530 U.S. 211 (2000)
PEGRAM et al.
v.
HERDRICH
No. 98-1949.
United States Supreme Court.
Argued February 23, 2000.
Decided June 12, 2000.
CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE SEVENTH CIRCUIT
Souter, J., delivered the opinion for a unanimous Court.
Carter G. Phillips argued the cause for petitioners. With him
on the briefs were Virginia A. Seitz and Richard D. Raskin.
James A. Feldman argued the cause for the United States as amicus
curiae urging reversal. With him on the brief were Solicitor
General Waxman, Deputy Solicitor General Kneedler, Allen H. Feldman, and Mark
S. Flynn.
James P. Ginzkey argued the cause and filed a brief for respondent.
[1]
Justice Souter, delivered the opinion of the Court.
The question in this case is whether treatment decisions made by a health
maintenance organization, acting through its physician employees, are
fiduciary acts within the meaning of the Employee Retirement Income Security
Act of 1974 (ERISA), 88 Stat. 832, as amended, 29 U. S. C. § 1001 et
seq. (1994 ed. and Supp. III). We hold that they are not.
I
Petitioners, Carle Clinic Association, P. C., Health Alliance Medical
Plans, Inc., and Carle Health Insurance Management Co., Inc. (collectively
Carle), function as a health maintenance organization (HMO) organized
for profit. Its owners are physicians providing prepaid medical services
to participants whose employers contract with Carle to provide such coverage.
Respondent, Cynthia Herdrich, was covered by Carle through her husband's
employer, State Farm Insurance Company.
The events in question began when a Carle physician, petitioner Lori Pegram,
[2] examined Herdrich, who was experiencing pain in
the midline area of her groin. Six days later, Dr. Pegram discovered
a six by eight centimeter inflamed mass in Herdrich's abdomen. Despite
the noticeable inflammation, Dr. Pegram did not order an ultrasound diagnostic
procedure at a local hospital, but decided that Herdrich would have to
wait eight more days for an ultrasound, to be performed at a facility
staffed by Carle more than 50 miles away. Before the eight days were
over, Herdrich's appendix ruptured, causing peritonitis. See 154 F. 3d
362, 365, n. 1 (CA7 1998).
Herdrich sued Pegram and Carle in state court for medical malpractice,
and she later added two counts charging statelaw fraud. Carle and Pegram
responded that ERISA preempted the new counts, and removed the case to
federal court, [3] where they then sought summary judgment
on the state-law fraud counts. The District Court granted their motion
as to the second fraud count but granted Herdrich leave to amend the
one remaining. This she did by alleging that provision of medical services
under the terms of the Carle HMO organization, rewarding its physician
owners for limiting medical care, entailed an inherent or anticipatory
breach of an ERISA fiduciary duty, since these terms created an incentive
to make decisions in the physicians' self-interest, rather than the exclusive
interests of plan participants. [4]
Herdrich sought relief under 29 U. S. C. § 1109(a), which provides that
"[a]ny person who is a fiduciary with respect to a plan
who breaches any of the responsibilities, obligations, or duties imposed
upon fiduciaries by this subchapter shall be personally liable to make
good to such plan any losses to the plan resulting from each such breach,
and to restore to such plan any profits of such fiduciary which have
been made through use of assets of the plan by the fiduciary, and shall
be subject to such other equitable or remedial relief as the court may
deem appropriate, including removal of such fiduciary."
When Carle moved to dismiss the ERISA count for failure to state a claim
upon which relief could be granted, the District Court granted the motion,
accepting the Magistrate Judge's determination that Carle was not "involved
[in these events] as" an ERISA fiduciary. App. to Pet. for Cert.
63a. The original malpractice counts were then tried to a jury, and Herdrich
prevailed on both, receiving $35,000 in compensation for her injury.
154 F. 3d, at 367. She then appealed the dismissal of the ERISA claim
to the Court of Appeals for the Seventh Circuit, which reversed. The
court held that Carle was acting as a fiduciary when its physicians made
the challenged decisions and that Herdrich's allegations were sufficient
to state a claim:
"Our decision does not stand for the proposition that the
existence of incentives automatically gives rise to a breach
of fiduciary duty. Rather, we hold that incentives can rise to
the level of a breach where, as pleaded here, the fiduciary trust between
plan participants and plan fiduciaries no longer exists (i. e., where
physicians delay providing necessary treatment to, or withhold administering
proper care to, plan beneficiaries for the sole purpose of increasing
their bonuses)." Id., at 373.
We granted certiorari, 527 U. S. 1068 (1999), and now reverse the Court
of Appeals.
II
Whether Carle is a fiduciary when it acts through its physician owners
as pleaded in the ERISA count depends on some background of fact and
law about HMOs, medical benefit plans, fiduciary obligation, and the
meaning of Herdrich's allegations.
A
Traditionally, medical care in the United States has been provided on
a "fee-for-service" basis. A physician charges so much for
a general physical exam, a vaccination, a tonsillectomy, and so on. The
physician bills the patient for services provided or, if there is insurance
and the doctor is willing, submits the bill for the patient's care to
the insurer, for payment subject to the terms of the insurance agreement.
Cf. R. Rosenblatt, S. Law, & S. Rosenbaum, Law and the American Health
Care System 543-544 (1997) (hereinafter Rosenblatt) (citing Weiner & de
Lissovoy, Razing a Tower of Babel: A Taxonomy for Managed Care and Health
Insurance Plans, 18 J. Health Politics, Policy & Law 75, 76-78 (Summer
1993)). In a fee-for-service system, a physician's financial incentive
is to provide more care, not less, so long as payment is forthcoming.
