Home |
Climate Change Project |
Table of Contents |
Courses | Search |
| [1] | IN THE SUPREME COURT OF CALIFORNIA |
| [2] | No. S082236 |
| [3] | 2001.CA.0000315 <http://www.versuslaw.com> |
| [4] | May 3, 2001 |
| [5] | BARBARA MCCALL, INDIVIDUALLY AND AS TRUSTEE, ETC. PLAINTIFF AND APPELLANT, v. PACIFICARE OF CALIFORNIA, INC., ET AL., DEFENDANTS AND RESPONDENTS. |
| [6] | Court: Superior County: Orange Judge: Thierry Patrick Colaw Ct.App. 4/3
G024030 Orange County Super. Ct. No. 788545 |
| [7] | Attorneys for Appellant: Houck & Balisok, Russell S. Balisok, Steven
C. Wilheim; Law Office of Carol S. Jimenez and Carol S. Jiminez for Plaintiff
and Appellant. Sara Lenz Lock, Bruce Vignery, Michael Schuster; Gill Deford;
and Herbert Semmel for American Association of Retired Persons and Center
for Medicare Advocacy as Amici Curiae on behalf of Plaintiff and Appellant.
Attorneys for Respondent: Konowiecki & Rank, Jon N. Manzanares, Keith
A. Weaver, Jeffrey D. Olster; Greines, Martin, Stein & Richland and
Timothy T. Coates for Plaintiffs and Respondents PacifiCare of California
and PacifiCare Health Systems, Inc. Rosato & Samuels, Cary S. Samuels,
Ellen Kamon, Pamela Sirkin; Hemer, Barkus & Clark, Davis, Grass, Goldstein
& Housouer and Edward A. Stumpp for Defendant and Respondent Greater
Newport Physicians, Inc. Bonne, Bridges, Mueller, O'Keefe & Nichols,
Nancy Flores; Greines, Martin, Stein & Richland, Robert A. Olson and
Laura Boudreau for Empire Physicians Medical Group as Amicus Curiae on behalf
of Plaintiffs and Respondents. Counsel who argued in Supreme Court (not
intended for publication with opinion): Carol S. Jimenez Law Office of Carol
S. Jimenez 5182 Katella Avenue, Suite 106 Los Alamitos, CA 90720 (562) 430-0239
Timothy T. Coates Greines, Martin, Stein & Richland 9601 Wilshire Boulevard,
Suite 544 Beverly Hills, CA 90210-5207 (310) 859-7811 Edward A. Stumpp Davis,
Grass, Goldstein & Housouer 195 North Euclid Avenue, Suite 200 Upland,
CA 91786 (909) 981-1820 |
| [8] | The opinion of the court was delivered by: Werdegar, J. |
| [9] | We granted review in this case, limited to the issue whether state law
claims against a health maintenance organization (HMO), arising out of its
refusal to provide services under a Medicare-subsidized health plan, fall
within the exclusive review provisions of the Medicare Act requiring exhaustion
of administrative remedies. (42 U.S.C. § 1395 et seq.) As will appear, some
disagreement exists among state and federal courts on this question, which
has not yet been addressed by the United States Supreme Court. We conclude
the claims made here do not fall within Medicare's exclusive review provisions.
Accordingly, we affirm the judgment of the Court of Appeal. |
| [10] | FACTS |
| [11] | On review of the judgment of the Court of Appeal reversing the superior
court's orders sustaining defendants' demurrers, we examine the complaint
de novo to determine whether it alleges facts sufficient to state a cause
of action under any legal theory, such facts being assumed true for this
purpose. (Santa Monica Beach, Ltd. v. Superior Court (1999) 19 Cal.4th 952,
957; Blank v. Kirwan (1985) 39 Cal.3d 311, 318.) |
| [12] | George McCall, who suffered from progressive lung disease, was a Medicare
beneficiary enrolled in PacifiCare of California, Inc. (PacifiCare), an
HMO. His primary care physician was Dr. Lakshmi Shukla; his physician provider
group, Greater Newport Physicians, Inc. (GNP). Allegedly, Dr. Shukla, PacifiCare
and GNP repeatedly refused to refer Mr. McCall to a specialist for a lung
transplant or provide other needed care, and ultimately forced him to disenroll
from PacifiCare in order to get on the Medicare list for a transplant. During
that time, Mr. McCall's condition worsened. *fn1 |
| [13] | George McCall and his wife, Barbara (the McCalls), brought suit against
Dr. Shukla, PacifiCare and GNP, alleging in their operative first amended
complaint eight causes of action for tort damages (negligence, wilful misconduct,
four counts of fraud including fraudulent misrepresentation and constructive
fraud, and negligent and intentional infliction of emotional distress) and
a ninth cause of action for injunctive relief from unfair business practices.
The complaint alleged defendants had violated statutory duties they owed
plaintiffs, including (A) the duty to provide ready referrals consistent
with good professional practice (Health & Saf. Code, § 1367, subd. (d));
(B) the duty to render medical decisions unhindered by fiscal and administrative
management (id., § 1367, subd. (g)); (C) the duty to provide for expedited
review and to notify Mr. McCall of his right to expedited review from the
California Department of Corporations when defendants' decisions involved
imminent and serious threat to his health (id., § 1368.01, subd. (b)); (D)
the duty to engage in sufficient quality assurance activities to ensure
that the requirements of California law were met in providing services to
Mr. McCall (id., § 1370); (E) the duty not to require Mr. McCall to disenroll
except for very limited reasons, such as nonpayment of premiums (id., §
1365, subd. (a)); (F) PacifiCare's duty to retain responsibility for all
services, including those that it contracted with others to provide Mr.
McCall (42 C.F.R. § 417.401 (1999)); (G) the duty to ensure that required
services were available and accessible to Mr. McCall (42 C.F.R. § 417.416
(1999)); (H) the duty to provide written notice of noncoverage, including
the reason for noncoverage and Mr. McCall's appeal rights before discharging
him from hospital care (42 C.F.R. § 417.440(f) (1999)); (I) the duty not
to disenroll Mr. McCall, and not to encourage him to disenroll, from PacifiCare
(42 C.F.R. § 417.460(a) (1999)); and (J) the duty to provide grievance procedures
for issues that do not involve organizational determinations and Medicare
appeal rights (42 C.F.R. §§ 417.600, 417.604, 417.606 (1999)). |
| [14] | GNP and PacifiCare (hereafter defendants) *fn2
demurred, arguing each of plaintiffs' causes of action arose under the Medicare
Act, 42 United States Code section 1395 et seq. and, pursuant to 42 United
States Code section 405(g), was therefore subject to judicial review only
in federal court, after exhaustion of administrative review procedures.
The trial court sustained the demurrers without leave to amend and entered
judgment accordingly. The Court of Appeal reversed, and we granted review. |
| [15] | DISCUSSION |
| [16] | The Medicare Act, 42 United States Code section 1395 et seq. (the Act
or Medicare), a part of the Social Security Act, established a federally
subsidized health insurance program that is administered by the Secretary
of Health and Human Services (the Secretary) through the Health Care Financing
Administration (HCFA). Part A of Medicare, 42 United States Code section
1395c et seq., covers the cost of hospitalization and related expenses that
are "reasonable and necessary" for the diagnosis or treatment
of illness or injury. (42 U.S.C. § 1395y(a)(1)(A).) Part B of Medicare (42
U.S.C. § 1395j et seq.) establishes a voluntary supplementary medical insurance
program for Medicare-eligible individuals and certain other persons over
age 65, covering specified medical services, devices, and equipment. (See
42 U.S.C. §§ 1395k, 1395o.) The Act provides for the delegation of Medicare
benefit administration to HMO's, which are authorized, pursuant to contracts
with the HCFA, to manage benefit requests by Medicare beneficiaries. (Wartenberg
v. Aetna U.S. Healthcare, Inc. (E.D.N.Y. 1998) 2 F.Supp.2d 273, 276.) |
| [17] | The determination whether an individual is entitled to benefits, and the
amount of benefits, is entrusted to the Secretary in accordance with regulations
prescribed by him or her. (42 U.S.C. § 1395ff(a).) Judicial review of a
claim for benefits is available only after the Secretary has rendered a
" `final decision' " on the claim, and only in the manner provided
for claims for old age and disability benefits arising under the Social
Security Act. (Heckler v. Ringer (1984) 466 U.S. 602, 605 (Ringer); 42 U.S.C.
§§ 405(g), (h), 1395ff(b)(1).) *fn3 The
relevant provisions of the Social Security Act, 42 United States Code section
405(g) and (h), read together, provide that a final decision by the Secretary
on a claim "arising under" Medicare may be reviewed by no person,
agency or tribunal except in an action brought in federal district court,
and then only after exhausting administrative remedies as described above.
(42 U.S.C. §§ 405(h), 1395ii; see 42 U.S.C. §§ 1395ff(b)(1), 1395mm(c)(5)(B).) |
| [18] | The question in this case, then, is whether the McCalls' complaint alleges
a claim "arising under" the Medicare Act, even though none of
the claims seeks payment or reimbursement of Medicare claims. The seminal
decision in this area, Ringer, supra, 466 U.S. 602, held that a claim arises
under Medicare if (1) " `both the standing and the substantive basis
for the presentation' " of the claim is the Medicare Act (id. at p.
