Haaland et al v. Presbyterian Health Plan, Inc. et al
Filing
51
MEMORANDUM OPINION AND ORDER by Magistrate Judge Karen B. Molzen granting 40 Defendant Presbyterian Health Plan, Inc.'s Motion for Summary Judgment on Federal Defenses and remanding Plaintiff's remaining claims to the Second Judicial District Court, Bernalillo County, New Mexico. (am)
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEW MEXICO
BRANELDA SUE HAALAND,
Individually and as Personal Representative
of the Estate of Billie Jo Hall, deceased,
RICHARD HALL, and RICHARD WAYNE HALL,
Plaintiffs,
v.
CIV 16-1199 KBM/GJF
PRESBYTERIAN HEALTH PLAN, INC.,
a New Mexico corporation, and
PRESBYTERIAN HEALTHCARE SERVICES,
a New Mexico corporation, and
GREGG VALENZUELA,
Defendants.
MEMORANDUM OPINION AND ORDER
THIS MATTER comes before the Court on Defendant Presbyterian Health Plan,
Inc.’s (“PHP’s”) Motion for Summary Judgment on Federal Defenses (Doc. 40), filed
September 18, 2017. Pursuant to 28 U.S.C. § 636(c) and Fed. R. Civ. P. 73(b), the
parties have consented to me serving as the presiding judge and entering final
judgment. See Docs. 4-5, 7, 9. Having considered the record, submissions of counsel,
and the relevant law, the Court finds that the motion is well-taken and will be granted.
I.
INTRODUCTION
Plaintiffs initiated this action in state district court on July 15, 2016. See Doc. 1.
They alleged that their decedent, Billie Joe Hall (“Ms. Hall”), “died from a wrongful and
tortious denial of a liver transplant evaluation,” for which the “Estate seeks damages for
her wrongful death.” Doc. 37 at ¶ 7. PHP removed the action to this Court under the
Federal Officer Removal Statute, 28 U.S.C. § 1442(a)(1), and Plaintiffs responded with
a motion to remand. Doc. 17. At an April 4, 2017 hearing on the Motion to Remand,
Plaintiffs conceded that for three of their causes of action – those asserted under the
Insurance Practices Act, NMSA § 59-A-16-20, the Unfair Trade Practices Act, NMSA
§ 57-12-2, and § 13.10.13.8 of the New Mexico Administrative Code – the Medicare
Act’s directives and extensive regulation supported removal under Section 1442(a)(1).
Doc. 23. Based upon this concession, the Court denied Plaintiff’s Motion to Remand.
Doc. 24.
Thereafter, Plaintiffs filed their Third Amended Complaint, omitting those claims
for which they had conceded preemption. See Doc. 37. In the now-operative complaint,
Plaintiffs assert two claims against PHP under New Mexico’s Wrongful Death Act. In
Count I, they allege that PHP negligently denied Ms. Hall a liver transplant evaluation,
either by “failing to follow its own policies and procedures that were not mandated by
federal law” or “by having written or unwritten policies, procedures and practices to deny
or hinder liver transplant evaluations and transplantation for persons 70 or older.” Id. at
¶ 19. In Count II, they allege that PHP’s denial of the request for a liver transplant
evaluation was the product of “age discrimination” in violation of “its own nondiscrimination policy.” Id. at 5-6.1 Plaintiffs maintain, both in their Complaint and in their
In addition to these two claims asserted against PHP, Plaintiffs also assert claims against
1
Presbyterian Healthcare Services for aiding and abetting PHP in its violation of its fiduciary duty
(Count III) and for negligently failing to obtain a liver transplant evaluation (Count IV). Doc. 37 at
6-8. As to Defendant Gregg Valenzuela, Plaintiffs allege that he negligently failed to obtain a
liver transplant evaluation for Ms. Hall or, alternatively, that he negligently misrepresented that
she would be unable to obtain an authorization for a liver transplantation from Defendant PHP
(Count VI). Id. at 8-9.
2
briefing on PHP’s Motion for Summary Judgment that these claims do not arise under
the Medicare Act and do not seek Medicare benefits. Id. at ¶ 7; Doc. 47.
II. FACTUAL BACKGROUND2
Decedent Ms. Hall purchased from PHP a Medicare Advantage plan –
“Presbyterian Senior Plan 2 with Prescriptions (HMO)” – under 42 U.S.C. § § 13951395ggg Part C. Def.’s Mot. for Summ. J., Doc. 40 (“Def.’s MSJ”), at Undisputed Fact
(“UF”) ¶ 1. A booklet issued in connection with the plan informed Ms. Hall that PHP was
required “[to] cover all services covered by Original Medicare and [to] follow Original
Medicare’s coverage rules.” Id. at UF ¶ 2. Under Ms. Hall’s Medicare Advantage plan,
PHP was required to cover services deemed to be “medically necessary,”3 which the
plan defined as “services . . . needed for the prevention, diagnosis, or treatment of [a]
medical condition and [that] meet accepted standards of practice.” Id. at UF ¶ 2; Pl.’s
Resp. to Def.’s Mot. for Summ. J., Doc. 47 (“Pl.’s Resp.”), at UF ¶ 2.
Under some circumstances, liver transplants were covered by Ms. Hall’s
Medicare Advantage plan. Def.’s MSJ, at UF ¶ 3. For instance, liver transplants would
be covered when there was advanced approval or “prior authorization.” Id. The plan did
2
In response to many of PHP’s statements of undisputed facts, Plaintiffs offer what amounts to
arguments about the legal significance of the facts rather than citations to materials in the
record that dispute the asserted facts. See Fed. R. Civ. P. 56(c). While the Court has
considered all the evidence in the light most favorable to Plaintiffs as the parties opposing the
motion, for purposes of determining the undisputed facts, the Court has disregarded
commentary by Plaintiffs that runs afoul of Federal Rule of Civil Procedure 56.
