FEDERAL COURT ALLOWS HOSPITAL CHAIN'S LAWSUIT AGAINST HUMANA OVER A MEDICARE BILLING DISPUTE TO PROCEED, FINDING THAT SUCH CONTRACTUAL DISPUTES ARE NOT PREEMPTED

            On June 22, 2018, the Chief Judge for the United States District Court for the Central District of California denied Humana’s motion to dismiss Prime Healthcare Services complaint, finding that contractual billing disputes with Medicare Advantage plans are not preempted by the Medicare Act’s Preemption Clause.

             Prime Healthcare, a national hospital chain, was a participating provider with Humana’s Medicare Advantage plans.  Prime had sued Humana alleging that it had underpaid or denied claims for services provided to Humana’s Medicare Advantage members in breach of its contractual obligation to pay Prime Healthcare “one hundred percent (100%) of Hospital’s Medicare allowable amount….”  Humana moved to dismiss, arguing that the dispute was preempted by the Medicare Act’s Preemption Clause.

             The Court used a two part test articulated by the Ninth Circuit to determine whether the claim was preempted.  The first step is to determine if there were any Centers for Medicare and Medicaid Services (CMS) regulations or standards that governed Prime Healthcare’s claims.  The second step, if such a regulation exists, is to determine whether it conflicts with state or common law.  The Court found that “[n]one of the regulations identified by Defendant govern billing disputes between MAOs [Medicare Advantage Organizations] and contract providers.”  The Court then found that if it determined Plaintiffs’ claims to be preempted, “Plaintiffs could be left without recourse to pursue their claims.”  This was because, in the Court’s words:  “None of the regulations pointed to by Defendant provide Plaintiffs a route to resolve a dispute between a contract provider and a MAO regarding a term of their express contract.”  Thus, Prime Healthcare’s claims did not arise under the Medicare Act and therefore was not preempted.

             Providers have been increasingly frustrated by MAOs denying and underpaying their claims in seeming violation of their contracts.  As such, Prime Healthcare Servs., et al. v. Humana Ins. Co. is an important decision allowing contracted Medicare Advantage providers to sue for breach of contract.