The check on this incentive is a physician's obligation to exercise reasonable
medical skill and judgment in the patient's interest.
Beginning in the late 1960's, insurers and others developed new models
for health-care delivery, including HMOs. Cf. Rosenblatt 546. The defining
feature of an HMO is receipt of a fixed fee for each patient enrolled
under the terms of a contract to provide specified health care if needed.
The HMO thus assumes the financial risk of providing the benefits promised:
if a participant never gets sick, the HMO keeps the money regardless,
and if a participant becomes expensively ill, the HMO is responsible
for the treatment agreed upon even if its cost exceeds the participant's
premiums.
Like other risk-bearing organizations, HMOs take steps to control costs.
At the least, HMOs, like traditional insurers, will in some fashion make
coverage determinations, scrutinizing requested services against the
contractual provisions to make sure that a request for care falls within
the scope of covered circumstances (pregnancy, for example), or that
a given treatment falls within the scope of the care promised (surgery,
for instance). They customarily issue general guidelines for their physicians
about appropriate levels of care. See id., at 568-570. And they
commonly require utilization review (in which specific treatment decisions
are reviewed by a decisionmaker other than the treating physician) and
approval in advance (precertification) for many types of care, keyed
to standards of medical necessity or the reasonableness of the proposed
treatment. See Andresen, Is Utilization Review the Practice of Medicine?,
Implications for Managed Care Administrators, 19 J. Legal Med. 431, 432
(Sept. 1998). 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, see Rosenblatt 563-565; Iglehart,
Health Policy Report: The American Health Care System— Managed Care,
327 New England J. Med. 742, 742-747 (1992). Hence, in an HMO system,
a physician's financial interest lies in providing less care, not more.
The check on this influence (like that on the converse, fee-for-service
incentive) is the professional obligation to provide covered services
with a reasonable degree of skill and judgment in the patient's interest.
See Brief for American Medical Association as Amicus Curiae 17-21.
The adequacy of professional obligation to counter financial self-interest
has been challenged no matter what the form of medical organization.
HMOs became popular because fee-for-service physicians were thought to
be providing unnecessary or useless services; today, many doctors and
other observers argue that HMOs often ignore the individual needs of
a patient in order to improve the HMOs' bottom lines. See, e. g., 154
F. 3d, at 375-378 (citing various critics of HMOs). [5]
In this case, for instance, one could argue that Pegram's decision to
wait before getting an ultrasound for Herdrich, and her insistence that
the ultrasound be done at a distant facility owned by Carle, reflected
an interest in limiting the HMO's expenses, which blinded her to the
need for immediate diagnosis and treatment.
B
Herdrich focuses on the Carle scheme's provision for a "year-end
distribution," n. 3, supra, to the HMO's physician owners.
She argues that this particular incentive device of annually paying physician
owners the profit resulting from their own decisions rationing care can
distinguish Carle's organization from HMOs generally, so that reviewing
Carle's decisions under a fiduciary standard as pleaded in Herdrich's
complaint would not open the door to like claims about other HMO structures.
While the Court of Appeals agreed, we think otherwise, under the law
as now written.
Although it is true that the relationship between sparing medical treatment
and physician reward is not a subtle one under the Carle scheme, no HMO
organization could survive without some incentive connecting physician
reward with treatment rationing. The essence of an HMO is that salaries
and profits are limited by the HMO's fixed membership fees. See Orentlicher,
Paying Physicians More To Do Less: Financial Incentives to Limit Care,
30 U. Rich. L. Rev. 155, 174 (1996). This is not to suggest that the
Carle provisions are as socially desirable as some other HMO organizational
schemes; they may not be. See, e. g., Grumbach, Osmond, Vranigan,
Jaffe, & Bindman, Primary Care Physicians' Experience of Financial
Incentives in Managed-Care Systems, 339 New England J. Med. 1516 (1998)
(arguing that HMOs that reward quality of care and patient satisfaction
would be preferable to HMOs that reward only physician productivity).
But whatever the HMO, there must be rationing and inducement to ration.
Since inducement to ration care goes to the very point of any HMO scheme,
and rationing necessarily raises some risks while reducing others (ruptured
appendixes are more likely; unnecessary appendectomies are less so),
any legal principle purporting to draw a line between good and bad HMOs
would embody, in effect, a judgment about socially acceptable medical
risk. A valid conclusion of this sort would, however, necessarily turn
on facts to which courts would probably not have ready access: correlations
between malpractice rates and various HMO models, similar correlations
involving fee-for-service models, and so on. And, of course, assuming
such material could be obtained by courts in litigation like this, any
standard defining the unacceptably risky HMO structure (and consequent
vulnerability to claims like Herdrich's) would depend on a judgment about
the appropriate level of expenditure for health care in light of the
associated malpractice risk. But such complicated factfinding and such
a 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.
Cf. Turner Broadcasting System, Inc. v. FCC, 512 U.
