New York City Health and Hospitals Corporation v. WellCare of New York, Inc.
Filing
26
OPINION AND ORDER: For the reasons stated above, WellCare's motion to dismiss is granted as to the breach of contract claim, and the unjust enrichment claim is remanded to state court. The Clerk of the Court is directed to close this motion [Docket No. 18], and this case. (Signed by Judge Shira A. Scheindlin on 5/10/2011) (jpo)
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
----------------------------------------------------- )(
NEW YORK CITY HEALTH AND
HOSPITALS CORPORATION,
Plaintiff,
OPINION AND ORDER
- against
10 Civ. 6748 (SAS)
WELLCARE OF NEW YORK, INC.,
Defendant.
----------------------------------------------------- )(
SHIRA A. SCHEINDLIN, U.S.D.J.:
I.
INTRODUCTION
On September 1,2010, New York City Health and Hospitals
Corporation ("HHC") filed a verified amended complaint in New York State
Supreme Court, New York County, asserting two state law claims against
WellCare of New York, Inc. ("WellCare"): (1) breach of contract; and (2) unjust
enrichment. HHC asserts its breach of contract claims as a third-party beneficiary
to that contract. On September 10, 2010, WellCare removed this Medicare
payment-related action to federal court pursuant to sections 1441 and 1446 of title
28 of the United States Code. HHC subsequently filed a motion to remand, which
was denied. WellCare now moves to dismiss both claims under Rule 12(b)(6) of
1
the Federal Rules of Civil Procedure on the grounds that: (1) HHC's claims are
preempted by federal law; (2) HHC's claims represent an impermissible attempt to
enforce a federal law that does not provide for a private right of action; and (3)
both claims fail as a matter of law. For the reasons set forth below, WellCare's
motion is granted in part, based on the absence of a private right of action to
pursue the breach of contract claim.
II.
BACKGROUND l
A.
The Parties
HHC is a public benefit corporation organized under the laws of the
State of New York. 2 HHC was established by the New York City Health and
Hospitals Corporation Act ("NYCHHC Act") to provide the public with medical
services and facilities, including hospitals. 3 WelICare is a licensed health plan
with its principal place of business in New York City. WellCare is a participant in
the Medicare Advantage program, licensed under Article 44 of the New York
Public Health Law.
The factual recitation below is taken from the Amended Complaint
("CompI. "), unless otherwise indicated.
2
See CompI. , 4.
3
See NYCHHC Act §§ 2, 5(1) & (7).
2
B.
Medicare Advantage
Part C of the Medicare Program, known as Medicare Advantage,
allows Medicare beneficiaries to obtain their medical benefits through private
managed health care organizations ("MA Organizations").4 The Centers for
Medicare & Medicaid Services ("CMS"), a division of the Department of Health
and Human Services, is the federal agency that administers the Medicare
Advantage program. Under this program, MA Organizations enter into contracts
with CMS, according to which CMS pays each MA Organization a set amount for
each Medicare beneficiary it enrolls. 5 In exchange, MA Organizations agree to
provide their Medicare enrollees with, at a minimum, all the benefits the
beneficiary would be entitled to receive under the Original Medicare program. 6
4
See CompI. ,-r 4. The Medicare Prescription Drug, Improvement and
Modernization Act of 2003 ("MMA") replaced what was previously known as
"Medicare+Choice" with Medicare Advantage. See Medicare Prescription Drug,
Improvement and Modernization Act of2003, 42 U.S.C. §§ l395w-2l- l395w-28.
Medicare+Choice was the revised form of Part C enacted as part of the Balanced
Budget Act of 1997, Pub. L. No. 105-33, III Stat. 251, 275-334 (Aug. 5, 1997).
5
See CompI. ,-r,-r 5-6.
6
See id. ,-r 7. Medicare is currently divided into four parts: Part A,
Hospital Insurance (42 U.S.C. §§ l395c-1395i); Part B, Medical Insurance (42
U.S.C. §§ 1395j-1395w-5); Part C, Medicare Advantage (42 U.S.C. §§ 1395 w
2l-l395w-28); and Part D, prescription drug coverage (42 U.S.C. §§ l395w-lOl
l395w-154). "Original Medicare" consists of Parts A and B and is the federal
government's fee-for-service health plan.
3
WellCare entered into such a contract with CMS. 7 Included in the tenns of the
contract is a section titled "Provider Protections," in which WellCare agrees to
"comply with all applicable provider requirements in 42 C.F.R. Part 422 Subpart
E, including ... rules governing payments to providers."g
MA Organizations enter into agreements with health care providers
("Contracted Providers") under which those providers serve MA Organizations'
enrollees. Providers that do not have a contract with the MA Organizations
("Non-Contracted Providers") may nevertheless provide services to MA
Organizations' enrollees in an emergency capacity.9 Non-Contracted Providers
are paid directly by the MA Organization. 10
C.
