McCall v. Pacificare of California, Inc.
Filed 5/3/01
IN THE SUPREME COURT OF CALIFORNIA
Plaintiff and Appellant,
v.
BARBARA McCALL, Individually and
as Trustee, etc.
)
)
)
)
)
)
)
)
)
)
Defendants and Respondents. )
__________________________________ )
PACIFICARE OF CALIFORNIA, INC.,
et al.,
S082236
Ct.App. 4/3 G024030
Orange County
Super. Ct. No. 788545
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.
FACTS
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
1
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.)
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.1
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
1
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.
2
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) t he 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)).
GNP and PacifiCare (hereafter defendants) 2 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.
2
GNP and Dr. Shukla also demurred on other, more limited grounds, none of
which is before this court.
3
DISCUSSION
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.)
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’ ” o n
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).)3 The relevant
3
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
(footnote continued on next page)
4
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).)
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) “ ‘bo th
the standing and the substantive basis for the presentation’ ” o f the claim is the
Medicare Act ( id . at p. 615), or (2) the claim is “ ‘inextricably intertwined’ ” with
(footnote continued from previous page)
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).)
5
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. a t p . 618.) 4
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
4
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.
6
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.
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.)
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
7
covered procedure, but, rather, damages assertedly flowing from conduct only
incidentally related to the wrongful denial of a benefits claim.
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.) 5
5
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
(footnote continued on next page)
8
(footnote continued from previous page)
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].)
9
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.
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.)
10
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.)
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.).6 Redmond, however, cited no authority for the
implied proposition that the Secretary is empowered to award damages for
violations of state tort law. 7
6
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.
7
Kelly v. Advantage Health, Inc., supra , asserts the contrary. “Indeed, the
legislative history indicates that the administrative remedies and specific judicial
(footnote continued on next page)
11
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.
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
(footnote continued from previous page)
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.)
12
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].)
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.
13
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
14
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.
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.
15
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.
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.
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
16
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.
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 action8 or a claim of fraud may be stated.9 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.
8
(See Randi W. v. Muroc Joint Unified School Dist. (1997) 14 Cal.4th 1066.)
9
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. a t 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.
17
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.
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.
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.10
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
10
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.
18
reversed the trial court’s orders sustaining defendants’ demurrers without leave to
amend.11
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.
WERDEGAR, J.
WE CONCUR:
GEORGE, C. J.
MOSK, J.
KENNARD, J.
CHIN, J.
11
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.
19
DISSENTING OPINION BY BAXTER, J.
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.)
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.
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
1
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.
I.
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.)
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.)
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
2
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).)
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 . . . .”1 (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.
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
1
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.)
3
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).)
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).)
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
4
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.)
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.)
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’ ”
5
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.)
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
6
particular medical service was not reasonable and necessary, and the means by
which the Secretary implemented such a decision. ( Id. at p. 617.)
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.2 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.)
Taken together, Ringer and Salfi make clear that claims challenging an
HMO’s denial of reasonable and necessary health services covered by Medicare
2
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.)
7
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.)
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.
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
8
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”].)
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.3 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
3
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.)
9
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.)
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. 4 (145 F.3d at p. 1004; see also Jamaica Hospital Nursing
4
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
(footnote continued on next page)
10
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].)
II.
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
(footnote continued from previous page)
“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.)
11
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).
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.
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.)
12
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.
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
13
PacifiCare wrongfully withheld information regarding treatment options, and
whether PacifiCare wrongfully forced plaintiff to disenroll from PacifiCare.
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.
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 noncovered
services at his own expense. (Maj. opn., ante , at pp. 16-17.) This sort of
14
malpractice claim, the majority asserts, would not implicate a coverage
determination or fall within the scope of the Medicare review process.
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 “noncovered” medical treatment about which plaintiff George McCall should
have been advised. Nor do they suggest that plaintiff would have undergone a
particular noncovered treatment at his own expense but for PacifiCare’s alleged
misconduct, or that any harm flowed from his ignorance of noncovered 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.
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.
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
15
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.)
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.
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
16
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.
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.)
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
17
same subject matter unless a contrary intent appears, and by relying on title 42,
section 1395 of the United States Code,5 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.)
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.
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
5
That section provides: “Nothi ng 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.)
18
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 + Choice6
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.)
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
6
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).)
19
a benefits determination. As discussed, however, the claims asserted here do not
fall within those long acknowledged categories of exempted claims.
III.
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.
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.
BAXTER, J.
I CONCUR:
BROWN, J.
20
See next page for addresses and telephone numbers for counsel who argued in Supreme Court.
Name of Opinion McCall v. PacifiCare
__________________________________________________________________________________
Unpublished Opinion
Original Appeal
Original Proceeding
Review Granted XXX 74 Cal.App.4th 257
Rehearing Granted
__________________________________________________________________________________
Opinion No. S082236
Date Filed: May 3, 2001
__________________________________________________________________________________
Court: Superior
County: Orange
Judge: Thierry Patrick Colaw
__________________________________________________________________________________
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.
1
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
2
The