New York City Health & Hosps. Corp. v. Wellcare of New York, Inc.

801 F.Supp.2d 126

NEW YORK CITY HEALTH AND HOSPITALS CORPORATION, Plaintiff,

v.WELLCARE OF NEW YORK, INC., Defendant.

No. 10 Civ. 6748(SAS).

United States District Court, S.D. New York.

May 10, 2011.

Alan H. Kleinman, Sabita L. Krishnan, Assistant Corporation Counsel, New York City Law Department, New York, NY, for Plaintiff.

Cynthia E. Neidl, Esq., Harold N. Iselin, Esq., Greenberg Traurig, LLP, Albany, NY, for Defendant.

OPINION AND ORDER

SHIRA A. SCHEINDLIN, District Judge.I. INTRODUCTION

On September 1, 2010, New York City Health and Hospitals Corporation (“HHC”) filed a verified amended complaint in New York State Supreme Court, New York County, asserting two state law claims against WellCare of New York, Inc. (“WellCare”): (1) breach of contract; and (2) unjust enrichment. HHC asserts its breach of contract claims as a third-party beneficiary to that contract. On September 10, 2010, WellCare removed this Medicare payment-related action to federal court pursuant to sections 1441 and 1446 of title 28 of the United States Code. HHC subsequently filed a motion to remand, which was denied. WellCare now moves to dismiss both claims under Rule 12(b)(6) of the Federal Rules of Civil Procedure on the grounds that: (1) HHC's claims are preempted by federal law; (2) HHC's claims represent an impermissible attempt to enforce a federal law that does not provide for a private right of action; and (3) both claims fail as a matter of law. For the reasons set forth below, WellCare's motion is granted in part, based on the absence of a private right of action to pursue the breach of contract claim.

II. BACKGROUND ¹A. The Parties

HHC is a public benefit corporation organized under the laws of the State of New York.² HHC was established by the New York City Health and Hospitals Corporation Act (“NYCHHC Act”) to provide the public with medical services and facilities, including hospitals.³ WellCare is a licensed health plan with its principal place of business in New York City. WellCare is a participant in the Medicare Advantage program, licensed under Article 44 of the New York Public Health Law.

B. Medicare Advantage

Part C of the Medicare Program, known as Medicare Advantage, allows Medicare beneficiaries to obtain their medical benefits through private managed health care organizations (“MA Organizations”).⁴ The Centers for Medicare & Medicaid Services (“CMS”), a division of the Department of Health and Human Services, is the federal agency that administers the Medicare Advantage program. Under this program, MA Organizations enter into contracts with CMS, according to which CMS pays each MA Organization a set amount for each Medicare beneficiary it enrolls.⁵ In exchange, MA Organizations agree to provide their Medicare enrollees with, at a minimum, all the benefits the beneficiary would be entitled to receive under the Original Medicare program. ⁶ WellCare entered into such a contract with CMS.⁷ Included in the terms of the contract is a section titled “Provider Protections,” in which WellCare agrees to “comply with all applicable provider requirements in 42 C.F.R. Part 422 Subpart E, including ... rules governing payments to providers.” ⁸

MA Organizations enter into agreements with health care providers (“Contracted Providers”) under which those providers serve MA Organizations' enrollees. Providers that do not have a contract with the MA Organizations (“Non–Contracted Providers”) may nevertheless provide services to MA Organizations' enrollees in an emergency capacity.⁹ Non–Contracted Providers are paid directly by the MA Organization.¹⁰

C. HHC's Bills

HHC is a Non–Contracted Provider with respect to WellCare's Medicare enrollees.¹¹ As required by the Emergency Medical Treatment and Active Labor Act, HHC hospitals provide emergency services to WellCare's Medicare enrollees who seek emergency services until their conditions have stabilized. ¹² HHC then bills WellCare for the services provided, using a standard billing form (“UB–04”).¹³ HHC includes the amount it seeks as payment in Field 55 of the UB–04 form, which is labeled “Est. Amount Due.” ¹⁴ The amount listed in Field 55 is the diagnosis related group (“DRG”) payment amount, which is the amount that HHC would receive under Original Medicare. ¹⁵

HHC also lists, in lines 42 through 47 of the UB–04 form, the services provided, and the related revenue codes and charges (the “Posted Charges”). ¹⁶ The Posted Charges apply to uninsured patients and some out-of-network commercial plans. Due to the large number of low-income patients that it serves, HHC tries to keep these charges low and the Posted Charges are often lower than the DRG payment amounts.¹⁷

