Pennsylvania Psychiatric Society v. Green Spring Health Services, Inc., et al.

The Pennsylvania Psychiatric Society sued several
managed health care organizations on behalf of its member
psychiatrists and their patients. The gravamen of its
complaint was that the managed health care organizations
impaired the quality of health care provided by
psychiatrists to their patients by refusing to authorize
necessary psychiatric treatment, excessively burdening the
reimbursement process and impeding other vital care.
The principal issue on appeal is whether the
Pennsylvania Psychiatric Society has properly pleaded
associational and third-party standing. Finding the Society
would require significant individual participation to
establish its member psychiatrists' claims, the District
Court dismissed its complaint for lack of associational
standing.1 The District Court also found the Society's
member psychiatrists lacked third-party standing to pursue
their patients' claims. As an alternative ground for
dismissal, the District Court held the mandatory arbitration
provision in the psychiatrists' contracts barred the Society
from advancing their members' claims in court.

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To discern which claims are preempted, "we embraced a distinction
between claims pertaining to the quality of the medical benefits provided
to a plan participant [that is, not preempted] and claims that the plan
participant was entitled to, but did not receive, a certain quantum of
benefits under his or her plan [that is, preempted]." In re U.S. Healthcare,
Inc., 193 F.3d 151, 162 (3d Cir. 1999) (citing Dukes v. U.S. Healthcare,
Inc., 57 F.3d 350, 357-58 (3d Cir. 1995)), cert. denied sub nom., U.S.
Healthcare, Inc. v. Bauman, 530 U.S. 1242 (2000). Explaining this
distinction in the Supreme Court's lexicon, we recently restated our
position that "challenges [to] the administration of or eligibility for
benefits [i.e., quantity] . . . fall[ ] within the scope of S 502(a) and [are]
completely preempted . . . ." Pryzbowski v. U.S. Healthcare, Inc., 245
F.3d 266, 273 (3d Cir. 2001). To this end, claims against HMO policies
that purportedly delay care "fall within the realm of the administration
of benefits." Id.

On behalf of its members' patients, the Pennsylvania Psychiatric
Society alleges the MCOs implemented policies to discourage or prevent
subscribers from using mental health services. UnderS 502(a), "[r]elief
may take the form of accrued benefits due, a declaratory judgment on
entitlement to benefits, or an injunction against a plan administrator's
improper refusal to pay benefits." Dedeaux , 481 U.S. at 53. In this case,
the relief sought involves the administration of benefits, because it would
change the quantum of mental health services provided. These
allegations fall within the scope of ERISA's civil enforcement provision,
and, therefore, removal was proper as ERISA completely preempts at
least some of the claims alleged by the Pennsylvania Psychiatric Society
on behalf of its members' patients.

II.

The Pennsylvania Psychiatric Society, a nonprofit
corporation representing licensed psychiatrists in
Pennsylvania, filed suit on behalf of its member
psychiatrists and their patients who subscribe to managed
health care plans administered by Green Spring Health
Services.

There are several defendants. Green Spring Health
Services, Inc. provides a network of psychiatrists as well as
administrative services for managed health care plans;
Magellan Health Services, Inc. is its corporate parent.
Keystone Health Plan West, Inc., Keystone Health Plan
Central, Inc., and Keystone Health Plan East, Inc. are
health maintenance organizations that contract with Green
Spring Health Services to provide mental health and
substance abuse services to their subscribers. Highmark,
Inc. is the parent company of Keystone Health Plan West
(these managed care organizations collectively are referred
to as "the MCOs"). Green Spring Health Services, Magellan
Health Services and Highmark choose which psychiatrists
to credential to provide these services.

Green Spring Health Services administers the psychiatric
and substance abuse services for the employee benefit
plans provided by the health management organizations.
For this purpose, it enters into contracts with psychiatrists
(the "Provider Agreement") to form a provider network to
service the plans. In particular, the Provider Agreement
assures that Green Spring Health Services will not
undermine the psychiatrists' responsibility to provide
patients with the mental health services they require. For
most disputes arising between credentialed psychiatrists
and Green Spring Health Services, the Provider Agreement
also contains a mandatory arbitration clause that requires
exhaustion of internal review procedures before seeking
binding arbitration.

Alleging the MCOs unfairly profit at the expense of the
psychiatrists and their patients, the Pennsylvania
Psychiatric Society asserts several tort and breach of
contract claims for impeding necessary psychiatric
treatment. The Pennsylvania Psychiatric Society contends
the MCOs refused to authorize and provide reimbursement
for medically necessary mental health treatment; interfered
with patients' care by permitting non-psychiatrists to make
psychiatric treatment decisions; violated Provider
Agreements by improperly terminating relationships with
certain psychiatrists; and breached the contractual duties
of good faith and fair dealing by failing to timely pay
psychiatrists and by referring patients to inconvenient
treatment locations, thereby depriving some patients access
to treatment.

On the basis of these allegations, the Pennsylvania
Psychiatric Society claims the MCOs tortiously interfered
with the psychiatrists' livelihood as well as the psychiatrist-
patient relationship. In addition, the Society asserts the
MCOs fraudulently misrepresented the quality of care their
plans would provide to subscribers and the benefits
psychiatrists would receive for providing their services.
Finally, on behalf of its members' patients, the Society
alleges the MCOs made false representations to their
subscribers in violation of the Pennsylvania Unfair Trade
Practices and Consumer Protection Law, 73 Pa. Const. Stat.
Ann. S 201-1 et seq. (West 2001).

The complaint sought declaratory relief, injunctive relief,
and damages. The Pennsylvania Psychiatric Society does
not appeal the dismissal of its damages claims.

The suit commenced in state court but was removed to
federal court on grounds that ERISA preempted all or, at
least, some of the Society's claims. Recommending
dismissal, the Magistrate Judge issued a Report and
Recommendation finding the Society lacked standing to
assert the claims of its members and their patients. As an
alternative ground for dismissal, the Magistrate Judge
found the mandatory arbitration clause in the psychiatrists'
contracts foreclosed advancing the claims in court. The
District Court adopted the Magistrate Judge's Report. The
Pennsylvania Psychiatric Society timely appealed.

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Click the case caption above for the full text
of the Court's opinion.

We will reverse the order of the District Court and
remand for proceedings consistent with this opinion.

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