HHC's Bills
HHC is a Non-Contracted Provider with respect to WellCare's
See Compl. ~ 28; CMS Contract, Ex. B to 1/29/11 Declaration of
Cynthia Neidl, Wellcare's Counsel.
7
8
CMS Contract at 4.
9
See Compl. ~'19-13; 42 U.S.C. § 1395w-22(d)(l)(E) (mandating that
MA Organizations must allow enrollees to obtain emergency medical services
"without regard to ... the emergency care provider's contractual relationship with
the [MA] organization").
10
See Compl. ~~ 14-15.
4
Medicare enrollees. I I As required by the Emergency Medical Treatment and
Active Labor Act, HHC hospitals provide emergency services to WellCare's
Medicare enrollees who seek emergency services until their conditions have
stabilized. 12 HHC then billsWellCare for the services provided, using a standard
billing form ("UB-04,,).13 HHC includes the amount it seeks as payment in Field
55 of the UB-04 form, which is labeled "Est. Amount Due."14 The amount listed
in Field 55 is the diagnosis related group ("DRG") payment amount, which is the
amount that HHC would receive under Original Medicare. 15
HHC also lists, in lines 42 through 47 of the UB-04 form, the
services provided, and the related revenue codes and charges (the "Posted
Charges,,).16 The Posted Charges apply to uninsured patients and some out-of
network commercial plans. Due to the large number of low-income patients that it
serves, HHC tries to keep these charges low and the Posted Charges are often
11
12
See id.
~
29.
See id. ~ 30; 42 U.S.C. § 1395dd.
13
See CompI.
14
See id.
~
32.
15
See id.
~
33.
16
See id.
~
34.
~
31.
5
lower than the DRG payment amounts. 17
Thus the bills that HHC submitted to WellCare listed two sums: one
representing the Posted Charges, and the other representing the DRG amount. For
an unspecified number of years, WellCare paid HHC the lesser of the two
amounts, which was sometimes the DRG amount, but was usually the Posted
Charges. 18 In May 2008, HHC demanded that WellCare pay HHC the DRG
amount, not the Posted Charges, and that it pay HHC the difference between the
DRG amounts and the Posted Charges for claims WellCare had already approved
and paid. 19 Over the course of the next year, the parties engaged in discussions
regarding the payment dispute. 2o
In November 2009, HHC requested that CMS resolve the parties'
dispute by issuing a ruling that would apply to all of the claims for which
WellCare had not paid the DRG amount. 21 In response to the request, CMS issued
a letter on May 11, 2010 to "provide clarity on the payment policy issues raised"
17
See id.
~
35.
18
See id.
~
36.
19
See id.
~
38.
20
See id.
~
39.
21
See id.
~
49.
6
by the parties and to assist in resolving the disagreement. 22 In that letter, eMS
addressed the issue of whether "MA [O]rganizations are allowed to pay the lesser
of a [N]on-[C]ontracted [P]rovider's billed charges for hospital services or the
[DRG] payment amount that mayor may not appear on the bill."23 The letter
concluded that, "MA plans are not allowed to pay the lesser of charges unless that
amount has been agreed to by both parties."24 CMS then directed any further
disputes between HHC and WellCare to its Provider Payment Dispute Resolution
Process, a non-binding and voluntary service offered by CMS. 25
By letter of September 29,2010, CMS informed HHC that "[f]or
periods prior to [the] February 25,2010 guidance ... the issue of whether a claim
for payment constitutes a bill for the Original Medicare amount or a bill for a
'billed' or 'charged' amount included on the submission is a matter that is open to
interpretation, and must be resolved between the parties.,,26 The amount of the
22
See 5111110 Letter from CMS to HHC, Ex. A to Declaration of Sabita
Krishnan, HHC's counsel ("Krishnan Decl.").
23
ld.
24
ld.
25
See Compl. ~ 43.
26
9/2911 0 Letter from CMS to HHC, Ex. B to Krishnan Decl., at 1.
7
identified underpayments at issue exceeds $2.8 million, including interest. 27
III.
APPLICABLE LAW
A.
Motion to Dismiss
In deciding a motion to dismiss pursuant to Federal Rule of Civil
Procedure l2(b)(6), the court evaluates the sufficiency of the complaint under the
"two-pronged approach" suggested by the Supreme Court in Ashcroft v. Iqbal. 28
First, a court "'can choose to begin by identifying pleadings that, because they are
no more than conclusions, are not entitled to the assumption of truth. ,,,29
"Threadbare recitals of the elements of a cause of action, supported by mere
conclusory statements, do not suffice" to withstand a motion to dismiss. 30 Second,
"[ w]hen there are well-pleaded factual allegations, a court should assume their
veracity and then determine whether they plausibly give rise to an entitlement for
27
See Compl. ~ 45.
28
556 U.S.
- , 129 S.Ct. 1937,1950 (2009).
