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WEISS v. CIGNA HEALTHCARE

July 22, 1997

MICHELLE WEISS, on her own behalf and on behalf of all others similarly situated, Plaintiff, against CIGNA HEALTHCARE, INC. and CIGNA HEALTHCARE OF NEW YORK, INC., Defendants.


The opinion of the court was delivered by: STEIN

 SIDNEY H. STEIN, District Judge:

 Michelle Weiss has brought this putative class action seeking declaratory and injunctive relief pursuant to the Employee Retirement Security Income Act of 1974 ("ERISA"), 29 U.S.C. § 1001 et seq.. Weiss is a participant in an employee welfare benefit plan (the "Plan") offered and subsidized by her employer. (Complaint at P 14.) Defendant CIGNA Healthcare of New York, Inc. ("CHC") is a health maintenance organization ("HMO") retained by Weiss's employer to provide health insurance coverage pursuant to the Plan. Defendant CIGNA Healthcare, Inc., is CHC's corporate parent and is alleged to control the policies and practices of its subsidiary. (Compl. at P 18.) The two defendants are referred to collectively in this Opinion as "CIGNA."

 Weiss alleges that CIGNA has breached the express and implied terms of the Plan as well as various fiduciary duties required under ERISA and seeks redress pursuant to the civil enforcement provisions set forth in ERISA § 502(a), 29 U.S.C. § 1132(a). CIGNA has moved for an order dismissing the complaint pursuant to Fed. R. Civ. P. 12(b)(6). In its consideration of defendants' motion to dismiss, this court must assess the legal feasibility of Weiss's complaint, not weigh the evidence which might be offered at trial. See Odom v. Columbia University, 906 F. Supp. 188, 193 (S.D.N.Y. 1995). The motion should not be granted "unless it appears beyond doubt that the plaintiff can prove no set of facts in support of [her] claim which would entitle [her] to relief." Cohen v. Koenig, 25 F.3d 1168, 1172 (2d Cir. 1994). Accordingly, all factual allegations in the complaint are accepted as true, and the complaint is viewed in the light most favorable to plaintiff. See Jackson Nat'l Life Ins. Co. v. Merrill Lynch & Co., 32 F.3d 697, 699 (2d Cir. 1994).

 A. Weiss's Fiduciary Duty Claim Regarding CIGNA's Alleged "Gag Order" Policy

 Defendants' motion to dismiss is GRANTED in PART and DENIED in PART with regard to Weiss's claim that CIGNA limits the extent to which its participating physicians may discuss medical treatments with Plan members. Weiss alleges that CIGNA engages in "an undisclosed policy" of preventing its physicians from "advising patients of treatment options which [are] not compensable by the HMO," and that it enforces this "gag-order policy" by "reprimanding or even terminating physicians who disclose that CIGNA will not cover particular forms of treatment that might be useful to the patient." (Compl. at PP 69-72; Plaintiff's Memorandum in Opposition to Motion ("Pl. Mem.") at 22.) Weiss claims that by implementing this policy, CIGNA has "breached its fiduciary obligations and has breached its implied covenant of good faith and fair dealing." (Compl. at P 78.)

 Weiss's claim for breach of an implied covenant of good faith and fair dealing is preempted by the terms of ERISA. See 29 U.S.C. § 1144(a); Tolle v. Carroll Touch, Inc., 977 F.2d 1129, 1136-37 (7th Cir. 1992); Nevill v. Shell Oil Co., 835 F.2d 209, 211-12 (9th Cir. 1987); California Digital Defined Benefit Pension Fund v. Union Bank, 705 F. Supp. 489, 490 (C.D.Cal. 1989). Accordingly, defendants' motion to dismiss is granted with regard to that claim. Defendants' motion is denied, however, with regard to Weiss's claim that CIGNA has breached its fiduciary duty. If the factual allegations set forth in the Complaint are accepted as true -- as they must be at this stage in the proceedings -- Weiss has stated a viable claim pursuant to ERISA §§ 404(a) and 502(a)(3), 29 U.S.C. 1104(a) and 1132(a)(3).

 A person is a fiduciary of a benefit plan for the purposes of ERISA "to the extent (i) he exercises any discretionary authority or discretionary control respecting management of such plan . . . or (iii) he has any discretionary authority or discretionary responsibility in the administration of such plan." 29 U.S.C. 1002(21)(A). An HMO can be an ERISA fiduciary when it exercises such discretion. See, e.g., O'Reilly v. Ceuleers, 912 F.2d 1383, 1385 (11th Cir. 1990); Morales v. Health Plus Inc., 954 F. Supp. 464, 1997 WL 97107 at *4 (D.P.R. 1997). ERISA requires plan fiduciaries to "discharge [their] duties with respect to a plan solely in the interest of the participants and beneficiaries." ERISA § 404(a)(1), 29 U.S.C. § 1104(a)(1). Such fiduciary duties "draw much of their content from the common law of trusts," Varity Corp. v. Howe, 516 U.S. 489, 116 S. Ct. 1065, 1070, 134 L. Ed. 2d 130 (1996), and "must be enforced without compromise" to ensure that discretionary power is exercised "with an eye single to the interests of the participants and beneficiaries." John Blair Communications v. Telemundo Group, 26 F.3d 360, 367 (2d Cir. 1994) (citing Donovan v. Bierwirth, 680 F.2d 263, 271 (2d Cir. 1982)).

