Global Rescue Jets LLC v. Kaiser Foundation Health Plan, Inc.

• Court: District Court, S.D. California
• Decided: November 30, 2020
• Docket: 3:19-cv-01737
• Status: Unknown

Opinion

1 2 3 4 5 6 7 8 UNITED STATES DISTRICT COURT 9 SOUTHERN DISTRICT OF CALIFORNIA 10 11 GLOBAL RESCUE JETS LLC, Case No.: 19cv1737-L-NLS

12 Plaintiff, ORDER GRANTING DEFENDANT’S 13 v. MOTION TO DISMISS (doc. no. 12) 14 KAISER FOUNDATION HEALTH PLAN, INC., 15 Defendant. 16

18 Pending before the Court is Defendant’s motion to dismiss (doc. no. 12) Plaintiff’s 19 first amended complaint for failure to exhaust administrative remedies under the 20 Medicare Act. Plaintiff filed an opposition and Defendant replied. The Court decides the 21 motion on the briefs without oral argument. See Civ. L. R. 7.1 (d.1). For the reasons 22 stated below, Defendants’ motion to dismiss is granted. 23 I. BACKGROUND 24 Plaintiff Global Rescue Jets, Inc. provided medically-necessary transportation for 25 Patient X from Yahualica, Jalisco, Mexico to Kaiser Permanente Medical Center in San 26 Diego, California incurring charges of $283,500. It provided medically-necessary 27 transport for Patient Y from Mazatlan, Mexico to the same hospital in San Diego, 28 incurring charges of $232,700. Patients X and Y ("Patients") were enrolled in Medicare 1 Advantage Plans ("MA plans") to which Defendant Kaiser Foundation Health Plan, Inc. 2 ("Kaiser") was a party. 3 As alleged in the operative complaint, the Patients' MA plans provided for 4 coverage of life-saving international air ambulance transportation, which was not covered 5 by Medicare, but was an optional supplemental benefit1 provided under the plans for 6 which the Patients paid higher premiums to Kaiser. Under the plans, Kaiser agreed to 7 reimburse them for such charges. When Plaintiff provided air ambulance services to the 8 Patients, they assigned their claims against Kaiser. Kaiser has refused to fully reimburse 9 Plaintiff for its charges. It paid what it considers the "applicable Medicare rate" (Kaiser 10 Mem. of P.&A. in Supp. of Mot. to Dismiss, doc. no. 12-1, at 5), which represents 11 approximately 8% of the charges. 12 Plaintiff filed a complaint in State court against Kaiser. Kaiser removed the action 13 to this Court. In the operative complaint Plaintiff alleges, in its capacity as the Patients' 14 assignee, or, alternatively, third party beneficiary, breach of contract, breach of duty of 15 good faith and fair dealing, quantum meruit, and unfair competition. It seeks damages, 16 disgorgement and restitution of Kaiser’s revenues associated with unfair competition, and 17 injunctive relief. 18 II. DISCUSSION 19 Kaiser moves to dismiss under Federal Rule of Civil Procedure 12(b)(1), for failure 20 to exhaust administrative remedies under the Medicare Act. Federal courts are courts of 21 limited jurisdiction. Kokkonen v. Guardian Life Ins. Co. of Am., 511 U.S. 375, 377 22 (1994).2 They presumptively lack jurisdiction over civil actions and the burden of 23

24 25 1 Optional supplemental benefits are purchased at the enrollees' option and are paid in full by the enrollee in the form of premiums or cost-sharing. 42 C.F.R. § 26 422.100(c)(2)(ii). 27 2 Unless otherwise noted, internal quotation marks, ellipses, brackets, citations, and 28 1 establishing the contrary rests upon the party asserting it. Id. As here, a Rule 12(b)(1) 2 motion may be framed as a “facial” attack on the allegations in the complaint. See Safe 3 Air for Everyone v. Meyer, 373 F.3d 1035, 1039 (9th Cir.2004). In a facial attack, the 4 challenger asserts that the allegations contained in a complaint are insufficient on their 5 face to invoke federal jurisdiction. Id. 6 Kaiser argues that Plaintiff is not entitled to judicial review of Kaiser’s alleged 7 failure to fully reimburse Plaintiff’s air ambulance charges because Plaintiff failed to 8 exhaust administrative remedies under the Medicare Act. The Medicare Act, 42 U.S.C. § 9 1395 et seq., "establishes a federally subsidized health insurance program to be 10 administered by the Secretary [of Health and Human Services]." Heckler v. Ringer, 466 11 U.S. 602, 605 (1984). 12 The Act is divided into four parts. See 42 U.S.C. § 1395 et seq. Parts A and B 13 constitute "Original Medicare." In 1997, Congress enacted Part C, Medicare+ Choice 14 Program, which gives Medicare beneficiaries the option to contract with private health 15 plans to obtain benefits normally available under Parts A and B, as well as additional 16 supplemental coverage. Part D is Voluntary Prescription Drug Benefit Program. 17 Private health plans administered under Part C are referred to as Medicare 18 Advantage ("MA") plans, and private organizations providing them are referred to as MA 19 organizations. 42 U.S.C. § 1395w-21. Kaiser is an MA organization. 20 Part C obligates MA organizations to provide basic benefits covered by Parts A 21 and B of the Medicare Act. 42 C.F.R. § 422.100(a), (c)(1). It further authorizes MA 22 organizations to provide mandatory and optional supplemental benefits that are not 23 covered by Medicare 42 U.S.C. § 1395w-22(a)(3)(B); 42 C.F.R. § 422.100(c)(2). 24 MA organizations contract with Centers for Medicare and Medicaid Services 25 ("CMS")3 to provide MA plans to persons eligible for Medicare, who exchange their 26

