Proceedings: Defendants’ Motion to Dismiss
Plaintiffs’ Motion to Remand Action to State Court and Request for Costs and Expenses Pursuant to 28 U.S.C. § 1447(c) [12]
Cause called and counsel make their appearances. The Court tentative ruling is issued. Counsel argue motion. The Court grants in part SCAN’s Motions to Dismiss under Rule 12(b)(1), rendering SCAN’s Motions to Dismiss under Rule 12(b)(6) and Plaintiffs’ Motion to Remand moot, and rules in accordance with the tentative ruling as follows:
Before the Court are three identical Motions to Remand to State Court brought in three related cases by three different plaintiffs: Prime Healthcare Huntington
Also before the Court are three identical Motions to Dismiss filed by Defendant SCAN Health Plan (“SCAN”), based on lack of subject matter jurisdiction (Federal Rule of Civil Procedure 12(b)(1)) and failure to state a claim for relief (Federal Rule of Civil Procedure 12(b)(6)). Case No. 16-1226, Dkt. 11; Case No. 16-1247, Dkt. 12; Case No. 16-1284, Dkt. 13 (collectively, the “Motions to Dismiss”).
The Court has reviewed the Motions to Remand and the Motions to Dismiss, as well as the respective oppositions and replies. Case No. 16-1226, Dkt. 14,15,19, 20; Case No. 16-1247, Dkt. 17,18, 20, 21; Case No. 16-1284, Dkt. 19, 20, 22, 23.
Statutory Background
The Medicare Act (also referred to herein as “Medicare”) was enacted in 1965 as a federal health insurance program primarily benefitting those 65 years of age and older. See 42 U.S.C. § 1395 et. seq. It has been described as “among the most completely impenetrable texts within human experience,” requiring “dense reading of the most tortuous kind.” Rehab. Ass’n of Virginia, Inc. v. Kozlowski,
At its enactment, Medicare consisted of only two parts, Parts A and B. Under this “traditional” Medicare, the federal government paid health care providers directly for services rendered to Medicare beneficiaries. 42 U.S.C. §§ 1395c-1395i-5 (Part A), 1395j-1395w-6 (Part B). Congress authorized Part D of the Medicare Act in 2003, which provides for prescription drug coverage for Medicare enrollees. 42 U.S.C. §§ 1395w-101-154. Part E consists of “miscellaneous provisions.” 42 U.S.C. §§ 1395X-lll.
This case concerns Part C of the Medicare Act, enacted in 1997 and creating the Medicare Advantage program. 42 U.S.C. §§ 1395w-21-29. Under Part C, Medicare enrollees can receive Medicare benefits through private organizations called Medicare Advantage Organizations, or “MAOs,” instead of the government. Id. The government pays MAOs monthly fees in exchange for assuming the risk of providing covered services to enrollees. 42 U.S.C. § 1395w-23. The amount that MAOs receive per enrollee is based on contracts with the Centers for Medicare and Medicaid Services (“CMS”), an agency within the Department of Health and Human Services. Dkt. 11-2, Declaration of Lisa Davis (“Davis Deck”) ¶ 2; 42 U.S.C. § 1395w-27.
MAOs contract with certain health care providers to provide Medicare services. 42 U.S.C. § 1395w-22(d)(1). However, MAOs must also provide coverage for emergency services without regard to the emergency care provider’s contractual relationship with the MAO. Id. MAOs reimburse non-contracting providers who provide these emergency services based on rates set by the Medicare Act and related regulations. See 42 C.F.R. § 422.214(a) (payments limited to what “the provider would collect if
Plaintiffs’ Claims
Plaintiffs meticulously avoid invoking the Medicare Act in their Complaints. See Dkt. 11-1 (“Complaint”). Rather, Plaintiffs describe themselves as “non-participating providers” entitled “to be reimbursed by [SCAN] for care provided to [SCAN’s] members based on [Plaintiffs’] reasonable and customary rates.” Id. at 3-4. Plaintiffs allege that, contrary to SCAN’s “statutory and contractual duties,” SCAN reimbursed Plaintiffs at artificially deflated rates. Id. Plaintiffs cite California law for this proposition. See Complaint. It is readily apparent, however, based on Plaintiffs’ own briefing, that Plaintiffs seek reimbursement from SCAN, an MAO, for emergency services rendered to its Medicare Advantage plan enrollees. See, e.g., Dkt. 14 at 9 (stating that SCAN is responsible for reimbursing Plaintiffs for services rendered to enrollees because SCAN is an operator of Medicare Advantage Plans under Medicare Part C).
