Ardary v. Aetna Health Plans of California, Inc., 94-56552

• Decision Date: 26 December 1996
• Docket Number: No. 94-56552,94-56552
• Citation: 98 F.3d 496
• Parties: , 65 USLW 2455, 51 Soc.Sec.Rep.Ser. 822, Medicare & Medicaid Guide P 44,727, Medicare & Medicaid Guide P 44,975, 96 Cal. Daily Op. Serv. 7727, 96 Daily Journal D.A.R. 12,763, 96 Daily Journal D.A.R. 15,517 William ARDARY; Diane M. Houston; Kevin Ardary; William C. Ardary, MD, Plaintiffs-Appellants, v. AETNA HEALTH PLANS OF CALIFORNIA, INC., formerly dba: Aetna Health Plans of Southern California, Inc.; Aetna Life & Casualty Company; Aetna Life Insurance Company; AHP Holdings, Inc.; Aetna Health Management, Inc.; Partners Acquisition Company; Arrowest Physician Association; Judith Hendrix, Defendants-Appellees.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 496

98 F.3d 496

65 USLW 2265, 65 USLW 2455, 51

Soc.Sec.Rep.Ser. 822,

Medicare & Medicaid Guide P 44,727,

Medicare & Medicaid Guide P 44,975,

96 Cal. Daily Op. Serv. 7727,

96 Daily Journal D.A.R. 12,763,

96 Daily Journal D.A.R. 15,517

William ARDARY; Diane M. Houston; Kevin Ardary; William C. Ardary, MD, Plaintiffs-Appellants, v. AETNA HEALTH PLANS OF CALIFORNIA, INC., formerly dba: Aetna Health Plans of Southern California, Inc.; Aetna Life &amp Casualty Company; Aetna Life Insurance Company; AHP Holdings, Inc.; Aetna Health Management, Inc.; Partners Acquisition Company; Arrowest Physician Association Judith Hendrix, Defendants-Appellees.

No. 94-56552.

United States Court of Appeals Ninth Circuit.

Argued and Submitted April 10, 1996.

Decided Oct. 21, 1996.

As Amended on Denial of Rehearing and Rehearing En Banc Dec.

26, 1996. ^*

Sharon J. Arkin, Shernoff, Bidart & Darras, Claremont, California, for the plaintiffs-appellants.

William A. Helvestine, Cynthia Becker, Epstein Becker & Green, San Francisco, California, and Barry S. Landberg, Terri D. Keville, Manatt, Phelps & Phillips, Los Angeles, California, for the defendants-appellees.

Appeal from the United States District Court for the Central District of California, J. Spencer Letts, District Judge, Presiding. D.C. No. CV-94-01235-JSL.

Before O'SCANNLAIN and TROTT, Circuit Judges, and VAN SICKLE, ^** District Judge.

O'SCANNLAIN, Circuit Judge:

We must decide whether state law claims for wrongful death against a private Medicare provider are preempted by the Medicare Act.

I

William Ardary, Kevin Ardary, William C. Ardary, and Diane M. Houston ("the Ardarys") are the surviving husband and children of the late Cynthia Ardary. In July 1991, William and Cynthia attended a presentation given by Judith Hendrix ("Hendrix"), a marketing representative of Aetna Health Plans of California. ¹ Because William and Cynthia resided in the relatively isolated community of Big Bear, California, they expressed concern to Hendrix about emergency care and the availability of more sophisticated treatment. Hendrix allegedly told William and Cynthia that should the need arise, Aetna would immediately authorize transfer to a larger facility such as Loma Linda University Medical Center. As a result of Hendrix's presentation, Cynthia, a Medicare beneficiary, enrolled in Aetna's Senior Choice health maintenance organization plan ("Plan"). The Plan was administered by Arrowest Physician Association ("Arrowest") and provided Medicare, major medical and hospitalization, benefits pursuant to a contract with the U.S. Department of Health and Human Services, Health Care Financing Administration ("HCFA").

On May 9, 1993, Cynthia suffered a heart attack. She was taken to the Bear Valley Community Hospital, a small rural facility near her family's home. The hospital had neither intensive nor cardiac care facilities. The Ardarys allege that in spite of repeated requests from her Aetna-approved physician, Arrowest refused to authorize airlift transportation for Cynthia to Loma Linda University Medical Center. ² Allegedly because of Arrowest's failure to authorize the airlift, Cynthia died at Bear Valley.

On January 25, 1994, Cynthia's husband and children filed a wrongful death complaint against Aetna and Arrowest in California state court seeking general and punitive damages on the basis of six state law theories of recovery including negligence, intentional and/or negligent infliction of emotional distress, intentional and/or negligent misrepresentation, and professional negligence. ³ The complaint did not seek recovery of Medicare benefits; however, the Ardarys conceded that their claims were all "predicated on" Arrowest's failure to authorize the airlift. ⁴

In February 1994, Aetna and Arrowest timely removed the action to federal court. They argued that removal was proper on the grounds that federal-question jurisdiction existed because the Ardarys' claims all related to the denial of Medicare benefits and therefore were preempted by federal law. Once in federal court, however, Aetna and Arrowest moved to dismiss the complaint under Fed.R.Civ.P. 12(b)(1) and 12(b)(6) for failure to state a claim, on the ground that the Ardarys' exclusive remedy for their action "relating to" the denial of Medicare benefits was the administrative appeals process provided by HCFA. The district court granted the motion to dismiss in a one-page order that provided no reasons for the court's decision. The Ardarys timely appealed.