Hayden v. Paterson, 594 F.3d 150, 161 (2d Cir. 2010) (quoting Iqbal,
129 S.Ct. at 1950). Accord Ruston v. Town Bd.for Town ofSkaneateles, 610 F.3d
55,59 (2d Cir. 2010).
29
Iqbal, 129 S.Ct. at 1949 (citing Bell Atl. Corp. v. Twombly, 550 U.S.
544, 555 (2007)).
30
8
relief. ,,31 To survive a Rule l2(b)(6) motion to dismiss, the allegations in the
complaint must meet a standard of "plausibility.,,32 A claim is facially plausible
"when the plaintiff pleads factual content that allows the court to draw the
reasonable inference that the defendant is liable for the misconduct alleged."33
Plausibility "is not akin to a probability requirement;" rather, plausibility requires
"more than a sheer possibility that a defendant has acted unlawfully.,,34
"In considering a motion to dismiss for failure to state a claim
pursuant to Rule 12(b)(6), a district court may consider the facts alleged in the
complaint, documents attached to the complaint as exhibits, and documents
incorporated by reference in the complaint.,,35 However, the court may also
consider a document that is not incorporated by reference, "where the complaint
'relies heavily upon its terms and effect,' thereby rendering the document
Id. at 1950. Accord Kiobel v. Royal Dutch Petroleum Co., 621 F.3d
111,124 (2d Cir. 2010).
31
32
Twombly, 550 U.S. at 564.
33
Iqbal, 129 S. Ct. at 1949 (quotation marks omitted).
34
Id. (quotation marks omitted).
DiFolco v. MSNBC Cable L.L.c., 622 F.3d 104, III (2d Cir. 2010)
(citing Chambers v. Time Warner, Inc., 282 F.3d 147, 153 (2d Cir. 2002)).
35
9
'integral' to the complaint."36
B.
Enforcing Federal Law as Third-Party Beneficiaries of
Government Contracts
'''[R]ecognition of any private right of action for violating a federal
statute ... must ultimately rest on congressional intent to provide a private
remedy."37 In the absence of an express private right of action to enforce a federal
law, courts should only infer a right of action when there is explicit evidence of
Congressional intent. 38 "[A] federal court should not strain to find in a contract a
state-law right of action for violation of federal law under which no private right
of action exists."39 "Although whether the p1aintiffhas a private right of action
under the statute is conceptually distinct from whether the plaintiff may sue as a
third-party beneficiary of the contract mandated by the statute, the same
Id. (quoting Mangiafico v. Blumenthal, 471 F.3d 391, 398 (2d Cir.
2006». Accord Global Network Commc 'ns, Inc. v. City olN Y., 458 F.3d 150, 156
(2d Cir. 2006).
36
Astra USA, Inc. v. Santa Clara County, California, 563 U.S. - , - ,
131 S.Ct. 1342, 1347 (Mar. 29,2011) (quoting Virginia Bankshares, Inc. v.
Sandberg, 501 U.S. 1083, 1102 (1991).
37
38
See Alexander v. Sandoval, 532 U.S. 275, 286-87 (2001).
Broder v. Cablevision Sys. Corp., 418 F.3d 187,198 (2d Cir. 2005)
(citing Grochowski v. Phoenix Construction, 318 F.3d 80 (2d Cir. 2003».
39
10
considerations largely determine both issues."40 "[W]hen a government contract
confirms a statutory obligation, 'a third-party private contract action [to enforce
that obligation] would be inconsistent with ... the legislative scheme ... to the
same extent as would a cause of action directly under the statute. ",41 Regulations
promulgated under a statute,
ifvalid and reasonable, authoritatively construe the statute
itself, and it is therefore meaningless to talk about a
separate cause of action to enforce the regulations apart
from the statute. A Congress that intends the statute to be
enforced through a private cause of action intends the
authoritative interpretation of the statute to be so enforced
as well. 42
Therefore a suit filed to enforce a regulation will be analyzed in the same manner
as a suit to enforce a statute.
c.
Preemption
Preemption may be either express or implied. 43 Express preemption is
found "when Congress has 'unmistakably... ordained,' that its enactments alone
40
Davis v. United Air Lines, Inc., 575 F. Supp. 677,680 (E.D.N.Y.
41
Astra USA, Inc., 131 S.Ct. at 1348 (quoting Grochowski, 318 F .3d at
1983).
86).
Alexander, 532 U.S. at 284 (citing Chevron U.S.A., Inc. v. Natural
Resources Defense Council, Inc., 467 U.S. 837, 843-44 (1984)).
42
43
See Lorillard Tobacco Company v. Reilly, 533 U.S. 525, 541 (2001).
