Phillips v. Kaiser Health Plan, Inc., et. al.
No. C 11 – 02326 CRB
2011 WL 3047475 (N.D.Cal.July 25, 2011)
This case involved a putative class action filed against Kaiser Health Plan, Inc. (Kaiser), a Medicare Advantage (MA) Plan, and other related MA entities.
The plaintiff alleged that (a) Kaiser was improperly and “illegally” demanding reimbursement of its accident related medical expenditures in an amount greater than that which would have been recoverable under traditional Medicare, and (b) that certain marketing and business practices employed by Kaiser violated California’s Unfair Competition Law and Consumer Legal Remedies Act.
The plaintiff filed this case in California state court, which Kaiser removed to the United States District Court for the Northern District of California (hereinafter referred to as the “court”). This case then came before the court on (a) the plaintiff’s motion to remand and (b) Kaiser’s motion to dismiss.
The plaintiff argued that the state court had proper jurisdiction over the claim and requested that the court return the case back to the state court. Kaiser moved to dismiss the plaintiff’s claim on grounds that her action was preempted by the Medicare Act and that she failed to exhaust requisite administrative remedies.
With regard to the plaintiff’s motion to remand, the court ruled that it (and not the state court) had proper jurisdiction pursuant to the governing jurisdictional provisions of the Class Action Fairness Act. Accordingly, the court denied the plaintiff’s motion to remand.
With respect to Kaiser’s motion to dismiss, the court ruled that the plaintiff’s state law claims were preempted by the Medicare Act, and that she failed to exhaust applicable administrative remedies there under. Accordingly, the court granted Kaiser’s motion and dismissed the plaintiff’s action with prejudice.
This case is summarized in greater detail as follows:
The plaintiff, Sharon Phillips, was a Medicare beneficiary covered under a Medicare Advantage (MA) Plan through defendant, Kaiser Foundation Health Plan (Kaiser).
In November 2009, the plaintiff sustained bodily injuries as the result of a motor vehicle accident. Shortly after this accident, the plaintiff filed a claim against the party allegedly at fault which was then settled a few months later in the amount of $100,000.
In the spring of 2010, Kaiser demanded reimbursement in the amount of $88,205.46 for accident related medical expenses it provided, with said sum calculated per California Civil Code § 3040.
The plaintiff objected to Kaiser’s reimbursement claim and filed a putative class action against Kaiser and other related MA entities (referred to hereinafter collectively as “Kaiser”) in California state court alleging the following:
- That Kaiser was “illegally” seeking repayment “at rates in excess of applicable Medicare rates.” In this regard, the plaintiff alleged that Kaiser was improperly seeking reimbursement at rates in excess of that amount that would be charged under traditional Medicare’s “fee for service (FFS)” arrangement; and
- That certain Kaiser marketing and business practices violated California’s Unfair Competition Law (UCL) and Consumer Legal Remedies Act (CLRA) in that Kaiser allegedly failed to advise potential enrollees that it would seek reimbursement of accident related medical treatment, or that it would seek said reimbursement at rates beyond that which would be sought by traditional Medicare.
Kaiser removed this case out of the California state court and into the United States District Court for the Northern District of California claiming that jurisdiction properly vested in federal court per the Class Action Fairness Act (CAFA), and on grounds that that the plaintiff’s state law claims were essentially federal claims disguised as state law claims and subject to preemption.
Kaiser also filed a motion to dismiss arguing that the plaintiff’s action should be dismissed on grounds that her claims were preempted by the Medicare Act and that she failed to exhaust administrative remedies.
In response, the plaintiff filed a motion for remand arguing that the case should be sent back to, and heard before, state court on grounds that preemption was inapplicable and that her claim did not require administrative exhaustion.
Issue Presented/Court’s Ruling
Against this backdrop, the court had to address the following issues:
Issue #1: Whether the United States District Court had proper jurisdiction, or whether the case should be remanded (sent back) to state court for adjudication?
The court ruled that the federal district court (and not the state court) had proper jurisdiction under the Class Action Fairness Act (CAFA). Thus, the court ruled that it had jurisdiction to hear this matter.
In reaching this conclusion, the court ruled that Kaiser presented proper evidence showing that the amount in controversy likely exceeded the $5 million monetary threshold amount required by CAFA thereby conferring proper diversity jurisdiction in the district court. (28 U.S.C. §§ 1332(d)(2) and (4)).
In addition, the court found that CAFA’s “local controversy” exception (which can vest jurisdiction in the state court based on certain statutory factors involving the “residency” of the class, and those parties within the class considered to be “primary defendants”) was inapplicable in this case. (28 U.S.C. § 1332 (4)). Furthermore, the court declined to invoke its discretionary power under CAFA not to hear the action. (28 U.S.C. 1332 (d)(3)).
Issue #2: Whether the plaintiff’s state law claims were preempted by the Medicare Act?
The court ruled that the plaintiff’s state law claims were in fact preempted by the Medicare Act and that, in accordance therewith, she was obligated to exhaust administrative remedies which she failed to do.
In reaching this decision, the court started its analysis by noting that 42 U.S.C. § 1395w-26(b)(3) contains an “expansive” express preemption provision superseding state law with respect to MA plans. The court also noted that the Medicare Act provides standards for plan advertisements and marketing which are reviewed by CMS to ensure, among other things, that the materials are not “materially inaccurate or misleading.” (42 C.F.R. §§ 422.2260(1)-(4)).
