1 See, e.g., Mertens v. Hewitt Assocs., 508 U.S. 248, 260 (1993) (reading statutory provisions narrowly to allow only very limited remedies against MCOs); Reinert v. Giorgio Foods, Inc., 15 F. Supp. 2d 589, 595 (E.D. Pa. 1998) (employing very deferential review of a decision to deny benefits and an interpretation of plan terms); Weiss v. Cigna Healthcare, Inc., 972 F. Supp. 748 (S.D.N.Y. 1997). See generally Peter D. Jacobson & Scott D. Pomfret, Establishing New Legal Doctrine in Managed Care: A Model of Judicial Response to Industrial Change, 32 U. Mich. J.L. Reform 813, 844-50 (1999) (describing courts’ willingness to defer or grant immunity to MCOs in various contexts).

2 See, e.g., Andrews-Clarke v. Travelers Ins. Co., 984 F. Supp. 49, 52-53 (D. Mass. 1997); Pomeroy v. Johns Hopkins Med. Servs., Inc., 868 F. Supp. 110, 116-17 (D. Md. 1994). The lower court in Pegram adopted such a view. See Herdrich v. Pegram, 154 F.3d 362, 375-78 (7th Cir. 1998), rev’d, 530 U.S. 211 (2000).

3 See generally Richard A. Epstein, Mortal Peril: our Inalienable Right to Health Care? (1997); Clark C. Havighurst, Health Care Choices: Private Contracts as Instruments of Health Reform (1995) (discussing the application of contract law); Danzon, Patricia M., Tort Liability: A Minefield for Managed Care?, 26 J. Legal Stud. 491 (1997)CrossRefGoogle Scholar; Havighurst, Clark C., Making Health Plans Accountable for the Quality of Care, 31 GA. L. REV. 587 (1997)Google Scholar; Patil, Peter D. Jacobson & Neena M., Managed Care Litigation: Legal Doctrine at the Boundary of Tort and Contract, 57 Med. Care Res. & REV. 440 (2000)Google Scholar (discussing the tort-contract debate). For alternative views, see generally Atiyah, P.S., Medical Malpractice and the Contract/Tort Boundary, 49 Law & Contemp. Probs. 287 (1986)CrossRefGoogle ScholarPubMed; Ginsburg, Catherine G. McLaughlin & Paul B., Competition, Quality of Care, and the Role of the Consumer, 76 Milbank Q. 737 (1998)Google Scholar.

4 29 U.S.C. §§ 1001-1461 (1994).

5 Estimates differ as to the number of patients enrolled in MCOs governed by ERISA, but it is clear that the number is substantial. See, e.g., Hutchinson, Heather, The Managed Care Plan Accountability Act, 32 Ind. L. REV. 1383, 1385 (1999)Google Scholar (“Today, over forty-five million Americans are enrolled in MCOs and ERISA governs the majority of those plans.”) (citing Harshbarger, Laura H., Note, ERISA Preemption Meets the Age of Managed Care: Toward a Comprehensive Social Policy, 47 SYRACUSE L. REV. 191, 192 (1996)Google Scholar); Krause, Joan H., The Brief Life of the Gag Clause: Why Anti-Gag Clause Legislation Isn’t Enough, 67 TENN. L. REV. 1, 18 (1999)Google Scholar (referring to “the approximately fifty- one million Americans whose health plans are governed by ERISA”); Little, John P., Note, Managed Care Contracts of Adhesion: Terminating the Doctor-Patient Relationship and Endangering Patient Health, 49 RUTGERS L. REV. 1397, 1468 n.467 (1997)Google Scholar (“One hundred twenty million people are enrolled in MCOs that are covered by ERISA.”) (citing Robert Pear, H.M.O.s Using Federal Law to Deflect Malpractice Suits, N.Y. TIMES, Nov. 17, 1996, at A24).

6 530 U.S. 211 (2000).

7 For discussion of the background facts provided in this paragraph and the following paragraph, see generally Pegram, 530 U.S. at 215-17 (providing a detailed description of the facts and the procedural history of the case); Herdrich v. Pegram, 154 F.3d 362, 365 n.1-367 (7th Cir. 1998) (describing the events that led Herdrich to file a suit alleging professional medical negligence).

