Rencare, Ltd. v. United Medical Resources, Inc., IASIS Healthcare Corporation, and Southwest General Hospital, L.P.

Citation: Not availableDocket: 04-03-00816-CV

Court: Court of Appeals of Texas; May 18, 2005; Texas; State Appellate Court

Original Court Document: View Document

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RenCare, Ltd. appeals a judgment from the 38th Judicial District Court of Medina County, Texas, that dismissed its tort claims against Southwest General Hospital, L.P., IASIS Healthcare Corporation, and United Medical Resources, Inc. for lack of subject matter jurisdiction. The appellate court determined that the trial court had jurisdiction because RenCare's claims do not "arise under" the Medicare Act. Consequently, the appellate court reversed the dismissal and remanded the case for further proceedings.

RenCare provides outpatient dialysis treatment to individuals with end-stage renal disease, including an employee of Southwest General Hospital, referred to as "Patient Doe" for privacy. Patient Doe is covered under a self-funded group health care plan administered by United Medical Resources. After the plan administration was transferred to UMR in 2002, RenCare sought to verify Patient Doe's insurance coverage before providing treatment. RenCare claims that Southwest assured it of full primary coverage for the treatments and provided an unrestricted authorization number.

Despite this, when RenCare submitted invoices for the treatments, Southwest denied payment, later asserting that the plan was secondary to Medicare. RenCare then submitted its claims to Medicare, which rejected them, stating that the plan was the primary payer. This led to a situation where both Southwest and Medicare refused to pay RenCare's invoices, creating a conflict regarding the primary payer. UMR's attempts to clarify this issue with Medicare were unsuccessful, as Medicare declined to provide explanations for the claim rejection. In a subsequent conversation, a Medicare representative acknowledged that Medicare was the primary insurer for Patient Doe’s ESRD treatment, further complicating RenCare's efforts to recover payment for services rendered.

Combs acknowledged in her deposition that UMR could not provide any written proof from Medicare confirming it as the primary payer for Patient Doe’s 2002 dialysis or documentation of a phone conversation with Medicare. Following discovery, Southwest moved to dismiss RenCare’s lawsuit, arguing that the trial court lacked subject matter jurisdiction because RenCare's claims were closely related to Medicare benefits, which required exhaustion of administrative remedies. The trial court concurred, stating that RenCare’s claims were intertwined with its Medicare benefits claim and thus barred by the Medicare Act, ruling that Medicare was the primary insurer for the dialysis treatments in 2002, ultimately dismissing RenCare’s suit. RenCare appealed the dismissal. 

The appellate review focuses on statutory construction and whether the trial court had subject matter jurisdiction, which is a legal question. RenCare contends that its claims do not "arise under" the Medicare Act, which is crucial since claims that do require exhaustion of administrative remedies before judicial review. The relevant law, 42 U.S.C. 405(h) and 405(g), stipulates that judicial review of claims related to Medicare can only occur after all administrative remedies have been exhausted. A claim is considered to "arise under" the Medicare Act when both the standing and substantive basis for the claims are linked to it. In this case, as RenCare’s claims are based on state law, they do not arise under the Medicare Act, indicating that the first test for jurisdiction does not apply.

Southwest utilizes the second test for determining if a claim “arises under” the Medicare Act, which focuses on claims that are “inextricably intertwined” with Medicare benefits. This term signifies claims that cannot be separated from a Medicare benefits claim. The Eighth Circuit has ruled that if resolving a claim requires reevaluation of a Medicare decision, the claim is considered jurisdictionally barred. In the case of Midland Psychiatric Associates, which provided services covered by Medicare, the hospitals it worked with submitted claims that were denied by Mutual, leading to lost contracts. Midland’s lawsuit against Mutual for tortious interference hinged on the necessity of proving that Mutual acted without justification. The court determined that adjudicating Midland's claim would inherently involve reviewing Mutual’s Medicare claims decisions, which is prohibited under 42 U.S.C. 405(h). Therefore, Midland's claim was deemed to arise under the Medicare Act and was jurisdictionally barred. Additionally, to succeed in its fraud and intentional misrepresentation claims against Southwest, RenCare must demonstrate four elements: a false material representation by Southwest, knowledge of its falsity or reckless assertion, intent to induce reliance, and actual justifiable reliance by RenCare resulting in injury.

To succeed in its negligent misrepresentation claim, RenCare must demonstrate four key elements: (1) Southwest provided RenCare with false information intended to guide its business; (2) this information was supplied in the course of Southwest's business or in a transaction where it had a financial interest; (3) Southwest failed to exercise reasonable care in obtaining or communicating this information; and (4) RenCare incurred a financial loss as a result of justifiably relying on the false representation. RenCare asserts that Southwest misrepresented the existence of "full primary coverage" for Patient Doe's dialysis treatments, a claim that RenCare relied upon while providing the treatments. As a result of this reliance, RenCare suffered damages, including unpaid invoices, attorney's fees, and costs. 