615), or (2) the claim is " `inextricably intertwined' " with
a claim for Medicare benefits (id. at p. 614). The high court, however,
recognized that a claim that is "wholly `collateral' " to a claim
for benefits under the Act is not subject to the administrative process;
the court also suggested exhaustion would be excused if a claimant made
a colorable showing that an erroneous denial of benefits would injure him
or her in a way that could not be remedied by the later payment of benefits.
(Id. at p. 618.) *fn4 |
| [19] | In Ringer, the plaintiffs were four Medicare beneficiaries who suffered
from respiratory distress; three had had surgery known as bilateral carotid
body resection (BCBR) and were seeking reimbursement of the cost thereof,
and one sought to have BCBR surgery but claimed he could not afford it absent
Medicare coverage. (Ringer, supra, 466 U.S. at pp. 605, 609-610.) The Secretary
had ruled that Medicare did not cover BCBR when performed to relieve respiratory
distress because the procedure lacked the general acceptance of the professional
medical community and thus was not "reasonable and necessary"
within the meaning of Medicare. (Id. at p. 607.) The Ringer plaintiffs,
none of whom had exhausted their administrative remedies, filed a complaint
in federal district court seeking declaratory and injunctive relief. (Id.
at pp. 610-611.) The district court dismissed the complaint in its entirety
for lack of jurisdiction, concluding the essence of the claim was one of
entitlement to benefits for the BCBR procedure and that the plaintiffs therefore
were required to exhaust administrative remedies before seeking relief in
federal court. (Id. at p. 611.) The Court of Appeals for the Ninth Circuit
reversed, concluding exhaustion would be futile and might not fully compensate
the plaintiffs for the injuries they asserted. (Id. at p. 612.) The Supreme
Court reversed. |
| [20] | The high court noted that, in Weinberger v. Salfi (1975) 422 U.S. 749,
760-761, where the plaintiffs had sought an award of Social Security benefits
(a type of claim that, as noted above, is subject to the same administrative
exhaustion provisions as those seeking Medicare benefits), it had construed
the " `claim arising under' language quite broadly to include any claims
in which `both the standing and the substantive basis for the presentation'
of the claims is the Social Security Act." (Ringer, supra, 466 U.S.
at p. 615; see Weinberger v. Salfi, supra, at pp. 760-761 [constitutional
challenge to the duration- of-relationship eligibility statute was a "
`claim arising under' " the Social Security Act, even though it was
also, in another sense, a claim arising under the Constitution].) Any other
conclusion, the high court reasoned, would allow claimants substantially
to undercut Congress's carefully crafted scheme for administering Medicare.
(Ringer, supra, at p. 621.) |
| [21] | Because the Medicare beneficiaries in Ringer, at bottom, sought Medicare
reimbursement or authorization for a particular surgical procedure, the
high court had no difficulty concluding the claim was one in which both
the standing and the substantive basis of the claim was the Act, and that
the complaint was, thus, one "arising under" Medicare. Perhaps
for that reason, the court did not define the phrase "inextricably
intertwined," as used in this context, or elaborate on the extent to
which a state law claim may be "intertwined" with a Medicare claim
before it becomes inextricably so. (See Ringer, supra, 466 U.S. at pp. 611,
614-615.) A closer question than that posed in Ringer, however, arises where
the complaint seeks, on state tort law grounds, not reimbursement for an
assertedly covered procedure, but, rather, damages assertedly flowing from
conduct only incidentally related to the wrongful denial of a benefits claim. |
| [22] | Such a situation was present in Ardary v. Aetna Health Plans of California,
Inc. (9th Cir. 1996) 98 F.3d 496, certiorari denied (1997) 520 U.S. 1251
(Ardary), on which the McCalls rely. In Ardary, a Medicare beneficiary who
lived in a rural area and was enrolled in an HMO suffered a heart attack
and was refused airlift transportation to a more sophisticated medical facility
than those available nearby. When the beneficiary died, her family sued
the HMO and its contractor, Arrowest Physician Association, in state court.
They sought compensatory and punitive damages on six state tort law theories:
negligence, intentional and/or negligent infliction of emotional distress,
intentional and/or negligent misrepresentation, and professional negligence.
(Id. at pp. 497-498.) The defendants in Ardary removed the case to federal
court and sought dismissal, arguing all of the plaintiffs' state law causes
of action related to the denial of Medicare benefits and, therefore, were
preempted by federal law requiring they be addressed through the Medicare
administrative appeals process. The Court of Appeals for the Ninth Circuit
concluded the complaint did not state any claims in which both the standing
and the substantive basis for the presentation of the claims was the Medicare
Act; rather, the complaint was predicated on state common law theories.
(Ardary, at pp. 499-500.) The Ardary court also concluded the plaintiffs'
state law claims were not " `inextricably intertwined' " with
the assertedly wrongful denial of Medicare benefits because the plaintiffs
were not seeking to recover benefits, and because the harm the defendants
allegedly caused could not be remedied by the payment of benefits. (Id.
at p. 500.) *fn5 |
| [23] | Defendants suggest that, although the Ardary court recited the test articulated
in Ringer, supra, 466 U.S. at pages 614-615, it did not address or resolve
the potential conflict between an award of state law tort damages proximately
resulting from a wrongful denial of Medicare benefits, on the one hand,
and the possibility that an exhaustive administrative appeal would determine
that Medicare benefits were not wrongly denied in the particular case, on
the other. Because, as Ringer made clear, Congress has vested in the Secretary
the exclusive power to administer the Medicare system, defendants contend
that any state court damage award that is logically dependent on a finding
of wrongful denial of benefits is " `inextricably intertwined' "
(Ringer, supra, at p. 614) with a Medicare claim. |
| [24] | Such was the conclusion of the Court of Appeal in Redmond v. Secure Horizons,
Pacificare, Inc. (1997) 60 Cal.App.4th 96 (Redmond). In that case, the plaintiff
HMO subscriber sued her HMO on various state contract and tort law theories
for its initial denial of coverage and subsequent delay in reimbursing her
for health care expenses covered under her Medicare-subsidized plan. The
superior court dismissed the complaint, ruling it lacked jurisdiction because
the plaintiff's causes of action arose under Medicare. The Court of Appeal
affirmed. The fact the plaintiff's causes of action were based on her contractual
relationship with the HMO did not mean her claims did not arise under Medicare,
the court reasoned; indeed, the contract expressly provided that coverage
determinations would be based on the Medicare Act and resolved through the
multilevel Medicare administrative review process. (Redmond, at p. 101.)
Moreover, the Court of Appeal held, each of the plaintiff's state law causes
of action was inextricably intertwined with a claim that she was entitled
to the reimbursement she eventually received. (Id. at p. 102.) |
| [25] | The plaintiff in Redmond argued her claim was based, not on her entitlement
to benefits, but on the defendant's conduct with respect to her claim for
benefits. The Court of Appeal disagreed: "This argument fails because
the alleged wrongfulness of defendant's conduct depends on whether plaintiff
was entitled to payment of her claim. The fact that defendant ultimately
paid her claim does not necessarily establish that plaintiff was entitled
to such payment." (Redmond, supra, 60 Cal.App.4th at p. 102.) |
| [26] | Finally, the Redmond plaintiff contended her case fell outside the administrative
exhaustion requirement because, as recognized in Ringer, supra, 466 U.S.
at page 618, and Ardary, supra, 98 F.3d at page 500, the initial denial
and subsequent delay in paying benefits caused injury that could not be
remedied by the later payment of benefits. The Court of Appeal dismissed
the contention, concluding the plaintiff could have pressed her claim through
the administrative review process. The court opined the administrative process
governs not only coverage determinations but also " `any other determination
with respect to a claim for benefits,' " (Redmond, supra, 60 Cal.App.4th
at p. 103) and observed that the Secretary can order civil money penalties
or " `any other remedies authorized by law' " (ibid.). *fn6
Redmond, however, cited no authority for the implied proposition that the
Secretary is empowered to award damages for violations of state tort law.
*fn7 |
| [27] | The Redmond court's rationale-i.e., that the plaintiff's state tort law
claims were inextricably intertwined with a Medicare claim because the alleged
wrongfulness of the defendant's conduct depended on whether the plaintiff
was, in fact, entitled to payment of her claim-has a certain logic. In applying
one portion of the Ringer analysis, however, the Redmond court elided over
the other. That is, it failed adequately to explain how the alleged harms
suffered by the Redmond plaintiff could be remedied through the Medicare
administrative review process. If those harms could not be so remedied,
then the Redmond court's holding hinges on a conclusion that, by establishing
an administrative process for Medicare benefit determinations, Congress
must have intended to oust state courts of jurisdiction to enforce such
of their own tort laws as may be implicated by conduct incidental to benefit
determinations. We are directed to no evidence supporting such a conclusion. |
| [28] | We presume that in enacting laws, Congress does not intend to preempt
state regulation of the same subject matter unless a contrary intent is
made clear. (Medtronic, Inc. v. Lohr (1996) 518 U.S. 470, 485; Cipollone
v. Liggett Group, Inc. (1992) 505 U.S. 504, 516.) The classic example of
clear congressional intent to preempt state remedies is found in the Employee
Retirement Income Security Act of 1974 (ERISA), 29 United States Code section
1001 et seq., governing employee benefit plans, including health insurance.