8 Pegram, 154 F.3d at 380.

9 See id. (Flaum, J., dissenting).

10 See Herdrich v. Pegram, 170 F.3d 683 (7th Cir. 1999) (Easterbrook, J., dissenting from denial of rehearing en banc).

11 Pegram v. Herdrich, 527 U.S. 1068 (1999).

12 Pegram v. Herdrich, 527 U.S. 211 (2000).

13 HMO stands for “health maintenance organization,” a term that refers to a type of MCO, but is often used synonymously with the term “MCO.”

14 Pegram, 530 U.S. at 221.

15 Id. at 222.

16 See 29 U.S.C. § 1002(21 )(A)(iii) (1994).

17 29 U.S.C. § 1104(a)(1) (1994).

18 See, e.g., Cent. States, S.E. & S.W. Areas Pension Fund v. Cent. Transp., Inc., 472 U.S. 559, 570 (1985) (“[RJather than explicitly enumerating all of the powers and duties of trustees and other fiduciaries, Congress invoked the common law of trusts to define the general scope of their authority and responsibility.”).

19 Pegram, 530 U.S. at 225.

20 29 U.S.C. § 1002(21)(A).

21 Pegram, 530 U.S. at 226.

22 For this reason, as the opinion notes, Herdrich’s claim “could have been brought, and would have been no different, if Herdrich had never had a sick day in her life.” Id.

23 Id. at 231.

24 See Cahill, Peter D. Jacobson & Michael T., Applying Fiduciary Duties in the Managed Care Context, 26 Am. J.L. & Med. 155 (2000)Google Scholar.

25 See id. at 163 (“To date, courts have not defined the meaning of ERISA’s fiduciary duty provision.”); id. at 171 (“[The Jacobson & Cahill model] may usefully describe the proper implications of ERISA’s undefined imposition of a fiduciary role on plan administrators.”).

26 Recovery under ERISA is usually limited to restoring the dollar value of the benefits denied under the plan—say, the actual price of a procedure that a patient did not receive—whereas state-law tort damages may include awards for various costs and damages resulting from the patient’s failure to obtain care in a timely fashion. See, e.g., Arnold J. Rosoff, Breach of Fiduciary Duty Lawsuits Against MCOs: What’s Left After Pegram v. Herdrich?, 22 J. LEGAL MED. 55, 61-62 (2001).

27 See Pegram, 530 U.S. at 232 (“First, we need to ask how this fiduciary standard would affect HMOs if it applied as Herdrich claims it should be applied, not directed against any particular mixed decision that injured a patient, but against HMOs that make mixed decisions in the course of providing medical care for profit.”).

28 This is one of the central problems with the myriad class-action lawsuits now being filed against the managed care industry. Some of these suits, such as Maio v. Aetna, Inc., 221 F.3d 472 (3d Cir. 2000), generally allege fraud in the operation of managed care without providing specific instances of how the fraud actually undermines healthcare delivery. Courts have not been amenable to allowing such unspecified challenges to proceed. See id. (affirming dismissal of complaint).

29 Restatement (Third) of the Law Governing Lawyers § 16 (1998).

31 29 U.S.C. § 1002(21)(A)(iii).

