MHA LLC v. Healthfirst, Inc, et al

Filing

NOT PRECEDENTIAL OPINION Coram: CHAGARES, SHWARTZ and RENDELL, Circuit Judges. Total Pages: 12. Judge: SHWARTZ Authoring.

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NOT PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
______________
No. 15-1715
______________
MHA LLC, D/B/A Meadowlands Hospital Medical Center,
Appellant
v.
HEALTHFIRST, INC.;
HEALTHFIRST HEALTH PLAN OF NEW JERSEY, INC.;
SENIOR HEALTH PARTNERS, INC.;
MANAGED HEALTH, INC.;
HF MANAGEMENT SERVICES, LLC;
HEALTHFIRST PHSP, INC.;
ABC COMPANIES 1-100;
JOHN DOES 1-100
______________
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEW JERSEY
(D.C. No. 2-13-cv-06036)
District Judge: Hon. Susan D. Wigenton
______________
Submitted Pursuant to Third Circuit L.A.R. 34.1(a)
November 9, 2015
______________
Before: CHAGARES, SHWARTZ, and RENDELL, Circuit Judges.
(Filed: November 17, 2015)

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______________
OPINION*
______________
SHWARTZ, Circuit Judge.
MHA, the owner of Meadowlands Hospital Medical Center, appeals the dismissal
with prejudice of its suit against HealthFirst, Inc. and other related companies for
reimbursement for medical services provided to HealthFirst’s Medicare and Medicaid
enrollees. Because the federal courts lack subject matter jurisdiction, we will vacate the
District Court’s dismissal order and remand with instructions to remand the case to state
court.
I
HealthFirst is the parent company of HealthFirst Health Plan of New Jersey, Inc.,
a privately owned insurance company that offers health insurance plans under Medicare
Part C. It is also a licensed Medicaid health management organization and managed care
organization. Between 2010 and 2013, Meadowlands Hospital billed HealthFirst for
medical care provided to HealthFirst’s Medicare and Medicaid enrollees. Because MHA
did not have a contract with HealthFirst specifying agreed-upon rates, Medicare and
Medicaid law governed both whether reimbursement was available for the care provided
and the reimbursement rate. MHA asserts that because it was an out-of-network
provider, HealthFirst delayed and/or denied reimbursements to pressure MHA into
*

This disposition is not an opinion of the full Court and, pursuant to I.O.P. 5.7,
does not constitute binding precedent.
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signing a contract with HealthFirst to become an in-network provider. To this end, MHA
claims that HealthFirst improperly asserted that certain services were not authorized or
did not qualify as emergency care, wrongly denied claims as untimely, and/or ignored or
refused to process them. In total, MHA was reimbursed for only $2.5 million out of the
$28.9 million it claims that it was owed.
MHA filed a complaint in state court alleging that HealthFirst violated New Jersey
regulations governing reimbursements to out-of-network providers under Medicaid.
MHA also brought claims for unjust enrichment and “quantum meruit—implied
contract.”1 App. 51-53. HealthFirst removed the suit to federal court and MHA moved
for remand, but withdrew that motion before it was decided.
HealthFirst moved to dismiss the complaint for failure to state a claim under Fed.
R. Civ. P. 12(b)(6) and MHA cross-moved for leave to file an amended complaint. The
District Court dismissed MHA’s Medicaid-based claims because it failed to exhaust
administrative remedies before bringing suit and MHA’s Medicare-based claims because
they were preempted by federal Medicare law. The District Court denied MHA’s motion
to amend the complaint as futile. MHA appeals.

1

MHA voluntarily dismissed its claims for fraudulent and negligent
misrepresentation, equitable and promissory estoppel, and breach of fair dealing through
unfair claims settlement practices.
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II2
Federal courts are courts of limited jurisdiction, and a case can only be removed to
a federal district court if the case could have originally been filed there.3 28 U.S.C.
§ 1441(a). This requires a showing that the federal court has subject matter jurisdiction.
Where, as here, no diversity jurisdiction is alleged, jurisdiction ordinarily rests on
the presence of a federal cause of action on the face of the complaint. See Merrell Dow
Pharm. Inc. v. Thompson, 478 U.S. 804, 808 (1986). When a complaint alleges only
state law claims, federal jurisdiction may also exist where federal law completely
preempts a state law claim or where a state law claim raises a substantial embedded
federal issue that can be addressed by the federal courts without disturbing congressional
intent.4 See Grable & Sons Metal Prods., Inc. v. Darue Eng’g & Mfg., 545 U.S. 308,
313-14 (2005) (narrow exception for certain embedded federal issues); Beneficial Nat’l
Bank v. Anderson, 539 U.S. 1, 8 (2003) (jurisdiction based on complete preemption).
HealthFirst asserts three possible grounds for subject matter jurisdiction: (1) that
HealthFirst is entitled to “federal officer removal” under 28 U.S.C. § 1442(a)(1); (2) that