S. 622, 665-666 (1994) (plurality opinion) ("Congress is far better
equipped than the judiciary to `amass and evaluate the vast amounts of
data' bearing upon an issue as complex and dynamic as that presented
here" (quoting Walters v. National Assn. of Radiation
Survivors, 473 U. S. 305, 331, n. 12 (1985))); Patsy v. Board
of Regents of Fla., 457 U. S. 496, 513 (1982) ("[T]he relevant
policy considerations do not invariably point in one direction, and there
is vehement disagreement over the validity of the assumptions underlying
many of them. The very difficulty of these policy considerations, and
Congress' superior institutional competence to pursue this debate, suggest
that legislative not judicial solutions are preferable" (footnote
omitted)).
We think, then, that courts are not in a position to derive a sound legal
principle to differentiate an HMO like Carle from other HMOs. [6]
For that reason, we proceed on the assumption that the decisions listed
in Herdrich's complaint cannot be subject to a claim that they violate
fiduciary standards unless all such decisions by all HMOs acting through
their owner or employee physicians are to be judged by the same standards
and subject to the same claims.
C
We turn now from the structure of HMOs to the requirements of ERISA. A
fiduciary within the meaning of ERISA must be someone acting in the capacity
of manager, administrator, or financial adviser to a "plan," see
29 U. S. C. §§ 1002(21)(A)(i)—(iii), and Herdrich's ERISA count accordingly
charged Carle with a breach of fiduciary duty in discharging its obligations
under State Farm's medical plan. App. to Pet. for Cert. 85a—86a. ERISA's
definition of an employee welfare benefit plan is ultimately circular: "any
plan, fund, or program . . . to the extent that such plan, fund, or program
was established . . . for the purpose of providing . . . through the
purchase of insurance or otherwise . . . medical, surgical, or hospital
care or benefits." § 1002(1)(A). One is thus left to the common
understanding of the word "plan" as referring to a scheme decided
upon in advance, see Webster's New International Dictionary 1879 (2d
ed. 1957); Jacobson & Pomfret, Form, Function, and Managed Care Torts:
Achieving Fairness and Equity in ERISA Jurisprudence, 35 Houston L. Rev.
985, 1050 (1998). Here the scheme comprises a set of rules that define
the rights of a beneficiary and provide for their enforcement. Rules
governing collection of premiums, definition of benefits, submission
of claims, and resolution of disagreements over entitlement to services
are the sorts of provisions that constitute a plan. See Hansen v. Continental
Ins. Co., 940 F. 2d 971, 977 (CA5 1991). Thus, when employers contract
with an HMO to provide benefits to employees subject to ERISA, the provisions
of documents that set up the HMO are not, as such, an ERISA plan; but
the agreement between an HMO and an employer who pays the premiums may,
as here, provide elements of a plan by setting out rules under which
beneficiaries will be entitled to care.
D
As just noted, fiduciary obligations can apply to managing, advising,
and administering an ERISA plan, the fiduciary function addressed by
Herdrich's ERISA count being the exercise of "discretionary authority
or discretionary responsibility in the administration of [an ERISA] plan," 29
U. S. C. § 1002(21)(A)(iii). And as we have already suggested, although
Carle is not an ERISA fiduciary merely because it administers or exercises
discretionary authority over its own HMO business, it may still be a
fiduciary if it administers the plan.
In general terms, fiduciary responsibility under ERISA is simply stated.
The statute provides that fiduciaries shall discharge their duties with
respect to a plan "solely in the interest of the participants and
beneficiaries," § 1104(a)(1), that is, "for the exclusive purpose
of (i) providing benefits to participants and their beneficiaries; and
(ii) defraying reasonable expenses of administering the plan," §
1104(a)(1)(A). [7] These responsibilities imposed by
ERISA have the familiar ring of their source in the common law of trusts.
See Central States, Southeast & Southwest Areas Pension Fund v. Central
Transport, Inc., 472 U. S. 559, 570 (1985) ("[R]ather 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"). Thus,
the common law (understood as including what were once the distinct rules
of equity) charges fiduciaries with a duty of loyalty to guarantee beneficiaries'
interests: "The most fundamental duty owed by the trustee to the
beneficiaries of the trust is the duty of loyalty. . . . It is the duty
of a trustee to administer the trust solely in the interest of the beneficiaries." 2A
A. Scott & W. Fratcher, Trusts § 170, p. 311 (4th ed. 1987) (hereinafter
Scott); see also G. Bogert & G. Bogert, Law of Trusts and Trustees
§ 543 (rev. 2d ed. 1980) ("Perhaps the most fundamental duty of
a trustee is that he must display throughout the administration of the
trust complete loyalty to the interests of the beneficiary and must exclude
all selfish interest and all consideration of the interests of third
persons"); Central States, supra, at 570-571; Meinhard v. Salmon, 249
N. Y. 458, 464, 164 N. E. 545, 546 (1928) (Cardozo, J.) ("Many forms
of conduct permissible in a workaday world for those acting at arm's
length, are forbidden to those bound by fiduciary ties. A trustee is
held to something stricter than the morals of the market place. Not honesty
alone, but the punctilio of an honor the most sensitive, is then the
standard of behavior").
Beyond the threshold statement of responsibility, however, the analogy
between ERISA fiduciary and common law trustee becomes problematic. This
is so because the trustee at common law characteristically wears only
his fiduciary hat when he takes action to affect a beneficiary, whereas
the trustee under ERISA may wear different hats.
