Medicaid & Medicare Advantage Prods. Ass'n of P.R., Inc. v. Hernández

58 F.4th 5

MEDICAID AND MEDICARE ADVANTAGE PRODUCTS ASSOCIATION OF PUERTO RICO, INC.; MMM Healthcare, LLC; Triple-S Advantage, Inc.; MCS Advantage, Inc.; Humana Health Plans of Puerto Rico, Inc., Plaintiffs, Appellees,

v.Domingo EMANUELLI HERNÁNDEZ, in his official capacity as Attorney General for the Commonwealth of Puerto Rico; Mariano A. Mier-Romeu, in his official capacity as Puerto Rico Insurance Commissioner, Defendants, Appellants,Asociacion De Hospitales De Puerto Rico, Inc.; Mennonite General Hospital, Inc.; San Jorge Children's Hospital, Inc.; Hospital Menonita Caguas, Inc.; Hospital Menonita Guayama, Inc.; Puerto Rico College of Physicians-Surgeons; Clinical Laboratories Association Inc.; Puerto Rico Association of Radiology Imaging Centers Inc., Intervenors, Appellants.

Nos. 21-1297

21-1379

United States Court of Appeals, First Circuit.

January 18, 2023

Mariola Abreu-Acevedo, Assistant Solicitor General, with whom Fernando Figueroa-Santiago, Solicitor General of Puerto Rico, Omar Andino-Figueroa, Deputy Solicitor General, and Carlos Lugo-Fiol were on brief, for defendant-appellants.

César T. Alcover, Carla S. Loubriel Carrión, Casellas Alcover & Burgos, P.S.C., Luis Sánchez Betances, Jaime Sifre Rodríguez, Jorge Flores de Jesús, Sánchez Betances, Sifre & Muñoz Noya, Omar E Martinez-Vázquez, Martinez & Martinez, Luis E. Romero Nieves, Luis M. Pellot-Juliá, and Pellot-González, P.S.C. on brief for intervenor-appellants.

Michael B. Kimberly, with whom Ankur J. Goel, Sarah P. Hogarth, McDermott Will & Emery LLP, Luis R. Román-Negrón, SBGB LLC, Roberto L. Prats-Palerm, RPP Law, José A. Hernández-Mayoral, Hernández Mayoral Law Office, Mariacté Correa-Cestero, Ricardo José Casellas-Santana, O'Neill & Borges LLC, Herman Colberg, and Pietrantoni Méndez & Alvarez LLC were on brief, for appellees.

Before Lipez, Howard, and Thompson, Circuit Judges.

LIPEZ, Circuit Judge.

Facing an exodus of healthcare providers from Puerto Rico for more lucrative employment in the continental United States, the Puerto Rico legislature passed Act 90, which requires that Medicare Advantage plans compensate healthcare providers in Puerto Rico at the same rate as providers are compensated under traditional Medicare. After several entities that manage Medicare Advantage plans challenged the law, the district court determined in a thoughtful decision that Act 90 is preempted by federal law. We affirm.

I.

A. Medicare Advantage Program

The federal Medicare program, established by Title XVIII of the Social Security Act, provides health insurance coverage to people 65 years of age or older and certain other qualifying beneficiaries, such as people with disabilities. See 42 U.S.C. § 1395c ; Akebia Therapeutics, Inc. v. Azar, 976 F.3d 86, 89 (1st Cir. 2020). The Secretary of the Department of Health and Human Services ("HHS") administers the Medicare program through the Centers for Medicare and Medicaid Services ("CMS"), an agency housed within HHS. See Visiting Nurse Ass'n Gregoria Auffant, Inc. v. Thompson, 447 F.3d 68, 70 (1st Cir. 2006). Under the "traditional" Medicare program (Parts A and B), the federal government pays healthcare providers directly for a limited array of specified services according to a fee-for-service schedule set by CMS. See First Med. Health Plan, Inc. v. Vega-Ramos, 479 F.3d 46, 48 (1st Cir. 2007) ; 42 U.S.C. §§ 1395c to 1395i-6 (Part A); 42 U.S.C. §§ 1395j to 1395w-6 (Part B).

The Medicare Advantage program, also known as Medicare Part C, which is governed by the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 ("Medicare Advantage Act"), Pub. L. No. 108-173, 117 Stat. 2066 (2003) (codified at 42 U.S.C. §§ 1395w-21 to 1395w-28 ), takes a different approach. Under Medicare Advantage, CMS contracts with private organizations -- Medicare Advantage Organizations ("MAOs"), essentially private insurers -- who in turn contract with healthcare providers to supply core Medicare services as well as additional benefits, such as hearing and dental care, which fall outside of the traditional Medicare program. See UnitedHealthcare Ins. Co. v. Becerra, 16 F.4th 867, 872-73 (D.C. Cir. 2021).

