Climate Change Project

Table of Contents



Administrative Law/HMO and Managed Care Law

Are Claims against Medicare HMOs Subject to Medicare Administrative Review Limitations? - McCall v. PacifiCare of California, Inc., 25 Cal.4th 412, 21 P.3d 1189, 106 Cal.Rptr.2d 271 (Cal. 2001)

(Contributed by Tom McLean, M.D., J.D.) At issue in this case was whether a state law claims against a Medicare health maintenance organization (HMO), arising out of the HMO's refusal to provide services, fall within the exclusive review provisions of the Medicare Act requiring exhaustion of administrative remedies. (42 U.S.C. 1395 et seq.) The California Supreme Court held that such claims do not fall within Medicare's exclusive review provisions.

After George McCall had enrolled in a Medicare HMO, his "progressive lung disease" became more symptomatic. Mr. McCall's doctor declined to refer for a lung transplant. To seek relief Mr. McCall was "ultimately forced him to disenroll from PacifiCare in order to get on the Medicare list for a transplant." (Subsequent to the lung transplantation, while the current litigation was on going Mr. McCall died.) Mr. McCall and his wife brought eight tort causes of action and "and a ninth cause of action for injunctive relief from unfair business practices" against his Medicare HMO physician, the physician's group and the HMO carrier. Specifically the McCalls alleged the defendants had violated statutory duties owed them, 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))." The defendants (the physician group and the HMO) 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." After the trial court trial court sustained the demurrers and entered summary judgment for the defendants, the appellate court reversed.

The California Supreme Court began its de novo review by reviewing basic principles underlying the administration of Medicare. Part A of Medicare 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)), while Part B of Medicare created a voluntary supplementary medical insurance program for Medicare-eligible individuals covering specified medical services, devices, and equipment. (See 42 U.S.C. 1395k, 1395o.) The Medicare Act allows for the delegation of Medicare benefit administration to HMOs that are authorized pursuant to contracts with the HCFA. (Wartenberg v. Aetna U.S. Healthcare, Inc. 2 F.Supp.2d 273, 276 (E.D.N.Y. 1998).) Whether a Medicare beneficiary is entitled to benefits was entrusted to the Secretary of HHS. (42 U.S.C. 1395ff(a).) Finally, judicial review of a wrongful denial of claims by the Secretary arises "only after the Secretary has rendered a " `final decision' " on the claim (Heckler v. Ringer, 466 U.S. 602, 605 (1984)) and the beneficiary has exhausted the available administrative remedies. (42 U.S.C. 405(h), 1395ii; see 42 U.S.C. 1395ff(b)(1), 1395mm(c)(5)(B).)

Ringer is the seminal care that has guided judicial review of Medicare benefits. Ringer involved an attempt by four Medicare beneficiaries to have the federal government pay for Bilateral Carotid Body Resection (BCBR) for treatment of respiratory distress. In denying payment, the Secretary "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." Because Ringer was a claim for benefits and none of the plaintiffs had exhausted the available administrative remedies, the trial court dismissed the case. The appellate court reversed observing, "exhaustion would be futile and might not fully compensate the plaintiffs." 

When Ringer came before the Supreme Court, the court took notice that the  `claim arising under' language of the Medicare Act was to be construed "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, 466 U.S. at 615, citing Weinberger v. Salfi, 422 U.S. 749, 760-761(1975).) To hold otherwise the Supreme Court opined would "allow claimants substantially to undercut Congress's carefully crafted scheme for administering Medicare." (Ringer, 466 U.S. at. 621.) Accordingly the Court "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 or (2) the claim is "`inextricably intertwined' " with a claim for Medicare benefits." (Citations omitted.)  But, if a claim that is "wholly `collateral' " to a claim for benefits 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. (Ringer, 466 U.S. at 618.) Thus while Ringer recognized that not all benefits claims arose under Medicare, the Ringer court substantial expanded the universe of potential claims arising under the Medicare as recognized under Weinberger by included all benefits claims that were "inextricably intertwined" federal regulations that defining Medicare benefits. 

(The court then reviewed two recent California cases of alleged denial of benefits by a Medicare HMO. In both of this cases (Ardary v. Aetna Health Plans of California, Inc. 98 F.3d 496 (9th Cir. 1996), certiorari denied 520 U.S. 1251 (1997) and Redmond v. Secure Horizons, Pacificare, Inc., 60 Cal.App.4th 96 (1997)) the appellate courts had held that the state tort law claims were `inextricably intertwined' " with Medicare benefit regulations. Therefore, according to the rule in Ringer the claims arose under Medicare and judicial review of the denial benefits was only ripe after a final decision was made and the plaintiffs had exhausted the available administrative remedies.  Because the plaintiff in both Ardary and Redmond had not exhausted the administration remedies the claims were dismissed.)

Returning to the instant case, the California Supreme Court took a step back and examined the legislative intent behind the Medicare Act. McCall presumed "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 518 U.S. 470, 485(1996); Cipollone v. Liggett Group, Inc 505 U.S. 504, 516. (1992).) The classic example of "congressional intent to preempt state remedies is found in the Employee Retirement Income Security Act" language that provides that ERISA ""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).)  However, McCall noted nothing in the Medicare Act indicated congressional intent to preempt state tort law. "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  815 F.2d 790, 791 (1st Cir. 1987); Shands Teaching Hosp. v. Humana Medical (Fla.Dist.Ct.App. 1999) 727 So.2d 341, 344.) The Medicare Act provides that "[n]othing 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).)" In McCall's view the language of the Medicare Act meant that review of medical care to beneficiaries was to be by  "operation of state law" rather than federal regulations.

The court observed that its reading of the Medicare Act was strengthened by congressional action that occurred after the filing of this case. The Balanced Budget Act of 1997 (42 U.S.C. 1395w-21 et seq.) "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).)" 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." The Balanced Budget Act's preemption "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." (Citing 63 Fed.Reg. 34967, 35012, 35013 (June 26, 1998).) Moreover, "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."

The McCall court next reviewed the meaning of Ringer's "inextricably intertwined." Neither Ringer nor Ardary, "essayed a definition of this key phrase."  McCall opined that the Redmond court's definition of "inextricably intertwined" 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." McCall believed this definition to be too broad because a Medicare provider "may violate state common law or statutory duties owing to beneficiaries, unrelated to its Medicare coverage determinations. [] 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." Such claims in the language of Ringer are collateral to, not inextricably intertwined with, Medicare benefit claims. Thus, the "McCalls' first and second causes of action, for negligence and willful misconduct, respectively, set forth such allegations and enumerate the statutory and regulatory bases of the relevant duties none of which necessarily implicates a coverage determination or falls within the scope of the Medicare administrative review process." (Citation omitted.) The court then analyzed the other seven causes of action alleged by the plaintiff and concluded that none of them were "inextricably intertwined" with the determination of benefits under Medicare. "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 [] 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."

In short, the California Supreme Court ruled that because a denial of benefits claim by a Medicare HMO does not arise under the Medicare Act - because a denial of benefits is not "inextricably intertwined" with the determination of benefits - plaintiffs do not have to exhaust Medicare's administrative remedies before a claim for wrongful denial of care becomes ripe for judicial review.  The dissent rather succinctly summarized the ramifications of the majority's holding by observing "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." (J. Baxter's lone dissent is predicated on construing the same cases the majority used in a different light and the havoc that the majority's opinion will have on the orderly administration of Medicare claims.)

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