 F.3d at 475. The plaintiffs, a putative
class consisting of current and former members of the
HMO, filed suit alleging that they were induced to enroll in
the healthcare plan as a result of the HMO’s claims
regarding the quality of its medical care but that they did
not receive that level of care because undisclosed financial
incentives impacted medical determinations made by the
HMO’s physicians. Id. at 474-75.
Because plaintiffs sought relief pursuant to the Racketeer
Influenced and Corrupt Organizations Act (RICO), 18 U.S.C.
§ 1961, et seq., the sole issue before us in Maio was
whether plaintiffs had, by use of this “diminished value”
theory, “alleged a valid RICO injury to business or property
sufficient to afford them standing under RICO” to assert
their claim. 221 F.3d at 482. We concluded that their
allegations failed to satisfy the statutory injury
requirements of RICO and that they therefore lacked
standing to sue. Id. at 501. Specifically, we held that they
could not “establish that they suffered a tangible economic
harm compensable under RICO unless they allege that
health care they received under [insurer’s] plan actually
was compromised or diminished as a result of [insurer’s]
10
management decisions challenged in the complaint.” Id. at
488.
Although the narrow scope of the issue presented in Maio
distinguishes that case from the instant ERISA action, our
observations regarding the viability of the diminished value
theory are nevertheless instructive. See Doe v. Blue Cross
Blue Shield of Md., Inc., 173 F. Supp.2d 398, 403-05 (D.
Md. 2001) (utilizing Maio to analyze plaintiff ’s standing to
assert diminished value theory under ERISA).
Moreover, proving diminished value claims is
problematic, as doing so necessarily requires a
determination of the value of the insurance provided by the
HMO. 221 F.3d at 499. This value inquiry, in turn,
inappropriately transforms juries into quasi-regulatory
commissions by requiring them to decipher complex rate
structures in order to determine whether, and to what
extent, HMO plan members overpaid for the insurance they
received. Id. Further, Horvath’s claims for restitution and
disgorgement rest not only on the troublesome assumption
that a factfinder can accurately determine the amount her
firm allegedly overpaid Keystone, but also on the notion
that the firm would have passed these savings on to its
employees in the form of a higher salary or additional
benefits. We find this reasoning far too speculative to serve
as the basis for a claim of individual loss and thus
conclude that Horvath lacks standing to seek restitution or
disgorgement. See Doe, 173 F. Supp.2d at 404-05 (noting
that no court has yet found standing to assert diminished
value claims under ERISA, and that the reticulated nature
of ERISA discourages the creation of new causes of action).3
3. Although we need not decide the issue in light of our conclusion
regarding standing, we note that, even if she had standing to assert
them, Horvath’s claims for restitution and disgorgement are likely barred
by the Supreme Court’s recent decision in Great-West. As noted above,
ERISA § 502(a)(3) provides only for equitable relief. In Great-West, the
Court, noting that not all claims for restitution are equitable in nature,
held that not all such claims are cognizable under § 502(a)(3). See Great-
West, 534 U.S. at 215, 122 S. Ct. at 715 (holding that whether a claim
for restitution “is legal or equitable in a particular case (and hence
whether it is authorized by § 502(a)(3)) remains dependent on the nature
of the relief sought”).
11
C. Horvath’s Rule 56(f) Motion
We begin our analysis of Horvath’s remaining claim for
injunctive relief by examining her assertion that the District
Court abused its discretion by failing to address her Rule
56(f) motion prior to ruling on Keystone’s motion for
summary judgment.4 Specifically, she contends that the
affidavits submitted in connection with her motion
adequately described both the additional discovery sought
and the way in which it would assist her in establishing her
claim. She further argues that the requested information, if
obtained, would clarify the extent to which the incentive
program at issue limits the scope of coverage received by
members of the Keystone HMO.
