Christus Health Gulf Coast v. Aetna, Inc.

237 S.W.3d 338

CHRISTUS HEALTH GULF COAST, Christus Health Southeast Texas, Gulf Coast Division, Inc., Memorial Hermann Hospital System And Baptist Hospitals of Southeast Texas, Petitioners, v. AETNA, INC. and Aetna Health, Inc., Respondents.

No. 05-0710.

Supreme Court of Texas.

Argued December 6, 2006.

Delivered August 31, 2007.

Rehearing Denied November 30, 2007.

Scott M. Clearman, Brian D. Walsh, McClanahan & Clearman, L.L.P., David E. Warden and Eric P. Chenoweth, Yetter & Warden, L.L.P., Houston, for Petitioners.

John B. Shely, Dimitri Zgourides, Jeffrey D. Migit and Kendall M. Gray, Andrews & Kurth L.L.P., Houston, for Respondents.

John Barrett Scott, Scott Yung LLP, Dallas, for Texas Gulf Coast HMO, Inc.

Charles W. Bailey, Austin, for amicus curiae Texas Hospital Association.

Isaac J. Lidsky, United States Department of Justice, Washington, DC, Daniel Manuel Castillo, Asst. U.S. Atty., Austin, for amicus curiae United States Department of Health and Human Services.

Chief Justice JEFFERSON delivered the opinion of the Court.

We must decide whether a Texas court has jurisdiction over certain state-law claims asserted by hospitals against a Medicare health maintenance organization, or whether the hospitals must first proceed through the federal administrative machinery. We conclude that the hospitals in this case have alleged facts supporting the trial court's jurisdiction. Accordingly, we reverse the court of appeals' judgment and remand to the trial court for further proceedings.

I The Medicare Advantage Program

Medicare was established in 1965 as part of the Social Security Act. 42 U.S.C. §§ 1395-1395ggg (2000). It is administered by the Centers for Medicare and Medicaid Services ("CMS"), an agency whose mission is to "serve Medicare and Medicaid beneficiaries,"¹ and provides health insurance for most Americans over sixty-five, for certain disabled persons under sixty-five, and for persons with end-stage renal disease. 42 U.S.C. § 1395c. In 1997, Medicare was amended to include Part C, also known as the Medicare Advantage program.² Medicare + Choice Program, 65 Fed.Reg. 40170, 40171 (June 29, 2000). The Medicare Advantage program provides Medicare beneficiaries with "a wider range of health plan choices through which to obtain their Medicare benefits." Establishment of the Medicare Advantage Program, 70 Fed.Reg. 4588, 4589 (Jan. 28, 2005).

Under Medicare Advantage, CMS contracts with health maintenance organizations and other private entities to provide health care services to Medicare enrollees. Id. at 4589-90. Those that enter into such contracts with CMS are called Medicare Advantage organizations, 42 C.F.R. § 422.2, and there are detailed requirements for entities that wish to qualify. 42 C.F.R. § 422.503. Once CMS and a Medicare Advantage organization enter into a contract, CMS makes capitation payments³ to Medicare Advantage organizations for enrollee health care services. 42 C.F.R. § 422.304(a). Upon payment from CMS, the Medicare Advantage organization "assume[s] full financial risk ... for the provision of the health care services for which benefits are required to be provided," 42 U.S.C. § 1395w-25(b), and "must adopt and maintain arrangements satisfactory to CMS to protect its enrollees from incurring liability (for example, as a result of an organization's insolvency or other financial difficulties) for payment of any fees that are the legal obligation of the [Medicare Advantage] organization." 42 C.F.R. 422.504(g)(1). Medicare Advantage organizations may contract with third parties to provide administrative and health care services to enrollees. 42 C.F.R. § 422.214(a). Contracts between Medicare Advantage organizations or their delegates and downstream providers are freely negotiated, with very few exceptions. See, e.g., 42 C.F.R. § 422.504(g)(1)(i) (requiring Medicare Advantage organizations to "[e]nsure that all contractual or other written arrangements with providers prohibit the organization's providers from holding any beneficiary enrollee liable for payment of [fees that are the legal obligation of the Medicare Advantage organization.]").

II The Hospitals, Aetna, and NAMM

Aetna⁴ owned NYLCare, an HMO that became a Medicare Advantage organization by virtue of its contract with CMS.⁵ NYLCare contracted with North American Medical Management of Texas⁶ (NAMM) to administer the plan. CMS made capitation payments to Aetna which, in turn, made monthly payments to NAMM. NAMM was required to deposit the payments into a fund that was designated to pay covered claims for health care services rendered by health care providers to NYLCare members. NAMM then contracted with health care providers, including Christus Health Gulf Coast; Christus Health Southeast Texas; Gulf Coast Division, Inc.; Memorial Hermann Hospital System; and Baptist Hospitals of Southeast Texas (collectively, the Hospitals), to provide services to NYLCare enrollees.