Speaking of the traditional trustee, Professor Scott's treatise admonishes
that the trustee "is not permitted to place himself in a position
where it would be for his own benefit to violate his duty to the beneficiaries." 2A
Scott § 170, at 311. Under ERISA, however, a fiduciary may have financial
interests adverse to beneficiaries. Employers, for example, can be ERISA
fiduciaries and still take actions to the disadvantage of employee beneficiaries,
when they act as employers (e. g., firing a beneficiary for
reasons unrelated to the ERISA plan), or even as plan sponsors (e.
g., modifying the terms of a plan as allowed by ERISA to provide
less generous benefits). Nor is there any apparent reason in the ERISA
provisions to conclude, as Herdrich argues, that this tension is permissible
only for the employer or plan sponsor, to the exclusion of persons who
provide services to an ERISA plan.
ERISA does require, however, that the fiduciary with two hats wear only
one at a time, and wear the fiduciary hat when making fiduciary decisions.
See Hughes Aircraft Co. v. Jacobson, 525 U. S. 432,
443-444 (1999); Varity Corp. v. Howe, 516 U. S. 489,
497 (1996). Thus, the statute does not describe fiduciaries simply as
administrators of the plan, or managers or advisers. Instead it defines
an administrator, for example, as a fiduciary only "to the extent" that
he acts in such a capacity in relation to a plan. 29 U. S. C. § 1002(21)(A).
In every case charging breach of ERISA fiduciary duty, then, the threshold
question is not whether the actions of some person employed to provide
services under a plan adversely affected a plan beneficiary's interest,
but whether that person was acting as a fiduciary (that is, was performing
a fiduciary function) when taking the action subject to complaint.
E
The allegations of Herdrich's ERISA count that identify the claimed fiduciary
breach are difficult to understand. In this count, Herdrich does not
point to a particular act by any Carle physician owner as a breach. She
does not complain about Pegram's actions, and at oralargument her counsel
confirmed that the ERISA count could have been brought, and would have
been no different, if Herdrich had never had a sick day in her life.
Tr. of Oral Arg. 53-54.
What she does claim is that Carle, acting through its physician owners,
breached its duty to act solely in the interest of beneficiaries by making
decisions affecting medical treatment while influenced by the terms of
the Carle HMO scheme, under which the physician owners ultimately profit
from their own choices to minimize the medical services provided. She
emphasizes the threat to fiduciary responsibility in the Carle scheme's
feature of a year-end distribution to the physicians of profit derived
from the spread between subscription income and expenses of care and
administration. App. to Pet. for Cert. 86a.
The specific payout detail of the plan was, of course, a feature that
the employer as plan sponsor was free to adopt without breach of any
fiduciary duty under ERISA, since an employer's decisions about the content
of a plan are not themselves fiduciary acts. Lockheed Corp. v. Spink, 517
U. S. 882, 887 (1996) ("Nothing in ERISA requires employers to establish
employee benefit plans. Nor does ERISA mandate what kind of benefits
employers must provide if they choose to have such a plan"). [8]
Likewise it is clear that there was no violation of ERISA when the incorporators
of the Carle HMO provided for the year-end payout. The HMO is not the
ERISA plan, and the incorporation of the HMO preceded its contract with
the State Farm plan. See 29 U. S. C. § 1109(b) (no fiduciary liability
for acts preceding fiduciary status).
The nub of the claim, then, is that when State Farm contracted with Carle,
Carle became a fiduciary under the plan, acting through its physicians.
At once, Carle as fiduciary administrator was subject to such influence
from the yearend payout provision that its fiduciary capacity was necessarily
compromised, and its readiness to act amounted to anticipatory breach
of fiduciary obligation.
F
The pleadings must also be parsed very carefully to understand what acts
by physician owners acting on Carle's behalf are alleged to be fiduciary
in nature. [9] It will help to keep two sorts of arguably
administrative acts in mind. Cf. Dukes v. U. S. Healthcare,
Inc., 57 F. 3d 350, 361 (CA3 1995) (discussing dual medical/administrative
roles of HMOs). What we will call pure "eligibility decisions" turn
on the plan's coverage of a particular condition or medical procedure
for its treatment. "Treatment decisions," by contrast, are
choices about how to go about diagnosing and treating a patient's condition:
given a patient's constellation of symptoms, what is the appropriate
medical response?
These decisions are often practically inextricable from one another, as amici on
both sides agree. See Brief for Washington Legal Foundation as Amicus
Curiae 12; Brief for Health Law, Policy, and Ethics Scholars as Amici
Curiae 10. This is so not merely because, under a scheme like Carle's,
treatment and eligibility decisions are made by the same person, the
treating physician. It is so because a great many and possibly most coverage
questions are not simple yesor-no questions, like whether appendicitis
is a covered condition (when there is no dispute that a patient has appendicitis),
or whether acupuncture is a covered procedure for pain relief (when the
claim of pain is unchallenged). The more common coverage question is
a when-and-how question. Although 229 coverage for many conditions will
be clear and various treatment options will be indisputably compensable,
physicians still must decide what to do in particular cases. The issue
may be, say, whether one treatment option is so superior to another under
the circumstances, and needed so promptly, that a decision to proceed
with it would meet the medical necessity requirement that conditions
the HMO's obligation to provide or pay for that particular procedure
at that time in that case. The Government in its brief alludes to a similar
example when it discusses an HMO's refusal to pay for emergency care
on the ground that the situation giving rise to the need for care was
not an emergency, Brief for United States as Amicus Curiae 20-21.