3
Although Plaintiffs do not dispute that PHP was required to cover services that were deemed
medically necessary, they maintain that a material issue of fact exists as to whether a liver
transplant evaluation was, in fact, medically necessary. Pl.’s Resp. to Def.’s Mot. for Summ. J.,
Doc. 47 (“Pl.’s Resp.”), at Pl’s Resp. to Def’s UF ¶ 2. While the Court agrees that a dispute of
fact exists as to the determination by PHP that a liver transplant evaluation was not medically
necessary, it need not, indeed cannot, resolve these issues of fact in deciding the present
motion.
3
not specify, however, that prior authorization by PHP was required for a liver transplant
evaluation by a Medicare-approved transplant center. Pl.’s Resp. to Def’s UF ¶ 3.
Rather, the plan provided that if an enrollee “need[ed] a transplant, [PHP] would arrange
to have [the] case reviewed by a Medicare-approved transplant center that [would]
decide whether [the enrollee was] a candidate for a transplant.” Def.’s MSJ, at UF ¶ 3.
On or about August 13, 2014, Gregg A. Valenzuela, M.D., a gastroenterologist
working at the Presbyterian Healthcare Services GI Clinic, requested that PHP
authorize4 a liver transplant evaluation for Ms. Hall. Pl.’s Resp. to Def.’s UF ¶ 4; Doc.
39, Ex. B & C. Dr. Valenzuela’s request was forwarded to Sandy Brown, R.N. (“Nurse
Brown”) of PHP on August 15, 2014. Def.’s MSJ, at UF ¶ 5. The forwarding e-mail
indicated that Ms. Hall’s model for end-stage liver disease (“MELD”) score had been 13
as of July 10, 2014. Def.’s MSJ, at UF ¶ 5; Doc. 39, Ex. C, at 1. Nurse Brown reviewed
Ms. Hall’s case on August 18, 2014, and her note on that date stated in part:
[Ms. Hall] is a 70 year old female with a history of [c]irrhosis[,] kidney
disease[,] and high blood pressure. She also has a history of breast
cancer and a density on chest x ray in the right lung. [C]all placed to
[Dr. Valenzuela’s office] to advise [that Ms. Hall] is over the age limit
for transplant evaluation.
Def.’s MSJ, at UF ¶ 6; Doc. 39, Ex. C, at 1. The following morning, Nurse Brown wrote
this update: “[Request] ha[s] been sent to [PHP’s] medical director for liver transplant
evaluation. Per [Presbyterian Health Plan medical policy (MPM 20.6)] member does not
Plaintiffs take issue with Defendant PHP’s assertion that Dr. Valenzuela “requested that PHP
4
authorize a liver transplant evaluation,” favoring, instead, an assertion that Dr. Valenzuela
“referred” Ms. Hall for a liver transplant evaluation. Significantly, however, Defendant’s language
comports with the parties’ Stipulated Facts (Doc. 39 at ¶ 15), which were submitted to the Court
on September 1, 2017. Plaintiffs have not, thus far, moved to withdraw any of those Stipulated
Facts, and the Court will not disregard them on the basis of argument contained in Plaintiffs’
response brief.
4
meet criteria for transplant eval. . . . [F]amily advised of possible denial related to age.”
Def.’s MSJ, at UF ¶ 7; Doc. 39, Ex. C, at 1.
PHP’s medical director, Dr. Norman G. White, received an August 19, 2014 email notifying him of Dr. Valenzuela’s request that Ms. Hall receive a liver transplant
evaluation. Def.’s MSJ, at UF ¶ 9; Doc. 39, Ex. D. The e-mail mentioned that Ms. Hall
was 70 years old and that her diagnosis was non-alcoholic cirrhosis; it also summarized
some of her past medical history, set forth her lab values from two weeks earlier, and
indicated that her current MELD was 13. Def.’s MSJ, at UF ¶ 9; Doc. 39, Ex. D.
Referring to PHP medical policy MPM 20.6, the e-mail suggested that Ms. Hall did “not
meet criteria for liver transplant evaluation.” Def.’s MSJ, at UF ¶ 9; Doc. 39, Ex. D. Dr.
White wrote an e-mail that same day, indicating that “[b]ased on submitted
documentation, [Ms. Hall] does not meet PHP MPM 20.6 criteria for consideration of
liver transplant and evaluation for liver transplantation [, and] [b]ased on Presbyterian
Health Plan criteria, the degree of liver disease is not severe enough to initiate liver
transplant evaluation.” Def.’s MSJ, at UF ¶ 10; Doc. 39, Ex. G.
At the time, PHP’s MPM 20.6 provided that a PHP member could receive a liver
transplant evaluation if she had “severe organ injury, dysfunction or symptomatic organ
failure that [was] not amendable [sic] to other medical or surgical alternatives” and
“[e]nd stage liver disease, as demonstrated by one of the following: [1] current or past
history of acute/fulminant hepatic failure and/or variceal hemorrhage or [2] Platelets <
120,000, increased prothrombin time, decreased albumin, and increased bilirubin.”
Def.’s MSJ, at UF 11; Doc. 39, Ex. E. The parties disagree about whether Dr.
Valenzuela’s treatment notes demonstrate that Ms. Hall met these criteria. Compare
5
Doc. 47 at 8-9, with Doc. 49 at 6-7. Plaintiff maintains that Dr. White’s stated reasons for
the denial were pretextual, and that Ms. Hall’s age was the “real reason” for the denial
of the liver transplant evaluation. Doc. 47 at 9.