2

The District Court asserted jurisdiction pursuant to 28 U.S.C. § 1331, but the
propriety of this is disputed. We have appellate jurisdiction under 28 U.S.C. § 1291. We
conduct plenary review of subject matter jurisdiction. Nat’l Union Fire Ins. Co. v. City
Sav., F.S.B., 28 F.3d 376, 383 (3d Cir. 1994).
3
“The removing party . . . carries a heavy burden of showing that at all stages of
the litigation the case is properly before the federal court. Removal statutes are to be
strictly construed, with all doubts to be resolved in favor of remand.” Brown v. Jevic,
575 F.3d 322, 326 (3d Cir. 2009) (internal citations omitted).
4
Neither party asserts that complete preemption creates jurisdiction here.
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MHA asserts a federal cause of action under 42 U.S.C. § 1983; and (3) that MHA’s
Medicare-based state law claims “arise under” federal law based on the framework set
forth in Grable.
We will not entertain HealthFirst’s assertion of federal officer removal, as this was
not a basis for removal claimed in the notice of removal. While it may be permissible to
add further detail to jurisdictional allegations, a defendant may not rely on an entirely
new basis for jurisdiction not set forth in the removal petition. See USX Corp. v.
Adriatic Ins. Co., 345 F.3d 190, 203-05 (3d Cir. 2003) (determining that jurisdiction was
proper because amendment to notice of removal “did not add new jurisdictional facts . . .
[or] rely on a basis of jurisdiction different from that originally alleged”); see also In re
Blackwater Sec. Consulting, LLC, 460 F.3d 576, 590 n.8 (4th Cir. 2006) (defense
contractor could not assert federal officer removal on appeal because it had “failed to
raise this issue before the district court”).
Jurisdiction also cannot be asserted here on the basis of 42 U.S.C. § 1983. While
the complaint cites § 1983, this language appears in a background section,5 and none of

5

The complaint’s sole references to § 1983 read as follows:

60.
Medicaid MCOs must pay non-plan providers promptly for
“emergency services” furnished to their enrollees without regard to a prior
authorization from the MCO. See 42 U.S.C. §§ 1396b(2)(1)(vii), 1396b(m),
1396u-2(b), 1395mm(g)(6)(A); 42 C.F.R. § 438.114. HFNJ is liable to
plaintiff as a Medicaid MCO for payment for emergency services under the
Act, pursuant to SSA § 1923(b)(2) and 42 U.S.C. § 1983.
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the six counts assert a claim based on it. Moreover, the fact that HealthFirst did not move
to dismiss a claim under § 1983, and MHA did not seek to avoid dismissal based upon
the existence of a § 1983 claim, further reveals that no party viewed the complaint as
seeking relief under § 1983. Thus, § 1983 does not provide a basis for subject matter
jurisdiction.
HealthFirst’s final proposed source of jurisdiction, so called “arising under” or
“embedded” jurisdiction, also does not provide a basis for subject matter jurisdiction in
this case. This is a “special and small” category of cases requiring three elements.
Empire Healthchoice Assur., Inc. v. McVeigh, 547 U.S. 677, 699 (2006). First, the
plaintiff’s state law claim must “necessarily raise a stated federal issue,” Grable, 545
U.S. at 314, meaning that an element of the state law claim requires construction of
federal law. Manning, 772 F.3d at 163. Second, this federal element must be “actually
disputed and substantial.” Grable, 545 U.S. at 314. With respect to this factor, the