Plaintiffs bring five claims under California law against SCAN. First, Plaintiffs bring quantum meruit claims for breach of implied contracts, citing California regulations that allegedly require SCAN to reimburse Plaintiffs for the “reasonable” value of emergency services provided to SCAN’s “members.” Complaint at 5-6. Second, Plaintiffs bring claims under California’s Unfair Competition Law for failure to reimburse Plaintiffs for the “reasonable and customary value” for Plaintiffs’ services, as California law allegedly requires, and for sometimes failing to reimburse Plaintiffs at all. Id. at 6-7. Third, Plaintiffs bring breach of contract claims as intended third-party beneficiaries of the Evidence of Coverage documents (“EOCs”) provided by SCAN to its Medicare Advantage plan enrollees. Id. at 4-5, 8-9. Fourth, Plaintiffs bring breach of contract claims based on a theory of assignment. Plaintiffs argue that the EOCs entitle members to certain benefits, and that when plan members treated by Plaintiffs sign “Conditions of Admission” forms, they assign to Plaintiffs the members’ rights to these benefits. Id. at 9-10. Fifth, Plaintiffs allege breach of the covenants of good faith and fair dealing “inherent in the EOCs.” Id. at 10.
SCAN attaches to its Motions to Dismiss sample copies of two of its EOCs. Davis Decl. ¶ 5A-B, Ex. A, Ex. B. The EOC booklets give members “details about [their] Medicare health care” coverage and are each over 200 pages long. Id., Ex. A at 3, Ex. B at 4.
Analysis
SCAN moves to dismiss, arguing on the one hand under Rule 12(b)(1) that the Court lacks subject matter jurisdiction because Plaintiffs have not exhausted their administrative remedies, and arguing on the other hand under Rule 12(b)(6) that the Court has subject matter jurisdiction because Plaintiffs’ claims are preempted by the Medicare Act. Plaintiffs agree that the Court lacks subject matter jurisdiction, but do so on the ground that their claims are not preempted, and argue that the Court should remand these cases to state court.
The threshold issue is whether the Court has subject matter jurisdiction. See Sinochem Int’l Co. Ltd. v. Malaysia Int’l Shipping Corp.,
The Court declines to reach Plaintiffs’ Motions to Remand because it determines
Whether the Third Sentence of 42 U.S.C. § 405(h) Limits This Court’s Jurisdiction over Suits Brought by Non-Contracting Providers against MAOs
In traditional Medicare, the Secretary of Health and Human Services (“Secretary”) makes initial determinations with respect to benefits. 42 U.S.C. § 1395ff(a)(l). Dissatisfied parties may appeal these determinations through an administrative review process. 42 U.S.C. § 1395ff(b). Under 42 U.S.C. § 405(g), a claimant may request federal judicial review of the Secretary’s “final decision” regarding a benefits determination. See 42 U.S.C. 1395ff(b)(1)(A) (making § 405(g) applicable to Medicare). A “final decision” consists of two elements: presentment of a claim for benefits (non-waivable) and exhaustion of administrative remedies (waivable by the Secretary or the Court in limited circumstances). Johnson v. Shalala,
Federal regulations provide for a separate MAO administrative review process for MAO benefits determinations (or “organization determinations”). See 42 C.F.R. §§ 422.582 (first step being request for MAO reconsideration), 422.592 (second step being appeal to private independent contractor), 422.600 (third step being request for administrative law judge hearing), 422.608 (fourth step being review by Medicare Appeals Council, a division of Health and Human Services), 405.1130 (making the council’s decision “final and binding” unless federal district court modifies). MAO determinations include determinations made by MAOs with respect to payment for emergency services, and non-contracting providers like Plaintiffs can request and appeal MAO determinations.
