June 25, 2018

By: Jeff Overley

Humana Inc. can’t escape a breach of contract suit brought by hospital giant Prime Healthcare alleging Medicare Advantage underpayments, a California federal judge ruled Friday, finding that the case isn’t barred by the Medicare Act.

The ruling from U.S. District Judge Virginia A. Phillips found that Prime Healthcare Services Inc.’s allegations don’t “arise under the Medicare Act” and therefore aren’t preempted by the federal law. Notably, Humana had previously been granted several motions to dismiss, and Prime had been warned that it would not be allowed to amend its complaint again if Humana prevailed another time.

King & Spalding LLP partner Mark Polston, counsel for Prime, said Monday that Judge Phillips’ ruling is among the first in which a federal court has allowed a health care provider to sue a Medicare Advantage insurer for underpayments.

“Congress never intended to leave network providers without a means to enforce their private, contractual agreements,” Polston said in a statement. “We are glad that the court recognized this, and we hope that this decision will convince future courts and arbitrators that such arguments have no merit.”

At issue in the case are alleged underpayments from August 2012 to February 2016. Prime, an in-network provider for Humana during that time period, says that the insurer underpaid for various services and sometimes refused to pay at all. The underpayments allegedly flouted the terms of a contract that the companies negotiated for services in Medicare Advantage, the privately administered version of Medicare.

According to Friday’s ruling, Humana has asserted that any alleged breach requiring interpretation of the Medicare Act should be preempted. But Judge Phillips rejected that position, calling it “overly broad and inconsistent with fundamental principles of preemption.”

In a key conclusion, Judge Phillips noted that Prime can’t seek administrative review by government contractors when it disagrees with a Medicare Advantage payment.

“Since all claims arising under the act are subject to administrative review, the inverse is also true: claims that are not subject to administrative review do not arise under the act,” the judge wrote. “Therefore, [Prime’s] claim does not arise under the Medicare Act.”

In reaching her conclusion, Judge Phillips applied a two-part preemption test created by the Ninth Circuit. The test looks for a federal regulation or standard that applies to the dispute, and whether the regulation or standard would conflict with a state law claim, such as breach of contract.

Judge Phillips identified only one regulation that was potentially relevant, and she concluded that Prime’s “breach-of-contract claim does not undermine or compete with this regulation.” The regulation requires there to be a prompt payment provision in Medicare Advantage contracts between insurers and providers.

In her ruling, Judge Phillips voiced concern about barring Prime’s suit, saying that it “could be left without recourse” to recover money for services it provided.

Damaris Medina and Andrew Selesnick of Buchalter APC, who also represent Prime, said in a joint statement Monday that “this decision confirms that contracted providers do not have appeal rights through the Medicare appeals process and therefore do not have to exhaust such a process before suing.”

A spokesman for Humana declined to comment.

Prime runs 45 hospitals in more than a dozen states, making it one of the largest hospital chains in the country. Its suit against Humana involves roughly one-third of those hospitals, most of which operate in California. Humana in 2017 was the country’s second-biggest seller of Medicare Advantage policies, according to the nonprofit Kaiser Family Foundation.

Prime Healthcare Services Inc. is represented by Andrew H. Selesnick and Damaris L. Medina of Buchalter APC and Mark Polston and Justin Torres of King & Spalding LLP.

Humana is represented by Jennifer S. Romano, Daniel M. Glassman and Samrah R. Mahmoud of Crowell & Moring LLP.

The case is Prime Healthcare Services Inc. et al. v. Humana Insurance Co. et al., case number 5:16-cv-01097, in the U.S. District Court for the Central District of California.

Source: Law360