ERISA expressly and broadly preempts state law, providing it "shall
supersede any and all State laws insofar as they may now or hereafter relate
to any employee benefit plan . . . ." (29 U.S.C. § 1144(a); see Ingersoll-Rand
Co. v. McClendon (1990) 498 U.S. 133, 139-140 [ERISA preempts employee's
state law claim of wrongful discharge in order to avoid paying pension benefits];
Pilot Life Ins. Co. v. Dedeaux (1987) 481 U.S. 41, 47-48 [ERISA preempts
state law tort and contract claims against insurer for bad faith denial
of claim].) |
| [29] | No intent to displace state tort law remedies was expressed in the Medicare
Act as it read at the time relevant to this case. (Ardary, supra, 98 F.3d
at pp. 501-502.) To the contrary, "[t]he first section of the Medicare
Act explicitly states [Congress's] intent to minimize federal intrusion
in the area." (Massachusetts Medical Soc. v. Dukakis (1st Cir. 1987)
815 F.2d 790, 791; Shands Teaching Hosp. v. Humana Medical (Fla.Dist.Ct.App.
1999) 727 So.2d 341, 344.) Title 42, section 1395 of the United States Code
provides: "Nothing in this subchapter shall be construed to authorize
any Federal officer or employee to exercise any supervision or control over
the practice of medicine or the manner in which medical services are provided,
or over the selection, tenure, or compensation of any officer or employee
of any institution, agency, or person providing health services; or to exercise
any supervision or control over the administration or operation of any such
institution, agency, or person." Indeed, the Act specifically requires
HMO's and other Medicare providers to be state licensed. (42 U.S.C. § 1395mm(b).)
By clear implication, therefore, 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 to Medicare beneficiaries. |
| [30] | The conclusion that Congress, in enacting the Medicare Act, did not intend
to displace the state tort remedies with which we are here concerned is
strengthened by consideration of subsequent amendments to the Act. Shortly
before the McCalls filed the initial complaint in this case, the Balanced
Budget Act of 1997 (the BBA) became law. (Pub.L. No. 105-33 (Aug. 5, 1997)
111 Stat. 328, codified at 42 U.S.C. § 1395w-21 et seq.) The BBA enacted
a new part of Medicare known as "Medicare + Choice" that allows
a new range of Medicare managed care options. HMO's contracting with Medicare,
such as PacifiCare, automatically became Medicare + Choice plans effective
January 1, 1999. (See 42 U.S.C. § 1395mm(k).) The BBA is noteworthy for
its addition of an express limited preemption provision to the Medicare
Act. By its terms, Medicare now preempts state laws mandating benefits to
be covered, mandating inclusion of providers and suppliers, and coverage
determinations. (42 U.S.C. § 1395w-26(b)(3).) Pursuant to the related regulations,
determinations on issues other than whether a service is covered under a
Medicare + Choice contract fall outside the definition of coverage determinations.
(42 C.F.R. § 422.402 (1999).) All other types of state laws not inconsistent
with Medicare standards are permitted. (Ibid.) The preamble to HCFA's request
for final comments on the interim final rule implementing the amendments
states: "Prior to the BBA, section 1876 of the Act [42 U.S.C. § 1395mm]
(governing Medicare risk and cost contracts with HMOs and competitive medical
plans) did not contain any specific preemption provisions. However, section
1876 requirements could preempt a State law or standard based on general
constitutional Federal preemption principles . . . . Put another way, if
Federal law permitted the HMO to do what State law required, there was no
preemption. In practice, rarely, if ever, did Federal law preempt State
laws affecting Medicare prepaid plans. For example, Medicare risk plans
operating in States with mandated benefit laws were generally required to
comply with such State laws. Compliance with the State mandated benefit
law was not viewed as interfering with the ability of plans to function
as Medicare risk contractors under Federal standards. . . . [¶] . . . [¶]
. . . [T]he specific preemption [added by the BBA] does not preempt State
remedies for issues other than coverage under the Medicare contract (i.e.
tort claims or contract claims under State law are not preempted). The same
claim or circumstance that gave rise to a Medicare appeal may have elements
that are subject to State remedies that are not superseded. For example,
[a Medicare + Choice] organization's denial of care that a beneficiary believes
to be covered care is subject to the Medicare appeals process, but under
our interpretation of the scope of the specific preemption on coverage decisions,
the matter may also be the subject of a tort case under State law if medical
malpractice is alleged, or of a state contract law claim if an enrollee
alleges that the [Medicare + Choice] organization has obligated itself to
provide a particular service under State law without regard to whether it
is covered under its [Medicare + Choice] contract." (63 Fed.Reg. 34967,
35012, 35013 (June 26, 1998).) Because, prior to the BBA, Medicare preemption
of state law claims was even narrower than the limited preemption enacted
by the BBA, these comments strongly imply that state law claims such as
those involved in the present case were not preempted under then applicable
law. |
| [31] | As the McCalls observe, Medicare regulations provide for administrative
review of a limited class of claims (42 C.F.R. § 417.600 et seq. (1999)),
not including those pertaining to quality of care, marketing problems and
forced disenrollment such as the McCalls have alleged in their complaint.
Absent clear indication of congressional intent, we decline to find preemption
of claims, founded in California law, that find no remedy under the Medicare
administrative process. |
| [32] | We must now turn to the specific causes of action contained in the first
amended complaint to determine whether any is inextricably intertwined with
a claim for Medicare benefits. Neither the high court in Ringer, supra,
466 U.S. 602, nor the Ninth Circuit in Ardary, supra, 98 F.3d 496, essayed
a definition of this key phrase. The Court of Appeal in Redmond, supra,
60 Cal.App.4th 96, may be understood to have held that any claim incidental
to a coverage determination, whether it seeks payment (or reimbursement)
for medical services or tort damages resulting from the manner in which
coverage was denied, is inextricably intertwined with a claim for Medicare
benefits. (Id. at pp. 102-103.) Defendants urge us to adopt such a reading
of the Act. |
| [33] | We believe Redmond painted with too broad a brush in so holding. A Medicare
provider may violate state common law or statutory duties owing to beneficiaries,
unrelated to its Medicare coverage determinations. The "inextricably
intertwined" language in Ringer is more correctly read as sweeping
within the administrative review process only those claims that, "at
bottom," seek reimbursement or payment for medical services, but not
a claim not seeking such reimbursement or payment, which claim as pleaded
incidentally refers to a denial of benefits under the Medicare Act. (See
Ringer, supra, 466 U.S. at pp. 614-615.) The latter type of state law based
claims by Medicare beneficiaries is not subject to the administrative review
process and may be pursued in our state courts. In the language of Ringer,
at page 618, such claims are collateral to, not inextricably intertwined
with, Medicare benefit claims. |
| [34] | For example, a provider may negligently fail to use ordinary skill and
care in treating a beneficiary, or properly to advise the beneficiary concerning
his health condition or appropriate treatment options, whether or not such
options are covered by Medicare, thus preventing the beneficiary from seeking
such treatment even at his own expense. Or a provider may fail to provide
appropriate referrals to specialists, and thus prevent the beneficiary from
obtaining appropriate care, again without regard to coverage. The McCalls'
first and second causes of action, for negligence and wilful misconduct,
respectively, set forth such allegations and enumerate the statutory and
regulatory bases of the relevant duties (see ante, pp. 2-3), none of which
necessarily implicates a coverage determination or falls within the scope
of the Medicare administrative review process. |
| [35] | A provider may make misrepresentations regarding the nature or extent
of the services it intends to provide, either in its application for HMO
licensure to the California Department of Corporations or in its marketing
materials disseminated to potential enrollees. If the injury to the enrollee
is foreseeable, a Randi W. cause of action *fn8
or a claim of fraud may be stated. *fn9
The McCalls' third, fourth and fifth causes of action allege such claims,
none of which necessarily implicates coverage determinations or falls within
the scope of the Medicare administrative review process. |
| [36] | A provider may breach the fiduciary duty it owes the enrollee (see Moore
v. Regents of University of California (1990) 51 Cal.3d 120, 129), inter
alia, by permitting its financial interest detrimentally to affect treatment
decisionmaking or failing to disclose such interest. The McCalls' sixth
cause of action alleges such a claim, which does not necessarily implicate
coverage determinations or fall within the scope of the Medicare administrative
review process. |
| [37] | If a defendant's violations of state law duties are sufficiently outrageous,
a claim for negligent or intentional infliction of emotional distress may
be stated; the McCalls' seventh and eighth causes of action allege such
violations, none of which necessarily implicates coverage determinations
or falls within the scope of the Medicare administrative review process. |
| [38] | Finally, such violations of statutory duties, none necessarily implicating
coverage determinations or falling within the scope of the Medicare administrative
review process, may amount to unfair practices as prohibited by Business
and Professions Code section 17200; the McCalls' ninth cause of action so
alleges. *fn10 |
| [39] | Because the McCalls may be able to prove the elements of some or all of
their causes of action without regard, or only incidentally, to Medicare
coverage determinations, because (contrary to the dissent's characterization
of the complaint) none of their causes of action seeks, at bottom, payment
or reimbursement of a Medicare claim or falls within the Medicare administrative
review process, and because the harm they allegedly suffered thus is not
remediable within that process, it follows that the Court of Appeal correctly
reversed the trial court's orders sustaining defendants' demurrers without
leave to amend. *fn11 |
| [40] | We therefore affirm the judgment of the Court of Appeal and disapprove
the decision in Redmond v. Secure Horizons, Pacificare, Inc., supra, 60
Cal.App.4th 96, to the extent it is inconsistent with this opinion. |
| [41] | WE CONCUR: GEORGE, C. J. |
| [42] | MOSK, J. |
| [43] | KENNARD, J. |
| [44] | CHIN, J. |
| [45] | DISSENTING OPINION BY BAXTER, J. |
| [46] | The Medicare Act (42 U.S.C. § 1395 et seq.) (hereafter sometimes referred
to as Medicare or the Act) is a massive federally insured program that covers
health services for the elderly and disabled. Congress has decreed that
any enrollee of a Medicare health maintenance organization (HMO) plan who
wishes to challenge the HMO's denial of health services under Medicare must
do so through Medicare's administrative review process; if that process
yields a final decision that is adverse to the enrollee, then judicial review
must be sought in federal court. (42 U.S.C. § 1395ff.) |
| [47] | Disregarding that congressional mandate and key United States Supreme
Court authority, the majority opinion allows virtually any Medicare HMO
plan enrollee to bring suit in state court to challenge an HMO's denial
of Medicare benefits. Enrollees may bypass Medicare's exhaustion requirements
simply by styling their challenges as claims for tort damages. As a result,
questions regarding which medical procedures are or should be covered by
Medicare may now be decided outside of Medicare's exclusive review process
by California judges and juries on an ad hoc basis. |
| [48] | Congress acted deliberately to ensure uniform administrative and federal
accountability for Medicare HMO decisionmaking. Yet today's decision sets
the stage for potential conflict between an award of state law tort damages
following a determination in a state court that Medicare benefits were wrongly
denied, on the one hand, and the possibility that an exhaustive administrative
appeal, followed by federal court review, would determine that Medicare
benefits were not wrongly denied in the particular case and in other comparable
cases, on the other. The two cannot be squared; accordingly, I dissent. |
| [49] | I. |
| [50] | The Medicare Act is a part of the Social Security Act that establishes
a federally subsidized health insurance program for elderly and certain
disabled persons. (42 U.S.C. § 1395 et seq.) In the year 2000, the program
provided health insurance coverage for 39 million persons, or one in seven
Americans, and paid benefits in the total amount of approximately $217 billion.