[10] In practical terms, these eligibility decisions
cannot be untangled from physicians' judgments about reasonable medical
treatment, and in the case before us, Dr. Pegram's decision was one of
that sort. She decided (wrongly, as it turned out) that Herdrich's condition
did not warrant immediate action; the consequence of that medical determination
was that Carle would not cover immediate care, whereas it would have
done so if Dr. Pegram had made the proper diagnosis and judgment to treat.
The eligibility decision and the treatment decision were inextricably
mixed, as they are in countless medical administrative decisions every
day.
The kinds of decisions mentioned in Herdrich's ERISA count and claimed
to be fiduciary in character are just such mixed eligibility and treatment
decisions: physicians' conclusions about when to use diagnostic tests;
about seeking consultations and making referrals to physicians and facilities
other than Carle's; about proper standards of care, the experimental
character of a proposed course of treatment, the reasonableness of a
certain treatment, and the emergency character of a medical condition.
We do not read the ERISA count, however, as alleging fiduciary breach
with reference to a different variety of administrative decisions, those
we have called pure eligibility determinations, such as whether a plan
covers an undisputed case of appendicitis. Nor do we read it as claiming
breach by reference to discrete administrative decisions separate from
medical judgments; say, rejecting a claim for no other reason than the
HMO's financial condition. The closest Herdrich's ERISA count comes to
stating a claim for a pure, unmixed eligibility decision is her general
allegation that Carle determines "which claims are covered under
the Plan and to what extent," App. to Pet. for Cert. 86a. But this
vague statement, difficult to interpret in isolation, is given content
by the other elements of the complaint, all of which refer to decisions
thoroughly mixed with medical judgment. Cf. 5A C. Wright & A. Miller,
Federal Practice and Procedure § 1357, pp. 320-321 (1990) (noting that,
where specific allegations clarify the meaning of broader allegations,
they may be used to interpret the complaint as a whole). Any lingering
uncertainty about what Herdrich has in mind is dispelled by her brief,
which explains that this allegation, like the others, targets medical
necessity determinations. Brief for Respondent 19; see also id., at
3. [11]
III
A
Based on our understanding of the matters just discussed, we think Congress
did not intend Carle or any other HMO to be treated as a fiduciary to
the extent that it makes mixed eligibility decisions acting through its
physicians. We begin with doubt that Congress would ever have thought
of a mixed eligibility decision as fiduciary in nature. At common law,
fiduciary duties characteristically attach to decisions about managing
assets and distributing property to beneficiaries. See Bogert & Bogert,
Law of Trusts and Trustees §§ 551, 741-747, 751-775, 781-799; 2A Scott
§§ 176, 181; 3 id., §§ 188-193; 3A id., § 232. Trustees
buy, sell, and lease investment property, lend and borrow, and do other
things to conserve and nurture assets. They pay out income, choose beneficiaries,
and distribute remainders at termination. Thus, the common law trustee's
most defining concern historically has been the payment of money in the
interest of the beneficiary.
Mixed eligibility decisions by an HMO acting through its physicians have,
however, only a limited resemblance to the usual business of traditional
trustees. To be sure, the physicians (like regular trustees) draw on
resources held for others and make decisions to distribute them in accordance
with entitlements expressed in a written instrument (embodying the terms
of an ERISA plan). It is also true that the objects of many traditional
private and public trusts are ultimately the same as the ERISA plans
that contract with HMOs. Private trusts provide medical care to the poor;
thousands of independent hospitals are privately held and publicly accountable
trusts, and charitable foundations make grants to stimulate the provision
of health services. But beyond this point the resemblance rapidly wanes.
Traditional trustees administer a medical trust by paying out money to
buy medical care, whereas physicians making mixed eligibility decisions
consume the money as well. Private trustees do not make treatment judgments,
whereas treatment judgments are what physicians reaching mixed decisions
do make, by definition. Indeed, the physicians through whom HMOs act
make just the sorts of decisions made by licensed medical practitioners
millions of times every day, in every possible medical setting: HMOs,
fee-forservice proprietorships, public and private hospitals, military
field hospitals, and so on. The settings bear no more resemblance to
trust departments than a decision to operate turns on the factors controlling
the amount of a quarterly income distribution. Thus, it is at least questionable
whether Congress would have had mixed eligibility decisions in mind when
it provided that decisions administering a plan were fiduciary in nature.
Indeed, when Congress took up the subject of fiduciary responsibility
under ERISA, it concentrated on fiduciaries' financial decisions, focusing
on pension plans, the difficulty many retirees faced in getting the payments
they expected, and the financial mismanagement that had too often deprived
employees of their benefits. See, e. g., S. Rep. No. 93-127,
p. 5 (1973); S. Rep. No. 93-383, p. 17 (1973); id., at 95. Its
focus was far from the subject of Herdrich's claim.
Our doubt that Congress intended the category of fiduciary administrative
functions to encompass the mixed determinations at issue here hardens
into conviction when we consider the consequences that would follow from
Herdrich's contrary view.
B
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. Recovery would be warranted simply upon showing that the profit
incentive to ration care would generally affect mixed decisions, in derogation
of the fiduciary standard to act solely in the interest of the patient
without possibility of conflict. Although Herdrich is vague about the
mechanics of relief, the one point that seems clear is that she seeks
the return of profit from the pockets of the Carle HMO's owners, with
the money to be given to the plan for the benefit of the participants.
