Liberty Dialysis - Hawaii LLC v. Kaiser Foundation Health Plan, Inc.
1:17-cv-00318
D. Haw.Sep 28, 2017Background
- Liberty Dialysis (provider) had a 2007 written agreement with Kaiser Foundation Hospitals (KFH) to provide outpatient dialysis and be paid per an attached rate table; the agreement covered Kaiser Foundation Health Plan (KFHP) Medicare Advantage members.
- Beginning in 2011, Liberty alleges Kaiser reduced, delayed, or stopped payments in breach of the contract; Liberty filed state-law claims for breach of contract, accounting, and declaratory relief.
- Kaiser removed to federal court and moved to dismiss for lack of subject-matter jurisdiction under Rule 12(b)(1), arguing Liberty’s claims "arise under" the Medicare Act and thus require administrative exhaustion before suit.
- Liberty argued its claims are ordinary contract claims between private parties and not subject to Medicare exhaustion requirements.
- The district court held the dispute is a private contract dispute between an MAO and a contract provider, not "inextricably intertwined" with Medicare benefits decisions, and denied Kaiser’s motion to dismiss.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Liberty’s payment and breach claims “arise under” the Medicare Act and require exhaustion | Liberty: claims are governed by the private contract and state law, not Medicare; no administrative exhaustion required | Kaiser: claims implicate Medicare Part C and are subject to §405(h) exhaustion because they concern payment for Medicare Advantage enrollees | Held: Claims do not arise under the Medicare Act; exhaustion not required; motion to dismiss denied |
| Whether resolution requires redetermination of Medicare benefits or application of Medicare law | Liberty: no benefits redetermination or CMS rules needed; resolution is by contract terms | Kaiser: payment dispute implicates Medicare rules and thus falls within Medicare jurisdiction | Held: No Medicare-plan interpretation or benefits redetermination is necessary; dispute resolves by contract alone |
| Applicability of precedent holding exhaustion required for Medicare-related claims | Liberty: relies on RenCare and similar authorities distinguishing Part C risk-shift and permitting contract disputes in federal court | Kaiser: relies on Heckler/Kaiser line requiring exhaustion for claims arising under Medicare | Held: Court distinguishes Heckler/Kaiser (traditional Medicare) and follows RenCare reasoning for Part C contract disputes |
| Whether provider status (contract vs noncontract) affects exhaustion requirement | Liberty: Liberty is a contract provider under a written agreement, so its claims arise from the contract | Kaiser: argued Medicare context controls regardless | Held: Contract-provider status is critical; contract-provider claims governed by contract, not Medicare exhaustion |
Key Cases Cited
- Heckler v. Ringer, 466 U.S. 602 (Sup. Ct.) (judicial review of claims arising under Medicare available only after Secretary’s final decision)
- Kaiser v. Blue Cross of Cal., 347 F.3d 1107 (9th Cir.) (claims "inextricably intertwined" with Medicare reimbursement require exhaustion)
- RenCare, Ltd. v. Humana Health Plan of Tex., Inc., 395 F.3d 555 (5th Cir.) (contract-provider payment disputes under Part C are private contract actions, not Medicare claims)
- Uhm v. Humana Inc., 620 F.3d 1134 (9th Cir.) (discussing limits of jurisdiction over Medicare Advantage organization disputes)