On or about August 26, 2014, a PHP employee informed a member of the
Presbyterian Healthcare Services GI clinic staff that Dr. Valenzuela’s request for a liver
transplant evaluation had been denied because Ms. Hall “d[id] not meet criteria for
transplant evaluation.” Def.’s MSJ, at UF ¶ 12; Doc. 39, Ex. C. Thereafter, Ms. Hall
received from PHP a “Notice of Denial of Medical Coverage” for the request for a liver
transplant evaluation. Doc. 39, at ¶ 19 & Ex. H. The notice, dated September 24, 2014,
stated: “Based on the information we received, you do not meet the Presbyterian Health
Plan medical policy (MPM 20.6) criteria for the requested liver transplant evaluation.
Based on the Presbyterian Health Plan medical policy, the degree of your liver disease
is not severe enough to initiate a liver transplant evaluation.” Def.’s MSJ, at UF ¶ 13;
Doc. 39, Ex. H.
The Notice of Denial of Medical Coverage also informed Ms. Hall that she had
the right “to ask [PHP] to review [its] decision by asking for an appeal . . . within 60 days
of the date of [the] notice” or later if she had “a good reason for missing the deadline.”
Def.’s MSJ at UF ¶ 14; Doc. 39, Ex. H, at 1. The notice assured Ms. Hall that a decision
would be made within 30 days for a “Standard Appeal” or within 72 hours for a “Fast
Appeal.” Def.’s MSJ, at UF ¶ 14; Doc. 39, Ex. H, at 2. Moreover, it provided instructions
for pursuing an appeal and advised that if PHP continued to deny her request following
her appeal, it would “send [her] a written decision and automatically send [her] case to
an independent reviewer.” Def.’s MSJ, at UF ¶ 14; Doc. 39, Ex. H, at 2-3. The notice did
6
not explain, however, that any rights to sue would be lost if Ms. Hall did not appeal. Pl.’s
Resp. to Def.’s UF ¶ 14; see also Doc. 39 at ¶ 19 & Ex. H.
Ms. Hall’s plan booklet also provided information about her appeal rights. Def.’s
MSJ at UF ¶ 15; Doc. 39, Ex. A, at 21-22, 171-82. More particularly, it advised that even
if an independent reviewer turned down her appeal, Ms. Hall could appeal further – to
an administrative law judge, an appeals council, and, finally, to a federal district court.
Def.’s MSJ at UF ¶ 15; Doc. 39, Ex. A, at 211-13.
Ms. Hall did not appeal PHP’s decision to deny the request for a liver transplant
evaluation. Doc. 39, at ¶ 20. Her husband and daughter would testify that “they heard
Dr. Valenzuela tell [Ms. Hall] that she would not be able to get a transplant approved by
PHP even if she appealed the denial, and that she could instead go overseas to China
and pay for a liver transplant herself.”5 Id.
On December 27, 2014, Ms. Hall died of end-stage liver disease. Def.’s MSJ at
UF ¶ 17; Doc. 39, at ¶¶ 22-23.
III. LEGAL STANDARD
“The court shall grant summary judgment if the movant shows that there is no
genuine dispute as to any material fact and the movant is entitled to judgment as a
matter of law.” Fed. R. Civ. P. 56(a). A “genuine” dispute exists where the evidence is
such that a reasonable jury could resolve the issue either way. See Adler v. Wal-Mart
Stores, Inc., 144 F.3d 664, 670 (10th Cir. 1998) (citing Anderson v. Liberty Lobby, Inc.,
477 U.S. 242, 248 (1986)). A mere scintilla of evidence in the non-movant’s favor is not
5
Although PHP argues in its reply brief that this statement of fact constitutes hearsay, it has not
moved to withdraw the statement from the Stipulated Facts submitted to the Court. Absent such
a withdrawal, the Court treats the hearsay objection as waived for purposes of PHP’s Motion for
Summary Judgment.
7
sufficient. Anderson, 477 U.S. at 252. However, the court must consider all the
evidence in the light most favorable to the party opposing summary judgment. See
Trask v. Franco, 446 F.3d 1036, 1043 (10th Cir. 2006).
Both the movant and the party opposing summary judgment are obligated to
“cit[e] to particular parts of materials in the record” to support their factual positions.
Fed. R. Civ. P. 56(c)(1)(A). Alternatively, they may “show[] that materials cited do not
establish the absence or presence of a genuine dispute, or that an adverse party cannot
produce admissible evidence to support the fact.” Fed. R. Civ. P. 56(c)(1)(B); see also
Medlock v. United Parcel Serv., Inc., 608 F.3d 1185, 1189 (10th Cir. 2010) (“[I]f the
matter in issue concerns an essential element of the nonmovant’s claim, the moving
party may satisfy the summary judgment standard ‘by identifying a lack of evidence for
the nonmovant on [that] element.’” (internal quotation and citation omitted) (alteration in
original)). Materials cited to establish the presence or absence of a genuine dispute
must be capable of being in a form that would be admissible in evidence. Fed. R. Civ. P.
56(c)(2).
IV. ANALYSIS
PHP makes three arguments in support of its motion for summary judgment: 1)
that Plaintiffs’ claims against it are preempted by the Medicare Act’s broad preemption
provision; 2) that Plaintiffs failed to exhaust their administrative remedies; and 3) that it
is entitled to absolute immunity. See Doc. 40. Because the Court resolves the first two
arguments, which are analytically related,6 in favor of PHP, it need not reach the third.