Thus the bills that HHC submitted to WellCare listed two sums: one representing the Posted Charges, and the other representing the DRG amount. For an unspecified number of years, WellCare paid HHC the lesser of the two amounts, which was sometimes the DRG amount, but was usually the Posted Charges.¹⁸ In May 2008, HHC demanded that WellCare pay HHC the DRG amount, not the Posted Charges, and that it pay HHC the difference between the DRG amounts and the Posted Charges for claims WellCare had already approved and paid.¹⁹ Over the course of the next year, the parties engaged in discussions regarding the payment dispute.²⁰

In November 2009, HHC requested that CMS resolve the parties' dispute by issuing a ruling that would apply to all of the claims for which WellCare had not paid the DRG amount.²¹ In response to the request, CMS issued a letter on May 11, 2010 to “provide clarity on the payment policy issues raised” by the parties and to assist in resolving the disagreement. ²² In that letter, CMS addressed the issue of whether “MA [O]rganizations are allowed to pay the lesser of a [N]on-[C]ontracted [P]rovider's billed charges for hospital services or the [DRG] payment amount that may or may not appear on the bill.” ²³ The letter concluded that, “MA plans are not allowed to pay the lesser of charges unless that amount has been agreed to by both parties.” ²⁴ CMS then directed any further disputes between HHC and WellCare to its Provider Payment Dispute Resolution Process, a non-binding and voluntary service offered by CMS.²⁵

By letter of September 29, 2010, CMS informed HHC that “[f]or periods prior to [the] February 25, 2010 guidance ... the issue of whether a claim for payment constitutes a bill for the Original Medicare amount or a bill for a ‘billed’ or ‘charged’ amount included on the submission is a matter that is open to interpretation, and must be resolved between the parties.” ²⁶ The amount of the identified underpayments at issue exceeds $2.8 million, including interest.²⁷

III. APPLICABLE LAWA. Motion to Dismiss

In deciding a motion to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6), the court evaluates the sufficiency of the complaint under the “two-pronged approach” suggested by the Supreme Court in Ashcroft v. Iqbal.²⁸ First, a court “ ‘can choose to begin by identifying pleadings that, because they are no more than conclusions, are not entitled to the assumption of truth.’ ” ²⁹ “Threadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice” to withstand a motion to dismiss.³⁰ Second, “[w]hen there are well-pleaded factual allegations, a court should assume their veracity and then determine whether they plausibly give rise to an entitlement for relief.” ³¹ To survive a Rule 12(b)(6) motion to dismiss, the allegations in the complaint must meet a standard of “plausibility.” ³² A claim is facially plausible “when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” ³³ Plausibility “is not akin to a probability requirement;” rather, plausibility requires “more than a sheer possibility that a defendant has acted unlawfully.” ³⁴ “In considering a motion to dismiss for failure to state a claim pursuant to Rule 12(b)(6), a district court may consider the facts alleged in the complaint, documents attached to the complaint as exhibits, and documents incorporated by reference in the complaint.” ³⁵ However, the court may also consider a document that is not incorporated by reference, “where the complaint ‘relies heavily upon its terms and effect,’ thereby rendering the document ‘integral’ to the complaint.” ³⁶

B. Enforcing Federal Law as Third–Party Beneficiaries of Government Contracts

“ ‘[R]ecognition of any private right of action for violating a federal statute’ ... ‘must ultimately rest on congressional intent to provide a private remedy.’ ” ³⁷ In the absence of an express private right of action to enforce a federal law, courts should only infer a right of action when there is explicit evidence of Congressional intent.³⁸ “[A] federal court should not strain to find in a contract a state-law right of action for violation of federal law under which no private right of action exists.” ³⁹ “Although whether the plaintiff has a private right of action under the statute is conceptually distinct from whether the plaintiff may sue as a third-party beneficiary of the contract mandated by the statute, the same considerations largely determine both issues.” ⁴⁰ “[W]hen a government contract confirms a statutory obligation, ‘a third-party private contract action [to enforce that obligation] would be inconsistent with ... the legislative scheme ... to the same extent as would a cause of action directly under the statute.’ ” ⁴¹ Regulations promulgated under a statute,

if valid and reasonable, authoritatively construe the statute itself, and it is therefore meaningless to talk about a separate cause of action to enforce the regulations apart from the statute. A Congress that intends the statute to be enforced through a private cause of action intends the authoritative interpretation of the statute to be so enforced as well.⁴²

Therefore a suit filed to...