27 3 CMS is a division of the United States Department of Health and Human Services 28 1 benefits under Part A and B for enrollment in an MA plan. 42 U.S.C. § 1395w-21. MA 2 organizations must comply with the standards set forth in Part C. 42 U.S.C. § 1395w- 3 27(a). The government pays MA organizations monthly fees to provide covered services 4 to the enrollees. 42 U.S.C. § 1395w-23. 5 MA organizations contract with health care providers for services to their MA plan 6 enrollees and agree on the reimbursement rate for the services. MA plans must provide 7 coverage for emergency services even if the provider who rendered them had no contract 8 with the MA organization. 42 C.F.R. § 422.100(b)(1). Providers who are not contracted 9 to the MA organization are referred to as "noncontracting providers." 42 C.F.R. § 10 422.100(b). Medicare regulations have been promulgated to regulate the relationship 11 between noncontracting providers and MA organizations. 42 C.F.R. § 422.100-422.133. 12 "The Medicare Act authorizes the Secretary to determine what claims are covered 13 by the Act in accordance with the regulations proscribed by him." Heckler, 466 U.S. at 14 605. "Judicial review of claims arising under the Medicare Act is available only after the 15 Secretary renders a final decision on the claim in the same manner as is provided in 42 16 U.S.C. § 405(g)." Id.; see also 42 U.S.C. § 405(g) (judicial review "after any final 17 decision of the Commissioner of Social Security made after a hearing"). "[A] final 18 decision is rendered on a Medicare claim only after the individual claimant has pressed 19 its claim through all designated levels of administrative review." Heckler, 466 U.S. at 20 606. 21 The Act mandates MA organizations to provide “meaningful procedures for 22 hearing and resolving grievances between the organization . . . and enrollees,” including 23 grievances regarding the amount the enrollee is required to pay for a service under the 24 plan. 42 U.S.C. § 1395w-22(f)-(g). It also provides that section 405(g) applies to the 25 MA organization’s review process. Id. § 1395w-22(g)(5). 26 The administrative review process for grievances under an MA plan is outlined in 27 42 CFR § 422.560 et seq. (Grievances, Organization Determinations and Appeals for the 28 Medicare Advantage Program). For example, at the outset each MA organization "must 1 have a procedure for making timely organization determinations (in accordance with the 2 requirements of this subpart) regarding the benefits an enrollee is entitled to receive 3 under an MA plan, including basic benefits as described under § 422.100(c)(1) and 4 mandatory and optional supplemental benefits as described under § 422.102, and the 5 amount, if any, that the enrollee is required to pay for a health service." 42 C.F.R. § 6 422.566(a). 7 A. Government Officer or Employee 8 Plaintiff argues that although the Act and the regulations provide for an 9 administrative review process, the process is optional because section 405(g) does not 10 limit other avenues of review, and section 405(h) precludes judicial review only for 11 claims against the government or its officers or employees. See 28 U.S.C. § 405(g); see 12 also 28 U.S.C. § 405(h) (“No action against the United States, the Commissioner of 13 Social Security, or any officer or employee thereof shall be brought under section 1331 or 14 1346 of Title 28 to recover on any claim arising under this subchapter.”). Plaintiff further 15 argues that MA organizations are not federal officers or employees for purposes of the 16 exhaustion requirement. In this regard, Plaintiff raises an issue of first impression. 17 In the absence of binding authority on point, the Court finds persuasive the 18 reasoning of Prime Healthcare Huntington Beach v. SCAN, 210 F. Supp. 3d 1225 (C.D. 19 Cal. 2016). As here, Prime involved a claim by a noncontracting provider of ambulance 20 services against an MA organization under Part C of Medicare Act for full 21 reimbursement of charges for emergency ambulance services provided to MA plan 22 enrollees. Id. at 1228. As Plaintiff here, Prime Healthcare filed the action as an assignee 23 and/or third-party beneficiary and asserted essentially the same state claims. Id. As 24 Kaiser here, SCAN, an MA organization, moved to dismiss for failure to exhaust 25 administrative remedies under the Medicare Act. Id. 26 Based on facts similar to those present here and a thorough analysis of appellate 27 case law instructive on the issue, Prime Healthcare addressed the threshold question 28 whether an MA organization is a government officer or employee for purposes of section 1 405(h). 210 F. Supp. 3d at 1229-31. It held that “even where suit is brought against an 2 MAO, § 405(h) limits this Court's jurisdiction over unexhausted claims to those that do 3 not ‘arise under’ Medicare.” Id. at 1231. This Court adopts Prime Healthcare’s holding. 4 B. Arising Under 5 The bar to judicial review provided by section 405(h) applies only to “claim[s] 6 arising under” the Medicare Act. 42 U.S.C. § 405(h); see also Heckler, 466 U.S. at 605. 7 The “arising under” standard is construed “quite broadly.” Heckler, 466 U.S. at 615. 8 The Supreme Court has identified two circumstances in which a claim “arises under” the Medicare Act: (1) where the “standing and the substantive 9 basis for the presentation of the claims” is the Medicare Act; and (2) where 10 the claims are “inextricably intertwined” with a claim for Medicare benefits.