6
Courts have not always neatly separated the issues of preemption and exhaustion in the
evaluating their subject matter jurisdiction over claims against Medicare Advantage
organizations. Indeed, at times they have merged the analyses, employing the same standard –
whether the claims “arise under” the Medicare Act – to determine both the issues of preemption
8
Before delving into the viability of PHP’s asserted federal defenses, the Court
finds it worthwhile to give a brief overview of Medicare and Ms. Hall’s health insurance
coverage with PHP. “Title XVIII of the Social Security Act, 42 U.S.C. §§ 1395 et seq.
(2006), establishes the federally-funded health insurance program for the aged and
disabled, commonly known as Medicare. The Centers for Medicare and Medicaid
Services (“CMS”) administers the Medicare program on behalf of the Secretary.” Via
Christi Reg’l Med. Ctr., Inc. v. Leavitt, 509 F.3d 1259, 1261 (10th Cir. 2007). The
Medicare program is currently divided into four parts, referred to as Parts A, B, C, and
D. At issue here is Part C, which “allows eligible participants to opt out of traditional
Medicare7 and instead obtain various benefits through [private insurers called Medicare
Advantage organizations], which receive a fixed payment from the United States for
each enrollee.” Sunshine Haven Nursing Operations, LLC v. U.S. Dep’t of Health &
Human Servs., Ctrs. for Medicare & Medicaid Servs., 742 F.3d 1239, 1244 n.2 (10th
Cir. 2014).
Ms. Hall enrolled in a Medicare Part C, Medicare Advantage plan through PHP.
Doc. 40 at 6; Doc. 47 at 1. PHP, a Medicare Advantage organization, received a
and exhaustion. See, e.g., Ardary v. Aetna Health Plans of Cal., Inc., 98 F.3d 496 (9th 1996);
Kovach v. Coventry Health Care, Inc., No. 10cv0536, 2011 WL 284174 (W.D. Penn. Jan. 25,
2011). In these cases, it appears that courts decided whether there was “preemption” under 42
U.S. § 405(g) and (h), the statutory provisions outlining the mandatory administrative process
for claims “arising under” the Medicare Act. Here, the Court attempts to separate the issues of
preemption under the Medicare Act’s preemption provision, § 1395w-26(b)(3), from exhaustion
pursuant to 42 U.S.C. § 405(g) and (h). Notably, claims may be preempted under
§ 1395w-26(b)(3) even if they are not subject to the Medicare Act’s exhaustion provisions. See
Uhm v. Humana, Inc., 620F.3d 1134, 1138 (9th Cir. 2010).
7
Parts A and B comprise the more “traditional” fee-for-service Medicare services and are
managed not by private insurers, but by the federal government. See, e.g., Sunshine Haven
Nursing Operations, LLC, 742 F.3d at 1243–44 & 1244 n.2. Part D is the most recent addition to
the program and includes the Medicare Prescription Drug Benefit program. Id. at 1244 n.2.
9
payment each month that was not dependent on the services actually provided for
Medicare Advantage enrollees like Ms. Hall. See Sunshine Haven Nursing Operations,
LLC, 742 F.3d at 1244 n.2.
A. Preemption
PHP contends that the Medicare Act’s broad preemption provision for Medicare
Advantage organizations, 42 U.S.C. § 1395w-26(b)(3), preempts the claims against it
here. Plaintiffs maintain otherwise. Both parties begin with the language of the
preemption provision and its legislative history. The Court follows suit.
The preemption section provides that standards established through CMS’s
Medicare Advantage regulations “supersede any State law or regulation (other than
State licensing laws or State laws relating to plan solvency) with respect to [Medicare
Advantage] organizations.” 42 U.S.C. § 1395w-26(b)(3). PHP insists that pertinent
legislative history confirms Congress’ sweeping preemptive intent. For instance, it notes
that the congressional conference report observed that the provision, which was part of
the 2003 Medicare Act amendments, “clarif[ies] that the [Medicare Advantage] program
is a federal program operated under Federal rules. State laws[] do not, and should not
apply, with the exception of state licensing laws or state laws related to plan solvency.”
Doc. 40 at 8 (quoting H.R. Rep. No. 108-391, at 557 (2003) (Conf. Rep.) as reprinted in
2003 U.S.C.C.A.N. 1808, 1926). Read most broadly, this begs the question whether
Congress intended to preempt all state law claims against Medicare Advantage
organizations so long as they do not involve solvency or licensing.
Plaintiffs insist that Congress did not so intend. They have framed their claims
against Defendant PHP to allege that it negligently denied Ms. Hall a liver transplant
10
evaluation – either by failing to follow its own policies and procedures or by having
certain written or unwritten policies, procedures, and practices – and that this denial was
the product of “age discrimination” in violation of “its own non-discrimination policy.” Id.
at 5-6. They rely upon a different piece of legislative history in support of their position
that their claims are not preempted, quoting the following explanation given by CMS
when finalizing regulations concerning the Medicare Part D drug benefit, which is
subject to the same preemption clause:
[W]e did not believe we would have the authority under Part D to set
specific tort remedies or to govern resolution of private contracting
disputes between plans and their subcontractors. We believed that the
Congress did not intend for our regulations to supersede each and
every State requirement applying to plans—particularly those for which
the Secretary lacks expertise and authority to regulate. Thus, we did
not believe, for example, that wrongful death or similar lawsuits based
upon tort law would be superseded by the appeals process established
in these regulations.
