Liberty Dialysis - Hawaii LLC v. Kaiser Foundation Health Plan, Inc. et al
ORDER DENYING DEFENDANTS KAISER FOUNDATION HEALTH PLAN INC. AND KAISER FOUNDATION HOSPITALS' MOTION TO DISMISS COMPLAINT, ECF NO. #9 . Signed by CHIEF JUDGE J. MICHAEL SEABRIGHT on 9/28/2017. (afc)Order further denies as moot Liberty Dialysis-Hawaii LLC's Request for Judicial Notice, ECF no. #23 WRITTEN ORDER follows hearing held 9/25/2017. Minutes of hearing: ECF no. #25 . CERTIFICATE OF SERVICEParticipants registered to receive electronic notifications received this document electronically at the e-mail address listed on the Notice of Electronic Filing (NEF). All participants are registered to receive electronic notifications.
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF HAWAII
LIBERTY DIALYSIS - HAWAII LLC,
KAISER FOUNDATION HEALTH
PLAN, INC., and KAISER
CIV. NO. 17-00318 JMS-RLP
ORDER DENYING DEFENDANTS
KAISER FOUNDATION HEALTH
PLAN, INC. AND KAISER
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
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.
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. “The
The Medicare Prescription Drug, Improvement, and Modification Act of 2003, Pub. L.
No. 108-173, § 201, 117 Stat. 2066 (2003), changed the name to Medicare Advantage.
Medicare 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).
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 paying
altogether 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.
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).
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 subjectmatter 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 claims
arising 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 arises
under 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
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 “predicated on [the Medicare provider’s]
failure to authorize [an] airlift transfer,” were “not inextricably intertwined because
[plaintiffs were] at bottom not seeking to recover benefits”) (internal quotation
marks omitted; emphasis in original).
The Ninth Circuit has yet to consider a similar case in the context of
Medicare Advantage, or specifically a case involving a payment dispute between
an MAO and a contract provider. But the Fifth Circuit has. In RenCare, Humana
Health Plan, “a Texas HMO under contract with CMS to provide medical care to
M+C beneficiaries” contracted with plaintiff RenCare “to provide kidney dialysis
services to Humana’s enrollees, including its M+C enrollees.” 395 F.3d. at 55657. A dispute arose between Humana and RenCare over reimbursement for its
services, and RenCare sued in Texas state court for breach of contract, detrimental
reliance, fraud, and violations of state law. Id. at 557. After removal to federal
court, the Fifth Circuit found that both the standing and the substantive basis for
RenCare’s claims were state law and thus were “clearly not the Medicare Act” and
that RenCare’s claims were “not intertwined, much less, ‘inextricably intertwined,’
with a claim for Medicare benefits.” Id. at 557, 559. Rather, the court found that
“[a]t bottom RenCare’s claims [were] claims for payment pursuant to a contract
between private parties.” Id. at 559.
RenCare based its determination in large part on the risk-shifting
distinction between traditional Medicare and part C of the Act:
One important difference in the administration of Part C,
as opposed to Parts A and B, of the Medicare Act is the
financial risk borne by the administering entity. Under
Parts A and B, funds from the Federal Supplementary
Medical Insurance Trust Fund are paid directly to
providers for each qualifying service provided to a
beneficiary. The funds may be paid by intermediaries or
carriers contracted by CMS to process claims and
disburse federal funds. Under Part C, however, CMS
pays M+C organizations fixed monthly payments in
advance, regardless of the value of the services actually
provided to the M+C beneficiaries. In return, the M+C
organization assumes responsibility and full financial risk
for providing and arranging healthcare services for M+C
beneficiaries, sometimes contracting health care
providers to furnish medical services to those
beneficiaries. Such contracts between M+C
organizations and providers are subject to very few
restrictions; generally, the parties may negotiate their
own terms. Thus, under Part C, the government transfers
the risk of providing care for M+C enrollees to the M+C
Id. at 558-59 (internal citations omitted). Because under part C of the Act the
government’s risk is extinguished, the court found that payment disputes between
an MAO and a contract provider were “solely between” those entities and thus not
intertwined with Medicare benefits. Id. at 559; see also Ohio State Chiropractic
Assoc. v. Humana Health Plan Inc., 647 F. App’x. 619, 625 (6th Cir. 2016)
(unpublished) (suggesting in dicta that RenCare’s reasoning might also apply to
disputes between an MAO and noncontract providers).
The Eleventh Circuit has also made a distinction between claims
against MAOs by contract versus noncontract providers. See Tenet Healthsystem
GB, Inc., 2017 WL 3567819 at *4. Plaintiffs there were a group of hospitals, all
“noncontract providers,” who had treated defendant’s Medicare Advantage
enrollees after receiving authorization to do so from the MAO. Id. at *1-2. The
court determined that the hospitals’ claims did “arise under” Medicare, finding that
the hospitals were “assignees of Medicare Part C benefits” and therefore “subject
to the Medicare Act’s exhaustion requirements.” Id. at *3 (quotation marks
omitted). In reaching this determination, however, the court emphasized the
“critical” distinction between claims for payment made by contract versus
noncontract providers against an MAO: “In billing disputes between MAOs and
contract providers, the provider is pursuing a claim for reimbursement that only
ever belonged to itself—the claim that arose under the express terms of its contract
with the MAO.” Id. at *3 (quotation marks omitted). Citing RenCare, it explained
that unlike claims brought by noncontract providers “[a] contract provider’s claims
are determined entirely by reference to the written contract, not the Medicare Act.”