12 Uhm v. Humana, Inc., 620 F.3d 1134, 1141 (9th Cir. 2010) (citing Heckler, 466 U.S. at 13 614, 615). State law claims may “arise under” the Medicare Act if they fit one of these 14 categories, for example, if “at bottom, a plaintiff is complaining about denial of Medicare 15 benefits.” Id. at 1142-43. 16 Plaintiff argues that its claims do not “arise under” the Medicare Act because they 17 are based on an MA plan’s optional supplemental benefit, which expressly is “not 18 covered by Medicare” and is “purchased at the option of the MA enrollee and paid for in 19 full, directly by (or on behalf of) the Medicare enrollee, in the form of premiums or cost- 20 sharing.” 42 C.F.R. § 422.100(c)(2)(ii). Plaintiff further argues that emergency air 21 ambulance services originating abroad and ending in the United States, such as the 22 services Plaintiff provided to the Patients, are in any event not covered by Medicare. See 23 42 C.F.R. § 410.40(g) (“Specific limits on coverage of ambulance services outside the 24 United States. If services are furnished outside the United States, Medicare Part B covers 25 ambulance transportation to a foreign hospital only in conjunction with the beneficiary's 26 admission for medically necessary inpatient services as specified in subpart H of part 424 27 of this chapter.”); § 411.9 (“(a) Basic rule. Except as specified in paragraph (b) of this 28 section, Medicare does not pay for services furnished outside the United States. [¶] (b) 1 Exception. Under the circumstances specified in subpart H of part 424 of this chapter, 2 payment may be made for covered inpatient services furnished in a foreign hospital and . 3 . . for covered . . . ambulance service furnished in connection with those inpatient 4 services . . ..”): § 424.121 (“(b) Medicare Part B pays for certain . . . ambulance services 5 furnished in connection with covered inpatient care in a foreign hospital, as specified in § 6 424.124. [¶] (c) All other services furnished outside the United States are excluded from 7 Medicare coverage, as specified in § 411.9 of this chapter.”). 8 Kaiser counters that Plaintiff’s claims arise under the Medicare Act because the 9 resolution of the dispute over the rate of reimbursement for Plaintiff’s services requires 10 interpretation of the Act and its regulations. Specifically, Kaiser maintains that Medicare 11 rates apply to international ambulance services such as those provided by Plaintiff 12 because those rates apply to international air ambulance services provided “in connection 13 with” inpatient services furnished outside the United States. Both Patients were 14 transported from a hospital in Mexico to a hospital in the United States. According to 15 Kaiser, because the transport originated at a hospital abroad, it was provided “in 16 connection” with services at the foreign hospital stay. Based on the foregoing, the 17 dispute between the parties turns on the interpretation of “in connection with” as used in 18 Medicare regulations. Plaintiff’s claims are therefore “inextricably intertwined” with the 19 Medicare Act. 20 Alternatively, Kaiser argues that Plaintiff’s claims are “inextricably intertwined” 21 with the Medicare Act because Plaintiff seeks to recover reimbursement for alleged 22 shortfalls for benefits under an MA plan. Although framed as state law claims, in this 23 action Plaintiff is attempting to recover a greater rate of reimbursement for the services it 24 provided to the Patients under their MA plans. It is asserting its claims as the Patients’ 25 assignee under their MA plans. 26 All benefits provided by an MA plan, even if optional, are subject to review by 27 CMS. See 42 C.F.R. § 422.100(f) (“CMS reviews and approves MA benefits and 28 associated cost sharing using written policy guidelines and requirements in this part and 1 other CMS instructions . . ..”). Kaiser provides all benefits under its MA plans pursuant 2 to contract with CMS. See 42 U.S.C. § 1395w-27. 3 “[C]laims dealing with the ‘appropriateness of [a defendant's] decisions with 4 respect to the compensation [a provider] should have received for the services it provided 5 to Medicare beneficiaries’ are ‘inextricably intertwined’ with claims for Medicare 6 benefits.” Prime Healthcare, 210 F. Supp. 3d at 1233 (quoting Kaiser v. Blue Cross of 7 Cal., 347 F.3d 1107, 1114 (9th Cir. 2003)) (all alterations in Prime Healthcare). Because 8 this action presents a dispute over denial of benefits under Medicare plans, it is 9 “inextricably intertwined” with the Medicare Act. 10 For the foregoing reasons, Plaintiff’s claims arise under the Medicare Act. 11 Plaintiff has not exhausted administrative remedies for its claims as provided by 42 12 U.S.C. §§ 405(g) and 1395w-22(g)(5). Judicial review of the claims is therefore 13 precluded by 42 U.S.C. § 405(h). 14 C. Waiver 15 Nevertheless, Plaintiff argues that exhaustion of administrative remedies should be 16 waived in this case. To merit a waiver, 17 The claim must be (1) collateral to a substantive claim of entitlement (collaterality), (2) colorable in its showing that denial of relief will cause 18 irreparable harm (irreparability), and (3) one whose resolution would not 19 serve the purposes of exhaustion (futility).