11
are to regulate a part of commerce, [and thus] state laws regulating that aspect of
commerce must fall."44 In the absence of explicit preemptive language, implied
preemption may exist. Implied preemption may take two forms:
[1] [F]ield pre-emption, where the scheme of federal
regulation is so pervasive as to make reasonable the
inference that Congress left no room for the States to
supplement it, and [2] conflict pre-emption, where
compliance with both federal and state regulations is a
physical impossibility, or where state law stands as an
obstacle to the accomplishment and execution of the full
purposes and objectives of Congress. 45
"[A] court interpreting a federal statute pertaining to a subject
traditionally governed by state law will be reluctant to find preemption. Thus,
preemption will not lie unless it is the clear and manifest purpose ofCongress.,,46
Therefore, Congressional intent "is the ultimate touchstone" of all preemption
analysis. 47
1.
Express Preemption
Jones v. Rath Packing Co., 430 U.S. 519, 525 (1977) (quoting
Florida Lime & Avocado Growers, Inc. v. Paul, 373 U.S. 132, 142 (1963)).
44
45
Gade v. National Solid Wastes Mgmt. Ass 'n, 505 U.S. 88, 98 (1992).
CSXTransp., Inc. v. Easterwood, 507 U.S. 658, 664 (1993)
(quotation marks omitted). Accord New York Dept. o/Soc. Servs. v. Dublino, 413
46
U.S. 405, 413 (1973) (stating that a federal statute does not supersede state law
"unless there is a clear manifestation of intention to do so.").
47
Medtronic, Inc. v. Lohr, 518 U.S. 470,485 (1996).
12
"If the statute contains an express preemption clause, the task of
statutory construction must in the first instance focus on the plain wording of the
clause, which necessarily contains the best evidence of Congress' preemptive
intent. ,,48 The preemption provision in the Medicare Act which was adopted in
2003 states that:
[t]he standards established under this part shall supersede
any State law or regulation (other than State licensing law
or State laws relating to plan solvency) with respect to MA
plans which are offered by MA organizations under this
part. 49
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. 50 The legislative
48
CSX Transp., 507 U.S. at 664.
49
42 U.S.C. § I 395w-26(b )(3).
42 U.S.C. § I 395w-26(b)(3)(A) (2000), amended by 42 U.S.C. §
I 395w-26(b)(3) (2003). The state standards specifically superseded were: "(i)
Benefit requirements (including cost-sharing requirements). (ii) Requirements
relating to inclusion or treatment of providers. (iii) Coverage determinations
(including related appeals and grievance processes). (iv) Requirements relating to
marketing materials and summaries and schedules of benefits regarding a
Medicare+Choice plan." 42 U.S.C. § I 395w-26(b )(3)(B) (2000), amended by 42
U.S.C. § l395w-26(b)(3) (2003).
50
13
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.,,51
"The Secretary [ofHHS] adopted the same reading of the Conference Report in
promulgating the final rules: 'We believe that the Conference Report was clear
that the Congress intended to broaden the scope of preemption in the MMA.",52
However, at the same time, CMS explained that regardless of the increased
breadth of the preemption provision, preemption "operates only when CMS
actually creates standards in the area regulated. To the extent we do not create any
standards whatsoever in a particular area, we do not believe preemption would be
warranted."53 Courts have since found various state law claims to be preempted,
primarily surrounding the marketing and advertising of Medicare Part C and D
51
H. Conf. Rep. 108-391 at 557, reprinted in 2003 U.S.C.C.A.N. at
1926. See also Do Sung Uhm v. Humana, Inc., 620 F.3d 1134, 1148-59 (9th Cir.
2010) (analyzing the intent behind and effect of the revised preemption provision).
52
Uhm, 620 F.3d at 1150 n. 23 (quoting 70 Fed. Reg. 4588,4663 (Jan.
28,2005)).
53
Medicare Prescription Drug Benefit, 70 Fed. Reg. 4194-01,4320
(Jan. 28, 2005).
14
plans. 54
2.
Implied Preemption
"Even where a federal law contains an express preemption clause, the
court still may be required to consider implied preemption as it considers 'the
question of the substance and scope of Congress' displacement of state law. ",55 A
"clear demonstration of conflict ... must exist before the mere existence of a
federal law may be said to pre-empt state law operating in the same field."56
IV.
DISCUSSION
A.
Enforcing Federal Law - Breach of Contract Claim
See Mann v. Reeder, No. 10 Civ. 133,2011 WL 665749, at *5 (W.D.
