Christus Health Gulf Coast v. Aetna, Inc.

167 S.W.3d 879

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

No. 14-03-01281-CV.

Court of Appeals of Texas, Fourteenth District, Houston.

April 14, 2005.

Rehearing En Banc Overruled July 21, 2005.

COPYRIGHT MATERIAL OMITTED

David E. Warden, Scott M. Clearman, Brian Dean Walsh, Houston, for appellants.

John B. Shely, Kendall Matthew Gray, Houston, for appellees.

Panel consists of Justices YATES, ANDERSON, and HUDSON.

OPINION ON REHEARING

LESLIE BROCK YATES, Justice.

Appellants, 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"), sued appellees, Aetna, Inc. and Aetna Health, Inc. (collectively "Aetna"), for breach of contract, quantum meruit, breach of fiduciary duty, and to collect on accounts arising from Aetna's failure to pay the Hospitals for health care services they provided to Medicare patients enrolled in an Aetna health maintenance organization ("HMO"). Aetna moved to dismiss for lack of subject matter jurisdiction, arguing that the Hospitals failed to exhaust federal administrative remedies provided under the Medicare program. The trial court agreed and dismissed for lack of jurisdiction. In three issues, the Hospitals claim the trial court erred in granting Aetna's motion to dismiss. Because we find that the Hospitals were required to first exhaust administrative remedies, we affirm.

In our opinion of December 28, 2004, we affirmed the trial court's judgment. On January 7, 2005, the Hospitals filed a motion for rehearing. We overrule the Hospitals' motion, withdraw our previous opinion, and issue this opinion on rehearing, affirming the trial court's judgment.

I. THE MEDICARE PROGRAM

Title XVIII of the Social Security Act, 42 U.S.C. §§ 1395-1395ggg (2000), commonly known as the Medicare program, is administered by the Department of Health and Human Services ("HHS"). The Medicare program traditionally consisted of two parts. Part A provides insurance against the cost of institutional health services, such as hospitals and nursing homes. Part B provides, for a monthly premium, supplemental benefits for additional medical needs, such as physician services and laboratory tests. See Schweiker v. McClure, 456 U.S. 188, 189-90, 102 S.Ct. 1665, 72 L.Ed.2d 1 (1982) (describing Medicare Parts A and B).

In 1997, Congress amended the statute and added a new Part C called the Medicare+Choice or "M+C" program. Medicare Program; Medicare+Choice Program, Final Rule with Comment Period, 65 Fed.Reg. 40170, 40171 (June 29, 2000). Congress created the M+C program to "allow beneficiaries to have access to a wide array of private health plan choices" in addition to traditional Medicare and to "enable the Medicare program to utilize innovations that have helped the private market contain costs and expand health care delivery options." H.R. CONF. REP. NO. 105-217, at 585 (1997), reprinted in 1997 U.S.C.C.A.N. 205-06. To accomplish these goals, the Health Care Financing Administration ("HCFA"), now called the Centers for Medicare and Medicaid Services, contracts with HMOs and other private firms to provide health care to Medicare patients who choose coverage under Part C as opposed to the traditional route of Parts A and B. Medicare+Choice Program, 65 Fed.Reg. at 40172. The entity that contracts with the HCFA is called an M+C organization. M+C organizations may then contract with providers to provide health care services to their Medicare enrollees under the terms and conditions negotiated in the contract. Such providers are contract providers. Medicare patients may also seek health care services from providers with no contractual relationship with an M+C organization. These are noncontract providers.

II. FACTUAL BACKGROUND

NYLCare 65 is an HMO owned by Aetna, and NYLCare 65 became an M+C organization by virtue of a contract with the HCFA.¹ Aetna then contracted with North America Medical Management ("NAMM") to administer this health care program. Aetna paid NAMM a monthly capitation payment,² and NAMM agreed to be responsible for paying claims from health care providers for services to M+C patients. NAMM then contracted with various health care providers to offer these services. Each of the Hospitals had such a contract with NAMM.

NAMM became insolvent and never responded to approximately 6,000 claims from the Hospitals totaling over $13 million. The Hospitals then demanded that Aetna pay the claims on the theory that Aetna was statutorily liable to pay for the health care services provided to its patients, despite having contracted with NAMM to perform that service. Aetna refused to pay.

The Hospitals sued Aetna for breach of contract, quantum meruit, breach of fiduciary duty, and to collect on accounts. The trial court granted Aetna's motion to dismiss for lack of subject matter jurisdiction because the Hospitals did not first pursue their claims through the administrative process established under the Medicare program. The Hospitals claim this was error because, for a variety of reasons, this administrative process does not apply to them.

