Liberty Dialysis Haw. LLC v. Kaiser Found. Health Plan, Inc.

LIBERTY DIALYSIS - HAWAII LLC, Plaintiff, v. KAISER FOUNDATION HEALTH PLAN, INC.,and KAISER FOUNDATION HOSPITALS, Defendants.

CIV. NO. 17-00318 JMS-RLP

UNITED STATES DISTRICT COURT FOR THE DISTRICT OF HAWAII

September 28, 2017

ORDER DENYING DEFENDANTS KAISER FOUNDATION HEALTH PLAN, INC. AND KAISER FOUNDATION HOSPITALS' MOTION TO DISMISS COMPLAINT, ECF NO. 9

ORDER DENYING DEFENDANTS KAISER FOUNDATION HEALTH PLAN INC. AND KAISER FOUNDATION HOSPITALS' MOTION TO DISMISS COMPLAINT, ECF NO. 9

I. INTRODUCTION

Defendants Kaiser Foundation Health Plan, Inc. ("KFHP" or the "Plan") and Kaiser Foundation Hospitals ("KFH") (collectively "Kaiser Foundation") move to dismiss the complaint filed against them by Plaintiff, Liberty Dialysis-Hawaii LLC ("Liberty"). ECF No. 9. Kaiser Foundation contends that this court lacks subject-matter jurisdiction because Liberty's claims arise under the Medicare Act and Liberty has neither presented its claims to the Secretary of the Department of Health and Human Services nor exhausted administrative remedies under the Act. Id. The court finds that the claims do not arise under the Medicare Act and therefore DENIES the motion to dismiss.

II. BACKGROUND

A. Basic Statutory Framework

Medicare Advantage, which was established in 1997 as Medicare+Choice under Part C of the Medicare Act,¹ is an alternative to the original fee-for-service option that is included in Parts A and B of the Act (referred to as "traditional" or "original" Medicare). 42 U.S.C. § 1395w-21(a). Under the Medicare Advantage option, Medicare beneficiaries elect to receive Medicare benefits through a plan offered by a Medicare Advantage Organization ("MAO"), generally a private insurer, that contracts with the Centers for Medicare and Medicaid ("CMS") to administer Medicare benefits to plan enrollees. 42 U.S.C. § 1395w-21, 27. The MAO assumes the risk of providing benefits to its enrollees in exchange for fixed payments from CMS that are based on the number of beneficiaries enrolled in the plan or plans. See 42 U.S.C. § 395w-23, -25(b); 42 CFR § 422.208(a).

The MAO may select third-party providers to treat its enrollees, and these providers may or may not have contractual relationships with the MAO. See 42 U.S.C. § 395w-22(d)(1), -25(b)(4). Those that do are called "contract providers," and the MAO pays them at contractually agreed-upon rates. "TheMedicare Act permits these types of contracts, and provides very few limitations on how they can be drafted." Tenet Healthsystem GB, Inc. v. Care Improvement Plus S. Cen. Ins. Co., 2017 WL 3567819 at *2 (11th Cir. Aug. 18, 2017) (citing as an example 42 C.F.R. § 422.520(b), requiring contracts between MAOs and providers to contain a prompt-payment provision); RenCare, Ltd. v Humana Health Plan of Tex., Inc., 395 F.3d 555, 559 (2004) (same). But an MAO must pay providers with whom it has no contract ("noncontract providers") the same rates set by the Medicare Act and its regulations. 42 U.S.C. § 1395w-22(a)(2)(A); 42 C.F.R. § 422.214(a).

B. Factual Background

KHFP is a Medicare Advantage Organization. Compl. ¶ 8, ECF No. 1-2; Notice of Removal ¶ 5, ECF No. 1. Under the terms of a 2007 letter of agreement (the "Agreement") between Liberty and KFH, Liberty agreed to provide outpatient renal dialysis and related services to KFHP members, including the Plan's Medicare Advantage members. Compl. ¶ 7. KFH agreed to pay Liberty for such treatment and services according to a rate table appended to the Agreement. Id. ¶¶ 7-9. According to Liberty, beginning in January 2011, Kaiser Foundation stopped paying Liberty on time and at the contracted rates for services provided to KFHP's members, including, but not limited to, its Medicare Advantage plan members. Compl. ¶ 17. It reduced its payments for some services, stopped payingaltogether for others, and extended its payment cycle. Compl. ¶ 17. Liberty contends that Kaiser Foundation's actions coincided with changes to the Medicare reimbursement structure that have no bearing on its contract with KFH. Compl. ¶¶ 18-19.

C. Procedural Background

Liberty filed a state-court action asserting claims for breach of contract, accounting, and declaratory judgment. Compl. ¶¶ 41-56. Kaiser Foundation removed the case to federal court. Notice of Removal, ECF No. 1. On July 20, 2017, Kaiser filed this Motion to Dismiss Complaint for Lack of Subject Matter Jurisdiction. ECF No. 9. Liberty filed an Opposition on September 18, 2017, ECF No. 22, and Kaiser Foundation filed its Reply on September 11, 2017. ECF No. 24. A hearing was held on September 25, 2017.