(The Henry J. Kaiser Family Foundation, Medicare at a Glance (Feb. 2001)
p. 1.) |
| [51] | To ensure the orderly and efficient functioning of this enormous federal
program, Congress has entrusted its administration to the Secretary of Health
and Human Services (the Secretary), who manages the program through the
Health Care Financing Administration (HCFA). Pursuant to congressional authorization,
the Secretary has established an extensive set of regulations to govern
the program. (42 U.S.C. § 1395hh.) |
| [52] | Briefly, the Medicare system works like this. Eligible patients may obtain
Medicare benefits in two ways. Where a patient elects to receive health
care on a fee-for-service basis, the patient first consults with a physician
and receives the recommended health services. The health care provider submits
the bill for payment to a Medicare fiscal intermediary, typically a private
company that has contracted with the Secretary to act as an adjuster. The
intermediary then determines whether the services in question are covered
by Medicare and the amount due for the services. (See Bodimetric Health
Services, Inc. v. Aetna Life and Casualty (7th Cir. 1990) 903 F.2d 480,
482 & fn. 3 (Bodimetric).) Alternatively, an eligible patient may elect
to receive Medicare benefits through enrollment with an HMO that has contracted
with the Secretary through HCFA to be reimbursed for services rendered to
enrollees. In such situations, the patient receives treatment either from
the HMO's own physicians or from physicians who have contracted with the
HMO, as in the case of defendant PacifiCare of California, Inc. (PacifiCare),
here. When HCFA contracts with an HMO, there is no separate fiscal intermediary
and the HMO makes an "organization determination" (an initial
determination) whether health services requested on behalf of an enrollee
are covered under Medicare and whether they should be furnished, arranged
for, or reimbursed. (42 C.F.R. § 417.606 (2000).) |
| [53] | Health services covered under Medicare, whether or not provided through
an HMO, are subject to the following important limitation: "Notwithstanding
any other provision of this subchapter, no payment may be made under part
A or part B of this subchapter for any expenses incurred for items or services
- [¶] . . . which . . . are not reasonable and necessary for the diagnosis
or treatment of illness or injury . . . ." *fn12
(42 U.S.C. § 1395y(a)(1)(A), italics added; see Roen v. Sullivan (D.Minn.
1991) 764 F.Supp. 555, 557.) Thus, if an HMO plan enrollee requests a health
service that is not medically reasonable and necessary, the enrollee generally
is not entitled to the benefit and the HMO is not obligated to provide for
it. |
| [54] | Under the Act, an individual's entitlement to Medicare benefits must be
determined in the manner provided for by the Secretary: "The determination
of whether an individual is entitled to benefits . . . , and the determination
of the amount of benefits . . . , and any other determination with respect
to a claim for benefits . . . shall be made by the Secretary in accordance
with regulations prescribed by him." (42 U.S.C. § 1395ff(a).) The Secretary
is authorized to impose, in addition to "any other remedies authorized
by law," civil monetary penalties and to suspend payment to or enrollment
of a contracting HMO or fiscal intermediary where, among other things, such
an organization "fails substantially to provide medically necessary
items and services that are required (under law or under the contract) to
be provided to an individual covered under the contract, if the failure
has adversely affected (or has substantial likelihood of adversely affecting)
the individual" (42 U.S.C. § 1395mm(i)(6)(A)(i)) or "misrepresents
or falsifies information that is furnished - [¶] . . . to the Secretary
. . . or - [¶] . . . to an individual" (id., § 1395mm(i)(6)(A)(v)).
(See also 42 C.F.R. § 417.500 (2000).) |
| [55] | Integral to the Medicare scheme is a thorough administrative review process
for an individual "dissatisfied with a determination regarding his
or her Medicare benefits." (42 C.F.R. § 417.600(a)(1) (2000); see id.,
§ 417.600 et seq.; 42 U.S.C. § 1395ff(b)(1).) Judicial review of claims
arising under the Medicare Act is available only in federal court, and only
then if the amount in controversy is at least $1000 and the Secretary has
rendered a "final decision" on the claim, in the same manner as
is provided for old age and disability claims arising under Title II of
the Social Security Act. (42 U.S.C. §§ 405(g), (h), 1395ff(b)(1)(C).) |
| [56] | Pursuant to rulemaking authority granted by Congress, the Secretary has
provided that a final decision is rendered on a Medicare claim only after
the individual claimant has presented the claim through all designated levels
of administrative review, including review by HCFA or its agent, an administrative
law judge (ALJ), and the departmental appeals board. (Heckler v. Ringer
(1984) 466 U.S. 602, 606-607 (Ringer); 42 C.F.R. § 417.600 et seq.) Portions
of the administrative review process must be expedited where the usual time
frames "could seriously jeopardize the life or health of the enrollee
or the enrollee's ability to regain maximum function." (42 C.F.R. §§
417.609(b), 417.617(b) (2000).) As the legislative history explains, "[i]t
is intended that the remedies provided by these review procedures shall
be exclusive." (Sen.Rep. No. 404, 89th Cong., 1st Sess. (1965), reprinted
in 1965 U.S. Code Cong. & Admin. News pp. 1943, 1995, italics added.) |
| [57] | The broad scope of Medicare's exclusive review process was emphasized
in Ringer, supra, 466 U.S. 602, the United States Supreme Court's seminal
decision on the issue. In Ringer, four individual Medicare beneficiaries
filed a federal court action for declaratory and injunctive relief that
challenged the Secretary's formal policy of denying Medicare coverage for
a surgical procedure known as bilateral carotid body resection (BCBR). Three
of the plaintiffs had undergone BCBR surgery but were denied reimbursement
for the surgery by fiscal intermediaries. Although some of the levels of
the administrative review process had been completed, none of the three
had received a final decision on their benefit claims from the Secretary.
(466 U.S. at pp. 609-610.) The fourth plaintiff, who did not have the surgery
because he could not afford it, had not submitted a claim for reimbursement.
(Id. at p. 610.) The four plaintiffs contended in federal court that the
Secretary had a constitutional and statutory obligation to provide payment
for BCBR surgery and that the Secretary's formal ruling refusing to find
the BCBR surgery "reasonable and necessary" under the Act was
unlawful. (Ringer, supra, 466 U.S. at pp. 610-611.) |
| [58] | In Ringer, the Supreme Court considered whether the plaintiffs, who were
not seeking an award of benefits, could bring an action directly in federal
court without pursuing administrative remedies. In analyzing the issue,
the court initially observed that judicial review is unavailable for "
`claim[s] arising under' " the Medicare Act, and that claims arise
under Medicare if they are " `inextricably intertwined' " with
claims for Medicare benefits. (Ringer, supra, 466 U.S. at pp. 614- 615.)
