M.G. v. Scrase, 637 F.Supp.3d 1238

Background

Plaintiffs are medically fragile children approved for Medicaid private duty nursing hours who allege they are not receiving medically necessary in‑home nursing, putting them at risk of hospitalization and isolation.
New Mexico Human Services Department (HSD) administers Medicaid but contracts with Managed Care Organizations (MCOs) (Western Sky, HCSC/BCBSNM, Presbyterian) to provide services under written MCO agreements.
Plaintiffs sued the MCOs (and others) asserting claims under the ADA, Rehabilitation Act, ACA, and state law, but the claims against the MCOs rest solely on alleged breaches of HSD’s contracts (asserted as third‑party beneficiaries under the New Mexico Patient Protection Act (PPA)).
MCOs moved to dismiss under Rule 12(b)(6), arguing plaintiffs are not intended third‑party beneficiaries because the contracts disclaim third‑party enforcement and the PPA does not invalidate that disclaimer for Medicaid enrollees.
The court considered the MCO agreement as incorporated by reference into the complaint and held that PPA §59A‑57‑10 limits the PPA’s application to Medicaid such that HSD retains sole authority to determine and enforce Medicaid benefits, permitting HSD to contractually bar third‑party enforcement against MCOs.
The court dismissed all claims against the MCO defendants with prejudice (first cause of action as to MCOs; second through fourth causes in their entirety) and declared the contractual exclusionary terms valid as applied to these plaintiffs.

Issues

Issue	Plaintiff's Argument	Defendant's Argument	Held
May the court consider the MCO agreements on a 12(b)(6) motion?	Contracts are outside the complaint; court should not consider extrinsic facts.	Agreements are referenced in and central to the complaint and authentic, so admissible on 12(b)(6).	Court may consider the MCO Agreement incorporated by reference.
Do plaintiffs have a right to enforce the MCO–HSD contracts as third‑party beneficiaries under the PPA?	PPA §59A‑57‑9(C) grants enrollees a private right to sue to enforce managed care contracts.	PPA §59A‑57‑10 limits application to Medicaid and preserves HSD’s sole authority; contracts validly disclaim third‑party rights.	Plaintiffs are not third‑party beneficiaries for these Medicaid contracts; dismissal for failure to state a claim.
Does the PPA invalidate contractual disclaimers of third‑party enforcement for Medicaid enrollees?	The PPA overrides disclaimers and permits enrollees to sue MCOs.	The PPA’s Medicaid‑specific provision preserves HSD’s authority and allows contractual disclaimers vis‑à‑vis enrollees.	The PPA does not invalidate the disclaimer as applied here; the exclusionary terms are not invalid as to these plaintiffs.
Were plaintiffs required to exhaust administrative remedies or follow contract dispute resolution?	Plaintiffs say exhaustion and contractual dispute resolution are not required and are futile.	MCOs argued exhaustion and dispute resolution bar suit.	Court did not decide exhaustion/dispute‑resolution because dismissal was warranted on third‑party beneficiary ground.

Key Cases Cited

Ashcroft v. Iqbal, 556 U.S. 662 (2009) (pleading must state a plausible claim).
Bell Atl. Corp. v. Twombly, 550 U.S. 544 (2007) (plausibility pleading standard).
Jacobsen v. Deseret Book Co., 287 F.3d 936 (10th Cir. 2002) (documents central to claims and referenced in complaint may be considered on a motion to dismiss).
Gorsuch, Ltd. v. Wells Fargo Nat'l Bank Ass'n, 771 F.3d 1230 (10th Cir. 2014) (upholding dismissal of third‑party beneficiary claim under Rule 12(b)(6)).
O.B. v. Norwood, 838 F.3d 837 (7th Cir. 2016) (Medicaid enrollees may obtain injunctive relief to secure in‑home services; cited as persuasive background but not controlling on New Mexico law).
Fleet Mortg. Corp. v. Schuster, 811 P.2d 81 (N.M. 1991) (third‑party beneficiary enforcement principles under New Mexico law).
State v. Davis, 74 P.3d 1064 (N.M. 2003) (statutes are given their plain meaning unless literal reading leads to absurdity).