32 Pegram, 530 U.S. at 228.

33 Id. at 228.

34 See id. at 228-29.

35 See id. at 230-31.

36 Even under a deferential “arbitrary and capricious” standard of review, courts will not allow an administrator to violate a plan’s plain terms. See, e.g., Yochum v. Barnett Banks, Inc. Severance Pay Plan, 234 F.3d 541, 547 (11th Cir. 2000) (“The denial of Yochum’s claim based on false and incomplete information was arbitrary and capricious, in that the plain language of the [p]lan and the [ajgreement were violated.”); Swaback v. Am. Info. Techs. Corp., 103 F.3d 535, 540 n.9 (7th Cir. 1996) (“We previously have concluded that, if fiduciaries or administrators of an ERISA plan controvert the plain meaning of a plan, their actions are arbitrary and capricious.”). Accordingly, where the plan’s plain language makes clear the proper decision, the standard of review becomes immaterial. See Davolt v. Executive Comm, of O’Reilly Auto., 206 F.3d 806, 809-10 (8th Cir. 2000) (holding that plan administrator properly denied coverage under plan’s plain language regardless of whether decision was reviewed de novo or according to “sliding scale”); Dunnigan v. Metro. Life Ins. Co., 99 F. Supp. 2d 307, 316 (S.D.N.Y. 2000) (“In light of Bruch, it is likely that the deferential arbitrary and capricious standard of review is applicable here. However, I decline to reach this issue because under either standard—arbitrary and capricious or de novo—plaintiff is not entitled to interest on delayed benefits under the plain and unambiguous terms of the Plan.”). See also Anderson v. Trumbull-Mahoning Med. Group, Inc., No. 99-3510, 2000 WL 331943, at *2 (6th Cir. Mar. 22, 2000).

Id. (internal citations omitted).

37 Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101, 115 (1989). Without such explicit authorization, the fiduciary would have no “discretion” to interpret the plan’s terms, as a reviewing court would examine the interpretive question de novo:

Id. at 112.

38 See, e.g., Jenkins v. Montgomery Indus., Inc., 77 F.3d 740, 743 (4th Cir. 1996) (“Federal courts interpret ERISA regulated benefit plans without deferring to either party’s interpretation, by ‘using ordinary principles of contract law and enforcing the plan’s plain language in its ordinary sense.’”) (internal citations omitted) (quoting Bailey v. Blue Cross & Blue Shield of Va., 67 F.3d 53,

39 (4th Cir. 1995)); Kiefer v. Ceridian Corp., 976 F. Supp. 829, 848 (D. Minn. 1997) (“Because the administrator acted contrary to the plain meaning of the unambiguous language of the Plan, this Court will not defer to the administrator’s interpretation.”); Sigmund Cohn Corp. v. Dist. No. 15 Machinists Pension Fund, 804 F. Supp. 490, 494 (E.D.N.Y. 1992) (“Although a fund’s interpretation of its own pension agreement deserves some deference, such construction must abide by the plain meaning of the plan’s terms. An application of the plan’s provisions that conflicts with its unambiguous meaning must be considered unreasonable and not entitled to any deference.”) (citation omitted); cf. Sim v. N.Y. Mailers’ Union No. 6, 166 F.3d 465, 470 (2d Cir. 1999) (noting that great deference ordinarily is given to unions’ interpretations of their own constitutions, but pointing out that “courts will ignore interpretations made by union officials which run adverse to the plain meaning of contract language”).

40 Id. at 224-25.

41 See, e.g., id. at 224 (citing Cent. States, S.E. & S.W. Areas Pension Fund v. Cent. Transp., Inc., 472 U.S. 559, 570 (1985)); Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101, 110-11 (1989).

42 See Cent. States, All U.S. at 570 (“[RJather than explicitly enumerating all of the powers and duties of trustees and other fiduciaries, Congress invoked the common law of trusts to define the general scope of their authority and responsibility.”) (second and third set of emphases added).

43 516 U.S. 489(1996).

44 Arguably, even Varity’s reading of what acts are fiduciary under ERISA was overly narrow because like Pegram, Varity treated the terms “fiduciary” and “trustee” as coextensive for ERISA purposes. See id. It is true that all trustees are fiduciaries. See Restatement (Third) of Trusts § 2 (Tentative Draft No. 1, 1996) (defining “trust” as a fiduciary relationship). For this reason, the Court’s earlier cases were correct in finding it useful to look to trust law for descriptions of the duties to which a trustee is subject. However, not all fiduciaries are trustees; the law defines various relationships as “fiduciary” in nature. See Freedman, Robert Cooter & Bradley J., The Fiduciary Relationship: Its Economic Character and Legal Consequences, 66 N.Y.U. L. Rev. 1045, 1046 (1991)Google Scholar (“Familiar forms of fiduciary relationships include trustee-beneficiary, agent-principal, corporate director/officer- corporation, and partner-partnership, although courts have emphasized that these categories are not exclusive.”). For example, attorneys have fiduciary duties to their clients, and agents have fiduciary duties to their principals. See Restatement (Third) of Agency § 1.01 (Tentative Draft No. 2, 2000) (defining agency as a fiduciary relationship); Restatement (Third) of the Law Governing Lawyers § 16 cmt. b (1998) (describing lawyer as a fiduciary and specifying duties of a lawyer to a client); Restatement (Third) of the Law Governing Lawyers § 49 (1998) (discussing client’s cause of action against lawyer for breach of fiduciary duty). The conduct of such other fiduciaries in the fulfillment of their duties may vary greatly from the acts trustees perform on behalf of their beneficiaries. For this reason, it is incorrect to define the universe of fiduciary acts by looking only to things a trustee does or may do, while ignoring the fiduciary activities of, say, lawyers or agents—or doctors.