Keystone responds that the District Court’s implicit
denial of Horvath’s Rule 56(f) motion was proper because
Historically, “[i]n cases in which the plaintiff could not assert title or
right to possession of particular property, but in which nevertheless he
might be able to show just grounds for recovering money to pay for some
benefit the defendant had received from him, the plaintiff had a right to
restitution at law through an action derived from the common law writ
of assumpsit.” Id. at 213, 122 S. Ct. at 714 (citation and internal
quotations omitted). “In contrast, a plaintiff could seek restitution in
equity, ordinarily in the form of a constructive trust or an equitable lien,
where money or property identified as belonging in good conscience to
the plaintiff could clearly be traced to particular funds or property in the
defendant’s possession.” Id. Thus, in order “for restitution to lie in
equity, the action generally must seek not to impose personal liability on
the defendant, but to restore to the plaintiff particular funds or property
in the defendant’s possession.” Id. at 214, 122 S. Ct. at 714-15.
Here, there are no funds readily traceable to Horvath over which a
constructive trust or other equitable remedy may be imposed. Indeed, as
described above, it is questionable whether it is even possible to identify
an exact amount, assuming Horvath could prove entitlement to any
amount at all. Accordingly, even if she had standing to assert them,
Horvath’s requests for restitution and disgorgement arguably constitute
legal remedies not recoverable under § 502(a)(3).
4. Horvath additionally claims that the District Court abused its
discretion by denying her request to allow her expert to review certain
confidential documents. Because this claim was not properly preserved
for appellate review, we do not address it here.
12
the motion simply repeated the discovery requests already
rejected by the court in its denials of her two prior motions
to compel, neither of which have been appealed by Horvath.
Keystone further contends that the affidavits submitted by
Horvath’s counsel and by Dr. Klionsky in support of the
Rule 56(f) motion failed to identify facts that would preclude
the entry of summary judgment, and that Dr. Klionsky’s
testimony is barred from proper consideration because
Horvath failed to make the required expert disclosures prior
to submitting his affidavit.
As noted above, we review the District Court’s
determination not to delay its summary judgment ruling for
abuse of discretion. St. Surin, 21 F.3d at 1313. A district
court’s decision to grant a Rule 56(f) motion “depends, in
part, on ‘what particular information is sought; how, if
uncovered, it would preclude summary judgment; and why
it has not previously been obtained.’ ” Contractors Ass’n of
Eastern Pa., Inc. v. City of Phila., 945 F.2d 1260, 1266 (3d
Cir. 1991) (quoting Lunderstadt v. Colafella, 885 F.2d 66,
71 (3d Cir. 1989)). However, because “[a] district court has
discretion in acting on Rule 56(f) motions,” this list of
factors is not exhaustive. Id. at 1267. Instead, it “simply
offer[s] a guide for the district court to follow in exercising
its discretion under Rule 56(f),” id., and therefore provides
the general framework for our inquiry as well.
In addressing the first factor — an analysis of the
information sought — we examine the substance of the
Rule 56(f) affidavit. Id. at 1266. Here, Horvath concedes
that all of the discovery described in Dr. Klionsky’s affidavit
had previously been sought in the two motions to compel
denied by the District Court. In this sense, the Rule 56(f)
motion sought no new discovery, and essentially amounted
to nothing more than a motion for reconsideration of the
District Court’s denial of the two prior motions to compel.
With respect to the second factor, we examine whether
the requested information would have altered the outcome
of the District Court’s summary judgment determination.
Contractors Ass’n of Eastern Pa., 945 F.2d at 1266. As
discussed in more detail below, neither applicable case law
nor the text of ERISA required disclosure of the scope of
Keystone’s physician incentive structure under the facts
13
presented in this case. Accordingly, none of the information
described in the affidavits would have precluded the
District Court’s entry of summary judgment in favor of
Keystone.