Doc. 47 at 12-13 (quoting Medicare Prescription Drug Benefit, 70 Fed. Reg. 4194, at
4362 (Jan. 28, 2005)). Given this explanation, Plaintiffs maintain that “Congress left
open a wide field for the operation of state law pertaining to standards for the practice of
medicine and the manner in which medical services are delivered.” Id. at 13 (citing
McCall v. Pacificare of Cal., 21 P.3d 1189 (Cal. 2001)).
In the Court’s view, it is of little consequence whether CMS “believe[s]” that
wrongful death suits are superseded by the Medicare appeals process. Furthermore, in
the same explanation that it offered in 2005, CMS also indicated that it “believe[s] that
an enrollee will still have State remedies available in cases in which the legal issue
before the court is independent of an issue related to the organization’s status as a
[Medicare Advantage] plan.” 70 Fed. Reg. 4193, at 4362 (Jan. 28, 2005) (emphasis
11
added). Yet, it is not immediately clear to the Court that the legal issues before it are in
fact independent of PHP’s status as a Medicare Advantage organization. After all,
Plaintiffs’ claims center around the denial of a Medicare benefit. Finally, while it may be
true that Congress has left room for state law claims based on standards for the
practice of medicine and the manner in which medical services are delivered, this says
nothing of state law claims based upon a Medicare Advantage organization’s denial of a
benefits as medically unnecessary. In the end, the referenced legislative history does
not resolve the preemption issue.
The parties also refer the Court to case law from a number of federal district
courts. PHP relies principally on Rudek v. Presence Our Lady of the Resurrection
Medical Center, No. 13 C 06022, 2014 WL 5441845 (N.D. Ill. Oct. 27, 2014), while
Plaintiffs refer to a trio of cases: Kaohi v. Kaiser Foundation Health Plan, No. 15cv0266
SOM/RLP, 2015 WL 6472231 (D. Ha. Oct. 27, 2015), Kovach v. Coventry Health Care,
No. 10cv0536, 2011 WL 284174 (W.D. Pa. Jan. 25, 2011), and Zanecki v. Health
Alliance Plan, No. 12-13234, 2013 WL 2626717 (E.D. Mich. June 11, 2013).
In Rudek, the daughter of a Medicare Advantage beneficiary sued a Medicare
Advantage organization for injuries sustained by her beneficiary-father, allegedly
resulting from an interruption in his Medicare coverage. Rudek, 2014 WL 5441845 at *1.
The court considered whether the plaintiff’s state law consumer protection claims, which
arose from the delivery of a notice of termination to her father, were preempted by the
Medicare Act. Id. at *9-18. The court held that the plaintiff’s claims were preempted,
because detailed federal regulations regarding notices of termination of benefits left no
room for the operation of state law. Id. at *13-16. PHP argues that, like the delivery of
12
the notices in Rudek, liver transplant policies are also creatures of federal law and
regulation. While there can be no question that federal regulations factored into PHP’s
decision to deny the request for a liver transplant evaluation for Ms. Hall, these
regulations arguably left more discretion to PHP than the regulations at issue in Rudek.
Labeling Rudek an “analytical outlier,” Plaintiffs contend that the “more numerous
and better reasoned cases” support their position: that there is no preemption of their
claims. However, the courts’ analyses in Kaohi, Kovach, and Zanecki were primarily
devoted to the issue of exhaustion of administrative remedies, which the Court takes up
below, and these cases contribute little to the question of preemption under 42 U.S.C.
§ 1395w-26(b)(3). In Kaohi, for example, the court merely indicated that it was
“unpersuaded” by the defendant’s “reference to ‘Congress’ strengthening of Medicare’s
broad preemptive scope,” and explained that a broader preemptive scope did not
somehow transform a medical malpractice claim into one for benefits under the
Medicare Act. Kaohi, 2015 WL 6472231, at *5. In Kovach, the court seemed to conflate
the issue of preemption with the issue of exhaustion when it concluded that “even if
§ 405(h)[, the statute proscribing the administrative process,] were to completely
preempt claims under state law, Plaintiff’s claims are not completely preempted
because they do not arise under the Medicare Act.” Kovach, 2011 WL 284174, at *5.
Plaintiffs do cite one case that refers directly to the Act’s preemption provision,
§1395w-25: Olsen v. Quality Continuum Hospice, Inc., 380 F. Supp. 2d 1225 (D.N.M.
Feb. 25, 2004). See Doc. 47 at 14. In Olsen, the Honorable James O. Browning of this
district concluded that “the preemption standards of § 1395w-26 . . . only apply to
override contrary state law standards regarding the solvency of certain provider-
13
sponsored organizations.” Id. at 1232-33. But the undersigned reads Section 1395w-26
differently. That is, when the statute provides that Medicare regulations supersede state
laws and regulations, except for those involving licensing or plan solvency, it means that
licensing and solvency laws are saved from preemption, not that they are the only
categories of laws preempted.8
Still, the Court is not willing to say at this juncture that all state law claims against
a Medicare Advantage organization, other than those involving licensing and plan
solvency, are necessarily preempted. Instead, it follows the court’s lead in Rudek and
adopts a framework to consider whether Plaintiffs’ claims are governed by federal
Medicare standards and regulations. Notably, the courts employ a similar framework in
Morrison v. Health Plan of Nevada, 328 P.3d 1165, 1167, 1169-70 (Nev. 2014) and
Uhm, 620 F.3d at 1140.