Noting that the phrase "claim arising under" had been judicially
construed "quite broadly," the high court concluded that a claim
arises under Medicare where " `both the standing and the substantive
basis for the presentation' " of the claim is the Medicare Act. (Ringer,
supra, 466 U.S. at p. 615.) |
| [59] | Turning to the facts of the case, the Supreme Court first noted that the
Secretary's formal ruling was inapplicable to the claims of the first three
plaintiffs due to timing. But their claims, which did not seek an actual
award of benefits, nonetheless "[arose] under" the Medicare Act
because the Act furnished both the standing and the substantive basis for
their claims. (Ringer, supra, 466 U.S. at p. 615.) As for the fourth plaintiff,
whose claim was in fact subject to the Secretary's ruling, the Supreme Court
viewed him as clearly seeking "to establish a right to future payments
should he ultimately decide to proceed with BCBR surgery." (Id. at
p. 621.) That the fourth plaintiff was not seeking the immediate payment
of benefits was of no importance; his claim "must be construed as a
`claim arising under' the Medicare Act," the court reasoned, "because
any other construction would allow claimants substantially to undercut Congress'
carefully crafted scheme for administering the Medicare Act. [¶] If we allow
claimants . . . to challenge in federal court the Secretary's determination
. . . that BCBR surgery is not a covered service, we would be inviting them
to bypass the exhaustion requirements of the Medicare Act by simply bringing
declaratory judgment actions in federal court before they undergo the medical
procedure in question." (Ibid.) As part of its analysis, the court
found that the administrative review process provided an adequate remedy
for challenging both the Secretary's decision that a particular medical
service was not reasonable and necessary, and the means by which the Secretary
implemented such a decision. (Id. at p. 617.) |
| [60] | In holding that a claim may arise under Medicare while also arising under
some other law (i.e., the federal Constitution), the Ringer decision looked
to Weinberger v. Salfi (1975) 422 U.S. 749 (Salfi), for guidance. (Ringer,
supra, 466 U.S. at p. 615.) In Salfi, a claimant who had been denied Social
Security benefits based on "duration-of- relationship" requirements
of the Social Security Act filed an action in federal court on behalf of
herself, and others similarly situated, challenging the constitutionality
of the statutory requirements. *fn13
In response to the claimant's argument that the action arose under the Constitution
and not under the Social Security Act, the high court stated: "It would,
of course, be fruitless to contend that appellees' claim is one which does
not arise under the Constitution, since their constitutional arguments are
critical to their complaint. But it is just as fruitless to argue that this
action does not also arise under the Social Security Act. For not only is
it Social Security benefits which appellees seek to recover, but it is the
Social Security Act which provides both the standing and the substantive
basis for the presentation of their constitutional contentions." (Salfi,
supra, 422 U.S. at pp. 760-761.) The Supreme Court ultimately concluded
in Salfi that compliance with the administrative review process was required,
even though the claims had a constitutional basis and even though the Secretary
had no power to affect an unconstitutional denial of benefits. (Salfi, supra,
422 U.S. at p. 764.) |
| [61] | Taken together, Ringer and Salfi make clear that claims challenging an
HMO's denial of reasonable and necessary health services covered by Medicare
must undergo an administrative review for a final decision prior to any
judicial review to ensure Medicare's efficient and orderly functioning.
As the Supreme Court emphasized in both decisions, "the purpose of
the exhaustion requirement is to prevent `premature interference with agency
processes' and to give the agency a chance `to compile a record which is
adequate for judicial review.' " (Ringer, supra, 466 U.S. at p. 619,
fn. 12, quoting Salfi, supra, 422 U.S. at p. 765.) That purpose is frustrated
substantially when HMO plan enrollees are permitted to bypass the administrative
process. As one court aptly summarized, "[t]he lack of a developed
record means that plaintiffs in effect call upon the court to play doctor
in their cases. The prescribed HMO and agency decisionmaking procedures
were designed to avoid that problem." (Roen v. Sullivan, supra, 764
F.Supp. at pp. 560- 561.) |
| [62] | In California, Ringer's analysis was followed in Redmond v. Secure Horizons,
PacifiCare, Inc. (1997) 60 Cal.App.4th 96 (Redmond). In that case, a Medicare
HMO plan enrollee underwent a "life-saving" surgery after the
HMO initially denied coverage. The enrollee subsequently requested reimbursement
for the surgery and the HMO ultimately acquiesced. The enrollee then sued
the HMO in state court for breach of contract, breach of the implied covenant
of good faith and fair dealing, and negligent and intentional infliction
of emotional distress. The HMO demurred, contending that the tort and contract
causes of action were inextricably intertwined with the denial of Medicare
benefits and were therefore subject to Medicare's administrative procedures. |
| [63] | On review, the Court of Appeal ruled in favor of the HMO: "[W]hile
plaintiff's causes of action are not actually a claim for benefits, since
she has already obtained reimbursement of her medical expenses, her causes
of action are `inextricably intertwined' with a claim that she was entitled
to the reimbursement she received. Plaintiff argues that her complaint was
not based on her entitlement to benefits but on defendant's `conduct' with
respect to her claim for benefits. This argument fails because the alleged
wrongfulness of defendant's conduct depends on whether plaintiff was entitled
to payment of her claim." (Redmond, supra, 60 Cal.App.4th at p. 102;
accord, Wilson v. Chestnut Hill Healthcare (E.D.Pa., Feb. 22, 2000, No.
Civ. A 99-CV-1468) 2000 WL 204368, *4 ["courts must discount any `creative
pleading' which may transform Medicare disputes into mere state law claims,
and painstakingly determine whether such claims are ultimately Medicare
disputes"].) |
| [64] | Additionally, federal decisions arising in analogous contexts have followed
Ringer in foreclosing state law claims by health care providers pertaining
to the withholding of Medicare benefit reimbursements. *fn14
For example, in Bodimetric, supra, 903 F.2d 480, a provider filed suit against
a Medicare fiscal intermediary, alleging state law claims for fraud and
for wrongful misconduct in the processing of its reimbursement claims. Although
the action sought recovery of tort damages, not benefit reimbursements,
the Seventh Circuit Court of Appeals concluded that the plaintiff could
not avoid the Medicare Act's review process "simply by styling its
attack as a claim for collateral damages instead of a challenge to the underlying
denial of benefits." (903 F.2d at p. 487.) While recognizing that the
federal administrative process might not afford the provider all the relief
it sought pursuant to its state law claims, the appeals court nonetheless
emphasized that "Congress, through its establishment of a limited review
process, has provided the remedies it deems necessary to effectuate the
Medicare claims process." (Id. at p. 486, fn. 5; see also Marin v.
HEW, Healthcare Financing Agency (9th Cir. 1985) 769 F.2d 590.) |
| [65] | Similarly, in Midland Psychiatric Associates, Inc. v. United States (8th
Cir. 1998) 145 F.3d 1000 (Midland), a health care provider sued a Medicare
fiscal intermediary for tortiously interfering with its contracts with hospitals
by denying the hospitals' payment claims for services rendered by the provider
to Medicare beneficiaries. In affirming dismissal of the provider's action,
the Eighth Circuit Court of Appeals reasoned that the intermediary could
not be held liable for tortious interference if it had a right to deny the
hospitals' payment claims and that hearing the tortious interference claim
would mean reviewing the merits of the intermediary's Medicare claims decisions.
(145 F.3d at pp. 1002, 1004.) Relying on Ringer and Salfi, the Eighth Circuit
concluded that the tortious interference claim arose under the Medicare
Act and was therefore subject to the exclusive federal administrative review
procedures, even though, as pleaded, the claim also arose under state law.
*fn15 (145 F.3d at p. 1004; see also
Jamaica Hospital Nursing Home v. Oxford Health Plans (S.D.N.Y., Sept. 26,
2000, No. 99 Civ. 9541 (AGS)) 2000 WL 1404930 [where nursing home alleged
that an assignment of insurance rights from a treated patient entitled it
to payment from an HMO for the cost of treatment, claim arose under the
Medicare Act even though it was presented as a contract claim].) |
| [66] | II. |
| [67] | Under the foregoing authorities, it is evident that what plaintiffs have
asserted in this action are "claims arising under" the Medicare
Act. Specifically, plaintiffs allege that: (1) PacifiCare breached its duty
to comply with state and Medicare regulations governing the provision of
health care services and failed to secure for plaintiff George McCall "reasonably
necessary" health care services to which he was entitled (negligence,
willful misconduct, unfair business practices); (2) PacifiCare misrepresented
to government officials and to its own enrollees that it would comport with
California Health and Safety Code provisions and with Medicare regulations,
yet failed to do so after having secured HMO licensure through the state
and an HMO contract through HCFA, and after having induced enrollment by
individuals entitled to Medicare benefits (fraud, constructive fraud, unfair
business practices); and (3) PacifiCare wrongfully denied plaintiff George
McCall the level of health services to which he was entitled under both
state law and Medicare by refusing surgical intervention to save his life
(a lung transplant) and instead providing a much less expensive course of
treatment (intentional and negligent infliction of emotional distress, unfair
business practices). |
| [68] | At bottom, plaintiffs challenge PacifiCare's failure to furnish or arrange
for "reasonable and necessary" health services covered by Medicare.