Finally, we assess “why the party seeking more time has
not previously obtained the information.” Id. at 1267. Here,
Horvath’s initial motion to compel was denied without
prejudice, and she was given the opportunity to submit
more narrowly tailored document requests. She failed to do
so. The District Court therefore acted properly in denying
her second motion to compel. For the above reasons, the
District Court did not abuse its discretion in electing not to
grant Horvath’s Rule 56(f) motion.5
D. The Nature of Horvath’s Claim
In asserting that the District Court erred in granting
summary judgment to Keystone, Horvath’s counsel
struggled mightily, both in their briefs and at oral
argument, to persuade us that her breach of fiduciary duty
claim is based on allegations of affirmative
misrepresentation rather than on a failure to disclose
material facts. In so doing, they harshly criticized the
District Court for failing to address the misrepresentation
issue and argued that it misconstrued the true essence of
her claim.
We reject this argument, which fails at the most basic
level because it finds no support in the plain language of
Horvath’s complaint. Rather, an analysis of the text of the
complaint reveals that the ERISA fiduciary duty claim,
which is the only count asserted therein, is clearly
premised on Keystone’s alleged failure to disclose material
information. See, e.g., Compl. at ¶ 36 (“Keystone breaches
its fiduciary duty to plaintiff and the class by failing to fully
and accurately disclose the material facts [regarding
5. Because the three factors outlined in Contractors Ass’n of Eastern Pa.
provide ample grounds for affirming the District Court’s decision not to
delay its summary judgment ruling, we need not consider additional
factors. Similarly, because we conclude that Horvath’s Rule 56(f) motion
fails even with the aid of Dr. Klionsky’s affidavit, we do not address
Keystone’s argument that Horvath failed to make the required expert
disclosures with respect thereto.
14
physician incentives]”); id. at ¶ 37 (“Keystone is liable to
make restitution to plaintiff and each other member of the
Class for an amount by which plaintiffs over paid [sic]
Keystone because of Keystone’s failure to disclose the
above-described material facts”); id. at ¶ 38 (“As a result of
defendant’s breaches of fiduciary duty, Keystone is also
liable to disgorge the amounts by which it was unjustly
enriched as a result of its failure to disclose the material
facts set forth above regarding the true nature of the health
insurance it sold to plaintiff and the members of the class”).
Moreover, a misrepresentation-based breach of fiduciary
duty claim cannot, as Horvath argues, be implied from a
fair reading of her complaint. In order to state a claim for
misrepresentation by an ERISA fiduciary, Horvath must
allege (1) that Keystone was acting as a fiduciary, (2) that
Keystone made a misrepresentation, (3) that the
misrepresentation was material, and (4) that Horvath relied
on the misrepresentation to her detriment. See Daniels v.
Thomas & Betts Corp., 263 F.3d 66, 73 (3d Cir. 2001).
Although Horvath satisfies the first element listed above,6
there is no reasonable reading of her complaint — even
under the liberal pleading requirements contained in Rule
8 of the Federal Rules of Civil Procedure — pursuant to
which Horvath can be said to have alleged a material
misrepresentation by Keystone upon which she relied to her
detriment.7
6. See footnote 2 supra.
7. Indeed, nowhere in the complaint does Horvath use the term
“misrepresent” or any variation thereof. Instead, the primary basis for
her assertion that her complaint may be read to state a
misrepresentation-based breach of fiduciary duty claim is her allegation
that the plan documents distributed by Keystone “uniformly represent or
imply that the primary care physician’s gatekeeper function will be
exercised by each primary care physician on the basis of that physician’s
independent medical judgment, and that the medical care recommended
or prescribed for each member by that member’s primary care physician
will be consistent with his or her physician’s independent medical
judgment.” Specifically, she argues that, in light of her accompanying
assertion that the existence of financial incentives may potentially cause
physicians to prescribe less care than called for by their independent
professional judgment, the representation described above must be false.
