298 F. Supp. 3d 1316
C.D. Cal.2018Background
- Prime Healthcare (18 plaintiff hospitals) alleges Humana (an MAO) systematically downcoded claims from Jan 1, 2012 to Feb 29, 2016, causing underpayment for services to Humana commercial and Medicare Advantage (MA) members.
- Plaintiffs and Humana had Letters of Agreement (LOAs) requiring hospitals to comply with Medicare laws and a Medicare Advantage Provisions attachment.
- Plaintiffs sued asserting breach of written, oral, and implied contracts, breach of covenant of good faith and fair dealing, and a UCL claim; they sought > $75,000 in damages.
- District court previously dismissed earlier complaints for failure to plead administrative exhaustion for claims said to "arise under" the Medicare Act; plaintiffs filed a Fourth Amended Complaint (4AC) adding that appeals were exhausted or futile.
- Humana moved to dismiss the 4AC, arguing the Medicare Act preempts plaintiffs’ state-law claims because they are inextricably intertwined with claims for Medicare benefits; court granted the motion but allowed one final amendment.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether plaintiffs' contract/tort/UCL claims are preempted by the Medicare Act | State law governs payment disputes between MAOs and contracted providers because Medicare/CMS do not set private contract payment terms; administrative remedies are unavailable or futile | Plaintiffs' claims are "inextricably intertwined" with Medicare benefits and thus arise under the Medicare Act and are preempted | Court held claims arise under Medicare, are preempted, and dismissed (with leave to amend) |
| Whether plaintiffs have satisfied exhaustion or futility to evade Medicare preemption/exclusive review | 4AC alleges appeals exhausted or that Humana refused to act, making exhaustion futile | Prior precedent requires Medicare-based claims to follow Medicare review; exhaustion allegations do not avoid preemption | Court found futility allegations insufficient to overcome that the claims arise under Medicare; preemption applies |
| Whether the LOAs' incorporation of Medicare provisions means state law governs disputes | Plaintiffs: LOAs do not displace state law for contract enforcement between private parties | Humana: LOAs incorporate Medicare rules; resolving downcoding/underpayment requires interpreting Medicare statutes/regulations | Court held LOAs bind plaintiffs to Medicare standards; resolving claims requires applying Medicare law, so state-law claims are preempted |
| Procedural sufficiency of Rule 12(b)(6) challenge | Plaintiffs contended parts of claims should be resolved by motion to strike | Humana moved under Rule 12(b)(6) to dismiss entire claims as preempted | Court found Rule 12(b)(6) dismissal appropriate and denied the procedural objection |
Key Cases Cited
- Uhm v. Humana Health Ins. Co., 620 F.3d 1134 (9th Cir.) (state-law provider claims preempted when inextricably intertwined with Medicare)
- Heckler v. Ringer, 466 U.S. 602 (U.S.) (42 U.S.C. § 405(g) is the sole avenue for judicial review of claims arising under Medicare)
- Prime Healthcare Huntington Beach, LLC v. SCAN Health Plan, 210 F. Supp. 3d 1225 (C.D. Cal.) (discussing MA plan preemption and necessity of Medicare standards for resolving disputes)
- Ashcroft v. Iqbal, 556 U.S. 662 (U.S.) (pleading standard for plausible claims)
- Bell Atl. Corp. v. Twombly, 550 U.S. 544 (U.S.) (pleading must raise entitlement to relief above speculative level)
- Phillips v. Kaiser Found. Health Plan, 953 F. Supp. 2d 1078 (N.D. Cal.) (UCL and similar claims preempted where resolution requires application of CMS/Medicare standards)