Healthcare Practice Group
May 13, 2016
California Court Rules Medicare Does Not Preempt Hospital
Claims Against Payer
On April 27, 2016, a California state court judge in a Complex Litigation
department for the County of Los Angeles, ruled in favor of 13 of our
hospital clients on an important matter involving substantive and financial
rights: Whether hospitals must exhaust administrative remedies under
Medicare law before they may seek reimbursement directly against Medicare
Advantage (“MA”) plans in court. After concluding that express and implied
preemption do not apply to hospital claims for emergency services against a
non-contracted MA plan, Judge Jane Johnson ruled that the such hospital
claims do not “arise under” the Medicare Act and therefore, the hospitals are
not required to appeal each denial administratively before filing a lawsuit.
Without this ruling, the hospitals would only be able to pursue payment for
emergency services rendered to MA beneficiaries (or defend alleged
overpayments) by filing thousands of individual appeals and pursuing them
through multiple levels – an extremely costly and administratively
burdensome process – only to end up filing or defending the claims in
lawsuits once administrative remedies were exhausted.
Courts are split on this issue. For example, courts in Georgia,1 Florida,2 and
Ohio,3 have found that hospitals must exhaust administrative remedies, while
courts in Alabama,4 Texas,5 and New York 6 have ruled to the contrary.
The courts that ruled exhaustion was not required generally followed the
reasoning in RenCare, Ltd. v. Humana Health Plan of Tex., 395 F.3d 555,
557 (5th Cir. 2004), which held that once medical services have been
provided to an enrollee covered under Medicare Part C, hospitals are free to
pursue their state court remedies against the health plan because the
government’s risk has been extinguished.7 That is, under Medicare Part C,
the Medicare Advantage program,8 the private companies and HMOs (“MA
organizations”) with which the Centers for Medicare and Medicaid Services
(“CMS”) contracts to provide health care benefits to Medicare beneficiaries,9
take the risk that their costs for providing care will exceed the amount CMS
costs of providing covered services to beneficiaries exceed the amount of the
per-member-per-month payments, MA organizations lose money. If the costs
are less than CMS pays, MA organizations make money. Thus, CMS
contractually shifts the financial risk of providing benefits to private
organizations in that the private organizations assume “full financial risk on a
prospective basis for the provision of the health care services for which
For more information, contact:
Marcia L. Augsburger
+1 916 321 4803
maugsburger@kslaw.com
King & Spalding
Sacramento
621 Capitol Mall
Suite 1500
Sacramento, CA 95814
Tel: +1 916 321 4800
Fax: +1 916 321 4900
www.kslaw.com