15
Accordingly, having carefully reviewed the complaint, we
conclude that the breach of fiduciary duty claim presented
to the District Court was premised on Keystone’s alleged
failure to disclose material information. If Horvath desired
to change her theory of the case subsequent to her initial
filing, she could have sought leave to amend her complaint,
which is liberally granted when appropriate. See In re Paoli
R.R. Yard PCB Litig., 916 F.2d 829, 863 (3d Cir. 1990)
(citing Fed. R. Civ. P. 15(a)). Having failed to do so, she will
not now be heard to argue that the District Court erred by
ruling on the only claim properly before it.8
We disagree. Contrary to Horvath’s assertion, the mere existence of
financial incentives does not, ipso facto, render false Keystone’s
representation that its physicians will recommend treatment that is
consistent with their independent medical judgment. Cf. Pegram, 530
U.S. at 219, 120 S. Ct. at 2149 (noting that a physician’s “professional
obligation to provide covered services with a reasonable degree of skill
and judgment in the patient’s interest” serves as a check on the
influence of financial incentives). Accordingly, the incompatibility
between the existence of financial incentives and the rendering of
competent medical care, suggested by Horvath, has not been
demonstrated.
Furthermore, because this case comes to us on her appeal of the
District Court’s grant of summary judgment to Keystone, Horvath must
prove not only that she has successfully stated a misrepresentation-
based claim for breach of fiduciary duty, but also that there is sufficient
evidence to create a triable issue as to this claim. She has clearly failed
to do so. See Horvath, 2002 WL 265023, at *6 (noting the lack of support
for Horvath’s assertions “that physician incentives cause doctors to
prescribe less care than is medically necessary,” or “that physicians’
financial interests eclipse their professional obligation to provide
competent care or causes physicians to abandon their independent
medical judgment, forego directing patients to specialists or fail to
prescribe medical[ly] necessary treatments, tests or hospitalizations, for
the purpose of receiving a larger bonus payment from their managed
health care organization”). We therefore reject Horvath’s argument that
the juxtaposition of independent medical judgment and financial
incentives, as stated in her complaint, provides sufficient support for a
claim that Keystone breached its fiduciary duty by making a material
misrepresentation.
8. In light of this conclusion, our analysis of Horvath’s claim is not, as
she contends, governed by Varity Corp. v. Howe, 516 U.S. 489, 116 S.
16
E. Duty of Disclosure Under ERISA
We turn now to the issue at the core of the District
Court’s summary judgment decision, the question whether
ERISA required Keystone to disclose the details of its
physician incentive structure under the facts of this case.
In concluding that no such duty exists, the District Court
relied primarily upon our decisions in Bixler v. Central Pa.
Teamsters Health & Welfare Fund, 12 F.3d 1292 (3d Cir.
1993), Glaziers & Glassworkers Union Local No. 252
Annuity Fund v. Newbridge Sec., Inc., 93 F.3d 1171 (3d Cir.
1996), and Jordan v. Federal Express Corp., 116 F.3d 1005(3d Cir. 1997), all of which address the extent to which the
fiduciary duty requirements contained in ERISA § 404 may
affect an ERISA fiduciary’s disclosure responsibilities.
In Bixler, we recognized the existence of an individual
cause of action for breach of fiduciary duty under ERISA.
Lucinda Bixler, the widow of an ERISA plan beneficiary,
sought recovery of her late husband’s medical expenses and
death benefits. 12 F.3d at 1296. Specifically, she alleged
that both her husband’s employer and the fund
administering his plan made material misrepresentations
that led her to elect not to renew her family’s healthcare
coverage pursuant to the Consolidated Omnibus Budget
Reconciliation Act (COBRA), 29 U.S.C. §§ 1161-1168. Id.The District Court granted summary judgment to both
defendants based on its belief that ERISA did not permit
individuals to assert claims for breach of fiduciary duty.