21 Johnson v. Shalala, 2 F.3d 918, 920 (9th Cir. 1993). 22 An action is collateral to a claim for benefits if it does not seek an award of 23 benefits or presents an attack on an administrative policy which warrants relief 24 independently of any particular claim for benefits. Kildare v. Saenz, 325 F.3d 1078, 25 1082-83 (9th Cir. 2003). Conversely, when the action is based on a dispute about 26 benefits in an individual case, it is not collateral to the underlying claim for benefits. Id. 27 at 1083. Plaintiff seeks to recover as the Patients’ assignee or third-party beneficiary 28 what it claims to be a shortfall in Kaiser’s payment of benefits under the Patients’ MA 1 plans. Accordingly, the claims in this action are not collateral to claims for benefits 2 under the MA plans. 3 A colorable showing of irreparability “is one that is not wholly insubstantial, 4 immaterial, or frivolous.” Johnson, 2 F.3d at 922. Plaintiff alleges that the rates Kaiser 5 has paid do not even cover the operating costs of transporting the Patients, which 6 threatens Plaintiff’s ability to continue to provide the service to Kaiser’s enrollees. 7 Plaintiff does not contend that Kaiser’s failure to fully reimburse Plaintiff’s charges is 8 presenting a danger of putting it out of business. Plaintiff cites no authority for the 9 proposition that financial damage to a company is sufficient for a colorable showing of 10 irreparability. Generally, economic harm must damage the plaintiff “in a way not 11 recompensable through retroactive payments,” which, in cases of individuals, amounts to 12 “several months without food, shelter or other necessities.” See Johnson, 2 F.3d at 922; 13 see also Kildare, 325 F.3d at 1083. Plaintiff has therefore not alleged that requiring 14 exhaustion of administrative remedies would cause it irreparable harm. 15 Finally, the waiver analysis must account for the policies underlying the 16 exhaustion requirement by considering whether administrative remedies would be futile. 17 Johnson, 2 F.3d at 922. 18 In most cases, the exhaustion requirement allows the agency to compile a detailed factual record and apply agency expertise in administering its own 19 regulations. The requirement also conserves judicial resources. The agency 20 will correct its own errors through administrative review.

22 Id. In cases where the plaintiff seeks to change an administrative rule or policy which is 23 independent of any particular claim for benefits, exhaustion would be futile. Id. at 922- 24 23. On the other hand, where the resolution of the dispute requires interpretation of the 25 regulations in the context of a particular claim for benefits, and administrative review 26 could fix the alleged error, exhaustion is not futile. Kildare, 325 F.3d at 1084. Plaintiff 27 is dissatisfied with Kaiser’s disposition of its claims for benefits, which disposition 28 / / / / / 1 || hinges on the disputed interpretation of Medicare regulations. Exhaustion of 2 || administrative remedies therefore would not be futile in this case. 3 || Because Plaintiff has not alleged collaterality, irreparability and futility of administrative 4 review, its waiver arguments are rejected. 5 CONCLUSION 6 For the reasons stated above, Kaiser’s motion to dismiss for failure to exhaust 7 || administrative remedies is granted. 8 IT IS SO ORDERED. 9 10 Dated: November 30, 2020 1 fee fp 12 H . James Lorenz, 3 United States District Judge

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