See 29 U. S. C. § 1109(a) (return of all profits is an appropriate ERISA
remedy). Since the provision for profit is what makes the HMO a proprietary
organization, her remedy in effect would be nothing less than elimination
of the for-profit HMO. Her remedy might entail even more than that, although
we are in no position to tell whether and to what extent nonprofit HMO
schemes would ultimately survive the recognition of Herdrich's theory.
[12] It is enough to recognize that the Judiciary has
no warrant to precipitate the upheaval that would follow a refusal to
dismiss Herdrich's ERISA claim. The fact is that for over 27 years the
Congress of the United States has promoted the formation of HMO practices.
The Health Maintenance Organization Act of 1973, 87 Stat. 914, 42 U.
S. C. § 300e et seq., allowed the formation of HMOs that assume
financial risks for the provision of health-care services, and Congress
has amended the Act several times, most recently in 1996. See 110 Stat.
1976, 42 U. S. C. § 300e (1994 ed., Supp. III). If Congress wishes to
restrict its approval of HMO practice to certain preferred forms, it
may choose to do so. But the Federal Judiciary would be acting contrary
to the congressional policy of allowing HMO organizations if it were
to entertain an ERISA fiduciary claim portending wholesale attacks on
existing HMOs solely because of their structure, untethered to claims
of concrete harm.
C
The Court of Appeals did not purport to entertain quite the broadside
attack that Herdrich's ERISA claim thus entails, see 154 F. 3d, at 373,
and the second possible consequence of applying the fiduciary standard
that requires our attention would flow from the difficulty of extending
it to particular mixed decisions that on Herdrich's theory are fiduciary
in nature.
The fiduciary is, of course, obliged to act exclusively in the interest
of the beneficiary, but this translates into no rule readily applicable
to HMO decisions or those of any other variety of medical practice. While
the incentive of the HMO physician is to give treatment sparingly, imposing
a fiduciary obligation upon him would not lead to a simple default rule,
say, that whenever it is reasonably possible to disagree about treatment
options, the physician should treat aggressively. After all, HMOs came
into being because some groups of physicians consistently provided more
aggressive treatment than others in similar circumstances, with results
not perceived as justified by the marginal expense and risk associated
with intervention; excessive surgery is not in the patient's best interest,
whether provided by fee-for-service surgeons or HMO surgeons subject
to a default rule urging them to operate. 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. It would be so easy to allege,
and to find, an economic influence when sparing care did not lead to
a well patient, that any such standard in practice would allow a factfinder
to convert an HMO into a guarantor of recovery.
These difficulties may have led the Court of Appeals to try to confine
the fiduciary breach to cases where "the sole purpose" of delaying
or withholding treatment was to increase the physician's financial reward, ibid. But
this attempt to confine mixed decision claims to their most egregious
examples entails erroneous corruption of fiduciary obligation and would
simply lead to further difficulties that we think fatal. While a mixed
decision made solely to benefit the HMO or its physician would violate
a fiduciary duty, the fiduciary standard condemns far more than that,
in its requirement of "an eye single" toward beneficiaries'
interests, Donovan v. Bierwirth, 680 F. 2d 263, 271
(CA2 1982). But whether under the Court of Appeals's rule or a straight
standard of undivided loyalty, the defense of any HMO would be that its
physician did not act out of financial interest but for good medical
reasons, the plausibility of which would require reference to standards
of reasonable and customary medical practice in like circumstances. That,
of course, is the traditional standard of the common law. See W. Keeton,
D. Dobbs, R. Keeton, & D. Owens, Prosser and Keeton on Law of Torts
§ 32, pp. 188-189 (5th ed. 1984). 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.
What would be the value to the plan participant of having this kind of
ERISA fiduciary action? It would simply apply the law already available
in state courts and federal diversity actions today, and the formulaic
addition of an allegation of financial incentive would do nothing but
bring the same claim into a federal court under federal-question jurisdiction.
It is true that in States that do not allow malpractice actions against
HMOs the fiduciary claim would offer a plaintiff a further defendant
to be sued for direct liability, and in some cases the HMO might have
a deeper pocket than the physician. But we have seen enough to know that
ERISA was not enacted out of concern that physicians were too poor to
be sued, or in order to federalize malpractice litigation in the name
of fiduciary duty for any other reason. It is difficult, in fact, to
find any advantage to participants across the board, except that allowing
them to bring malpractice actions in the guise of federal fiduciary breach
claims against HMOs would make them eligible for awards of attorney's
fees if they won. See 29 U. S. C. § 1132(g)(1). But, again, we can be
fairly sure that Congress did not create fiduciary obligations out of
concern that state plaintiffs were not suing often enough, or were paying
too much in legal fees.
The mischief of Herdrich's position would, indeed, go further than mere
replication of state malpractice actions with HMO defendants. For not
only would an HMO be liable as a fiduciary in the first instance for
its own breach of fiduciary duty committed through the acts of its physician
employee, but the physician employee would also be subject to liability
as a fiduciary on the same basic analysis that would charge the HMO.
The physician who made the mixed administrative decision would be exercising
authority in the way described by ERISA and would therefore be deemed
to be a fiduciary. See 29 CFR §§ 2509.75-5, Question D-1; 2509.75-8,
Question D-3 (1993) (stating that an individual who exercises authority
on behalf of an ERISA fiduciary in interpreting and administering a plan
will be deemed a fiduciary). Hence the physician, too, would be subject
to suit in federal court applying an ERISA standard of reasonable medical
skill. This result, in turn, would raise a puzzling issue of preemption.