We reversed, holding that § 404(a), which details the
duties of fiduciaries, must be read in conjunction with
§ 502(a)(3), which “authorizes the award of ‘appropriate
equitable relief ’ directly to a participant or beneficiary to
redress any act or practice which violates the provisions of
ERISA.” 12 F.3d at 1299. We concluded that Lucinda
Bixler’s requests for information, coupled with the
fiduciary’s understanding of her status and situation,
Ct. 1065, 134 L. Ed.2d 130 (1996). The Supreme Court’s opinion in that
case dealt primarily with the issue of misrepresentation, and expressly
declined to address “the question whether ERISA fiduciaries have any
fiduciary duty to disclose truthful information on their own initiative, or
in response to employee inquiries.” Id. at 506, 116 S. Ct. at 1075.
17
imposed a duty to accurately convey all information
relevant to her circumstances. Id. at 1300 (citing Eddy v.
Colonial Life Ins. Co., 919 F.2d 747 (D.C. Cir. 1990)).
In Glaziers, we noted that a request for information by a
beneficiary, such as the one that occurred in Bixler, is not
a “condition precedent” to the imposition of a fiduciary duty
to disclose under ERISA. 93 F.3d at 1181. Rather, we
concluded that, in certain circumstances, the knowledge of
the fiduciary may give rise to such a duty even in the
absence of a specific request by the beneficiary because
“absent such information, the beneficiary may have no
reason to suspect that it should make inquiry into what
may appear to be a routine matter.” Id. The defendant in
Glaziers was a brokerage firm which failed to disclose to
plaintiffs that the broker managing their funds resigned
from the firm under questionable circumstances. Plaintiffs
subsequently transferred their accounts to a new firm
established by the departing broker, who later stole a
substantial amount of money from them. Plaintiffs then
sought recovery from the defendant brokerage firm on the
basis of its failure to disclose the circumstances
surrounding the broker’s departure.
We held that a fiduciary has a legal duty to disclose to
the beneficiary those material facts, known to the fiduciary
but unknown to the beneficiary, which the beneficiary must
know for its own protection. Id. at 1182.
Finally, in Jordan, we applied the definition of
materiality, utilized in our misrepresentation cases, to a
claim for failure to disclose under § 404. We concluded that
such a failure was material “if ‘there is a substantial
likelihood that it would mislead a reasonable employee in
making an adequately informed retirement decision.’ ”
Jordan, 116 F.3d at 1015-16 (quoting In re Unisys Corp.
Retiree Med. Benefit “ERISA” Litig., 57 F.3d 1255, 1264
n.18 (3d Cir. 1995)). In Jordan, the plaintiff claimed a
breach of fiduciary duty based on his employer’s failure to
disclose to plaintiff that his decision to designate his wife as
joint annuitant on his retirement plan would become
irrevocable once he retired. Although the plaintiff failed to
inquire as to this issue, we held this failure excusable in
light of the fact that plaintiff had previously been permitted
18
to change his retirement plan options freely and had
received a letter discussing his retirement options which
expressly stated that he would be permitted to revoke his
pension plan election following retirement but failed to
disclose his inability to similarly alter his annuity election.
Id. at 1017.
In applying these decisions to the case at bar, the District
Court concluded that Horvath failed to create any issues of
material fact with respect to her claim because (1) she
failed to request the information Keystone offered to make
available regarding its methods of physician compensation,
see Bixler; (2) there was no set of circumstances pursuant
to which Keystone should have known that such
information was necessary to prevent Horvath from making
a harmful decision regarding her healthcare coverage, see
Glaziers; and (3) she failed to explain how the information
at issue was material in light of the fact that her employer
offers no other options for healthcare coverage, see Jordan.