Section 405(g) applies to the MAO review process. See 42 U.S.C. § 1395w-22(g)(5). Notably, § 405(g) does not limit alternative avenues of federal court jurisdiction over benefits disputes. Rather, it is the third sentence of 42 U.S.C. § 405(h) that limits these routes:
The findings and decision of the [Secretary] after a hearing shall be binding upon all individuals who were parties to such hearing. No findings of fact or decision of the [Secretary] shall be reviewed by any person, tribunal, or governmental agency except as herein provided. No action against the United States, the [Secretary], or any officer or employee thereof shall be brought under section 1331 [federal question jurisdiction] or 1346 [federal defendant jurisdiction] of Title 28 to recover on any claim arising under this subchapter.
42 U.S.C. § 405(h) (made applicable to Medicare by 42 U.S.C. § 1395ii). Thus, while the second sentence of § 405(h) states only that if plaintiffs pursue their administrative remedies, then the Secre-
The parties do not address in their briefing whether SCAN is an “officer or employee” of the United States or the Secretary. If SCAN is not, then this Court could have jurisdiction under § 1331, for example, and Plaintiffs would not need to pursue their administrative remedies. SCAN argues that the MAO review process is “mandatory”—i.e., provides the only jurisdictional basis for this Court. See Dkt. 11 at 18 (stating that Plaintiffs “must avail themselves” of the MAO review process); Dkt. 15 at 14-15 (stating that the MAO review process is mandatory for Plaintiffs). SCAN cites statutes and regulations describing the MAO review process, none of which limits this Court’s jurisdiction. See, e.g., Dkt. 11 at 18 (citing 42 C.F.R. §§ 422.566, 574(b), 574(d), 578, 616(d)).
SCAN also cites language from a 1984 Supreme Court case, Heckler v. Ringer.
Few courts have addressed this issue. Most assume without analysis that the third sentence of § 405(h) applies to suits brought against MAOs. The best guidance this Court has found is a Seventh Circuit case concluding that the third sentence of § 405(h) applies to suits brought against the “fiscal intermediaries” provided for in traditional Medicare—private companies that act as the Secretary’s agent in making reimbursement determinations. See 42 U.S.C. § 1395h(a). In Bodimetric Health Services v. Aetna Life & Casualty,
While not authoritative, Bodimetric suggests that MAOs, by virtue of their contractual relationship with CMS and delegation of Medicare duties, might qualify as “officers or employees” of the Secretary, as those terms are used in § 405(h). On the other hand, enough distinctions may exist between traditional Medicare fiscal intermediaries and MAOs that MAOs should not be considered “offieer[s] or employee[s]” of the United States, meaning that Heckler and the third sentence of § 405(h) would not apply and this Court
Two Ninth Circuit cases guide the Court’s analysis. First, in Kaiser v. Blue Cross of California, owners of a Medicare provider brought statutory, constitutional, and common law claims against the federal government and fiscal intermediary Blue Cross.
Second, in Do Sung Uhm v. Humana, Inc., Medicare beneficiaries brought a putative class action against a health insurance provider for failure to provide promised prescription drug coverage under Part D.
Neither Kaiser nor Uhm dealt with a lawsuit brought by a Part C provider (non-contracting or otherwise) against an MAO, involving neither government nor enrollee liability. However, the underlying assumption of both cases was that the only jurisdictional avenue for claims arising under Medicare brought by any plaintiff— whether suing the federal government or a private party acting as a government agent—is to exhaust the appropriate administrative review process. The Court therefore concludes that, even where suit is brought against an MAO, § 405(h) limits this Court’s jurisdiction over unexhausted claims to those that do not “arise under” Medicare.