III. STANDARD OF REVIEW

Federal Rule of Civil Procedure 12(b)(1) authorizes a court to dismiss claims over which it lacks subject-matter jurisdiction. The moving party "should prevail [on a Rule 12(b)(1) motion to dismiss] only if the material jurisdictional facts are not in dispute and the moving party is entitled to prevail as a matter of law." Casumpang v. Int'l Longshoremen's & Warehousemen's Union, 269 F.3d 1042, 1060-61 (9th Cir. 2001) (citation and quotation marks omitted); Tosco Corp. v. Cmtys. for a Better Env't, 236 F.3d 495, 499 (9th Cir. 2001).

A Rule 12(b)(1) challenge may be either facial or factual. Safe Air for Everyone v. Meyer, 373 F.3d 1035, 1039 (9th Cir. 2004). In a facial attack such as the one here, the court may dismiss a complaint when the allegations of and documents attached to the complaint are insufficient to confer subject-matter jurisdiction. See Savage v. Glendale Union High Sch. Dist. No. 205, 343 F.3d 1036, 1039 n.2 (9th Cir. 2003). When determining whether subject-matter jurisdiction exists, all allegations of material fact are taken as true and construed in the light most favorable to the nonmoving party. Fed'n of African Am. Contractors v. City of Oakland, 96 F.3d 1204, 1207 (9th Cir. 1996).

IV. ANALYSIS

Kaiser Foundation contends that the majority of Liberty's claims "arise under" the Medicare Act and that Liberty was therefore required to exhaust administrative remedies before seeking judicial review. Mot. at 2. Because Liberty failed to do so, Kaiser Foundation argues that this court lacks subject-matter jurisdiction over Liberty's claims and must dismiss this suit. Id. The court disagrees, however, and finds that the dispute between Liberty and Kaiser Foundation is a private contract dispute not "arising under" the Medicare Act.

The Medicare Act incorporates the exhaustion requirement in § 405(h) of the Social Security Act. 42 U.S.C. § 1395ii. In a suit involving traditional Medicare, the Supreme Court held that "[j]udicial review of claimsarising under the Medicare Act is available only after the Secretary renders a 'final decision' on the claim, in the same manner as is provided in 42 U.S.C. § 405(g) for old age and disability claims arising under Title II of the Social Security Act." Heckler v. Ringer, 466 U.S. 602, 605 (1984) (internal footnote omitted); see Kaiser v. Blue Cross of Cal., 347 F.3d 1107, 1111 (9th Cir. 2003) ("Jurisdiction over cases 'arising under' Medicare exists only under 42 U.S.C. § 405(g), which requires an agency decision in advance of judicial review."). "Federal regulations provide for a separate MAO administrative review process for MAO benefits determinations (or 'organization determinations')." Prime Healthcare Huntington Beach v. SCAN Health Plan, LLC ("SCAN Health"), 210 F. Supp. 3d 1225, 1229 (C.D. Cal. 2016) (citing various provisions in 42 C.F.R. Ch IV, Subch. B, Pt. 422). But "even where suit is brought against an MAO, § 405(h) limits [the court's] jurisdiction over unexhausted claims to those that do not 'arise under' Medicare." Id. at 1231 (relying on Kaiser, and Uhm v. Humana Inc., 620 F.3d 1134 (2010)).

The Supreme Court has interpreted the phrase "arising under" broadly. Heckler, 466 U.S. at 615. A claim arises under the Medicare Act when "both the standing and the substantive basis for the presentation" of the claim is the Medicare Act, or when a claim is "inextricably intertwined" with a claim for Medicare benefits. Id. at 614, 615, 624; see also Uhm, 620 F.3d at 1141 (same). Thus, a "claim may arise under the Medicare Act even though . . . it also arisesunder some other law." Kaiser, 347 F.3d at 1114. And claims expressly based on any other law that are in essence "[c]leverly concealed claims for benefits" still arise under the Medicare Act. United States v. Blue Cross & Blue Shield of Ala., Inc., 156 F.3d 1098, 1109 (11th Cir. 1998).

In the context of traditional Medicare, the Ninth Circuit determined that "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" was "inextricably intertwined" with claims for Medicare reimbursement. Kaiser, 347 F.3d at 1114. There, the plaintiffs were owners of CHH, a home healthcare provider that operated under a Medicare fiscal intermediary. Id. at 1111. Plaintiffs sued both the government and the intermediary for damages stemming from the government's issuance of new home healthcare regulations and the government's and the intermediary's actions regarding recoupment of overpayments that CHH had received. Id. at 1114. The court found that "[h]earing most of [the plaintiffs'] claims would necessarily mean redeciding [the intermediary's] CHH-related Medicare decisions." Id. at 1115. And it found that "the procedural nature of some of the alleged violations [did not] alter the fact that they arose from the Medicare relationship between CHH and the government." Id.

But also in the context of traditional Medicare, the Ninth Circuit has found that claims for damages arising from tortious conduct committed by a Medicare provider relating to its provision of Medicare services may not be inextricably intertwined with a claim for Medicare benefits. See Ardary v. Aetna Health Plans of Cal., Inc., 98 F.3d 496, 499-500 (9th Cir. 1996) (finding that claims in a wrongful death case, although ...