The Hospitals allege that NAMM grossly mismanaged its accounting and failed to track claims accurately. Eventually, NAMM stopped paying the Hospitals for their services. In August 2000, NAMM notified the Hospitals and NYLCare that it was no longer able to satisfy its financial obligations, and on August 31, 2000, the Texas Department of Insurance placed NAMM in supervision conservatorship. Aetna (through NYLCare) assumed responsibility for institutional claims incurred by NYLCare members for covered services rendered on or after August 17, 2000. The Hospitals sought payment from Aetna for services rendered prior to that date, but Aetna refused the "numerous demands" for payment.

On December 5, 2000, four of the five Hospitals wrote CMS, describing in detail the situation and asking CMS to intervene to require Aetna to pay the Hospitals for the unreimbursed services provided to enrollees. On March 30, 2001, CMS responded, in a four-page, single-spaced letter signed by the Acting Director of the Medicare Managed Care Group. The letter analyzed the Hospitals' claims and concluded:

[Y]ou overstate [CMS's] authority to hold [Aetna] responsible for unpaid claims in this instance.... This type of contract dispute is an issue for the state judiciary to decide . . .

[Medicare Advantage] regulations clearly limit [CMS]'s ability to intervene in payment disputes between [Medicare Advantage] organizations and their contracted [Medicare Advantage] providers. In fact, the existence of provider contracts that can be enforced by the courts is why the Congress limited [CMS]'s regulatory authority in comparison to those afforded non-contracted providers.

The Hospitals contend that they also attempted to pursue remedies through the Texas Department of Insurance, but the agency denied jurisdiction over the matter and referred the Hospitals to the Texas court system.

The Hospitals sued Aetna in Harris County district court, alleging $13,067,759.19 in unpaid services, for which they asserted claims under the Texas Insurance Code, suit on an account, breach of contract, breach of fiduciary duty, and quantum meruit. Aetna answered and filed a third-party petition against NAMM. Aetna sought contribution and indemnity, alleging that NAMM "breached [its agreement with Aetna] and its contracts with each of the [Hospitals] by failing to pay for covered services rendered to NYLCare 65 members" before NAMM's insolvency.

Aetna then moved to dismiss the Hospitals' claims, contending that they were governed exclusively by the Medicare Act and that because the Hospitals had not pursued Medicare's administrative remedies, the trial court lacked subject matter jurisdiction over the claims. The Hospitals responded, asserting that under the Texas Insurance Code, Aetna was directly liable to the Hospitals for NAMM's failure to pay. The Hospitals argued that enrollees, not providers, were required to exhaust remedies before suing and that "[t]he administrative review process . . . has no application to the [H]ospitals and, in fact, provides them with no way to seek an administrative review."

On October 2, 2003, the trial court heard and granted the plea to the jurisdiction, dismissing without prejudice the Hospitals' claims. The Hospitals appealed, and the court of appeals affirmed the trial court's judgment. 167 S.W.3d 879. The court concluded that the Hospitals' claims arose under the Medicare Act and that the Hospital therefore had to exhaust administrative remedies before suing in state court.

The Hospitals moved for rehearing, alleging that an opinion issued by the United States Court of Appeals for the Fifth Circuit two days after the court of appeals issued its opinion, was inconsistent with the court of appeals' holding. See Ren-Care, Ltd. v. Humana Health Plan of Tex., Inc., 395 F.3d 555, 557-560 (5th Cir. 2004). The court denied the motion for rehearing and issued an opinion on rehearing in which it discussed and distinguished RenCare. 167 S.W.3d at 888 n. 10. We granted the Hospitals' petition for review.⁷ 49 Tex. Sup.Ct. J. 966 (Sept. 1, 2006).

III Discussion

A Plea to the Jurisdiction

As an initial matter, we note that this case comes to us on a plea to the jurisdiction. As such, the abbreviated record—a single volume of trial court pleadings and the reporter's record from the non-evidentiary hearing on the jurisdictional plea—leaves many questions unanswered. For example, none of the contracts referred to are in the record. Nor is there evidence of the types of services rendered to the NYLCare enrollees; the sparse record simply shows unpaid balances totaling some thirteen million dollars. Because this is a jurisdictional plea, however, we construe the pleadings liberally in favor of the plaintiffs and look to the pleaders' intent. Texas Dept. of Parks and Wildlife v. Miranda, 133 S.W.3d 217, 226 (Tex.2004). When a plea to the jurisdiction challenges the pleadings, we determine if the pleader has alleged facts that affirmatively demonstrate the court's...