Ky. Feb. 15,2011) (reserving judgment on preemption, but noting that "[i]fit
turns out that [Defendant's] representations were consistent with or identical to the
CMS approved 'marketing materials,' the fraud claim will likely be dismissed as
preempted"); Clay v. Permanente Med. Group, Inc., 540 F. Supp. 2d 1101, 1108
10 (N.D. Cal. 2007) (holding that claim based on California state law regulating
adequacy of disclosures in Medicare Advantage plan's marketing materials was
expressly preempted); Do Sung Uhm v. Humana, No. 06-0815, 2006 WL 1587443,
at *2-3 (W.D. Wash. June 2,2006) (holding that a state law tort action based on
alleged false advertising by Medicare Advantage plan operating under Medicare
Part C was preempted by § 1395w-26(b)(3)). See also 73 Fed. Reg. 28556,28582
(May 16, 2008) (in a discussion of the use of independent agents for marketing,
the CMS stated, "we recognize that, under the preemption provisions in [the
MMA], States do not have the authority to regulate the marketing of Medicare Part
C and D plans.").
54
New York SMSA Ltd. P'ship v. Town o/Clarkstown, 612 F.3d 97, 104
(2d Cir. 2010) (quoting Altria Group, Inc. v. Good, 555 U.S. 70,129 S.Ct. 538,
543 (2008)).
55
56
Jones v. Rath Packing Co., 430 U.S. 519, 544 (1977).
15
HHC claims to have contract rights as a third-party beneficiary to
WellCare's contract with CMS. WellCare in tum argues that HHC's breach of
contract claim is an impermissible attempt to enforce a federal law that does not
provide for a private right of action. HHC concedes that there is no express
provision in the Medicare laws or regulations that creates a private right of action
for Non-Contracted Providers. 57 Inferring an implied right of action in a federal
statute has fallen out of favor over the past forty years, and cannot be found absent
explicit evidence of Congressional intent. 58 Such evidence is lacking in the statute
at issue and the regulations promulgated under its authority. HHC has not
attempted to bring a cause of action directly under the statute, nor has it advanced
the argument that an implied cause of action exists within the MMA, its statutory
57
See HHC's Memorandum of Law in Opposition Motion to Dismiss at
22 n.5.
Compare Alexander, 532 U.S. at 286-87 ("[P]rivate rights of action to
enforce federal law must be created by Congress. The judicial task is to interpret
the statute Congress has passed to determine whether it displays an intent to create
not just a private right but also a private remedy. Statutory intent on this latter
point is determinative. Without it, a cause of action does not exist and courts may
not create one, no matter how desirable that might be as a policy matter, or how
compatible with the statute."), and Virginia Bankshares, 501 U.S. at 1102
("[R]ecognition of any private right of action for violating a federal statute must
ultimately rest on congressional intent to provide a private remedy."), with JI.
Case Co. v. Borak, 377 U.S. 426, 433 (1964) ("[I]t is the duty of the courts to be
alert to provide such remedies as are necessary to make effective the congressional
purpose" of a statute).
58
16
predecessors, or the regulations implementing it. Instead, HHC seeks to compel
WellCare's compliance with the terms of the MMA through the contract that
WellCare entered into with the CMS.
Courts are hesitant to allow suits by third-party beneficiaries to
enforce statutory requirements incorporated into contracts with the government
where there is no private right of action under the statute, because the third-party
suit "is in essence a suit to enforce the statute itself."59 Here, the relevant
contractual provision reads:
The MA Organization agrees to comply with all applicable
provider requirements in 42 C.F.R. Part 422 Subpart E,
including provider certification requirements, anti
discrimination requirements, provider participation and
consultation requirements, the prohibition on interference
with provider advice, limits on provider indemnification,
rules governing payments to providers, and limits on
physician incentive plans. [422.504(a)(6)]60
The only relevant portion of 42 C.F.R. Part 422 Subpart E that relates to payments
to providers states that:
Any provider ... that does not have in effect a contract
establishing payment amounts for services furnished to a
Astra USA, Inc., 131 S.Ct. at 1348. Accord Grochowski, 318 F.3d 80;
Gunther v. Capital One, N.A., 703 F. Supp. 2d 264 (E.D.N.Y. 2010); Davis v.
United Air Lines, Inc., 575 F. Supp. 677 (E.D.N.Y. 1983).
59
60
CMS Contract at 4 (emphasis added).
17
beneficiary enrolled in an MA coordinated care plan, an
MSA plan, or an MA private fee-for-service plan must
accept, as payment in full, the amounts that the provider
could collect if the beneficiary were enrolled in [O]riginal
Medicare. 61
The Complaint does not allege that WellCare violated any "independent
substantive obligation" arising only from WellCare's contract with CMS. 62
Rather, HHC repeatedly acknowledges that "Medicare law and regulations" were
the source of the contractual term allegedly breached. 63 And because the abovequoted regulation is the only relevant law or regulation incorporated into
WellCare's contract with CMS, HHC's breach of contract claim boils down to an
effort to enforce that regulation - 42 C.F.R. § 422.214(a)(I).
The Supreme Court recently determined that there was no private
right to sue for breach of contract as a third party beneficiary of a government
contract when the statute mandating the contract contained no express or implied
61
42 C.F.R. § 422.214(a)(1).
62
Astra USA, Inc., 131 S.Ct. at 1348.
