210 F. Supp. 3d 1225
C.D. Cal.2016Background
- Plaintiffs (three Prime Healthcare entities) sued SCAN Health Plan (an MAO) in state court asserting state-law claims (quantum meruit, UCL, breach of contract as third‑party beneficiary and by assignment, and breach of implied covenant) for underpayment of emergency services to SCAN members.
- SCAN removed to federal court and moved to dismiss under Rule 12(b)(1) (lack of subject‑matter jurisdiction for failure to exhaust administrative remedies) and 12(b)(6) (preemption). Plaintiffs moved to remand.
- The dispute centers on reimbursement for emergency services to Medicare Advantage enrollees under Medicare Part C and whether plaintiffs must pursue the MAO administrative review process before seeking federal court relief.
- Medicare’s administrative scheme (including MAO organization determinations and appeals) and 42 U.S.C. § 405(h)’s third sentence (limiting federal jurisdiction for claims "arising under" the Medicare subchapter) are central to the jurisdictional analysis.
- The court reviewed Ninth Circuit precedent (notably Kaiser and Uhm), distinguishing Fifth Circuit authority (RenCare), and concluded plaintiffs’ claims implicate Medicare standards for reimbursement and thus require exhaustion.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether federal court has subject‑matter jurisdiction absent exhaustion of MAO administrative remedies | Plaintiffs argue claims are state‑law disputes not invoking Medicare so no exhaustion; seek remand to state court | SCAN argues exhaustion through MAO administrative review is mandatory because claims arise under Medicare and §405(h) funnels review | Court held plaintiffs must exhaust administrative remedies; lack of subject‑matter jurisdiction now, dismissal without prejudice |
| Whether the third sentence of 42 U.S.C. §405(h) applies to suits against MAOs (private parties) | Plaintiffs contend §405(h) does not bar federal jurisdiction over suits against private MAOs | SCAN contends §405(h)/Heckler limit federal jurisdiction and require administrative exhaustion even against MAOs | Court applied Ninth Circuit guidance and concluded §405(h) limits jurisdiction over claims that arise under Medicare even when defendant is an MAO |
| Whether plaintiffs’ state‑law claims “arise under” Medicare (Heckler tests) | Plaintiffs say they did not invoke Medicare and the dispute is a private billing dispute, so claims do not arise under Medicare | SCAN says reimbursement issues are governed by Medicare/CMS rules, so claims are inextricably intertwined with Medicare benefits determinations | Court held plaintiffs’ claims are inextricably intertwined with Medicare and therefore arise under the Act, requiring exhaustion |
| Whether exhaustion may be waived or remand is appropriate | Plaintiffs argue futility or other exceptions justify bypassing exhaustion and remand | SCAN argues no waiver; exhaustion is required and remand is moot if federal court lacks jurisdiction | Court found plaintiffs did not allege facts to satisfy waiver exceptions and denied remand as moot |
Key Cases Cited
- Rehab. Ass'n of Virginia, Inc. v. Kozlowski, 42 F.3d 1444 (4th Cir.) (describing Medicare’s textual complexity)
- Sinochem Int'l Co. v. Malaysia Int'l Shipping Corp., 549 U.S. 422 (2007) (federal courts must confirm subject‑matter jurisdiction before reaching merits)
- Heckler v. Ringer, 466 U.S. 602 (1984) (interpreting §405(h) to make administrative review the sole route for claims "arising under" Medicare)
- Bodimetric Health Servs. v. Aetna Life & Cas., 903 F.2d 480 (7th Cir.) (private fiscal intermediaries may function as agents/officers for §405(h) purposes)
- Kaiser v. Blue Cross of California, 347 F.3d 1107 (9th Cir.) (provider claims about Medicare reimbursements are inextricably intertwined with Medicare and require exhaustion)
- Uhm v. Humana, Inc., 620 F.3d 1134 (9th Cir.) (Heckler tests applied; some state‑law claims can be "backdoor" attempts to enforce Medicare)
- RenCare, Ltd. v. Humana Health Plan of Texas, 395 F.3d 555 (5th Cir.) (contracting provider’s reimbursement dispute held not to arise under Medicare; relied on by plaintiffs but distinguished by this court)