Congress established the Medicare Advantage program to expand the availability of private health plan options to Medicare beneficiaries while generating cost savings for both the federal government and for enrollees through market competition and the greater use of managed care. See Medicare Program; Establishment of the Medicare Advantage Program, 70 Fed. Reg. 4588, 4589 (Jan. 28, 2005) (codified at 42 C.F.R. pts. 417, 422). The Medicare Advantage program aims to achieve these purposes through several interrelated policies. Most relevant to this appeal, MAOs negotiate payment and network-inclusion terms with in-network healthcare providers rather than paying these providers according to a fixed fee-for-service schedule as under traditional Medicare. See generally 42 U.S.C. § 1395w-23(a) ; 42 C.F.R. § 422.520(b)(2). In lieu of fixed fee-for-service reimbursements, MAOs generally receive a per-beneficiary monthly payment in return for providing coverage to Medicare Advantage enrollees for all traditional Medicare services as well as additional services outside the traditional Medicare program. 42 U.S.C. § 1395w-23(b). Acting through CMS, the Secretary of HHS determines an MAO's monthly payment by comparing its bid -- the cost that the MAO estimates for providing Medicare-covered services -- to a federal benchmark, the maximum amount the federal government will pay under traditional Medicare for providing those services in the plan's geographic service area.¹ See id.; UnitedHealthcare Ins. Co., 16 F.4th at 872-73.

The Medicare Advantage Act also prohibits the Secretary of HHS from modifying this payment approach, providing that

[i]n order to promote competition under this part ... the Secretary may not require any [MAO] to contract with a particular hospital, physician, or other entity or individual to furnish items and services under this subchapter or require a particular price structure for payment under such a contract ....

42 U.S.C. § 1395w-24(a)(6)(B)(iii) (emphasis added). Lastly, but crucially for purposes of this appeal, the Medicare Advantage Act contains the following preemption clause:

The standards established under this part shall supersede any State law or regulation (other than State licensing laws or State laws relating to plan solvency) with respect to [Medicare Advantage] plans which are offered by [Medicare Advantage] organizations under this part.

42 U.S.C. § 1395w-26(b)(3).

B. Puerto Rico Act 90

In 2019, the Legislative Assembly of Puerto Rico passed, and the Governor signed into law, Act 90-2019 ("Act 90"), which requires that MAOs pay Puerto Rico healthcare providers no less than the fixed fee-for-service Medicare reimbursement rate. Act 90-2019, 2019 P.R. Laws 660 (codified at P.R. Laws Ann. tit. 26, § 1915(7) ). The legislation, which amends the Puerto Rico Insurance Code, is an "attempt to address a major public health crisis afflicting the island for more than a decade: the mass exodus of medical professionals in pursuit of better economic opportunity elsewhere in the United States." Medicaid & Medicare Advantage Prods. Ass'n of P.R. v. Emanuelli-Hernández, Civ. No. 19-1940 (SCC), 2021 WL 792742, at *1 (Mar. 1, 2021).² As the Puerto Rico Senate explained in the bill that became Act 90, a significant factor in this severe retention problem is that even traditional Medicare's fee-for-service rates "established by CMS for Puerto Rico physicians are lower than those established for physicians in any other state or territory of the United States." Id. at *8. Further, under Medicare Advantage, "insurers in Puerto Rico ... pay rates even below the already-low rates paid by CMS under [traditional] Medicare, thus encouraging the flight of medical professionals to other jurisdictions where reimbursement rates are higher." Id. With Act 90, the Puerto Rico legislature sought to encourage medical professionals to remain in Puerto Rico "by eliminating insurers' practice of paying providers below the minimum reimbursement rates paid by CMS under [traditional] Medicare." Id.

To that end, Act 90 requires MAOs to pay Medicare Advantage providers in Puerto Rico at least as much as the federal government would compensate those entities under the corresponding fee-for-service schedule set by CMS for traditional Medicare services. Referred to as the "Mandated Price Provision," subsection 7 of section 1 states, in relevant part:

No agreement, contract, addendum, or stipulation between a Medicare Advantage health service organization ... and a service provider, relating to the services offered to Medicare Advantage shall include a clause providing for the payment of fees that are less favorable for the service provider or lower than those established in the fee-for-service schedule developed annually by ... [CMS] for Puerto Rico.

P.R. Laws Ann. tit. 26, § 1915(7). The Mandated Price Provision provides that "[a]ny condition, stipulation or agreement [between an MAO and a service provider] that is inconsistent with [the provision] shall be deemed void." Id.

C. District Court Proceedings

Shortly after Act 90 became law, appellees, a trade organization representing MAOs and several individual MAOs, filed suit seeking a declaratory judgment and an injunction barring enforcement of the Mandated Price Provision.³ In their complaint, appellees asserted that the Medicare Advantage Act preempts the challenged provision, and that the provision also violates the U.S. Constitution's Contract and Takings Clauses. Appellants, the Attorney General and the Insurance Commissioner of Puerto Rico, moved to dismiss the complaint arguing, in relevant part, that the provision is not preempted and that the suit should therefore be dismissed for failure to state a claim pursuant to Federal Rule of Civil Procedure 12(b)(6). Various hospitals and...