III. ANALYSIS

A. The Hospitals' claims arise under the Medicare Act.

Courts have subject matter jurisdiction to review claims "arising under" the Medicare Act only after the claimant unsuccessfully seeks payment and then exhausts the administrative remedies provided under the Act. See Heckler v. Ringer, 466 U.S. 602, 614-15, 104 S.Ct. 2013, 80 L.Ed.2d 622 (1984). A claim arises under the Medicare Act if "both the standing and the substantive basis for the presentation" of the legal claim is the Act or if it is "inextricably intertwined" with a claim for benefits. See id. at 614-15, 624, 104 S.Ct. 2013. In applying this standard, it does not matter how a claim is characterized. If, "at bottom," the plaintiff seeks Medicare benefits, the claim arises under the Act and must go through the administrative process. Id. at 614, 104 S.Ct. 2013.

The Supreme Court has instructed that the term "arising under" be construed "quite broadly." Id. at 615, 104 S.Ct. 2013. This promotes the important policy considerations of avoiding premature interference with agency processes and uniformity and consistency in administration of the Medicare program. See Weinberger v. Salfi, 422 U.S. 749, 765, 95 S.Ct. 2457, 45 L.Ed.2d 522 (1975) ("Exhaustion is generally required as a matter of preventing premature interference with agency processes, so that the agency may function efficiently and so that it may have an opportunity to correct its own errors, to afford the parties and the courts the benefit of its experience and expertise, and to compile a record which is adequate for judicial review."); Maximum Home Health Care, Inc. v. Shalala, 272 F.3d 318, 321 (6th Cir.2001) ("The purpose of a regulatory scheme such as Medicare is to provide uniform rules by which all participants may be treated equally."); Friedrich v. Sec'y of Health & Human Servs., 894 F.2d 829, 837 (6th Cir.1990) ("National standards are essential if there is to be uniformity and equality in the administration of Medicare.").

Such uniformity is crucial on decisions regarding Medicare coverage so that a Medicare patient's right to health care services does not vary from state to state. Thus, all coverage decisions must go through the administrative procedures of the Medicare program. See 42 C.F.R. § 422.402(b)(3) (2003) (stating that the Medicare Act preempts all state law coverage determinations); Medicare+Choice Program, 65 Fed.Reg. at 40261 (explaining that state courts are preempted from deciding any claim "in which the legal issue before the court is . . . whether services are covered under the terms of an M+C contract"); Medicare Program; Establishment of the Medicare+Choice Program, Interim Final Rule with Comment Period, 63 Fed.Reg. 34968, 35013 (June 26, 1998) (noting that the Medicare appeals process is the exclusive remedy for any dispute over whether a service is covered under a Medicare contract).³ For these important policy reasons, we resolve any doubts in favor of requiring claims to first proceed through the administrative process. See New York v. Lutheran Ctr. for the Aging, Inc., 957 F.Supp. 393, 397 (E.D.N.Y.1997) (holding that "regardless of whether the services at issue are ultimately determined to be covered by Medicare, they still must be litigated through the administrative process").

We hold that the Hospitals' claims arise under the Medicare Act. Though their claims are characterized under state law, such as for breach of contract, they are "inextricably intertwined" with a claim for benefits because, "at bottom," they are seeking payment for services provided to Medicare patients. Heckler, 466 U.S. at 614, 104 S.Ct. 2013. As such, the Hospitals were required to first exhaust the administrative process. See id. Though Heckler was decided under Parts A and B of Medicare, at least three other courts have applied this same analysis to claims under Part C, including one involving NAMM, the very same intermediary in this case. See In re Heritage Southwest Med. Group, P.A., 309 B.R. 916 (Bankr.N.D.Tex.2004); Foley v. Southwest Tex. HMO, Inc., 226 F.Supp.2d 886 (E.D.Tex.2002); Lifecare Hosps., Inc. v. Ochsner Health Plan, Inc., 139 F.Supp.2d 768 (W.D.La.2001). We agree with their analysis of this issue and conclude that the trial court did not have subject matter jurisdiction over the Hospitals' claims.

B. The Hospitals are not excused from exhausting administrative remedies.

The Hospitals argue that, for a variety of reasons, the administrative process does not apply to them and their claims. A detailed description of the administrative process is necessary to put the Hospitals'...