II

We first consider the Ardarys' argument that the district court erred in finding that the state law claims all related to the denial of Medicare benefits and therefore were preempted by the Medicare Act, 42 U.S.C. § 1395, with such claims exclusively administered and reviewed by HCFA.

A

The Medicare Act ("Act") is found in Part A of Title XVIII of the Social Security Act, 42 U.S.C. § 1395 et seq. The Act provides insurance for the cost of hospital and related post-hospital expenses, but precludes reimbursement for services which are not "reasonable and necessary" for the diagnosis or treatment of illness or injury.

Section 405(g) of Title 42, which falls within a different section of the Social Security Act, provides for judicial review of old-age and disability claims only after the Secretary of Health and Human Services renders a "final decision" on the claim. ⁵ Pursuant to 42 U.S.C. § 1395ff(b), this provision is expressly incorporated into those portions of the Act which apply to HMOs. Pursuant to her rulemaking authority, the Secretary has provided that a "final decision" is rendered on a Medicare claim only after the individual claimant has pressed his claim through all designated levels of administrative review. ⁶

In addition, even when judicial review is available it is strictly limited. Section 1395ii of Title 42 applies the proscriptions of 42 U.S.C. § 405(h) to the Act. Section 405(h) states as follows:

The findings and decision of the Secretary after a hearing shall be binding upon all individuals who were parties to such hearing. No findings of fact or decision of the Secretary shall be reviewed by any person, tribunal, or governmental agency except as herein provided. No action against the United States, the Secretary, or any officer or employee thereof shall be brought under section 1331 or 1346 of Title 28 to recover on any claim arising under this subchapter.

42 U.S.C. § 405(h) (emphasis added). ⁷ Discussing this provision, the Supreme Court of the United States has held that the appropriate inquiry in determining whether § 405(h) bars federal-question jurisdiction must be whether the claim "arises under" the Act. The Court stated that

[t]he third sentence of 42 U.S.C. § 405(h), made applicable to the Medicare Act by 42 U.S.C. § 1395ii, provides that § 405(g), to the exclusion of 28 U.S.C. § 1331, is the sole avenue for judicial review of all "claim[s] arising under" the Medicare Act. Thus, to be true to the language of the statute, the inquiry in determining whether § 405(h) bars federal-question jurisdiction must be whether the claim "arises under" the Act....

Heckler v. Ringer, 466 U.S. 602, 614-15, 104 S.Ct. 2013, 2021, 80 L.Ed.2d 622 (1984) (internal citations omitted).

B

This case presents a thorny jurisdictional question: does the Medicare Act, which provides for exclusive administrative review of all claims "arising under" that Act, apply to preclude the heirs of a deceased Medicare beneficiary from bringing state law claims for wrongful death against a private Medicare provider when those claims do not seek recovery of Medicare benefits but instead seek compensatory and punitive damages on the grounds that the provider both improperly denied emergency medical services and misrepresented its managed care plan to the beneficiary? ⁸

Resolution of this question turns on whether the state law claims are ones "arising under" the Act. Aetna and Arrowest argue that the entire complaint "arises under" the Act because the Ardarys' claims all relate to a dispute concerning the denial of Medicare benefits. ⁹ Aetna and Arrowest also maintain that "[t]he courts similarly left no doubt that the Medicare Act precludes all types of civil litigation outside the administrative appeals process" in this case. Appellee's Brief at 12. We disagree with this over-inclusive reading of the "arising under" language.

First, the Ardarys' complaint does not "include any claims in which 'both the standing and the substantive basis for the presentation' of the claims" is the Act. Heckler v. Ringer, 466 U.S. 602, 615, 104 S.Ct. 2013, 2021-22, 80 L.Ed.2d 622 (1984) (citing Weinberger v. Salfi, 422 U.S. 749, 760-61, 95 S.Ct. 2457, 2464-65, 45 L.Ed.2d 522 (1975)) (emphasis added). The Ardarys seek general and punitive damages on the basis of negligence, intentional and/or negligent infliction of emotional distress, intentional and/or negligent misrepresentation, and professional negligence. The standing for these six claims are state common law theories and not the Act. Second, the state law claims are not "inextricably intertwined" with the denial of benefits. Although the Ardarys concede that their wrongful death complaint is "predicated on" Arrowest's failure to authorize the airlift transfer, the claims are not "inextricably intertwined" because the Ardarys are at bottom not seeking to recover benefits. Ringer, 466 U.S. at 614, 104 S.Ct. at 2021. In contrast, the Court in Ringer observed that

[i]t seems to us that it makes no sense to construe the claims of those three respondents as anything more than, at bottom, a claim that they should be paid for their BCBR surgery. Arguably respondents do assert objections to the Secretary's "procedure" for reaching her decision--for example, they challenge her decision to issue a generally applicable rule rather than to allow individual adjudication, and they challenge her alleged failure to comply with the rulemaking...