45 Varity, 516 U.S. at 502.

46 id. (quoting 3 Austin W. Scott & William F. Fratcher, the Law of Trusts § 186, at 6 (4th ed. 1988)).

47 Id. at 504 (quoting George G. Bogert & George T. Bogert, the Law of Trusts and Trustees § 551 at 41-52 (rev. 2d ed. 1992)).

48 Pegram, 530 U.S. at 231-32.

49 Id. at 231.

50 Id. at 231-32.

52 See Pegram, 530 U.S. at 232.

53 See supra text accompanying notes 27-28.

54 See Pegram, 530 U.S. at 233 (“[Herdrich’s] remedy in effect would be nothing less than elimination of the for-profit HMO.”).

55 See id. at 234 (“Nor would it be possible to translate fiduciary duty into a standard that would allow recovery from an HMO whenever a mixed decision influenced by the HMO’s financial incentive resulted in a bad outcome for the patient.”).

56 See id. at 235 (“Thus, for all practical purposes, every claim of fiduciary breach by an HMO physician making a mixed decision would boil down to a malpractice claim, and the fiduciary standard would be nothing but the malpractice standard traditionally applied in actions against physicians.”).

57 See generally Jacobson & Cahill, supra note 24.

58 See Pegram, 530 U.S. at 235 (“[Tjhe formulaic addition of an allegation of financial incentive would do nothing but bring the same [state-law malpractice] claim into a federal court under federal-question jurisdiction.”).

59 See also infra note 72 and accompanying text (noting distinction between reach of causes of action for malpractice and breach of fiduciary duty).

60 Nor would our model supplant existing remedies; rather, it would complement them so that a plaintiff might pursue both a malpractice claim and a claim for breach of fiduciary duty under certain circumstances. Further, our reading of ERISA to allow a claim for breach of fiduciary duty would not automatically entail the conclusion that ERISA preempts similar state-law claims. Plaintiffs might be able, under our view, to bring such claims under both ERISA and state law. Cf Mackey v. Lanier Collection Agency & Serv., Inc., 486 U.S. 825, 833 (1988) (noting that both ERISA claims and state- law claims may be brought against ERISA plans); LeBIanc v. Cahill, 153 F.3d 134, 147 (4th Cir. 1998) (allowing plaintiff to bring ERISA claim and holding that state-law fraud claim based on same alleged misconduct is not preempted).

62 See supra note 15 and accompanying text (noting the Supreme Court’s recognition that the judiciary is not institutionally competent to evaluate the quality of HMOs).

63 See generally AM. JUR. 2D Administrative Law § 85 (1994) (stating that deference should generally be accorded to administrative agency interpretation).

64 Pegram, 530 U.S. at 221-22 (internal quotations and citations omitted).

65 See Marc A. Rodwin, Conflicts in Managed Care, 332 New Eng. J. Med. 604, 605 (1995) (stating that under managed care, physicians have an incentive to reduce services even when it is in the patient’s best interest to receive them and the physicians’ responsibility as fiduciaries to provide them).

66 See Gregg Bloche, M., Clinical Loyalties and the Social Purposes of Medicine, 281 JAMA 268, 269 (1999)CrossRefGoogle Scholar (noting that physicians owe their patients a duty of loyalty and advocacy when insurers try to avoid paying for care that physicians deem necessary).