See, e.g., CompL ~ 47 ("CMS requires MA organizations, including
WellCare, to pay health care providers according to the terms and conditions
required by Medicare law and regulations."); id. ~ 49 ("Well Care promised to pay
health care providers according to the terms and conditions required by Medicare
law and regulations."); id. ~ 50 ("Medicare law and regulations require that
WellCare pay [HHC] the amount that [HHC] could collect for its services had
WellCare's enrollees been enrolled in Original Medicare.").
63
18
right of action. In Astra USA, Inc. v. Santa Clara County, California, the Court
unanimously reversed the Ninth Circuit's ruling that third parties could sue to
enforce section 340B of the Public Health Services ACt. 64 In that case, municipal
hospitals sued as third parties, alleging that they had been overcharged millions of
dollars by pharmaceutical companies that had a statutory obligation to sell drugs
to the hospitals at a discounted price. The pharmaceutical companies had
shouldered that obligation by entering into contracts with the Department of
Health and Human Services. In determining that the hospitals could not sue as
third-party beneficiaries of those contracts, the Court noted that the contracts
simply incorporated the statutory obligations of pharmaceutical companies
participating in the section 340B program. 65 Because the statutory and contractual
obligations were "one and the same," a suit to enforce the contract would
undermine Congressional intent. 66
HHC's claim here is analogous to that of the municipal hospitals in
The section 340B program "imposes ceilings on prices drug
manufacturers may charge for medications sold to specified health care facilities ..
. dominantly, local providers of medical care for the poor." Astra USA, Inc., 131
S.Ct. at 1346.
64
65
See id. at 1348.
66
Id.
19
Astra. HHC seeks to hold WellCare accountable for breaching WellCare's
agreement with CMS to abide by federal regulations. HHC asserts no contract
claims apart from those based on WellCare's statutory obligations.
The Court's decision in Astra endorsed the Second Circuit's
reasoning in an earlier case. In Grochowski v. Phoenix Construction, the Second
Circuit held that a plaintiff may not get around the lack of a private right of action
under a federal statute by artfully pleading a third-party breach of contract claim or
quasi-contract claim based on a violation of the statute. 67 Because the federal
statute at issue in that case did not permit a private right of action, the Second
Circuit characterized the plaintiffs' state law claims as an "impermissible 'end run'
around" the federal statute. 68 The court held that allowing the suit to proceed
would undermine Congress's intent that the federal law in question be enforced by
a regulatory agency and not by private citizens. 69 As HHC's breach of contract
claim is an action to enforce a federal law that does not provide for a private right
of action, Grochowski, along with Astra, serves as controlling precedent, and
requires dismissal ofHHC's claim.
67
See 318 F.3d at 85.
68
Id. at 86.
69
See id.
20
HHC argues that its lack of alternative remedies suggests that its suit
is appropriate. However, the enforcement regime in Astra was very similar to the
one at issue here, yet in that case the Court found the breach of contract claim
inappropriate. 70 In addition to CMS's enforcement powers, CMS now offers a
dispute resolution program, under which a Non-Contracted Provider in a payment
dispute with a MA Organization can seek resolution of the dispute with an
independent organization that has contracted with CMS. And, while the dispute
resolution program is voluntary and non-binding, its existence alone suggests that
HHC's breach of contract claim is barred:
[A regulatory emphasis on] conciliation and informal
resolution of complaints suggests strongly that [Congress]
did not intend a conflicting private remedy ... to be
available. To conclude otherwise would mean Congress
had purposefully established an elaborate administrative
procedure whose effectiveness Congress intended to be
undermined willy-nilly through the institution of private
lawsuits. 71
See Astra USA, Inc., 131 S.Ct. at 1346. ("If a manufacturer
overcharges a covered entity, HRSA may require the manufacturer to reimburse
the covered entity; HRSA may also terminate the manufacturer's [contract] ....
Currently, HRSA handles overcharge complaints through informal procedures.").
CMS's regulatory enforcement tools include: not renewing the contract, 42 C.F.R.
§ 422.506; terminating the contract, 42 C.F.R. § 422.510; and requiring payment,
42 C.F.R. § 422.520, among others.
70
71
D'Amato v. Wisconsin Gas Co., 760 F.2d 1474, 1481-82 (7th Cir.
1985).
21
Although the dispute resolution process available to HHC may not qualify as
"elaborate," its existence weighs against finding that Non-Contracted Providers
can bring suit to enforce MA Organizations' contracts with CMS. 72
Further evidence that Congress did not intend that Non-Contracted
Providers would have the right to enforce CMS contracts with MA Organizations
comes from CMS 's enhanced regulatory authority over matters involving NonContracted Providers as compared to Contracted Providers. In response to a
payment dispute between a Contracted Provider and a MA Organization, CMS
wrote:
This type of contract dispute is an issue for the state
judiciary to decide. [Medicare Advantage] regulations
clearly limit [CMS]'s ability to intervene in payment
disputes between [Medicare Advantage] organizations and
their contracted [Medicare Advantage] providers. In fact,
the existence ofprovider contracts that can be enforced by
the courts is why the Congress limited [CMS} 's regulatory
authority in comparison to those afforded
HHC's contention that the availability of administrative remedies is a
decisive factor in determining third-party beneficiary rights is undercut by Davis v.