In Morrison, a Medicare insured brought a common law negligence claim against
a Medicare Advantage organization, alleging that it failed to properly investigate and
monitor a contracted medical provider. Morrison, 328 P.3d at 1167. The Nevada
Supreme Court determined that federal law preempted the plaintiff’s negligence claim
8
Prior to 2003, the Medicare preemption provision stated that federal
standards would supersede state law and regulations with respect to
MA plans to the extent that such law or regulation was “inconsistent”
with such standards, and it identified certain standards that were
specifically superseded. The legislative history clarifies that the 2003
amendment was intended to increase the scope of preemption, noting
that, “the [Medicare Advantage Program] is a federal program
operated under Federal rules and that State laws, do not, and should
not apply, with the exception of state licensing laws or state laws
related to plan solvency.”
New York City Health & Hosps. Corp. v. WellCare of New York, Inc., 801 F. Supp. 2d 126, 13536 (S.D.N.Y. 2011).
14
pursuant to Section 1395w-26(b)(3). Id. at 1170. The court reasoned that “as long as a
federal standard exists regarding the conduct at issue[,] all [s]tate standards, including
those established through case law, are preempted to the extent they specifically would
regulate [Medicare Advantage] plans.” Id. at 1169 (internal quotations omitted). The
court explained that although CMS did not select the providers with which the Medicare
Advantage organization could contract, federal regulations did require the organization
to select and retain providers that met the qualifications of the Medicare Act. Id. at 1174.
As such, allowing the state negligence claim to proceed “could result in the imposition of
additional state law requirements on the quality assurance regime regulated by CMS.”
Id. at 1169-70.
Likewise, in Uhm, the Ninth Circuit determined that the Medicare beneficiaries’
consumer protection and fraud claims, which were based on representations by the
defendant that Medicare prescription drug coverage would begin on a certain date, were
preempted by extensive CMS regulations governing prescription drug plan marketing
materials. Uhm, 620 F.3d at 1150. The court reasoned that because “the conduct
underlying [the plaintiffs’] allegations [was] directly governed by federal standards,” the
claims were preempted pursuant to Section 1395w-26(b)(3). Id. at 1158.
Significantly, here, the Medicare Act required PHP to determine whether a liver
transplant was “medically necessary” on a case-by-case basis. See 42 U.S.C.
§ 1395f(a)(3)(6); § 1395w-22(d)(1)(C)(i), D. PHP’s issuance of the Notice of Denial of
Medical Coverage, which asserted that the degree of Ms. Hall’s liver disease was not
severe enough to initiate a liver transplant evaluation, shows that it made that
determination. Additionally, a CMS regulation explicitly required Medicare Advantage
15
organizations, like PHP, to “[e]stablish written . . . [p]olicies and procedures (coverage
rules, practice guidelines, payment policies and utilization management) that allow for
individual medical necessity determinations.” 42 C.F.R. § 422.112(a)(6)(ii). By
promulgating and applying its liver transplant policy, MPM 20.6, one could say that PHP
was fulfilling a basic government task related to Medicare benefits.
Moreover, PHP explains that it based its liver transplant policy on Medicare
coverage rules. Doc. 40 at 10. For instance, the criteria of “end-stage liver disease”
found in MPM 20.6 was derived in part from Medicare’s national coverage
determination, which indicated that liver transplants “may be an accepted treatment for
patients with end-stage liver disease.” Compare Doc. 39, Ex. E, with Medicare National
Coverage Determinations Manual § 260.1(A) (2012), https://www.cms.gov/Regulationsand-Guidance/Guidance/ Manuals/Internet-Only-Manuals-IOMs-Items/
CMS014961.html?DLPage=1&DL Entries=10&DLSort=0&DLSortDir=ascending.
Ultimately, the Court is satisfied that Plaintiffs’ state law claims are preempted by
federal regulations that required PHP to make coverage determinations through
application of the medical necessity standard. As to Plaintiffs’ position that PHP denied
Ms. Hall a liver transplant evaluation because of her age, rather than under the medical
necessity standard, the Court concludes that this disputed issue of fact is not material to
the preemption analysis. Even a claim that a Medicare Advantage organization
wrongfully applied or wholly disregarded the medical necessity standard is still a claim
alleging conduct that was governed by federal Medicare standards. Put another way,
Plaintiffs’ claims against PHP depend upon a showing that PHP violated standards,
perhaps of its own making, which federal Medicare regulations required it to promulgate
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and apply in determining medical necessity. The Act’s preemption provision is broad
enough to cover such claims.
B. Exhaustion
Any action that seeks to recover on a claim “arising under” the Medicare Act
must first be brought through the administrative appeal process. See Uhm, 620 F.3d at
1140; 42 U.S.C. § 405(g)-(h); 42 C.F.R. § 422.576. This administrative channeling
requirement serves important governmental interests in administrative efficiency and
judicial economy, and it protects administrative agency authority, giving agencies an
opportunity to correct their own mistakes before being subject to a federal lawsuit.
Woodford v. Ngo, 548 U.S. 81, 89 (2006). State law claims may be construed as
“arising under” the Medicare Act if: (1) the standing and substantive basis for
presentation of the claim is the Medicare Act, or (2) the claim is “inextricably intertwined”
with a claim for reimbursement of Medicare benefits. Heckler v. Ringer, 466 U.S. 602,
606 (1984).
Here, Plaintiffs deny that their claims against PHP “arise under” the Medicare
Act. They maintain that rather than seeking reimbursement of benefits under Medicare,
they seek damages for PHP’s medical negligence. Their position mimics that of the
plaintiffs in Ardary v. Aetna Health Plans, 98 F.3d 496 (9th Cir. 1996).
