497 F.3d 972 (9th Cir. 2007), 05-55710, Cedars-Sinai Medical Center v. National League of Postmasters of United States

Docket Nº:05-55710.
Citation:497 F.3d 972
Party Name:CEDARS-SINAI MEDICAL CENTER, a non-profit California Corporation, Plaintiff-Appellant, v. NATIONAL LEAGUE OF POSTMASTERS OF the UNITED STATES, a District of Columbia, corporation doing business as PBP Health Plans, Defendant-Appellee.
Case Date:August 10, 2007
Court:United States Courts of Appeals, Court of Appeals for the Ninth Circuit

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497 F.3d 972 (9th Cir. 2007)

CEDARS-SINAI MEDICAL CENTER, a non-profit California Corporation, Plaintiff-Appellant,


NATIONAL LEAGUE OF POSTMASTERS OF the UNITED STATES, a District of Columbia, corporation doing business as PBP Health Plans, Defendant-Appellee.

No. 05-55710.

United States Court of Appeals, Ninth Circuit.

August 10, 2007.

Argued and Submitted April 11, 2007.

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Leo Luevanos (brief) and Barry Sullivan (argued), Law Offices of Stephenson, Acquisto & Colman, Burbank, CA, for the plaintiff-appellant.

Robert C. Bohner (brief) and Michael L. Flowers (argued), Sedgwich, Detert, Moran & Arnold, LLP, Los Angeles, CA, for the defendant-appellee.

Appeal from the United States District Court for the Central District of California; R. Gary Klausner, District Judge, Presiding. D.C. No. CV-05-01775-RGK.

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[*]Senior Circuit Judges.

PREGERSON, Circuit Judge:

Plaintiff Cedars-Sinai hospital brought suit in California Superior Court against Defendant National League of Post-masters of the United States, doing business as PBP Health Plans ("PBP Health"). Cedars-Sinai alleged that it had provided services to a patient insured by PBP Health's health care plan but that PBP Health did not reimburse Cedars-Sinai according to the terms of their contract.

PBP Health removed the matter to federal court, asserting diversity and federal question jurisdiction, and then promptly moved to dismiss the action on the basis that Cedars-Sinai's claims were preempted. The district court granted the motion to dismiss, finding that Cedars-Sinai's claims were preempted by the Federal Employee Health Benefits Act ("FEHBA"), 5 U.S.C. § 8901, et seq., and that Cedars-Sinai had failed to exhaust FEHBA's administrative remedies. Cedars-Sinai appealed. We have jurisdiction under 28 U.S.C. § 1291. For the reasons set forth below, we reverse the district court.


I. Factual Background

Cedars-Sinai is a licensed hospital and non-profit California corporation. PBP Health is a professional organization that administered a federal health benefit plan ("the Plan"). The Plan was created pursuant to FEHBA, which authorizes the U.S. Office of Personnel Management ("OPM") to contract with insurance carriers to provide health benefits for federal employees. The Plan was formed by contract between OPM and PBP Health. Under the terms of the contract, PBP Health was the administrator of the Plan and was responsible for managing and paying claims for benefits owed to enrollees. Cedars-Sinai and PBP Health entered into a separate contract that governs the payment of services rendered by Cedars-Sinai to members of the Plan.

On four separate occasions between October 18, 2001, and January 24, 2002, patient "S.M., " an enrollee and participant in the Plan, went to Cedars-Sinai for treatment. On all four occasions, PBP Health verified that S.M. was a Plan participant and authorized Cedars-Sinai to perform medical services. Cedars-Sinai submitted claims totaling $742, 217.93, but PBP Health paid only $168, 947.44. S.M. passed away on February 16, 2002.

II. Procedural History

On January 7, 2005, Cedars-Sinai filed a complaint against PBP Health in state court alleging: (1) breach of contract; (2) negligent misrepresentation; (3) common count for work, labor, and services; and (4) relief against forfeiture. Cedars-Sinai contends that PBP Health refused to compensate it for the medical services, supplies, and/or equipment it provided for S.M.'s four visits at the rate at which the parties contracted. Specifically, Cedars-Sinai contends that PBP Health improperly claimed (1) that it was not required to pay the contracted rate for federal employees because of S.M.'s death; and (2) that it need not pay the medicare rate because S.M. was no longer an employee. Cedars-Sinai contends that the contracted rate for federal employees is due and owing for medical services that Cedars-Sinai provided to S.M. Cedars- Sinai maintains that the

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outstanding balance for these medical claims is $424, 826.49.

On March 11, 2005, PBP Health removed this case to federal court because (1) federal courts have exclusive jurisdiction over cases arising under FEHBA, and (2) diversity jurisdiction exists. On March 14, 2005, PBP Health promptly filed a motion to dismiss Cedars-Sinai's complaint for failure to state a claim. Relying heavily on St. Mary's Hospital v. Carefirst of Maryland, Inc., 192 F.Supp.2d 384 (D. Md. 2002) a district court opinion from another circuit the district court dismissed Cedars-Sinai's complaint for lack of subject matter jurisdiction. See Fed. R. Civ. P. 12(b)(1). Specifically, the court found that Cedars-Sinai's claims were preempted by FEHBA and that Cedars-Sinai failed to exhaust FEHBA's mandatory administrative remedies before bringing this action. Cedars-Sinai filed a timely appeal on May 10, 2005.

