Prime Healthcare Huntington Beach, LLC v. Scan Health Plan

210 F.Supp.3d 1225

PRIME HEALTHCARE HUNTINGTON BEACH, LLC

v.SCAN HEALTH PLAN, et al.

Prime Healthcare-Garden Grove, LLC

v.SCAN Health Plan, et al.

Prime Healthcare La Palma, LLC

v.SCAN Health Plan, et al.

Case Nos. SACV 16-01226-DFM

SACV 16-01247-DFM, SACV 16-01284-DFM

United States District Court, C.D. California.

Signed September 27, 2016

Sepand Akhavanhaidary, for Plaintiffs

Peter Roan, Harsh Parikh, for Defendants

Proceedings: Defendants' Motion to Dismiss

Plaintiffs' Motion to Remand Action to State Court and Request for Costs and Expenses Pursuant to 28 U.S.C. § 1447(c) [12]

The Honorable Douglas F. McCormick

Cause called and counsel make their appearances. The Court tentative ruling is issued. Counsel argue motion. The Court grants in part SCAN's Motions to Dismiss under Rule 12(b)(1), rendering SCAN's Motions to Dismiss under Rule 12(b)(6) and Plaintiffs' Motion to Remand moot, and rules in accordance with the tentative ruling as follows:

Before the Court are three identical Motions to Remand to State Court brought in three related cases by three different plaintiffs: Prime Healthcare Huntington Beach, LLC, Prime Healthcare Services-Garden Grove, LLC, and Prime Healthcare La Palma, LLC (collectively, "Plaintiffs"). Case No. 16–1226, Dkt. 12; Case No. 16–1247, Dkt. 14; Case No. 16–1284, Dkt. 15 (collectively, the "Motions to Remand").

Also before the Court are three identical Motions to Dismiss filed by Defendant SCAN Health Plan ("SCAN"), based on lack of subject matter jurisdiction (Federal Rule of Civil Procedure 12(b)(1) ) and failure to state a claim for relief (Federal Rule of Civil Procedure 12(b)(6) ). Case No. 16–1226, Dkt. 11; Case No. 16–1247, Dkt. 12; Case No. 16–1284, Dkt. 13 (collectively, the "Motions to Dismiss").

The Court has reviewed the Motions to Remand and the Motions to Dismiss, as well as the respective oppositions and replies. Case No. 16–1226, Dkt. 14, 15, 19, 20; Case No. 16–1247, Dkt. 17, 18, 20, 21; Case No. 16–1284, Dkt. 19, 20, 22, 23.¹ For the reasons discussed below, the Court grants in part SCAN's Motions to Dismiss under Rule 12(b)(1), rendering SCAN's Motions to Dismiss under Rule 12(b)(6) and Plaintiffs' Motion to Remand moot.

Statutory Background

The Medicare Act (also referred to herein as "Medicare") was enacted in 1965 as a federal health insurance program primarily benefitting those 65 years of age and older. See 42 U.S.C. § 1395 et. seq. It has been described as "among the most completely impenetrable texts within human experience," requiring "dense reading of the most tortuous kind." Rehab. Ass'n of Virginia, Inc. v. Kozlowski , 42 F.3d 1444, 1450 (4th Cir. 1994).

At its enactment, Medicare consisted of only two parts, Parts A and B. Under this "traditional" Medicare, the federal government paid health care providers directly for services rendered to Medicare beneficiaries. 42 U.S.C. §§ 1395c -1395i–5 (Part A), 1395j-1395w-6 (Part B). Congress authorized Part D of the Medicare Act in 2003, which provides for prescription drug coverage for Medicare enrollees. 42 U.S.C. §§ 1395w–101 -154. Part E consists of "miscellaneous provisions." 42 U.S.C. §§ 1395x -lll.

This case concerns Part C of the Medicare Act, enacted in 1997 and creating the Medicare Advantage program. 42 U.S.C. §§ 1395w-21 -29. Under Part C, Medicare enrollees can receive Medicare benefits through private organizations called Medicare Advantage Organizations, or "MAOs," instead of the government. Id. The government pays MAOs monthly fees in exchange for assuming the risk of providing covered services to enrollees. 42 U.S.C. § 1395w–23. The amount that MAOs receive per enrollee is based on contracts with the Centers for Medicare and Medicaid Services ("CMS"), an agency within the Department of Health and Human Services. Dkt. 11–2, Declaration of Lisa Davis ("Davis Decl.") ¶ 2; 42 U.S.C. § 1395w–27.

MAOs contract with certain health care providers to provide Medicare services. 42 U.S.C. § 1395w–22(d)(1). However, MAOs must also provide coverage for emergency services without regard to the emergency care provider's contractual relationship with the MAO. Id. MAOs reimburse non-contracting providers who provide these emergency services based on rates set by the Medicare Act and related regulations. See 42 C.F.R. § 422.214(a) (payments limited to what "the provider would collect if the beneficiary were originally enrolled in Medicare").