United Air Lines, Inc., 575 F. Supp. 677 (B.D.N.Y. 1983) (cited in Grochowski,
318 F .3d at 86). In that case, the plaintiff asserted a third-party beneficiary
contract claim against his former employer based on violation of a statute that
lacked a private right of action. The court held that the claim could not proceed.
Despite the fact that no remedy whatsoever was left, the court concluded that the
"plaintiff must forego relief, warmed only by the pleasant thought that public
policy is being vindicated." Id. at 680.
72
22
[N] on-[C]ontracted [P]roviders. 73
If Congress intended to pennit Non-Contracted Providers to bring third-party
beneficiary lawsuits, there would have been no need to enhance CMS regulatory
authority over the relationships between MA Organizations and Non-Contracted
Providers.
In the absence of any evidence, either in the contract itself, the
background statutes, legislative history, or implementing regulations, that
Congress intended to confer third-party beneficiary rights to Non-Contracted
Providers, I find that HHC cannot proceed on its breach of contract claim. The
breach of contract claim is therefore dismissed.
B.
Preemption
WellCare asserts that all three varieties of preemption - express, field
and conflict - bar HHC's state law claims. Because only the unjust enrichment
claim remains in the case, the preemption analysis will focus only on that claim.
1.
Express Preemption
In Sprietsma v. Mercury Marine, the Supreme Court found that a
preemption clause almost identical to the preemption clause in the MMA did not
73
Christus Health Gulf Coast v. Aetna, Inc., 237 S.W.3d 338, 340-41
(Tx. 2007) (quoting Letter from Acting Director of the CMS Medicare Managed
Care Group to Plaintiffs (Mar. 30,2001)) (emphasis added).
23
express an intent to preempt common law claims, only positive enactments - state
statutes and regulations. 74 The Ninth Circuit is the only circuit court that has
addressed whether the MMA's preemption clause was designed to apply to
common law claims. In that case - Uhm v. Humana - the court found that
Congress intended the MMA to preempt "at least some common law claims.,,75 In
making that determination, the court distinguished Sprietsma by noting the
absence of a savings clause in the MMA, and pointed to the expansive phrase "any
State law or regulation" in the MMA's preemption provision. 76
The Uhm plaintiffs' common law fraud and fraud in the inducement
claims were found preempted because they would have required the court to
determine whether the defendant's marketing materials were misleading. If the
court found that the materials "constituted misrepresentations resulting in fraud ..
. it would directly undermine CMS' s prior determination that those materials were
not misleading and in tum undermine CMS's ability to create its own standards for
what constitutes 'misleading' information about Medicare Part D.'m
74
537 U.S. 51, 63 (2002).
75
Uhm, 620 F.3d at 1153.
76
See id. at 1153-54.
77
ld. at 1157.
24
The Ninth Circuit limited its holding, emphasizing that it "does not
mean that all common law fraud and fraud in the inducement claims would be
preempted under the Act. The preemption inquiry turns on the specific allegations
forming the basis of those claims, not their labels."78 That inquiry focuses on
whether the resolution of a common law claim would interfere with federal
standards governing MA plans. "For purposes of the preemption provision, a
standard is a statutory provision or a regulation promulgated under the MMA and
published in the Code of Federal Regulations.,,79
CMS has established standards for payments to Non-Contracted
Providers. 80 However, until very recently, CMS had not set standards governing
an MA Organization's responsibility to pay the Original Medicare amount when
the bill contained a lower charge. 81 Though CMS has now provided clarification,
78
ld. at 1157 n. 35.
Medical Card System v. Equipo Pro Convalecencia, 587 F.Supp.2d
384, 387 (D.P.R. 2008).
79
See 42 C.F.R. § 422.214 ("special rules for services furnished by
[N]on[-][C]ontract [P]roviders"); § 422.100 (general requirements);
80
CMS added a new paragraph to 42 C.F.R. § 422.214 on April 15,
20 11 (effective June 6, 2011), designed to reflect the policy set forth in its
February 25,2010 guidance in the regulations governing payment to non-contract
providers. The new paragraph reads: "A [N]on[ -] [C]ontract ... [P]rovider of
services that furnishes services to MA enrollees and submits the same information
that it would submit for payment under Original Medicare is deemed to be seeking
81
25
judicial resolution of claims predating the recent CMS pronouncements would not
upset the statutory regime. Furthermore, a court would not have to overrule a
previous CMS determination in order to find in favor of HHC on its unjust
enrichment claim. In fact, CMS has refused to make a determination on the
dispute. Because the specific allegations underlying HHC's unjust enrichment
claim would not interfere with federal standards governing MA plans, the claim is
not expressly preempted.