In addition, the court referenced that the Medicare Act prohibited states from taking away or limiting a MA plan’s recovery rights. (42 U.S.C. § 1395w-21(h), 42 C.F.R. § 108(d)(2) and 42 C.F.R. § 422.108(f)). The court further noted that the Medicare Act contained specific administrative provisions for MA enrollees to challenge “benefits determinations.” (42 U.S.C. § 405(g) and 42 C.F.R. § 422.600-422.612).
From this analytical base, the court turned its focus to address whether or not the plaintiff’s claims were basically disguised as “claims for benefits” which would thereby place same within the purview of the Medicare Act.
On this point, Kaiser argued that the plaintiff was essentially seeking a restitutionary remedy which was in effect a disguised claim for benefits properly falling under the Medicare Act.
The plaintiff countered that its action was not a claim for benefits on a number of grounds including that she had already received the benefits from Kaiser and, hence, her claim was not about “benefits recovery.” Furthermore, the plaintiff argued that since Kaiser calculated its recovery formula under California Code Section 3040 it could not, therefore, avoid the application of California law with respect to its marketing and reimbursement recovery practices.
In addressing this question, the court looked favorably upon the ninth circuit’s rationale and decision in Uhm v. Humana, Inc., 620 F.3d 1134 (9th Cir. 2011) for guidance. Uhm involved a breach of contract and unjust enrichment claim brought by Medicare Part D enrollees. In Uhm, the court ruled, in part, that the plaintiff’s claims were essentially disguised claims for benefits which were preempted by federal law and which had to be administratively exhausted before an action could be brought in federal court.
Based upon Uhm and other factors, the court concluded that the plaintiff’s claim against Kaiser was in fact a “claim for benefits,” thereby making the Medicare Act applicable which, in turn, required the plaintiff to exhaust requisite administrative remedies. The court stated:
To the extent Plaintiff is claiming that Kaiser is running afoul of the Medicare Act by collecting reimbursement from her in an amount greater than what is permitted under that Act she is making a claim for benefits and must exhaust that claim. See Heckler v. Ringer, 466 U.S. 602, 618, 104 S.Ct. 2013, 80 L.Ed.2d 622 (1984). It does not matter that she is using state law as the vehicle to press her assertion. See Uhm, 620 F.3d at 1143 (holding, in the context of breach of contract and unjust enrichment claims, that ‘there is no claim that the alleged contract imposed upon Humana any duties above and beyond compliance with the Act itself.’) (footnote omitted). Phillips, 2011 WL 3047475, at *7.
In addition, the plaintiff argued that while Kaiser’s secondary payer rights are derived from federal law, Kaiser could only enforce those rights via a state court action for breach of contract; which, therefore meant that her claim concerning Kaiser’s secondary payer rights under that same contract would then also be permissible under state law. In support of this position, the plaintiff’s referenced the recent case of Parra v. Pacificare of Arizona, No. CV 10-008-TUC-DCB, 2011 WL 1119736 (D.Ariz. March 28, 2011).
In regard to this argument, the court, in a footnote, stated as follows:
To the extent Plaintiff argues that her challenge to Kaiser’s secondary payer rights cannot ‘arise under’ the Medicare Act because Kaiser does not have a federal cause of action to enforce such rights, see Parra, 2011 WL 1119736, at*5, she is mistakenly conflating the question whether Kaiser has a private right of action under federal law with the question whether she can challenge a benefits determination without exhausting her claim administratively.
The fact that Kaiser has to resort to state law processes to collect secondary payer reimbursement when a beneficiary refuses to provide it does not change the fact that Plaintiff must exhaust a claim, however styled, that is ‘a backdoor attempt to enforce the Act’s requirements and to secure a remedy for [the insurer]’s alleged failure to provide benefits.’ Id. Phillips, 2011 WL 3047475, at *7 n. 12.
As part of its analysis, the court acknowledged that certain components of the plaintiff’s claim involved allegations that did not necessarily “arise under” the Medicare Act (i.e. certain allegations made under California’s UCL and CLRA statutes). Notwithstanding, the court found that the plaintiff’s claims were preempted by the Medicare Act. The court stated:
[S]imply because some portion of Plaintiff’s UCL and CLRA claims do not ‘arise under’ the Medicare Act does not mean that they are not preempted. Indeed, Uhm found that fraud and consumer protection claims based on underlying allegations similar to those alleged here were preempted ‘by the extensive CMS regulations governing [ ] marketing materials.’ [Uhm], 620 F.3d 1150–57.
As in Uhm, application of California’s consumer protection laws ‘could potentially undermine the Act’s standards as to what constitutes non-misleading marketing. This is precisely the situation that both the current version of the Act’s preemption provision as well as its previous incarnations contemplated and sought to avoid.’ Id. at 1152 (footnote omitted). The combination of the expansive express preemption provision in the Medicare Act, as well the logic in Uhm, show that Plaintiff’s state UCL and CLRA claims are preempted Phillips, 2011 WL 3047475, at *8.
Based on the foregoing, the court denied the plaintiff’s motion to remand, and granted Kaiser’s motion to dismiss with prejudice.
To learn more about Medicare Advantage Plans and other recent court decisions addressing this issue, please see the author’s article entitled Medicare Advantage (MA Plans): Exploring Recovery Rights & Recent Court Decisions as contained in Settlement News, July 2011. This article can be obtained at http://dev.nqbp.com/sites/default/files/July2011SettlementNews.pdf.