Cedars-Sinai contends that FEHBA does not preempt its claims because it is not asserting claims to recover medical "benefits." Rather, Cedars-Sinai maintains that this is an action to recover on PBP Health's independent contractual obligation to pay for the care and treatment provided by Cedars-Sinai to S.M.


I. Standard of Review

We review the district court's decision regarding the absence of subject matter jurisdiction de novo. See Delta Sav. Bank v. United States, 265 F.3d 1017, 1024 (9th Cir. 2001). Similarly, we review the district court's determination of complete preemption de novo. See Roach v. Mail Handlers Benefit Plan, CNA, 298 F.3d 847, 849 (9th Cir. 2002).

We accept all allegations of material fact in the complaint as true and construe them in the light most favorable to the non-moving party. See Burgert v. Lokelani Bernice Pauahi Bishop Trust, 200 F.3d 661, 663 (9th Cir. 2000). However, we are "not required to accept as true conclusory allegations which are contradicted by documents referred to in the complaint, " and we do "not . . . necessarily assume the truth of legal conclusions merely because they are cast in the form of factual allegations." Warren v. Fox Family Worldwide, Inc., 328 F.3d 1136, 1139 (9th Cir. 2003) (internal citations and quotation marks omitted).

II. Cedars-Sinai's Claims Are Not Preempted by FEHBA

FEHBA requires that OPM contract with qualified insurers so that the insurers can provide healthcare benefits for federal employees. See 5 U.S.C. § 8902. FEHBA's preemption provision, 5 U.S.C. § 8902(m)(1), ensures that FEHBA benefits are administered uniformly. See Hayes v. Prudential Ins. Co. of Am., 819 F.2d 921, 925 (9th Cir. 1987). The preemption provision states:

The terms of any contract under this chapter which relate to the nature, provision, or extent of coverage or benefits (including payments with respect to benefits) shall supersede and preempt any State or local law, or any regulation issued thereunder, which relates to health insurance or plans.

5 U.S.C. § 8902(m)(1).

To preempt state-law causes of action, federal law must both (1) provide remedies that displace state law remedies (displacement of remedies) and (2) conflict with state law (conflict preemption). See Botsford v. Blue Cross & Blue Shield of Montana, Inc., 314 F.3d 390, 393 (9th Cir.2002) (citing Abraham v. Norcal Waste Sys., Inc., 265 F.3d 811, 819 (9th Cir.2001) (discussing complete preemption in the context of the Employee Retirement Income Security Act of 1974 ("ERISA"), 29 U.S.C. §§ 1001-1461)).

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A. Displacement of Remedies

By its terms, FEHBA's administrative dispute mechanism applies to disputes between "covered individuals" and carriers over "claims filed under the plan." 5 C.F.R. § 890.105(a)(1). A "covered individual" is defined as "an enrollee or a covered family member." Id. § 890.101(a). A "claim" is defined as a request for "payment of a health-related bill" or "provision of a health-related service or supply." Id. All claims must be submitted first to the carrier. See id. § 890.105(a)(1). If the carrier denies the claim in whole or in part, the covered individual may ask the carrier for reconsideration. See id. §§ 890.105(a)(1), 890.105(b). If the carrier affirms its denial of the claim, the covered individual may ask OPM to review the claim. See id. §§ 890.105(a)(1), 890.105(e). FEHBA's implementing regulations impose an express exhaustion requirement, pursuant to which the covered individual "must exhaust both the carrier and OPM review processes ... before seeking judicial review of the denied claim." Id. §§ 890.105(a)(1), 890.107(d)(1).

This preemption mechanism was not designed for, nor available to resolve, contractual disputes between carriers and health care providers. By the express terms of FEHBA's implementing regulations, the administrative process is confined to requests for "payment of a health-related bill" or "provision of a health-related service or supply" that are "filed under the plan." Id. §§ 890.101(a), 890.105(a)(1). A provider's contractual claim against a carrier does not constitute a request for "payment of a health-related bill" within the meaning of this provision. And even if it did, it would not be a claim "under the plan, " because it is predicated not on the plan but on the contract between the carrier and the medical services provider.

Moreover, FEHBA's implementing regulations make clear that OPM has created a remedial mechanism solely for the claims of "covered individuals, " not for the claims of providers. A "covered individual" is an enrollee or a covered family member. Id. § 890.101. The regulations provide that "the covered individual may ask the carrier to reconsider its denial" of a claim and that "[t]he covered individual has 6 months" to seek reconsideration. Id. §§ 890.105(a)(1), 890.105(b)(1) (emphasis added). Thereafter, "the covered individual may ask OPM to...

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