67 As one of the present authors has written:

Gregg Bloche, M. & Jacobson, Peter D., The Supreme Court and Bedside Rationing, 284 JAMA 2776, 2778 (2000)CrossRefGoogle Scholar.

68 See Cooter & Freedman, supra note 44, at 1046 (noting that “courts have emphasized that [the standard fiduciary] categories are not exclusive”).

69 See Bloche & Jacobson, supra note 67, at 2779.

70 For a more thorough discussion of the benefits of this approach, see Jacobson & Cahill, supra note 24, at 170-72.

71 See Mechanic, David, The Functions and Limitations of Trust in the Provision of Medical Care, 23 J. Health Pol., POL’Y & L. 661 (1998)CrossRefGoogle ScholarPubMed; Bloche, supra note 66, at 272 (discussing mediation principles that focus on patient trust).

72 See Thomas R. McLean & Edward P. Richards, Managed Care Liability for Breach of Fiduciary Duty After Pegram v. Herdrich: The End of ERISA Preemption for State Law Liability for Medical Care Decision Making, 53 FLA. L. REV. 1, 40-44 (2001) (discussing significant treatment decisions made by MCO medical directors and the difficulty of contesting such decisions via traditional malpractice theories).

73 724 N.Y.S.2d3 (App. Div. 2001).

74 See id. at 14 (Saxe, J., dissenting in part) (stating that plaintiffs’ claims arise from a failure to disclose “important characteristics of the plan”).

75 See id. at 5.

76 Id. at 11-12 (Saxe, J., dissenting in part) (citing statutes and cases from California, Rhode Island, Wisconsin, Arkansas, Oklahoma, Florida and Pennsylvania).

77 Id. at 12-13 (Saxe, J., dissenting in part).

78 See id. at 13 (Saxe, J., dissenting in part) (citing, inter alia, Lee R. Russ & Thomas F. Segalla, Couch on Insurance 3D § 198:7, at 198-14 (1997), and 7C John A. Appleman, Insurance Law and Practice § 4711 at 378, § 4712 at 448 (Walter F. Berdal rev. ed. 1979)).

79 See id. at 14 (Saxe, J., dissenting in part) (quoting Pegram, 530 U.S. at 227 n.8).

80 Id. at 15 (Saxe, J., dissenting in part).

81 Also possible, but less viable, is the argument that Pegram should be limited to its facts, as a case involving only a blanket challenge to an alleged “inherent” breach of fiduciary duty, rather than a challenge to specific treatment decisions. This argument is, to say the least, a stretch, as it seems clear that the Court’s opinion aims to deal comprehensively with the treatment of mixed decisions by physicians (and possibly others) under ERISA.

82 See Batas, 724 N.Y.S.2d at 8-16 (Saxe, J., dissenting in part).

83 See Pappas v. Asbel, 724 A.2d 889 (Pa. 1998), vacated by United States Healthcare Sys. of Pa., Inc. v. Pa. Hosp. Ins. Co., 530 U.S. 1241, 1241 (2000), remanded sub nom. Pappas v. Asbel, 768 A. 2d 1089 (Pa. 2001) (reconsidering case in light of Pegram).

84 See Pappas v. Asbel, 768 A.2d 1089, 1095 (Pa. 2001) (“Pegram instructs that an HMO’s mixed…decision implicates a state law claim for medical malpractice, not an ERISA cause of action for fiduciary breach. Thus, if [a third party claim arises] out of a mixed decision, it is, according to Pegram, subject to state medical malpractice law.…Moreover… it is not preempted by ERISA.”).

85 See, e.g., McLean & Richards, supra note 72, at 4 (“It is the premise of this Article that in its holding, the Pegram Court also removed the preemption bar to state law claims for medical malpractice and breach of state fiduciary law. Paradoxically then, although the defendant HMO in Pegram won, the managed care industry lost.”).