(42 U.S.C. § 1395y(a)(1)(A).) Critically, plaintiffs' ability to prevail
on their state law causes of action inevitably turns upon a determination
that plaintiff George McCall was entitled to a Medicare benefit, i.e., a
lung transplant, and that PacifiCare had no right to deny such benefit because
it was reasonable and necessary for treatment of his condition. (See Ringer,
supra, 466 U.S. at pp. 610- 611; Redmond, supra, 60 Cal.App.4th at p. 102.)
The consequential damages sought by plaintiffs also are dependent upon such
a determination. That being the case, plaintiffs' claims are "inextricably
intertwined" with a Medicare benefits determination and are subject
to Medicare's administrative review process. |
| [69] | As Ringer instructs, it matters not that plaintiffs carefully avoid any
formal claim for reimbursement of sums they expended to obtain the services
otherwise covered under Medicare. (Ringer, supra, 466 U.S. at p. 621.) Nor
does it make a difference that plaintiffs' claims are based in part on state
law, for it is the Medicare Act that furnishes both the standing and the
substantive basis for the presentation of their state law contentions. (See
id. at p. 620; Salfi, supra, 422 U.S. at pp. 760-761.) Distilled to their
essence, the state law causes of action necessarily rely upon plaintiff
George McCall's status as an individual entitled to Medicare benefits and
upon the Medicare Act itself to define the benefits and health services
to which he was legally entitled but wrongly denied. Consequently, such
claims do not, as the majority suggests, only "incidentally" refer
to a denial of benefits under Medicare. (See maj. opn., ante, at p. 16.) |
| [70] | The Supreme Court, I note, has suggested that an exception to exhaustion
may arise when a claim is "wholly `collateral' to [a] claim for benefits,"
but that such exception will not apply where there is "no colorable
claim that an erroneous denial of . . . benefits in the early stages of
the administrative process will injure [the claimant] in a way that cannot
be remedied by the later payment of benefits." (Ringer, supra, 466
U.S. at p. 618.) As discussed, however, plaintiffs' state law claims are
not wholly collateral to a claim for benefits because, at bottom, they ultimately
derive from the contention that plaintiff George McCall was entitled to
a lung transplant and other reasonable and necessary medical services denied
him by PacifiCare. Moreover, nothing in the record (limited as it may be)
suggests plaintiffs could not have overcome PacifiCare's denial of such
services through the administrative process if in fact Medicare coverage
existed. Indeed, had George McCall initially elected to receive health care
on a fee-for-service basis and consulted a physician of his choice for purposes
of receiving a lung transplant, and had he been denied reimbursement for
the physician's services by a Medicare fiscal intermediary, there would
be no question that he would have been required to seek reconsideration
of the denial through Medicare's administrative review process. The fact
that a Medicare HMO denied his request for a transplant in a managed care
setting should make no difference in the legal analysis. |
| [71] | At oral argument on this matter, counsel for plaintiffs could not and
did not dispute that the claims concerning PacifiCare's alleged wrongful
refusal to arrange for a lung transplant would necessitate a determination
whether the transplant was a reasonable and necessary medical treatment
to which plaintiff George McCall was entitled under Medicare. Counsel instead
argued, and the majority evidently agrees, that no benefit determination
would be involved in deciding whether PacifiCare fraudulently induced plaintiff
to enroll in PacifiCare, whether PacifiCare wrongfully withheld information
regarding treatment options, and whether PacifiCare wrongfully forced plaintiff
to disenroll from PacifiCare. |
| [72] | That argument fails to convince. Essentially all of plaintiffs' claims
are predicated on the central theory that PacifiCare, as a Medicare HMO,
was required to comply with all Medicare rules and regulations, that reasonable
and necessary health services covered by Medicare would not be denied, and
that all available Medicare treatment options would be discussed and provided.
As a result of PacifiCare's alleged misconduct, plaintiff George McCall
enrolled in PacifiCare and allegedly was harmed thereby. Moreover, to the
extent plaintiffs allege that PacifiCare made fraudulent misrepresentations
to Medicare in order to obtain a Medicare HMO contract and to induce enrollment,
such claims are, as plaintiffs apparently recognize, barred under the reasoning
of Buckman Co. v. Plaintiffs Legal Committee (2001) 531 U.S. ___ [121 S.Ct.
1012] (finding similar fraud claims preempted by the Federal Food, Drug,
and Cosmetic Act, as amended by the Medical Device Amendments of 1976).
As for the disenrollment claim, plaintiff George McCall allegedly had to
disenroll in order to get the lung transplant he sought. Since the harm
resulting from all of PacifiCare's alleged misconduct is inseparable from
the harm resulting from its denial of the lung transplant, there appears
no basis for finding any of the claims exempt from the administrative review
process. |
| [73] | In purporting to analyze plaintiffs' complaint, the majority suggests
that malpractice may be committed under state law based on a provider's
failure to properly advise of treatment options or its failure to provide
appropriate referrals to specialists, whether or not such options or referrals
were covered by Medicare, and that malpractice as such may prevent a beneficiary
from seeking non-covered services at his own expense. (Maj. opn., ante,
at pp. 16-17.) This sort of malpractice claim, the majority asserts, would
not implicate a coverage determination or fall within the scope of the Medicare
review process. |
| [74] | Even assuming the majority states the law correctly in the abstract, the
complaint here lacks such a claim. The allegations make no specific reference
to any "non-covered" medical treatment about which plaintiff George
McCall should have been advised. Nor do they suggest that plaintiff would
have undergone a particular non-covered treatment at his own expense but
for PacifiCare's alleged misconduct, or that any harm flowed from his ignorance
of non-covered treatments. Rather, the crux of the complaint is that plaintiff
was harmed by PacifiCare's failure to secure the lung transplant and other
reasonable and necessary medical treatment to which he was entitled under
Medicare. |
| [75] | To support its contrary conclusion, the majority invokes the Ninth Circuit
Court of Appeals' decision in Ardary v. Aetna Health Plans of California,
Inc. (9th Cir. 1996) 98 F.3d 496 (Ardary). In Ardary, the heirs of a deceased
Medicare beneficiary brought state law claims for wrongful death against
a private Medicare provider seeking compensatory and punitive damages on
the basis that the provider improperly denied medical services (an emergency
airlift transfer) and misrepresented its managed care plan to the beneficiary.
The provider removed the action to federal court, arguing, among other things,
that relief was limited to federal administrative remedies under Ringer.
The Ninth Circuit disagreed. |
| [76] | Notably, the Ninth Circuit acknowledged that the heirs' state law claims
were all predicated on the provider's failure to authorize the emergency
airlift transfer. (Ardary, supra, 98 F.3d at p. 498.) Yet the court determined
their complaint did not arise under the Medicare Act because it did not
" `include any claims in which "both the standing and the substantive
basis for the presentation" of the claims' is the Act." (Ardary,
at p. 499.) In its view, standing for the heirs' claims was provided by
state common law (e.g., negligence, infliction of emotional distress, misrepresentation,
and professional negligence), not the Act. (Id. at pp. 499-500.) The court
also concluded the claims were not "inextricably intertwined"
with a benefits claim because the heirs were not seeking to recover benefits.
(Id. at p. 500.) Finally, the court emphasized the inappropriateness of
relegating the wrongful death claims to the administrative process because
the injury complained of - the beneficiary's death - could not be remedied
by the retroactive authorization or payment of the airlift transfer. (Ibid.) |
| [77] | Ardary is analytically flawed and cannot support the majority's disregard
of the principles articulated by the Supreme Court in Ringer and Salfi.
Contrary to Ardary's reasoning, those decisions affirm that claims may arise
under the Medicare Act and be subject to its administrative review process,
even though the claims also arise under some other law. Thus, even where
claims have a state law basis, as exemplified in Ardary and in the instant
case, they also arise under the Medicare Act where, at bottom, they challenge
the correctness of the defendant's denial of health services covered by
Medicare. (See Ringer, supra, 466 U.S. at p. 615; Redmond, supra, 60 Cal.App.4th
at p. 102; Wilson v. Chestnut Hill Healthcare, supra, 2000 WL 204368, *4;
see also Salfi, supra, 422 U.S. at pp. 760-761; Midland, supra, 145 F.3d
1000; Bodimetric, supra, 903 F.2d 408.) Moreover, the high court firmly
rejected the notion that the absence of a formal request for payment of
benefits is controlling. (Ringer, supra, 466 U.S. at p. 621.) In any event,
the result in Ardary was largely influenced by the fact that it was a wrongful
death action brought by the heirs of a Medicare beneficiary. (Ardary, supra,
98 F.3d at p. 500.) Here, of course, the action was brought by the Medicare
beneficiary himself and contains no wrongful death component. |
| [78] | The majority also supports its holding with the observation that the Secretary
has no authority to assess the validity or merit of plaintiffs' tort claims
or to grant relief for such claims. (Maj. opn., ante, at pp. 11-12, fn.
7, citing Kelly v. Advantage Health, Inc. (E.D.La., May 11, 1999, No. Civ.
A 99-0362) 1999 WL 294796.) The Secretary, however, is authorized to impose
civil monetary penalties and to suspend payment to or enrollment of a contracting
HMO if the HMO "fails substantially to provide medically necessary
items and services that are required" to be provided to an individual
covered under the contract, where "the failure has adversely affected
(or has substantial likelihood of adversely affecting) the individual."