Plaintiffs' Claims

Plaintiffs meticulously avoid invoking the Medicare Act in their Complaints. See Dkt. 11–1 ("Complaint"). Rather, Plaintiffs describe themselves as "non-participating providers" entitled "to be reimbursed by [SCAN] for care provided to [SCAN's] members based on [Plaintiffs'] reasonable and customary rates." Id. at 3–4. Plaintiffs allege that, contrary to SCAN's "statutory and contractual duties," SCAN reimbursed Plaintiffs at artificially deflated rates. Id. Plaintiffs cite California law for this proposition. See Complaint. It is readily apparent, however, based on Plaintiffs' own briefing, that Plaintiffs seek reimbursement from SCAN, an MAO, for emergency services rendered to its Medicare Advantage plan enrollees. See, e.g. , Dkt. 14 at 9 (stating that SCAN is responsible for reimbursing Plaintiffs for services rendered to enrollees because SCAN is an operator of Medicare Advantage Plans under Medicare Part C).

Plaintiffs bring five claims under California law against SCAN. First, Plaintiffs bring quantum meruit claims for breach of implied contracts, citing California regulations that allegedly require SCAN to reimburse Plaintiffs for the "reasonable" value of emergency services provided to SCAN's "members." Complaint at 5-6. Second, Plaintiffs bring claims under California's Unfair Competition Law for failure to reimburse Plaintiffs for the "reasonable and customary value" for Plaintiffs' services, as California law allegedly requires, and for sometimes failing to reimburse Plaintiffs at all. Id. at 6–7. Third, Plaintiffs bring breach of contract claims as intended third-party beneficiaries of the Evidence of Coverage documents ("EOCs") provided by SCAN to its Medicare Advantage plan enrollees. Id. at 4–5, 8–9. Fourth, Plaintiffs bring breach of contract claims based on a theory of assignment. Plaintiffs argue that the EOCs entitle members to certain benefits, and that when plan members treated by Plaintiffs sign "Conditions of Admission" forms, they assign to Plaintiffs the members' rights to these benefits. Id. at 9–10. Fifth, Plaintiffs allege breach of the covenants of good faith and fair dealing "inherent in the EOCs." Id. at 10.

SCAN attaches to its Motions to Dismiss sample copies of two of its EOCs. Davis Decl. ¶ 5A-B, Ex. A, Ex. B. The EOC booklets give members "details about [their] Medicare health care" coverage and are each over 200 pages long. Id. , Ex. A at 3, Ex. B at 4.

Analysis

SCAN moves to dismiss, arguing on the one hand under Rule 12(b)(1) that the Court lacks subject matter jurisdiction because Plaintiffs have not exhausted their administrative remedies, and arguing on the other hand under Rule 12(b)(6) that the Court has subject matter jurisdiction because Plaintiffs' claims are preempted by the Medicare Act. Plaintiffs agree that the Court lacks subject matter jurisdiction, but do so on the ground that their claims are not preempted, and argue that the Court should remand these cases to state court.

The threshold issue is whether the Court has subject matter jurisdiction. See Sinochem Int'l Co. Ltd. v. Malaysia Int'l Shipping Corp. , 549 U.S. 422, 430–431, 127 S.Ct. 1184, 167 L.Ed.2d 15 (2007) (noting that a federal court generally may not rule on the merits of a case without first determining that it has subject matter jurisdiction). If SCAN is correct that Plaintiffs need to exhaust their administrative remedies, then the Court has no jurisdiction to reach Plaintiffs' claims before Plaintiff has pursued those remedies.

The Court declines to reach Plaintiffs' Motions to Remand because it determines that Plaintiffs must exhaust their administrative remedies.

Whether the Third Sentence of 42 U.S.C. § 405(h) Limits This Court's Jurisdiction over Suits Brought by Non-Contracting Providers against MAOs

In traditional Medicare, the Secretary of Health and Human Services ("Secretary") makes initial determinations with respect to benefits. 42 U.S.C. § 1395ff(a)(1). Dissatisfied parties may appeal these determinations through an administrative review process. 42 U.S.C. § 1395ff(b). Under 42 U.S.C. § 405(g), a claimant may request federal judicial review of the Secretary's "final decision" regarding a benefits determination. See 42 U.S.C. 1395ff(b)(1)(A) (making § 405(g) applicable to Medicare). A "final decision" consists of two elements: presentment of a claim for benefits (non-waivable) and exhaustion of administrative remedies (waivable by the Secretary or the Court in limited circumstances). Johnson v. Shalala , 2 F.3d 918, 921 (9th Cir. 1993).

Federal regulations provide for a separate MAO administrative review process for MAO benefits determinations (or "organization determinations"). See 42 C.F.R. §§ 422.582 (first step being request for MAO reconsideration), 422.592 (second step being appeal to private independent contractor), 422.600 (third step being request for administrative law judge hearing), 422.608 (fourth step being review by Medicare Appeals Council, a division of Health and Human Services), 405.1130 (making the council's decision "final and binding" unless federal district court modifies). MAO determinations include determinations made by MAOs with respect to payment for emergency services, and non-contracting providers like Plaintiffs can request and appeal MAO determinations.² See 42 C.F.R. §§ 422.566(c)(1)(ii) (stating that providers may request MAO determinations), 422.574 (stating that providers with an "appealable interest" are parties to an MAO determination), 422.578 (stating that a party to an MAO determination may appeal the...