We agree with this analysis. Further, we note, as the
District Court did, that Horvath’s claim is indistinguishable
from the one rejected by the Fifth Circuit Court of Appeals
in Ehlmann v. Kaiser Found. Health Plan of Tex., 198 F.3d
552 (5th Cir.), cert. dismissed, 530 U.S. 1291 (2000), where
it declined to add physicians’ reimbursement plans to the
list of specific disclosure requirements already included in
ERISA by Congress.9 Moreover, to the extent that our
9. We note that several district courts have employed similar logic in
dispensing with the type of claim asserted here. See, e.g., In re Managed
Care Litig., 150 F. Supp.2d 1330, 1356 & n.22 (S.D. Fla. 2001) (finding
no duty to disclose financial incentives because applicable case law does
not require such disclosure “absent a request for information or special
circumstances”); Weiss v. Cigna Healthcare, Inc., 972 F. Supp. 748, 754
(S.D.N.Y. 1997) (“Had Congress seen fit to require the affirmative
disclosure of physician compensation arrangements, it could certainly
have done so in ERISA §§ 101-111. The general fiduciary obligations set
forth in ERISA § 404 do not refer to the disclosure of information to Plan
participants, and it would be inappropriate to infer an unlimited
disclosure obligation on the basis of general provisions that say nothing
about such duties.”) (internal citations and quotations omitted); see also
Peterson v. Connecticut Gen. Life Ins. Co., No. CIV. A. 00-CV-605, 2000
WL 1708787, at *7 & n.5 (E.D. Pa. Nov. 15, 2000) (discussing Shea and
Ehlmann, and refusing to impose a blanket duty to disclose physician
incentives in the absence of clear direction from this Court).
19
conclusion is inconsistent with the position taken by the
Eighth Circuit Court of Appeals in Shea v. Esensten, 107
F.3d 625 (8th Cir. 1997), we are not bound by Shea.10
In conclusion, therefore, we hold that ERISA imposes no
duty on Keystone to disclose information regarding its
physician incentives absent a request for such information
by Horvath, absent circumstances which put Keystone on
notice that Horvath needed such information to prevent her
from making a harmful decision with respect to her
healthcare coverage, and absent any evidence that Horvath
was harmed as a result of not having such information
disclosed to her.11 Horvath’s claim therefore fails as a
matter of law.
10. In Shea, the plaintiff was the widow of Patrick Shea, an ERISA plan
beneficiary who previously had been hospitalized with severe chest
pains. Id. at 626-27. He later visited his HMO physician after again
experiencing indications of heart trouble. Id. at 626. Even after Shea
disclosed his family’s history of heart disease and offered to personally
pay for a visit to a cardiologist, the HMO physician sent him home
without referring him to a specialist, and without disclosing the
existence of a physician incentive structure that discouraged such
referrals. Shea died shortly thereafter as a result of heart failure. Id.Citing our requirement that a fiduciary must speak if it “knows that
silence might be harmful,” Bixler, 12 F.3d at 1300, the court held that
a duty to disclose the existence of the physician incentives was triggered
under the circumstances of that case. 107 F.3d at 629. But see footnote
11 infra.
11. Horvath’s primary concern — that the existence of financial
incentives might harm plan members by causing some physicians to
place their own self-interest above their professional obligation to provide
competent healthcare — does not mandate disclosure here. We note,
however, that our ruling in no way leaves plan members, who have
suffered harm, without a remedy. The Supreme Court’s decision in
Pegram would in no way preclude a claim by an HMO patient that the
existence of financial incentives caused inadequate medical care to be
provided, resulting in injury to the patient. “Treatment” or “quality of
care” decisions are not preempted by ERISA and therefore could be
brought as a state court medical malpractice action. See Pryzbowski v.
U.S. Healthcare, Inc., 245 F.3d 266, 273 (3d Cir. 2001); Lazorko v.
Pennsylvania Hosp., 237 F.3d 242, 249-51 (3d Cir. 2000), cert. denied,
533 U.S. 930, 121 S. Ct. 2552, 150 L. Ed.2d 719.
20
V. Conclusion
For the reasons stated above, we will affirm the final
judgment of the District Court.
A True Copy:
Teste:
Clerk of the United States Court of Appeals
for the Third Circuit