In Ardary, the surviving husband and children of Cynthia Ardary, a Medicare
beneficiary, brought state law claims against Aetna Health Plans of California. Ardary,
98 F.3d at 497. Ms. Ardary’s heirs alleged that she had enrolled in Aetna’s health
maintenance organization plan based in part upon representations by an Aetna
representative that Aetna would authorize a transfer to a larger hospital in the event of a
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medical emergency. Id. at 497. When Ms. Ardary suffered a heart attack and her
physician allegedly made “repeated requests” that she be transferred to a larger facility,
the plan’s administrators denied the transfer. Id. at 497-98. Attributing Ms. Ardary’s
death to Aetna’s denial of the transfer, her heirs filed a wrongful death action and
sought compensatory and punitive damages under state law. Id. The Ninth Circuit
determined that the state law wrongful death claims against the private Medicare
provider did not “arise under” the Medicare Act. Id. at 501. Under the first prong of the
Heckler analysis, the court determined that the standing and substantive basis for the
presentation of the plaintiffs’ claims was state common law, not the Medicare Act. Id. at
499. Under the second prong, it concluded that the plaintiffs’ state law claims were not
“inextricably intertwined with the denial of benefits,” because they were “at bottom not
seeking to recover benefits.” Id. at 500. In reaching this conclusion, the court
emphasized that the decedent’s death could not “be remedied by the retroactive
authorization or payment of the airlift transfer.” Id.
It is equally true that Ms. Hall’s death cannot be remedied through the retroactive
authorization of a liver transplant evaluation. Even so, the Court is not satisfied that it
necessary follows that Plaintiffs’ claims are therefore not “inextricably intertwined” with
the denial of benefits. Under the court’s rationale in Ardary, the remedy sought (i.e.
whether compensatory damages or strictly reimbursement payments available under
Medicare) was dispositive of the “arising under” analysis. While this straightforward rule
has some initial appeal, the Court ultimately finds it too simplistic. Moreover, such a rule
risks eviscerating the Medicare administrative process devised by Congress, with savvy
plaintiffs crafting claims that convert grievances regarding denied benefits into medical
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negligence claims in order to circumvent the administrative process. The Court
therefore feels compelled to apply a more nuanced approach to determining whether
claims are “inextricably intertwined” with the denial of Medicare benefits.
In rejecting the remedy-focused rationale in Ardary, the undersigned may be
departing from the rationale of the only other judge in this district to have passed on the
issue. In Olsen, Judge Browning relied upon Ardary to conclude that a plaintiff’s claims
did not “arise under” the Medicare Act, because he was not seeking to recover
Medicare benefits but, instead, damages under state law. Olsen, 380 F. Supp. 2d at
1231. There, the plaintiff’s complaint “set forth numerous common law and statutory
causes of action premised on [the defendant’s] alleged failure to provide him with
certain medical treatment.” Id. at 1227. In short, he alleged that the defendant provider
violated its contractual obligations to provide Medicare benefits when it refused to
provide a treatment prescribed for him. Id. While Judge Browning followed the rationale
in Ardary, focusing on the remedy sought by the plaintiff to determine that the claim did
not “arise under” the Medicare Act, he did not directly address the exhaustion issue.
See id. Moreover, at the time he decided Olsen, Judge Browning did not have the
benefit of the courts’ analyses in the later decisions of Kaohi, Uhm, or Associates
Rehabilitation Recovery, Inc. v. Humana Medical Plan, Inc., 76 F. Supp. 3d 1388 (S.D.
Fla. 2014), each of which the undersigned finds helpful and persuasive.
In Kaohi, the court analyzed different varieties of claims made by Medicare
beneficiaries or their heirs, looking beyond the particular remedies sought. Kaohi, 2015
WL 6472231. The court explained that the plaintiff’s claims there were premised upon
Kaiser Foundation Health Plan’s alleged failure to properly diagnose and treat the
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plaintiff and upon its failure to ensure that laboratory findings were properly
communicated to her and to her doctors. Id. at *4. It determined that these claims stood
in contrast to those in Uhm, where the plaintiffs asserted claims for breach of contract
and unjust enrichment for the failure to provide prescription drug benefits. Id. Although
the claims in Uhm were grounded in state law and sought compensatory damages like
those in Kaohi, the Ninth Circuit found them to be “at bottom, merely creatively
disguised claims for benefits.” Uhm, 620 F.3d at 1143.
In this Court’s view, the Kaohi court seized upon a critical distinction: the
Medicare provider in Kaohi could not demonstrate “how the administrative process
could affect any of the claims through a decision about a Medicare benefit.” Kaohi, 2015
WL 6472231, at *4. In Uhm, on the other hand, the court found that the plaintiffs’ claims
for Medicare benefits “could have been remedied through the [Medicare] Act’s
administrative review process.” Uhm, 620 F.3d at 1144 (emphasis added). Implicit in the
Kaohi court’s rationale is the acknowledgment that the administrative process is
designed to address coverage decisions, not medical negligence claims involving the
quality of medical treatment received by the beneficiary.
A close reading of the Ninth Circuit’s decision in Uhm reveals that, although the
court purported to rely in part on its earlier decision in Ardary, it followed a different
analytical approach and reached a different conclusion. In Uhm, the court explicitly
rejected the plaintiffs’ argument that their claims did not “arise under” the Medicare Act
because they were “seeking damages beyond the reimbursement of benefits.” Uhm,
620 F.3d at 1142. Moreover, it explained that the “Supreme Court ha[s] refused to treat
the remedy sought as dispositive of the ‘arising under’ question.” Id. (citing Shalala v. Ill.
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Council on Long Term Care, Inc., 529 U.S. 1 (2000)). Noting, as it had in Ardary, that
the court must consider whether the claim is “at bottom . . . complaining about the denial
of Medicare benefits,” the court reasoned that the plaintiffs’ claims for breach of contract
and unjust enrichment for the failure to provide prescription drug benefits were “at
bottom, merely creatively disguised claims for benefits.” Id. at 1143. Consequently, it
dismissed these unexhausted claims for lack of subject matter jurisdiction. Id.
