Legal analysis from Dean's Law Dictionary will be displayed here.

This section contains the nature of the case and procedural background.

D regulates hospital rates for all in-patient care, except for services provided to Medicare beneficiaries. Patients are charged for the average cost of treating a problem. Charges are adjusted for a specific hospital to reflect its particular operating costs, capital investments, bad debts, costs of charity care, and the like. Blue Cross/Blue Shield, Medicaid, and HMO participants are billed at a hospital's base rate. Patients served by commercial insurers providing inpatient hospital coverage on an expense-incurred basis, by self-insured funds directly reimbursing hospitals, and by certain workers' compensation, volunteer firefighters' benefit, ambulance workers' benefit, and no-fault motor vehicle insurance funds, must be billed at the DRG rate plus a 13% surcharge to be retained by the hospital. Hospitals were required to bill commercially insured patients for a further 11% surcharge to be turned over to D, with the result that these patients were charged 24% more than the base rate. New York law also imposes a surcharge on HMOs as high as 9% of the aggregate monthly charges paid by an HMO for its members' in-patient hospital care. This is a direct payment by the HMO to D's general fund. Ps sued Ds claiming that ERISA preempted the New York provisions requiring surcharges. The New York State Conference of Blue Cross and Blue Shield plans, Empire Blue Cross and Blue Shield (collectively the Blues), and the Hospital Association of New York State intervened as defendants, and the New York State Health Maintenance Organization Conference and several HMOs intervened as plaintiffs. Ps were granted summary judgment. The trial court found that although the surcharges 'do not directly increase a plan's costs or affect the level of benefits to be offered' there could be 'little doubt that the surcharges at issue will have a significant effect on the commercial insurers and HMOs which do or could provide coverage for ERISA plans and thus lead, at least indirectly, to an increase in plan costs.' It held that the 'entire justification for the surcharges is premised on that exact result -- that the surcharges will increase the cost of obtaining medical insurance through any source other than the Blues to a sufficient extent that customers will switch their coverage to and ensure the economic viability of the Blues.' This effect on choices was enough to trigger pre-emption under § 514(a) and that the surcharges were not saved by § 514(b) as regulating insurance. Ds appealed. The court of appeals held that ERISA's pre-emption clause must be read broadly to reach any state law having a connection with, or reference to, covered employee benefit plans. It held that under the applicable ''broad common-sense meaning,' a state law may 'relate to' a benefit plan, and thereby be pre-empted, even if the law is not specifically designed to affect such plans, or the effect is only indirect.' It deemed that the surcharges were meant to increase the costs of certain insurance and health care by HMOs, and held that this 'purposeful interference with the choices that ERISA plans make for health care coverage . . . is sufficient to constitute [a] 'connection with' ERISA plans' triggering pre-emption. The three surcharges 'relate to' ERISA because they impose a significant economic burden on commercial insurers and HMOs' and therefore 'have an impermissible impact on ERISA plan structure and administration.' The court of appeals affirmed and Ds appealed.

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