The Court must next proceed to the test set out in Heckler to determine whether Plaintiffs’ claims “arise under” Medicare.
Whether Plaintiffs’ Claims “Arise Under” Medicare
In Heckler, the Supreme Court held that claims arise under Medicare for purposes of § 405(h) if “both the standing and the substantive basis for the presentation” of the claims is the Medicare Act. Heckler,
Most courts forego the “standing and substantive basis” test in favor of the “inextricably intertwined” test where plaintiffs do not invoke Medicare in their complaints, as is the case here. See, e.g., id. at 1142 (holding that claims formulated under sources of law other than Medicare can nevertheless be “inextricably intertwined” with Medicare). Some of these courts have concluded that claims brought by providers against MAOs are not “inextricably intertwined” with claims for Medicare benefits. See, e.g., Ohio State Chiropractic Association v. Humana Health Plan Inc.,
These cases are not binding on this Court. And the Court is persuaded that under Ninth Circuit law, Plaintiffs’ claims are inextricably intertwined with claims for Medicare benefits.
According to Plaintiffs, their claims are not intertwined with a “claim for benefits” because no enrollee has requested an MAO determination or been denied benefits. Dkt. 14 at 12-14. The Ninth Circuit might accuse Plaintiffs of being too literal. In Kaiser, the Ninth Circuit concluded that Medicare reimbursements to providers like Plaintiffs should also be considered, broadly speaking, á “claim for benefits,” as the Heckler Court used that phrase. See Kaiser,
The Ninth Circuit is at odds in this regard with the Fifth Circuit in RenCare, which Plaintiffs cite heavily. See RenCare,
Furthermore, it is not apparent to this Court that the Fifth Circuit correctly concluded in RenCare that the MAO review process protects only enrollee and not also provider rights. In the recent Northern District of California case, Kaiser Foundation, Health Plan, Inc. v. Burwell, a non-party provider owned by Prime Healthcare
More fundamentally, the Ninth Circuit has expressly held that claims dealing with the “appropriateness of [a defendant’s] decisions with respect to the compensation [a provider] should have received for the services it provided to Medicare beneficiaries” are “inextricably intertwined” with claims for Medicare benefits. Kaiser,
Courts other than the Ninth Circuit have undertaken a similar analysis with the same outcome. See, e.g., Tenet Healthsystem GB, Inc. v. Care Improvement Plus,
The parties vigorously dispute whether the reasoning in RenCare applies to cases involving non-contracting providers. See Dkt. 15 at 13-14; Dkt. 19 at 2-3. While the distinction between contracting and non-contracting providers may not be dis-positive,
The Court lacks jurisdiction to consider Plaintiffs’ claims. See Kaiser,
For the reasons set forth above, the Court is tentatively inclined to GRANT SCAN’s Motions to Dismiss insofar as they are based on failure to exhaust administrative remedies. The remainder of SCAN’s Motions to Dismiss and Plaintiffs’ Motions to Remand would be moot, and Plaintiffs’ Complaints dismissed without prejudice for lack of subject matter jurisdiction.
Notes
. Given that the parties have filed virtually identical briefs across the three related cases, from this point forward in the Court’s Memorandum and Order, any CM/ECF docket refer-enees are to Case No. 16-1226, and pertain equally to the identical briefs filed in Case Nos. 16-1247 and 16-1284.
. Plaintiffs argue, citing RenCare, Ltd. v. Humana Health Plan of Texas,
. In its replies, SCAN cites to a recent Northern District of California case, Kaiser Foundation Health Plan, Inc. v. Burwell,
. For example, the Sixth Circuit recently indicated that it would apply RenCare's reasoning even to a lawsuit brought by a non-contracting provider against an MAO. See Ohio State Chiropractic Association v. Humana Health Plan Inc.,
. If Plaintiffs intend to argue that their state law claims do not arise from Medicare simply because they do not invoke it, the Court disagrees. See Uhm,