 CIGNA acts in a fiduciary capacity -- and therefore comes under the obligations of loyalty imposed by ERISA -- to the extent that it exercises discretionary control over the communication of medical information to Plan participants by their physicians. CIGNA's alleged policy of restricting the disclosure of non-covered treatment options would, if true, directly undermine the ability of plan participants to have unfettered access to all relevant information relating to their physical or mental condition and treatment options. *fn1" Such a policy would thereby constitute a breach of CIGNA's duty under ERISA to manage the Plan "solely in the interest of the participants." It is true that a physician has an independent duty to provide full information to his or her patients, a duty which "is not altered by limitations in the coverage provided by the patient's managed care plan." (See Council on Ethical and Judicial Affairs, American Medical Association, Ethical Issues in Managed Care, Council Report, 273 JAMA 330 (Jan. 25, 1995)). A patient therefore cannot be deprived of such information absent an ethical breach on the part of the physician. Nonetheless, CIGNA's alleged rule mandating such an ethical breach upon pain of termination would provide many physicians with no meaningful choice and would effectively limit the amount of information available to Plan participants.

 Weiss has offered thin evidence indeed, confined to hearsay submissions, to support her assertion that a "gag order" policy actually exists on the part of CIGNA. Nevertheless, she has cleared the initial hurdle of Fed. R. Civ. P. 12 and is entitled to proceed with discovery on her claim. Accordingly, defendants' motion to dismiss is denied with regard to Weiss's fiduciary duty claim arising from CIGNA's alleged "gag order" policy.

 B. Weiss's Fiduciary Duty Claim Regarding Physician Compensation

 Defendants' motion to dismiss is GRANTED with regard to plaintiff's fiduciary duty claims arising from CIGNA's alleged financial arrangements with its participating physicians. (Compl. at P 78.) Weiss contends that CIGNA pays its primary care physicians ("PCPs") pursuant to a system "designed for only one purpose -- to influence its PCPs to reduce the amount of treatment they provide to their patients or the number of referrals they make to specialists." (Pl. Mem at 7.) Specifically, the Complaint alleges that CIGNA doctors are compensated through "capitation" payments and "withholds," whereby CIGNA pays a small monthly fee per patient regardless of the amount of care actually provided and then withholds a portion of those payments "to be returned only if the doctor has sufficiently low rates of referrals to specialists." (Id.) It is further alleged that CIGNA pays financial bonuses to PCPs "who keep the referral and hospitalization rates of their patients below the average level of their peers." (Compl. a P 57.)

 Weiss asserts that these methods of payment constitute "a scheme by which [CIGNA] seeks to pressure its participating physicians to undertreat their patients in order to maximize profits" which creates a "direct conflict of interest in the exercise by the PCPs of their medical judgment," and "causes the breach of fiduciary duty owed by the participating physicians to the plaintiff and the Class Members." (Compl. at PP 38, 51, 78.) Accordingly, she claims that CIGNA has violated its fiduciary duties toward Plan participants, see ERISA § 404(a)(1), 29 U.S.C. § 1104(a)(1), and has also breached its implied covenant of good faith and fair dealing. (Compl. at P 78.)

 As a threshold matter, as with the alleged "gag order" policy discussed above, Weiss's claim for breach of the implied covenant of good faith and fair dealing is preempted by ERISA and is dismissed. 29 U.S.C. § 1144(a). Unlike in the case of the alleged "gag order" policy, however, Weiss's fiduciary duty claim is also dismissed here, on the ground that Weiss has identified no breach of any fiduciary obligation owed by CIGNA to Plan participants under ERISA. Whereas the alleged "gag order" is driven by a threat of termination and involves the potential deprivation of relevant medical information, Weiss makes no claim here that CIGNA actually coerces physicians to breach their fiduciary duties or endangers any specific rights or benefits to which participants are entitled under the terms of the Plan. CIGNA's compensation system requires physicians to weigh their economic interests against their ethical obligations to their patients; as such, it presents dangers of abuse. However, to the extent that a doctor takes advantage of financial incentives and withholds necessary care from his or her patients, that doctor's ethical breach is not attributable to CIGNA. The profit motive created by the HMO does not make such violations "inevitable," (Compl. at P 66), and indeed plaintiff has pointed ...


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