61. HFNJ is known as a Medicaid Managed Care Organization (“MCO”),
and is required to promptly pay claims. Federal prompt payment
requirements have been found enforceable by providers under 42 U.S.C. §
1983. See, e.g., National Med. Care, Inc. v. Rullan, 2005 LEXIS 27994
(D.P.R. Nov. 1, 2005).
...
71. Accordingly, HFNJ is liable to Plaintiff as a Medicaid MCO for
payment for emergency services under the Act, pursuant to SSA §
1923(b)(2); and enrollees must be protected against liability, even if the
MCO is not paid by the State, and for any services furnished by “a provider
with a contractual, referral or other arrangement with the organization.” §
1932(b)(6); 42 C.F.R. § 438.106(c), pursuant to 42 U.S.C. § 1983.
App. 36, 38-39.
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Supreme Court has distinguished cases such as Grable that present a “nearly pure issue of
law” that would govern numerous other cases, from those that are “fact-bound and
situation-specific.” Empire, 547 U.S. at 700-01 (internal quotation marks omitted).
Relatedly, for a case to involve a “substantial” federal issue, it must be one significant “to
the federal system” as opposed to only the parties.6 Gunn v. Minton, 133 S. Ct. 1059,
1065-66 (2013). Third, the case must be one “which a federal forum may entertain
without disturbing any congressionally approved balance of federal and state judicial
responsibilities.” Grable, 545 U.S. at 314.
As to the first factor, HealthFirst has failed to establish that it is necessary to
construe federal law to determine whether MHA can establish the elements of its claims
for unjust enrichment and quantum meruit. These claims essentially require MHA to
show that it provided a service to HealthFirst for which it was not fairly compensated.
See, e.g., Montich v. Miele USA, Inc., 849 F. Supp. 2d 439, 459 (D.N.J. 2012) (elements
of unjust enrichment include defendant’s receipt of a benefit without just payment);
Canadian Nat. Ry. v. Vertis, Inc., 811 F. Supp. 2d 1028, 1033 (D.N.J. 2011) (elements of
quantum meruit include an expectation of reasonable compensation for services
provided). MHA claims fair compensation is the “reasonable value of labor performed
6

The prototypical case of Grable jurisdiction is one in which the federal
government itself seeks access to a federal forum, an action of the federal government
must be adjudicated, or where the validity of a federal statute is in question. Gunn, 133
S.Ct. at 1066; see also Grable, 545 U.S. at 312 (citing Smith v Kansas City Title & Trust
Co., 255 U.S. 180 (1921), in which the principal issue was the constitutionality of the
federal government’s action to issue a bond, as the “classic example” of embedded
federal jurisdiction).
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and the market value of the materials furnished.” App. 53 (quotation marks omitted).
The fact that federal law may be informative of a market rate or “shape or even limit the
remedy that Plaintiff may obtain” does not mean that federal law is a necessary
component of the cause of action. Veneruso v. Mount Vernon Neighborhood Health Ctr.,
933 F. Supp. 2d 613, 626 (S.D.N.Y. 2013), aff’d, 586 F. App’x 604 (2d Cir. 2014).
That HealthFirst may point to the Medicare law as part of its defense also does not
make federal law a “necessary” part of MHA’s claim. HealthFirst’s arguments that
Medicare regulations will demonstrate that the services rendered were not covered or the
reimbursement claims exceed Medicare’s cap are more “properly characterized as a
defense to the Plaintiffs’ state-law reimbursement claim” rather than a required element
of MHA’s claims. PremierTox, Inc. v. Kentucky Spirit Health Plan, Inc., No. 1:12CV00010, 2012 WL 1950424, at *7 (W.D. Ky. May 30, 2012) (dispute over whether care
was “medically necessary” under federal Medicaid regulations did not raise a federal
issue under Grable); see also Baptist Hosp. of Miami, Inc. v. Wellcare of Florida, Inc.,
No. 10-22858-CIV, 2011 WL 2084003, at *4 (S.D. Fla. May 23, 2011) (whether federal
law capped Medicaid reimbursement of hospital “amount[ed] to a federal-law defense to
the amount of damages [HMO might] owe” and “[did] not make [the] case removable.”);
Veneruso, 933 F. Supp. 2d at 626 (collecting cases). Thus, HealthFirst’s reliance on the
services and reimbursement amounts set forth in the Medicare law to justify its payment
decisions is insufficient to confer jurisdiction. See Caterpillar, Inc. v. Williams, 482 U.S.
386, 393 (1987).
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Even if we assume that construction of the Medicare Act will be required to
determine MHA’s prima facie entitlement to relief, the federal issues raised by this case
are not “actually disputed and substantial” as required under the second factor. Grable,
545 U.S. at 314. First, any statutory interpretation required by this case is incidental to
the application of Medicare and Medicaid law to disputed facts. See MHA, LLC v.
UnitedHealth Grp., Inc., No. 13-6130, 2014 WL 223176, at *7 (D.N.J. Jan. 21, 2014)
(remanding a nearly identical case to state court because the federal issue raised was “not
substantial and disputed,” but rather “incidental” and capable of resolution in state court).
The parties have not identified a dispute over the meaning of particular statutory text;
rather, HealthFirst generally avers that the parties disagree over the application of the
Medicare Act to their situation. Thus, we are not presented with a discrete federal issue
that is “dispositive of the case and would be controlling in numerous other cases.”
Empire, 547 U.S. at 700; cf. In re Pharm. Indus. Average Wholesale Price Litig., 457 F.
Supp. 2d 77, 81 (D. Mass. 2006) (finding jurisdiction under Grable where the
“determination of the actual meaning [of a specific term] under the Medicare statute has
been hotly disputed in the multi-district litigation”).
Second, this case does not present the unusually strong federal interest required to
qualify for the federal forum. This suit does not call into question the validity of a federal
statute or the conduct of a federal actor. See, e.g., Main & Assocs., Inc. v. Blue Cross
and Blue Shield of Ala., 776 F. Supp. 2d 1270, 1280 (M.D. Ala. 2011) (“Empire
emphasized that the key factors in Grable which made the exercise of federal court
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jurisdiction appropriate included the fact that the dispute in Grable centered on the action
of a federal agency and the compatibility of that action with federal law.”); Veneruso,
933 F. Supp. 2d at 624 (explaining that where “a federal actor” is not a party, a case is
“unlikely to impact the federal government’s interests or its ability to vindicate those
interests of the Medicaid statute through administrative action”) (internal quotation
marks, alterations, and citations omitted).
While HealthFirst argues that there is a substantial federal interest in ensuring the
uniform development of Medicare law, state courts are plainly competent to apply the
Medicare Act to state law claims. If they were not, “the extremely rare exception
discussed in [Grable and its progeny] would swallow up the general rule.” Pritika v.
Moore, 91 F. Supp. 3d 553, 560 (S.D.N.Y. 2015) (internal quotation marks and citations
omitted); see also Meyer v. Health Mgmt. Assocs., Inc., 841 F. Supp. 2d 1262, 1270
(S.D. Fla. 2012) (“[T]he state courts’ handling of cases such as this one, where the
interpretation of the federal Medicare law [wa]s but one part of the underlying lawsuit,
[would] not meaningfully encroach upon the work of the federal courts in construing the
Medicare statutes.”); Hawaii v. Abbott Labs., Inc., 469 F. Supp. 2d 842, 856 (D. Haw.
2006) (“[I]f Congress had thought that . . . Medicare provisions implicated a substantial
federal interest, it could have ensured that only federal courts would hear such cases. It
did not.”). A state court is the appropriate forum for this “fact-bound and situation-