2.
Field Preemption
Field preemption occurs "where Congress has legislated so
comprehensively that federal law occupies an entire field of regulation and leaves
no room for state law."82 While the battery of federal laws addressing healthcare
is robust and growing, Congress has not demonstrated an intent to exclusively
dominate the field. Indeed, there is evidence to the contrary - the MMA itself
expressly leaves room for state regulation of MA organizations in the areas of
to be paid the amount it would be paid under Original Medicare unless the
provider expressly notifies the MA organization in writing that it is billing an
amount less than such amount." 42 C.F.R. § 422.214(c). Under this new standard,
HHC would be entitled to reimbursement at the Original Medicare/DRG amount.
New York SMSA Ltd. P'ship v. Town o/Clarkstown, 612 F.3d 97, 104
(2d Cir. 2010).
82
26
licensure and solvency.83
"The presumption against preemption applies in any field in which
there is a history of state law regulation, even if there is also a history of federal
regulation.,,84 The presumption against preemption applies here because "[t]he
regulation of public health and the cost of medical care are virtual paradigms of
matters traditionally within the police powers of the state."85 In light of the
presumption, field preemption does not apply to HHC's common law unjust
enrichment claim.
3.
Conflict Preemption
83
See 42 U.S.C. § I 395w-26(b)(3) (2003) ("[t]he standards established
under this part shall supersede any State law or regulation (other than State
licensing law or State laws relating to plan solvency) with respect to MA plans
which are offered by MA organizations under this part.") (emphasis added); see
also In re Lupron Mktg. & Sales Practices Litig., 295 F. Supp. 2d 148, 177 (D.
Ma. 2003) ("That Congress has expressly invoked preemption over some aspects
of Medicare, while ignoring others, is powerful evidence [against field
preemption].").
Blue Cross & Blue Shield v. AstraZeneca Pharms. LP, 582 F.3d 156,
178 (1st Cir. 2009) (citing Wyeth v. Levine, 555 U.S. 555, 129 S.Ct. 1187, 1195
n.3 (2009) ("The presumption ... accounts for the historic presence of state law
but does not rely on the absence of federal regulation.").
84
Medical Soc. ofN.Y. v. Cuomo, 976 F.2d 812, 816 (2d Cir. 1992)
(citing Hillsborough County v. Automated Medical Lab. Inc., 471 U.S. 707, 719
(1985) ("the regulation of health and safety matters is primarily and historically a
matter oflocal concern")).
85
27
Conflict preemption applies when state law stands as an obstacle to
the accomplishment and execution of the full purposes and objectives of
Congress. 86 HHC's complaint alleges that HHC "provided services to WellCare's
Medicare enrollees in good faith as required by the law," and "expected to be paid
by WellCare for the services it provided to WellCare's Medicare enrollees," but
that the "Posted Charges are less than the reasonable value of the services it
provides."87 While a fact-finder could potentially conclude that the "reasonable
value" ofHHC's services is higher that the Original Medicare amount, HHC
clarifies in its opposition brief that it "seeks only the DRG amount ... even if the
reasonable value of its services is a higher amount."88 Therefore there is no
danger that allowing the unjust enrichment claim to proceed would conflict with
the CMS regulations that set the Original Medicare amount as the ceiling for the
reimbursement of Non-Contracted Providers.
C.
Unjust Enrichment
Because the breach of contract claim, upon which federal question
86
Gade v. National Solid Wastes Mgmt. Ass 'n, 505 U.S. 88, 98 (1992).
87
Compl. ~~ 54, 55, 57.
88
HHC's Memorandum of Law in Opposition to Motion to Dismiss at
19.
28
jurisdiction was based, has been dismissed this Court no longer has subject matter
jurisdiction over the unjust enrichment claim. It is therefore remanded to state
court.
V.
CONCLUSION
For the reasons stated above, WellCare's motion to dismiss is granted
as to the breach of contract claim, and the unjust enrichment claim is remanded to
state court. The Clerk of the Court is directed to close this motion [Docket No.
18], and this case.
so
/ / ..
I
;<_ <
/
,~~/_.-,--II - - - f - -
(
Shira A. Sch¢iridlin
U.S.D.l
Dated:
New York, New York
May 10,2011
29
- Appearances
For Plaintiff:
Alan H. Kleinman
Sabita L. Krishnan
Assistant Corporation Counsel
New York City Law Department
100 Church Street
New York, New York 10007
(212) 788-1012
For Defendant:
Cynthia E. Neidl, Esq.
Harold N. Iselin, Esq.
Greenberg Traurig, LLP
54 State Street
Albany, New York 12207
(518) 689-1400
30
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