The document clarifies that the discussion does not address the proof of RenCare's allegations but emphasizes that RenCare’s claims do not require re-evaluating Medicare’s prior claim decisions, contrary to Southwest's argument. Southwest contends that a ruling in favor of RenCare would be intertwined with Medicare benefits claims, referencing the Supreme Court case Ringer. However, the context of Ringer involved individual Medicare claimants challenging a denial of benefits and does not apply to RenCare, which is not a Medicare enrollee and has not sued the Secretary of Health and Human Services. Southwest cited additional cases to support its position, but these were found inadequate. In a prior case, RenCare had sued Humana for dialysis services provided to its enrollees, illustrating the complexities related to Medicare reimbursement and coverage without supporting Southwest's arguments.

The district court dismissed RenCare’s claims related to Medicare+Choice (M+C) enrollees on the grounds that RenCare did not exhaust its administrative remedies under the Medicare Act. The court ruled in favor of Humana, stating that the claims essentially pertain to Medicare benefits, which are governed by the Medicare Act, regardless of the contractual relationship between RenCare and Humana. The Fifth Circuit reversed this decision, agreeing with RenCare that its claims do not arise under federal law and thus do not fall under federal jurisdiction or require federal administrative remedies. The Fifth Circuit highlighted that, unlike the Ringer case, RenCare’s beneficiaries were not denied services or reimbursements, as Humana had approved the dialysis services provided by RenCare. It emphasized that RenCare had waived its right to payment from enrollees, meaning there was no risk of billing for the services provided to M+C enrollees. The court noted that the government had no financial interest in the case, as Humana receives a flat monthly payment regardless of services rendered. Furthermore, the Fifth Circuit found that under Part C of the Medicare Act, Humana's failure to pay RenCare was not an appealable organization determination, leading to the conclusion that RenCare had "no administrative remedies to exhaust." The court also indicated that RenCare does not qualify as an "individual" dissatisfied with Medicare's determination, and thus cannot access the administrative review process or the Provider Reimbursement Review Board's jurisdiction regarding coverage decisions.

The PRRB lacks discretion to hear coverage claims as established in Highland Dist. Hosp. v. Sec’y of Health, Human Servs., 676 F.2d 230, and affirmed by the U.S. Supreme Court's denial of certiorari. The Fourteenth Court of Appeals in Christus Health Gulf Coast v. Aetna, Inc. ruled that claims from hospitals against a third-party administrator, which became insolvent and failed to address over 6,000 claims totaling over $13 million, fell under the Medicare Act, thus the trial court lacked subject matter jurisdiction. Unlike the Fifth Circuit's RenCare case, which involved a straightforward payment dispute, the Christus case suggested potential coverage disputes due to the lack of a prior coverage determination. The court distinguished between managed care entities, which can make initial Medicare decisions, and Southwest, which lacks that status. The court concluded that RenCare's claims are independent of Medicare benefits and are private contractual disputes, leading to the decision that RenCare was not required to exhaust administrative remedies before litigation. Additionally, regarding the Medicare as Secondary Payer issue, while there is clarity that federal law designates Medicare as primary after a coordination period, the court noted Southwest's assertion that its Plan language makes Medicare primary for Patient Doe's ESRD treatment is incorrect, as the coordination period had expired and the primary coverage issue should be based on the Plan's provisions.

Southwest references Deana Combs' affidavit, asserting that after the "coordination period," benefits coordination between Medicare and the Plan is determined by the Plan's language. The Plan specifies that Medicare is the primary insurer for claims related to End-Stage Renal Disease (ESRD) post-coordination period, while the Plan pays secondarily. However, a review of the relevant sections in the Plan’s Summary Plan Description reveals only one sentence regarding payer status, which states that Medicare's role as primary or secondary is governed by federal law. The applicable law is the Medicare as Secondary Payer Act (MSP), designed to reduce healthcare costs and ensure Medicare is a secondary payer when beneficiaries have private insurance. The MSP mandates that private health plans take primary responsibility for medical expenses, with Medicare as a secondary payer only covering costs not addressed by the primary plan. Specifically, it prohibits Medicare payments if a primary plan is expected to cover the costs, reinforcing Medicare's secondary status in cases involving employer group health plans under the ESRD program.

The Secretary cannot pay benefits for ESRD beneficiaries covered by employer group health plans if those plans have made, or will make, timely payments, according to 42 U.S.C. 1395y(b)(2)(A). Medicare expected the employer plan to cover Patient Doe's dialysis treatments as the primary payer, demonstrated by TrailBlazer rejecting RenCare’s claim based on the patient’s primary coverage through a large group health plan. The employer plan failed to uphold its primary payer obligation after the coordination period expired, despite previously fulfilling it in 2003 under a different plan option. The plan incorrectly treated Medicare as the primary payer, contrary to federal law, which designates Medicare as the secondary payer. The trial court's ruling was incorrect, as RenCare's tort claims do not arise under the Medicare Act, relieving RenCare of the obligation to exhaust administrative remedies. The judgment is reversed, and the case is remanded for further proceedings.