The court also grappled with the “arising under” question in Associates
Rehabilitation Recovery, Inc., 76 F. Supp. 3d 1388 (S.D. Fla. Dec. 10, 2014), but in the
context of claims asserted by a medical services provider against a Medicare
Advantage organization for the failure to provide reimbursement for medical treatment
provided to Medicare enrollees. Id. at 1392. At the center of the dispute in Associates
were the providers’ allegations that the Medicare Advantage organization had denied
therapy rehabilitation services “as not medically necessary, determining that particular
services were not covered under the Medicare Act or the enrollee’s Medicare
Advantage plan.” Id. at 1390. The court concluded, first, that the separate agreement
between the provider and Medicare Advantage organization did not excuse the provider
from exhaustion of the Medicare appeals process. Id. at 1392-93. More significantly,
however, it held that a determination of whether services are considered medically
necessary must be reviewed through the Medicare appeals process, reasoning as
follows:
While Plaintiff frames its Complaint as seeking a declaratory judgment
that Defendant is not entitled to utilize certain payment reductions, this
does not change the character of the Complaint. Defendant’s decisions
to deny claims were dependent on compliance with the Medicare Act.
Therefore, Plaintiff’s claims arise under the Medicare Act. Accordingly,
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only after Plaintiff has exhausted the administrative process may
Plaintiff file a civil action in a federal district court.
Id. at 1393 (citing 42 C.F.R. § 422.612(a) (2014)).
Here, Plaintiffs insist that they are not complaining about the denial of Medicare
benefits but are, rather, seeking damages “due to PHP’s medical negligence and profitmotivated denial of benefits that led to [Ms. Hall’s] wrongful death.” Doc. 47 at 19.
Notably, however, the medical negligence of which they complain is PHP’s denial of a
liver transplant evaluation. In their Complaint, Plaintiffs describe the manner of
negligence as the failure to follow policies or the adoption of certain written or unwritten
policies, procedures, and practices. Doc. 37 at ¶ 21. In their response brief, they
suggest that the manner of negligence may have been “a wrongful decision that a
transplant evaluation was not ‘medically necessary.’” Doc. 47 at 7. But, in the Court’s
view, these are creatively-styled claims seeking redress for PHP’s denial of a Medicare
benefit, in other words, claims that are “inextricably intertwined” with the denial of
Medicare benefits and which “arise under” the Medicare Act. See Uhm, 620 F.3d 1134;
Assocs. Rehab. Recovery, Inc., 76 F. Supp. 3d at 1393; accord Green v. Humana Ins.
Co., No. 13cv0344 LG/JMR, 2013 WL 6046051 (S.D. Miss. Nov. 14, 2013) (holding that
the plaintiff’s claims, which were premised upon a Medicare Advantage organization’s
denial of coverage for a generic medication, were “inextricably intertwined with her claim
for Medicare benefits”).
While it is true that Ms. Hall’s death cannot now be remedied through her heirs’
resort to the administrative process, her failure, in the first instance, to administratively
appeal PHP’s denial of the liver transplant evaluation nevertheless forecloses the
present action. See 42 C.F.R. § 422.576 (a Medicare Advantage organization’s
22
coverage determination is “binding on all parties” unless successfully appealed). Under
the Medicare Act and the regulations promulgated thereunder, Ms. Hall had the
opportunity to request an immediate appeal of the denial of a liver transplant evaluation.
Indeed, she could have requested a “Fast Appeal,” under which PHP would have had
72 hours to issue a decision. If that appeal was denied, an independent organization
would have automatically reviewed the decision. Following this process could have
possibly led to a decision in Ms. Hall’s favor; to be sure, it would have given PHP and
the government an opportunity to correct PHP’s mistakes or to revise its policies.
Because Plaintiffs concede that Ms. Hall did not appeal the denial of a liver
transplant evaluation, and because this Court concludes that Plaintiffs’ claims against
PHP “arise under” the Medicare Act, these claims must be dismissed for lack of subject
matter jurisdiction.
V. CONCLUSION
For the reasons discussed above, the Court concludes that Plaintiffs’ claims
against PHP are preempted by the Medicare Act. It further finds that because there has
been no exhaustion of the administrative remedies, the Court must dismiss those claims
with prejudice.
Previously, at an April 4, 2017 hearing on Plaintiffs’ Motion to Remand, Plaintiffs
conceded that removal was appropriate pursuant to the federal officer removal statute,
28 U.S.C. § 1442(a)(1). See Doc. 24. Having now determined that Plaintiffs’ claims
against PHP are preempted, unexhausted, and subject to dismissal, the Court will
remand Plaintiffs’ remaining state law claims against Defendant Presbyterian
Healthcare Services and Gregg Valenzuela. See 28 U.S.C. § 1367(c) (providing that
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district courts may decline to exercise supplemental jurisdiction over a claim if “the
district court has dismissed all claims over which it has original jurisdiction”).
Wherefore,
IT IS HEREBY ORDERED that Defendant Presbyterian Health Plan, Inc.’s
Motion for Summary Judgment on Federal Defenses (Doc. 40) is hereby granted and
Plaintiffs’ claims against Defendant PHP are hereby dismissed with prejudice.
IT IS FURTHER ORDERED that Plaintiff’s remaining claims are hereby
remanded to the Second Judicial District Court, Bernalillo County, New Mexico.
________________________________
UNITED STATES MAGISTRATE JUDGE
Presiding by Consent
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