On its face, federal fiduciary law applying a malpractice standard would
seem to be a prescription for preemption of state malpractice law, since
the new ERISA cause of action would cover the subject of a state-law
malpractice claim. See 29 U. S. C. § 1144 (preempting state laws that "relate
to [an] employee benefit plan"). To be sure, New York State
Conference of Blue Cross & Blue Shield Plans v. Travelers
Ins. Co., 514 U. S. 645, 654-655 (1995), throws some cold water
on the preemption theory; there, we held that, in the field of health
care, a subject of traditional state regulation, there is no ERISA preemption
without clear manifestation of congressional purpose. But in that case
the convergence of state and federal law was not so clear as in the situation
we are positing; the state-law standard had not been subsumed by the
standard to be applied under ERISA. We could struggle with this problem,
but first it is well to ask, again, what would be gained by opening the
federal courthouse doors for a fiduciary malpractice claim, save for
possibly random fortuities such as more favorable scheduling, or the
ancillary opportunity to seek attorney's fees. And again, we know that
Congress had no such haphazard boons in prospect when it defined the
ERISA fiduciary, nor such a risk to the efficiency of federal courts
as a new fiduciary malpractice jurisdiction would pose in welcoming such
unheard-of fiduciary litigation.
IV
We hold that mixed eligibility decisions by HMO physicians are not fiduciary
decisions under ERISA. Herdrich's ERISA count fails to state an ERISA
claim, and the judgment of the Court of Appeals is reversed.
It is so ordered.
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Briefs of amici curiae urging
reversal were filed for the American Association of Health Plans
et al. by Stephanie W. Kanwit, Daly D. E. Temchine, Kirsten
M. Pullin, Jeffrey Gabardi, Louis Saccoccio, Stephen A. Bokat,
Robin S. Conrad, and Sussan Mahallati Kysela; and
for the Washington Legal Foundation by Lonie A. Hassel, William
F. Hanrahan, Daniel J. Popeo, and Richard A. Samp.
Briefs of amici curiae urging affirmance were filed for
the State of Illinois et al. by James E. Ryan, Attorney
General of Illinois, Joel D. Bertocchi, Solicitor General, Jacqueline
Zydeck, Assistant Attorney General, and Dan Schweitzer, and
by the Attorneys General for their respective States as follows: Bill
Lockyer of California, M. Jane Brady of Delaware, Robert
A. Butterworth of Florida, Thomas J. Miller of
Iowa, Tom Reilly of Massachusetts, Mike Moore of
Mississippi, Jeremiah W. (Jay) Nixon of Missouri, Joseph
P. Mazurek of Montana, Frankie Sue Del Papa of
Nevada, John J. Farmer, Jr., of New Jersey, Michael
F. Easley of North Carolina, Betty D. Montgomery of
Ohio, W. A. Drew Edmondson of Oklahoma, Mike Fisher of
Pennsylvania, Sheldon Whitehouse of Rhode Island, Paul
G. Summers of Tennessee, and John Cornyn of Texas;
for the American College of Legal Medicine et al. by Miles
J. Zaremski; for Health Care for All et al. by Wendy
E. Parmet, S. Stephen Rosenfeld, and Clare D. McGorrian; for
Health Law, Policy, and Ethics Scholars by Louis R. Cohen,
Ruth E. Kent, and Carol J. Banta; and for the Ehlmann Plaintiffs
by George Parker Young.
Briefs of amici curiae were filed for the American Medical
Association by Gary W. Howell, Thomas Campbell, Michael L.
Ile, Anne M. Murphy, and Leonard A. Nelson; and
for the AARP et al. by Mary Ellen Signorille, Sarah Lenz
Lock, Melvin Radowitz, Paula Brantner, Jeffrey Lewis, and Vicki
Gottlich.
-
Although Lori Pegram, a physician owner of
Carle, is listed as a petitioner, it is unclear to us that she retains
a direct interest in the outcome of this case.
-
Herdrich does not contest the propriety of
removal before us, and we take no position on whether or not the
case was properly removed. As we will explain, Herdrich's amended
complaint alleged ERISA violations, over which the federal courts
have jurisdiction,and we therefore have jurisdiction regardless of
the correctness of the removal.See Grubbs v. General
Elec. Credit Corp., 405 U. S. 699 (1972); Mackay v. Uinta
Development Co., 229 U. S. 173 (1913).
-
The specific allegations were these:
"11. Defendants are fiduciaries with respect to the Plan
and under 29 [U. S. C. § ]1109(a) are obligated to discharge
their duties with respect to the Plan solely in the interest
of the participants and beneficiaries and
"a. for the exclusive purpose of:
"i. providing benefits to participants and their beneficiaries;
and
"ii. defraying reasonable expenses of administering the Plan;
"b. with the care, skill, prudence, and diligence under the
circumstances then prevailing that a prudent man acting in a
like capacity and familiar with such matters would use in the
conduct of an enterprise of a like character and like aims.
"12. In breach of that duty:
"a. CARLE owner/physicians are the officers and directors
of HAMP and CHIMCO and receive a year-end distribution, based
in large part upon, supplemental medical expense payments made
to CARLE by HAMP and CHIMCO;
"b. Both HAMP and CHIMCO are directed and controlled by CARLE
owner/physicians and seek to fund their supplemental medical
expense payments to CARLE:
"i. by contracting with CARLE owner/physicians to provide
the medical services contemplated in the Plan and then having
those contracted owner/physicians:
"(1) minimize the use of diagnostic tests;
"(2) minimize the use of facilities not owned by CARLE; and
"(3) minimize the use of emergency and non-emergency consultation
and/or referrals to non-contracted physicians.