86 See Corp. Health Ins., Inc. v. Tex. Dept, of Ins., 220 F.3d 641, 643 (5th Cir. 2000); see also Schusteric v. United Healthcare Ins. Co. of 111., No. 00-C-4156, 2000 WL 1263581, at *2 (N.D. 111. Sept. 5, 2000) (“Pegram’s discussion of whether the plaintiff could state a claim for breach of fiduciary duty under ERISA § 1109 says nothing about whether a negligence claim of the type alleged in this case is completely preempted by § 502(a) [of ERISA, 29 U.S.C. § 1132(a)].”); cf. Pappas, 768 A.2d at 1097 (Saylor, J., dissenting) (“I agree with the majority that nothing in Pegram II requires a full reversal of its prior disposition [allowing a state-law claim to go forward].”).

87 But cf. Corporate Health Ins., 220 F.3d at 643 n.6 (“It may be that state causes of action persist [after Pegram] only for actions based in some part on malpractice committed by treating physicians. If so, state causes of actions against HMOs for the decisions of their utilization review agents would still be preempted …”); Pappas, 768 A.2d at 1096 n.7 (characterizing dissent of Saylor, J., as arguing that “ERISA invariably preempts a state law claim for medical malpractice arising out of an HMO’s mixed eligibility and treatment decision”).

88 Other discussions have thoroughly addressed potential legislative alternatives. See, e.g., Hyman, David A., Regulating Managed Care: What’s Wrong With a Patient Bill of Rights, 73 S. Cal. L. Rev. 221 (2000)Google ScholarPubMed; Jacobson & Pomfret, supra note 1; Jordan, Karen A., Coverage Denials in ERISA Plans: Assessing the Federal Legislative Solution, 65 Mo. L. Rev. 405 (2000)Google Scholar; Sullivan, June M., Overcoming the ERISA Barrier to Recovery Against HMOs: Current Trends and Legislation, 4 Quinnipiac Health L.J. 245 (2001)Google Scholar.

89 For example, the House version of the “Patient’s Bill of Rights” in 1999 would have capped treating physicians’ financial risk-bearing and prohibited physicians from receiving payments “as an inducement to reduce or limit medically necessary services.” 42 U.S.C.A. § 1395mm(i)(8)(A)(i) (West Supp. 2001) (Medicare provision cross-referenced in proposed Bipartisan Consensus Managed Care Improvement Act of 1999, H.R. 2990, 106th Cong. § 1133 (1999)). We offer no position as to the merits of this specific proposal, but provide it as an indication of Congress’s capacity to enact restrictions of this type.

90 Cf. Bloche & Jacobson, supra note 67, at 2776 (2000) (“Although the Justices embraced rationing as national policy and construed federal law to permit financial rewards to physicians for limiting care, ambiguous language in Pegram invites litigants to argue that state law can impose myriad constraints on medical cost control programs.”) (emphasis added).

91 See Ins. Corp. of Ireland v. Compagnie des Bauxites de Guinee, 456 U.S. 694, 702 (1982) (“[N]o action of the parties can confer subject-matter jurisdiction upon a federal court.”). Moreover, adding language explicitly stating that mixed decisions involve “administration of the Plan” or some other such reference to ERISA’s language is similarly unlikely to create a fiduciary duty under ERISA. See Mabe v. G.C. Servs. Ltd. P’ship, 32 F.3d 86, 88 n.2 (4th Cir. 1994) (“A private contract cannot create federal question jurisdiction simply by reciting a federal statutory standard.”); Oliver v. Trunkline Gas Co., 796 F.2d 86, 89-90 (5th Cir. 1986) (“We are aware of no case in which any court, let alone the Supreme Court, has held that a private contract can give rise to federal-question jurisdiction simply by ‘incorporating’ some federal regulatory standard that would not have been binding on the parties by its own force.”).

92 Bergthold, Sara J. Singer & Linda A., Prospects for Improved Decision Making About Medical Necessity, HEALTH AFF., Jan./Feb. 2001Google Scholar, at 200, 204.

93 Id.

94 See, e.g., Kinney, Eleanor D., Tapping and Resolving Consumer Concerns About Health Care, 26 Am. J.L. & Med. 335, 352 (2000)Google ScholarPubMed (noting that complaints and disputes are often resolved more quickly through independent grievance review).