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specific” case involving the application of Medicaid and Medicare laws. Empire, 547
U.S. at 701.7
Because this case does not “necessarily raise” a federal issue that is “actually
disputed and substantial,” the federal court may not exercise subject matter jurisdiction
based on “embedded jurisdiction.” Grable, 545 U.S. at 314.8
III
For the foregoing reasons, HealthFirst has not carried its burden as the removing
party to show that the federal courts have subject matter jurisdiction over this case, and

7

Grable jurisdiction was found to be appropriate in a similar suit against a health
insurance company offering Medicare benefits. See New York City Health and Hosps.
Corp. v. WellCare of New York, Inc., 769 F. Supp. 2d 250, 257 (S.D.N.Y. 2011). The
plaintiff there brought breach of contract and unjust enrichment claims. Id. at 252. The
contract at issue required compliance with provisions of the Medicare law. Id. at 256.
The district court exercised jurisdiction over the claim under Grable based in part on
Second Circuit precedent emphasizing that a “complex federal regulatory scheme” is
evidence of a federal interest in using a federal forum. Broder v. Cablevision Sys. Corp.,
418 F.3d 187, 195 (2d Cir. 2005). In our view, the fact that a regulatory scheme needs to
be consulted to resolve a dispute is insufficient on its own to make a federal issue
“substantial” under Grable. In addition, after the district court dismissed the contract
claim, it remanded the unjust enrichment claim for lack of jurisdiction. This is consistent
with our view that proof of unjust enrichment does not require consideration of federal
Medicare law. See New York City Health & Hospitals Corp. v. WellCare of New York,
Inc., 801 F. Supp. 2d 126, 142 (S.D.N.Y. 2011).
8
As the first two elements of Grable’s conjunctive test were not satisfied, we need
not reach the third factor, which considers whether taking jurisdiction over cases such as
this one would disturb the “congressionally approved balance of federal and state judicial
responsibilities” described in Grable, 545 U.S. at 314. See, e.g., Fairfax Fin. Holdings
Ltd. v. S.A.C. Capital Mgmt., LLC, No. 06-CV-4197, 2007 WL 1456204, at *5 (D.N.J.
May 15, 2007) (“Having concluded that the first and second Grable factors are not
satisfied, this Court need not consider the third factor . . . [which] is only a possible veto
that may defeat federal jurisdiction, not sustain it.”); MHA v. UnitedHealth, 2014 WL
223176, at *8 (same); Main & Assocs., 776 F. Supp. 2d at 1281 (same).
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we will therefore vacate the dismissal of MHA’s claims and remand to the District Court
with instructions to remand this case to state court.

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