"ii. by administering disputed and non-routine health insurance
claims and determining:
"(1) which claims are covered under the Plan and to what
extent;
"(2) what the applicable standard of care is;
"(3) whether a course of treatment is experimental;
"(4)whether a course of treatment is reasonable and customary;
and
"(5)whether a medical condition is an emergency." App.
to Pet. for Cert. 85a—86a.
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There are, of course, contrary perspectives,
and we endorse neither side of the debate today.
-
They are certainly not capable of making that
distinction on a motion to dismiss; if we accepted the Court of Appeals's
reasoning, complaints against any flavor of HMO would have to proceed
at least to the summary judgment stage.
-
In addition, fiduciaries must discharge
their duties
"(B) with the care, skill, prudence, and diligence under
the circumstances then prevailing that a prudent man acting in
a like capacity and familiar with such matters would use in the
conduct of an enterprise of a like character and with like aims;
"(C) by diversifying the investments of the plan so as to
minimize the risk of large losses, unless under the circumstances
it is clearly prudent not to do so; and
"(D) in accordance with the documents and instruments governing
the plan insofar as such documents and instruments are consistent
with the provisions of this subchapter and subchapter III of
this chapter." 29 U. S. C. § 1104(a)(1).
-
It does not follow that those who administer
a particular plan design may not have difficulty in following fiduciary
standards if the design is awkward enough. A plan might lawfully
provide for a bonus for administrators who denied benefits to every
10th beneficiary, but it would be difficult for an administrator
who received the bonus to defend against the claim that he had not
been solely attentive to the beneficiaries' interests in carrying
out his administrative duties. The important point is that Herdrich
is not suing the employer, State Farm, and her claim cannot be analyzed
as if she were.
-
Herdrich argues that Carle is judicially
estopped from denying its fiduciary status as to the relevant
decisions, because it sought and sucessfully defended removal
of Herdrich's state action to the Federal District Court on the
ground that it was a fiduciary with respect to Herdrich's fraud
claims. Judicial estoppel generally prevents a party from prevailing
in one phase of a case on an argument and then relying on a contradictory
argument to prevail in another phase. See Rissetto v. Plumbers & Steamfitters
Local 343, 94 F. 3d 597, 605 (CA9 1996). The fraud claims
in Herdrich's initial complaint, however, could be read to allege
breach of a fiduciary obligation to disclose physician incentives
to limit care, whereas her amended complaint alleges an obligation
to avoid such incentives. Although we are not presented with
the issue here, it could be argued that Carle is a fiduciary
insofar as it has discretionary authority to administer the plan,
and so it is obligated to disclose characteristics of the plan
and of those who provide services to the plan, if that information
affects beneficiaries' material interests. See, e. g., Glaziers
and Glassworkers Union Local No. 252 Annuity Fund v. Newbridge
Securities, Inc., 93 F. 3d 1171, 1179-1181 (CA3 1996) (discussing
the disclosure obligations of an ERISA fiduciary); cf. Varity
Corp. v. Howe, 516 U. S. 489, 505 (1996) (holding
that ERISA fiduciaries may have duties to disclose information
about plan prospects that they have no duty, or even power, to
change).
But failure to disclose is no longer the allegation of the amended
complaint. Because fiduciary duty to disclose is not necessarily
coextensive with fiduciary responsibility for the subject matter
of the disclosure, Carle is not estopped from contesting its
fiduciary status with respect to the allegations of the amended
complaint.
-
ERISA makes separate provision for suits
to receive particular benefits. See 29 U. S. C. § 1132(a)(1)(B).
We have no occasion to discuss the standards governing such a claim
by a patient who, as in the example in text, was denied reimbursement
for emergency care. Nor have we reason to discuss the interaction
of such a claim with state-law causes of action, see infra, at
235-237.
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Though this case involves a motion to dismiss
under Federal Rule of Civil Procedure 12(b)(6), and the complaint
should therefore be construed generously, we may use Herdrich's brief
to clarify allegations in her complaint whose meaning is unclear.
See C. Wright & A. Miller, Federal Practice and Procedure §
1364, pp. 480-481 (1990); Southern Cross Overseas Agencies, Inc. v.Wah
Kwong Shipping Group Ltd., 181 F. 3d 410, 428, n. 8 (CA3 1999); Alicke v. MCI
Communications Corp., 111 F. 3d 909, 911 (CADC 1997); Early v. Bankers
Life & Cas. Co., 959 F. 2d 75, 79 (CA7 1992).
-
Herdrich's theory might well portend the
end of nonprofit HMOs as well, since those HMOs can set doctors'
salaries. A claim against a nonprofit HMO could easily allege that
salaries were excessively high because they were funded by limiting
care, and some nonprofits actually use incentive schemes similar
to that challenged here, see Pulvers v. Kaiser Foundation
Health Plan, 99 Cal. App. 3d 560, 565, 160 Cal. Rptr. 392, 393-394
(1979) (rejecting claim against nonprofit HMO based on physician
incentives). See Brody, Agents Without Principals: The Economic Convergence
of the Nonprofit and For-Profit Organizational Forms, 40 N. Y. L.
S. L. Rev. 457, 493, and n. 152 (1996) (discussing ways in which
nonprofit health providers may reward physician employees).