Id. at *5. The court distinguished RenCare from the case before it stating, “[a]s the
Ren[C]are court noted, the Medicare Act explicitly allows contract providers and
MAOs to define the terms of their own agreements without reference to the
Medicare regulations.” Id.
This case is materially indistinguishable from RenCare, and the court
finds its reasoning persuasive. As was the case in RenCare, the dispute here is
over compliance with the terms of an agreement between an MOA and a private
contractor. Thus, the Medicare Act provides neither the standing nor the
substantive basis for the suit. And, like in RenCare, Liberty’s claims are not
inextricably intertwined with claims for benefits. Services have already been
rendered, and there is no question that the Medicare enrollees who received the
services were entitled to them under their applicable plans. Resolution of Liberty’s
claims will require no analysis of Medicare plan documents, and no
redetermination of benefits decisions. As in RenCare, the dispute in this case is, at
bottom, a contract dispute in which neither the government nor any Medicare
beneficiary has an interest.
Kaiser Foundation contends that RenCare is inconsistent with the
Ninth’s Circuit’s holding in Kaiser and that Kaiser requires a different outcome.
But Kaiser is easily distinguishable. As explained above, Kaiser addressed claims
by a provider operating under traditional Medicare, where the provider itself had a
“Medicare relationship” with the government and where determination of the
plaintiffs’ claims would require a redetermination of the fiscal intermediary’s
Medicare decisions. Kaiser, 347 F.3d at 1115, 1116. That is not the case here—
Liberty’s contract dispute with Kaiser Foundation will not require a determination
or redetermination of any Medicare decision. 2 Nothing in Kaiser requires a
rejection of either the reasoning in or the outcome of RenCare on the question of
whether the provider’s claims were inextricably intertwined with a Medicare
Kaiser Foundation relies on two cases from the Central District of
California, SCAN Health, 210 F. Supp.3d at 1232, and Prime Healthcare Servs.,
Inc. v. Humana Ins. Co., 2016 WL 6591768, at *6 (C.D. Cal. Nov. 4, 2016). Mot.
at 10-12. But like RenCare, SCAN Health is also distinguishable from the case
here. SCAN Health dealt with claims made by a provider against an MAO, the
claims there were brought by a noncontract provider. 210 F. Supp. 3d at 1228.
And the court relied on this distinction in reaching its decision. Id. at 1233
(concluding that the “distinction between contract and non-contract providers . . .
At the September 25 hearing, the court questioned Kaiser Foundation’s counsel multiple
times about what Medicare-related provision or evidence might need to be considered in
resolving the dispute between the parties, and she could point to none.
matters”). The court found that the claims before it were inextricably intertwined
with Medicare because the dispute “hinge[d] on standards provided by Medicare
and CMS regulations, not a private contract.” 3 Id.
And the court finds the decision in Prime Healthcare Services
unpersuasive. Although the court there dealt with a claim by a contract provider, it
did not address the distinction between contract and noncontract providers. 2016
WL 6591768, at *1, 6. Rather, it relied on SCAN Health despite the fact that the
court there had found the distinction between contract and noncontract providers
material. Id. *6; see SCAN Healthcare, 210 F. Supp. 3d at 1233. To accept Prime
Health Care Services’ conclusion would gut the Supreme Court’s test for whether
a claim arises under the Medicare Act. Under its reasoning, any claim for payment
by an MAO provider—no matter how tangentially related to a benefits decision—
would arise under the Act. But the test requires that a claim be “inextricably
intertwined” with a claim for benefits before the exhaustion requirement applies.
And where, as here, a claim for payment may be determined entirely by reference
Kaiser Foundation contends that SCAN Health found RenCare inconsistent with Kaiser,
but to the extent it found any inconsistency, it did so based not on the court’s determination of
whether the provider’s claims arose under Medicare but rather on its separate determination that
the provider’s rights were not protected by the MAO’s administrative review process. See SCAN
Health, 210 F. Supp. 3d at 1232; RenCare, 395 F.3d at 559 (finding, in addition to the
determination that plaintiff’s claims did not arise under Medicare, that plaintiff’s claims were
excluded from the MAO’s administrative appeals process).
to a private contract, and requires no analysis or application of the Medicare Act,
policies, or regulations, no consideration of plan documents or benefits, and no
redetermination of a benefits decision, it simply cannot be said to be “inextricably
intertwined” with a claim for Medicare benefits.
Because the court finds that Liberty’s claims do not arise under the
Medicare Act, Kaiser’s Motion to Dismiss Complaint for Lack of Subject Matter
Jurisdiction is DENIED. 4
IT IS SO ORDERED.
DATED: Honolulu, Hawaii, September 28, 2017.
/s/ J. Michael Seabright
J. Michael Seabright
Chief United States District Judge
Liberty Dialysis-Hawaii LLC v. Kaiser Found. Health Plan, Inc., et al., Civ. No. 17-00318 JMSRLP, Order Denying Defendants Kaiser Foundation Health Plan, Inc. and Kaiser Foundation
Hospitals’ Motion to Dismiss, ECF No. 9.
Liberty requested that the court take judicial notice of a United States Department of
Health and Human Services amicus brief filed in another matter that supports RenCare’s
holding. ECF No. 23. Because the court resolves this matter without reference to the amicus
brief, the request is denied as moot.
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