(42 U.S.C. § 1395mm(i)(6)(A); see also 42 C.F.R. § 417.500.) The Secretary
may also impose such penalties if the HMO "misrepresents or falsifies
information that is furnished" to the Secretary or to an individual.
(Ibid.) Accordingly, it appears the Secretary has been amply armed by Congress
to address the type of wrongdoing alleged here. |
| [79] | More to the point, Congress has determined that questions regarding a
claimant's entitlement to benefits under the Medicare Act must be decided
through Medicare's administrative process to ensure the efficient and even
administration of the federally insured program. An individual who is "dissatisfied
with [an HMO's] determination regarding his or her Medicare benefits"
(42 C.F.R. § 417.600(a)) should not be permitted "to undercut Congress's
carefully crafted scheme for administering the Medicare Act" (Ringer,
supra, 466 U.S. at p. 621) by making state law contentions that necessitate
a state court's review of an HMO's decision to deny benefits covered by
Medicare. Where, as here, such contentions are central to a plaintiff's
claims for recovery, they remain properly subject to the Act's mandatory
administrative process where they may receive a thorough and expedited review.
(See Ringer, supra, 466 U.S. at p. 619 & fn. 12; see also Salfi, supra,
422 U.S. at p. 765; Redmond, supra, 60 Cal.App.4th at p. 102; Wilson v.
Chestnut Hill Healthcare, supra, 2000 WL 204368, *3, *6.) |
| [80] | The majority also justifies its decision by invoking the general presumption
that Congress, in enacting laws, does not intend to preempt state regulation
of the same subject matter unless a contrary intent appears, and by relying
on title 42, section 1395 of the United States Code, *fn16
and on the Medicare Act's requirement that HMO's and other Medicare providers
be state licensed (42 U.S.C. § 1395mm(b)). (Maj. opn., ante, at pp. 12-15.) |
| [81] | It is inconceivable that Congress did not intend to oust state courts
of jurisdiction to review the merits of an HMO's denial of Medicare benefits.
Not only are the provisions of the Act crystal clear on the point (42 U.S.C.
§§ 1395ff(a), (b)(1), 405(g), (h)), but the legislative history expressly
indicates that the remedies provided by the administrative review procedures
are intended to be exclusive. (Sen.Rep. No. 404, 89th Cong., 1st Sess.,
supra, reprinted in 1965 U.S. Code Cong. & Admin. News pp. 1943, 1995.)
The legislative declaration codified at title 42, section 1395 of the United
States Code (ante, fn. 5) and the state license requirement (42 U.S.C. §
1395mm(b)) offer no support for a contrary inference. |
| [82] | Nor is the majority's holding supported by the Balanced Budget Act of
1997 (the BBA), which added a provision to the Medicare Act expressly preempting
state standards relating to benefit requirements, coverage determinations,
and requirements relating to the inclusion or treatment of providers. (42
U.S.C. § 1395w-21 et seq.) As the HCFA comments quoted by the majority explain
(maj. opn., ante, at pp. 13-15), even though the Medicare Act did not previously
contain an express preemption clause, preemption of state laws and standards
was proper "based on general constitutional Federal preemption principles."
(63 Fed.Reg. 35012 (June 26, 1998).) The quoted comments also clarify the
following: that while a claim regarding a Medicare + Choice *fn17
organization's "denial of care that a beneficiary believes to be covered
care is subject to the Medicare appeals process," "the matter
may also be the subject of a tort case under State law if medical malpractice
is alleged, or of a state contract law claim if an enrollee alleges that
the [Medicare + Choice] organization has obligated itself to provide a particular
service under State law without regard to whether it is covered under its
[Medicare + Choice] contract." (63 Fed. Reg., supra, p. 35013.) |
| [83] | Contrary to the majority's assertion, HCFA's comments do not "strongly
imply that state law claims such as those involved in the present case were
not preempted under then applicable law." (Maj. opn., ante, at p. 15.)
If anything, both the comments and the BBA itself settle any doubt regarding
Medicare's preemptive scope over claims that essentially rely on state standards
and requirements to establish coverage of benefits. Indeed, as HCFA elucidates,
"[s]tate laws requiring, for example, a second opinion from non-contracted
physicians" would be superseded by the BBA preemptions "because
these requirements in essence mandate the `benefit' of access to a particular
provider's services even where the services of that provider would not otherwise
be a covered benefit." (63 Fed. Reg., supra, p. 35013.) Although HCFA
further explains that preemption does not extend to all medical malpractice
and contract claims, that has always been the case where the claims were
not inextricably intertwined with a benefits determination. As discussed,
however, the claims asserted here do not fall within those long acknowledged
categories of exempted claims. |
| [84] | III. |
| [85] | The Medicare Act represents a "carefully crafted scheme" for
administering a massive federally insured program (Ringer, supra, 466 U.S.
at p. 621). Central to that scheme is Congress's determination that administrative
remedies, followed by federal court review if necessary, are appropriate
to fully and consistently address the claims of those who seek to challenge
an HMO's benefits decision, and that administrative sanctions are appropriate
to address certain misconduct by errant HMO's. While the system may not
afford the range of relief available under state law, it is designed to
provide that coverage decisions are reviewed in a thorough and expeditious
manner by HCFA or its agent, and by ALJ's and departmental review boards
that have special expertise in such matters. It is not the prerogative of
this court to second-guess the measured tradeoffs enacted by Congress. |
| [86] | Today's decision all but assures that Medicare's administrative review
process will cease to function as a meaningful limit on judicial review.
I cannot, and will not, join in its undoing. |
| [87] | BAXTER, J. |
| [88] | I CONCUR: BROWN, J. |
| [89] | Review Granted XXX 74 Cal.App.4th 257 |
|
|
|
| Opinion Footnotes | |
|
|
|
| [90] | *fn1 Mr. McCall died shortly before
the Court of Appeal rendered its decision in this case, immediately after
undergoing a lung transplant paid for by Medicare. |
| [91] | *fn2 GNP and Dr. Shukla also demurred
on other, more limited grounds, none of which is before this court. |
| [92] | *fn3 In a case involving a non- HMO,
fee- for- service claim, the United States Supreme Court described the administrative
appeals process as follows: "[T]he Medicare Act authorizes the Secretary
to enter into contracts with fiscal intermediaries providing that the latter
will determine whether a particular medical service is covered by Part A,
and if so, the amount of the reimbursable expense for that service. 42 U.
S. C. § 1395h, 42 CFR § 405.702 (1983). If the intermediary determines that
a particular service is not covered under Part A, the claimant can seek
reconsideration by the . . . (HCFA) in the Department of Health and Human
Services. 42 CFR §§ 405.710- 405.716 (1983). If denial of the claim is affirmed
after reconsideration and if the claim exceeds $100, the claimant is entitled
to a hearing before an administrative law judge (ALJ) in the same manner
as is provided for claimants under Title II of the Act. 42 U. S. C. § 1395ff(b)(1)(C),
(b)(2); 42 CFR § 405.720 (1983). If the claim is again denied, the claimant
may seek review in the Appeals Council. 42 CFR §§ 405.701(c), 405.724 (1983)
(incorporating 20 CFR § 404.967 (1983)). If the Appeals Council also denies
the claim and if the claim exceeds $1,000, only then may the claimant seek
judicial review in federal district court of the `Secretary's final decision.'
42 U. S. C. §§ 1395ff(b)(1)(C), (b)(2)." (Ringer, supra, 466 U.S. at
pp. 606- 607; see generally 42 C.F.R. § 405.701 et seq. (1999) [describing
the Medicare fee- for- service appeals process].) A Medicare beneficiary
enrolled in an HMO may challenge the Secretary's final determination in
the same manner. (42 U.S.C. § 1395mm(c)(5)(B); see 42 C.F.R. §§ 417.600-
417.638 (1999).) |
| [93] | *fn4 The dissent (pp. 16- 17) suggests
the possible imposition by the Secretary of civil monetary penalties against
contracting HMO's for violations of the Medicare Act justifies a conclusion
that plaintiffs' state law claims are preempted. The suggestion, however
ignores Ringer's focus on the presence or absence of a remedy for injuries
suffered. |
| [94] | *fn5 A number of subsequent decisions
have favorably cited and relied on Ardary. (E.g., Plocica v. Nylcare of
Texas, Inc. (N.D.Tex. 1999) 43 F.Supp.2d 658, 663 [complaint alleging wrongful
death under state law was not preempted by Medicare; case remanded to state
court]; Zamora- Quezada v. HealthTexas Medical Group (W.D.Tex. 1998) 34
F.Supp.2d 433, 440 [complaint by physicians and Medicare HMO beneficiaries,
alleging that HMO's created contractual arrangement that resulted in discrimination
against the disabled in violation of the Americans with Disabilities Act,
the Rehabilitation Act and various state law theories, did not arise under
Medicare; federal district court denied defendants' motion to dismiss for
failure to exhaust administrative remedies]; Wartenberg v. Aetna U.S. Healthcare,
Inc., supra, 2 F.Supp.2d at pp. 277- 278 [complaint alleging wrongful death
under state law not preempted by Medicare; case remanded to state court];
Albright v. Kaiser Permanente Medical Group (N.D.Cal., Aug. 3, 1999, No.
C98- 0682 MJJ) 1999 WL 605828, *3- *4 [a complaint alleging unfair business
practices, violation of the covenant of good faith and fair dealing, and
fraud did not arise under Medicare; case remanded to state court]; Kelly
v. Advantage Health, Inc. (E.D.La., May 11, 1999, Civ. A No. 99- 0362) 1999
WL 294796, *4- *5, *7 [a complaint alleging negligence and violation of
Louisiana Health Maintenance Organization Act, La. Rev. Stat. § 22:2001
et seq., did not arise under Medicare; case remanded to state court]; Berman
v. Abington Radiology Associates (E.D.Pa., Aug. 14, 1997, Civ. A. No. 97-
3208) 1997 WL 534804, *3 [a complaint alleging professional negligence did
not arise under Medicare; case remanded to state court]; see also Wright
v. Combined Ins. Co. of America (N.D.Miss. 1997) 959 F.Supp. 356, 363 [not
citing Ardary, but concluding fact that disposition of plaintiff's state
law claims might require some interpretation of the Medicare Act did not
mean such claims arose under the Act; case remanded to state court].) Other
decisions have distinguished Ardary without criticizing its reasoning. (E.g.,
Jamaica Hospital Nursing Home v. Oxford Health Plans (S.D.N.Y., Sept,. 26,
2000, No. 99 Civ. 9541(AGS)) 2000 WL 1404930, *3 [nursing home's complaint
alleging it provided medical treatment to beneficiary and, under its assignment
of insurance rights from beneficiary, was entitled to payment from HMO for
the cost of the treatment was, at bottom, a claim for reimbursement of Medicare
benefits; because nursing home had failed to exhaust administrative remedies,
federal district court dismissed complaint for lack of subject matter jurisdiction];
Helping Hands Professional Home Health Services, Inc. v. Shalala (S.D.Cal.,
Aug. 1, 1997, No. 97- 1043- IEG(LSG)) 1997 WL 778990, *4 [service provider's
complaint, alleging that fiscal intermediary failed to comply with regulations
governing payments under Medicare system, arose under Medicare; because
provider had failed to exhaust administrative remedies, federal district
court dismissed complaint for lack of subject matter jurisdiction].) |
| [95] | *fn6 The federal district court in Albright
v. Kaiser Permanente Medical Group, supra, 1999 WL 605828, *4, observed
that "Redmond has not been cited as persuasive authority in any subsequent
opinions interpreting whether state law claims arise under the Act."
A decision not citing Redmond, but employing a similar analysis to reach
a similar conclusion, is Wilson v. Chestnut Hill Healthcare (E.D.Pa., Feb.
22, 2000, Civ. A No. 99- CV- 1468) 2000 WL 204368. |
| [96] | *fn7 Kelly v. Advantage Health, Inc.,
supra, asserts the contrary. "Indeed, the legislative history indicates
that the administrative remedies and specific judicial review procedures
were established for `quite minor matters,' such as amount determinations
of specific Medicare benefits. See Bowen v. Michigan Academy of Family Physicians,
476 U.S. 667, 680 (1986); Ardary, 98 F.3d at 501. The administrative agency
in charge of applying the administrative procedure set forth in the Act
does not even possess the authority to assess the validity or merit of tortious
claims or to grant relief for the types of state law causes of action at
issue here. Thus, under the administrative process, plaintiff would most
likely be precluded from receiving damages for any of the wrongs that have
allegedly been committed against him." (Kelly v. Advantage Health,
Inc., supra, 1999 WL 294796, at p. *7.) |
| [97] | *fn8 (See Randi W. v. Muroc Joint Unified
School Dist. (1997) 14 Cal.4th 1066.) |
| [98] | *fn9 We note that the recent decision
in Buckman Co. v. Plaintiffs' Leg. Com. (2001) 531 U.S. ___ [121 S.Ct. 1012,
148 L.Ed.2d 854] concluded that a state law action seeking damages for injuries
allegedly caused by Food and Drug Administration (FDA) approved bone screws,
predicated on a "fraud- on- the- FDA" theory, was preempted by
the Federal Food, Drug, and Cosmetic Act, as amended by the Medical Device
Amendments of 1976, 21 United States Code section 301. The high court reasoned
that "[p]olicing fraud against federal agencies is hardly `a field
which the States have traditionally occupied,' [citation], such as to warrant
a presumption against finding federal pre- emption of a state- law cause
of action." (531 U.S. at p. ___ [148 L.Ed.2d at p. 860 ].) The court
contrasted "situations implicating `federalism concerns and the historic
primacy of state regulation of matters of health and safety,' " where
a "presumption against pre- emption obtains." (Id. at p. ___ [148
L.Ed.2d at p. 861], citing Medtronic, Inc. v. Lohr, supra, 518 U.S. at p.
485.) To the extent the McCalls' complaint alleges fraud on the HCFA, defendants
may, on remand, assert it is preempted under the rule in Buckman. |
| [99] | *fn10 This case does not call upon
us to determine the sufficiency of any of the McCalls' allegations to state
a cause of action under California law, and we express no opinion on whether
the claims ultimately will be proven. |
| [100] | *fn11 Defendants' reliance on Bodimetric
Health Services v. Aetna Life & Cas. (7th Cir. 1990) 903 F.2d 480, Midland
Psychiatric Associates, Inc. v. U.S. (8th Cir. 1998) 145 F.3d 1000, and
Marin v. HEW, Health Care Financing (9th Cir. 1985) 769 F.2d 590, is misplaced:
those cases are distinguishable from the present one, in that they were
actions seeking tort damages for harm allegedly sustained as a result of
improper denial of claims, not, as here, claims arising from violations
of duties separate from the duty to pay Medicare benefits. |
| [101] | *fn12 Part A of Medicare is a mandatory
hospital insurance program covering the cost of hospitalization and related
expenses. (42 U.S.C. § 1395c et seq.) Part B establishes a voluntary supplemental
medical insurance program covering specified medical services, devices,
and equipment. (Id., § 1395j et seq.) |
| [102] | *fn13 Claims seeking payment of ordinary
Social Security benefits are subject to the same administrative exhaustion
provisions as those seeking Medicare benefits. (Maj. opn., ante, at p. 7.) |
| [103] | *fn14 The United States Supreme Court
subsequently invoked Ringer in a decision holding that damage claims arising
from decisions concerning payment of ordinary Social Security benefits are
foreclosed by the Secretary's exclusive administrative jurisdiction over
such decisions. In Schweiker v. Chilicky (1988) 487 U.S. 412, claimants
whose Social Security disability benefits were improperly terminated during
disability reviews but were later restored, sued federal and state program
administrators for alleged violations of their Fifth Amendment right to
due process, and sought recovery of damages for emotional distress and for
loss of food, shelter, and other necessities proximately caused by the denial
of benefits without due process. In that case, the high court determined
that since the harm resulting from the alleged constitutional violation
was inseparable from that resulting from the denial of benefits, both claims
were remediable, if at all, only through the federal administrative review
process. (487 U.S. at pp. 428- 429.) |
| [104] | *fn15 In a footnote, the majority
expresses awareness of Bodimetric, supra, 903 F.2d 480, Midland, supra,
145 F.3d 1000, and Marin v. HEW, Healthcare Financing Agency, supra, 769
F.2d 590. (Maj. opn., ante, at p. 19, fn. 11.) The majority does not dispute
those courts' conclusions that claims "arising under" the Medicare
Act, as that phrase was defined in Ringer, supra, 466 U.S. 602, may encompass
state law claims seeking tort damages for harm allegedly sustained as a
result of improper denial of claims. (Maj. opn., ante, at p. 19, fn. 11.)
Rather, the majority attempts to distinguish the instant case on the basis
that it involves "claims arising from violations of duties separate
from the duty to pay Medicare benefits." (Ibid.) Contrary to the majority's
suggestion, and as I explain in part II, post, plaintiffs here similarly
seek tort damages arising from the alleged improper denial of a benefit,
i.e., a lung transplant, to which plaintiffs claim entitlement under Medicare.
Although the complaint also alleges violations of "duties" that
purport to extend beyond PacifiCare's alleged duty to pay Medicare benefits,
the harm supposedly resulting from those violations appears inseparable
from the harm resulting from PacifiCare's denial of the lung transplant.
(See pt. II, post.) |
| [105] | *fn16 That section provides: "Nothing
in this subchapter shall be construed to authorize any Federal officer or
employee to exercise any supervision or control over the practice of medicine
or the manner in which medical services are provided, or over the selection,
tenure, or compensation of any officer or employee of any institution, agency,
or person providing health services; or to exercise any supervision or control
over the administration or operation of any such institution, agency, or
person." (42 U.S.C. § 1395.) |
| [106] | *fn17 HMO's contracting with Medicare,
such as PacifiCare here, automatically became Medicare + Choice plans effective
January 1, 1999. (See 42 U.S.C. § 1395mm(k).) |
The Climate Change and Public Health Law Site
The Best on the WWW Since 1995!
Copyright as to non-public domain materials
See DR-KATE.COM for home hurricane and disaster preparation
See WWW.EPR-ART.COM for photography of southern Louisiana and Hurricane Katrina
Professor Edward P. Richards, III, JD, MPH - Webmaster
Provide Website Feedback - https://www.lsu.edu/feedback
Privacy Statement - https://www.lsu.edu/privacy
Accessibility Statement - https://www.lsu.edu/accessibility