Bennett v. Pacificare Health Systems, LLC, E043375 (Cal. App. 11/10/2008)
| Decision Date | 10 November 2008 |
| Docket Number | E043375 |
| Court | California Court of Appeals Court of Appeals |
| Parties | KATHRYN BENNETT et al., Plaintiffs and Appellants, v. PACIFICARE HEALTH SYSTEMS, LLC et al., Defendants and Respondents. |
Appeal from the Superior Court of San Bernardino County, No. RCVRS094786, Kenneth Andreen* and Donald G. Umhofer†, Judges.†† Reversed.
Balisok & Associates, Russell S. Balisok and Steven C. Wilheim for Plaintiffs and Appellants.
Sedgwick, Detert, Moran & Arnold, David M. Humiston, Douglas J. Collodel, and Julie A. Tracy for Defendants and Respondents.
Marjorie Whittaker — the mother of plaintiffs Kathryn Bennett, Merla Beltz, Rose Combs, and Kimberly Melendrez — allegedly died as a result of abuse and neglect by Upland Convalescent Hospital, Inc., a skilled nursing facility.
The federal government had contracted with defendants PacifiCare of California and PacifiCare Health Systems, LLC (collectively PacifiCare) to provide Medicare benefits to PacifiCare's enrollees, including Whittaker. Plaintiffs allege that PacifiCare contributed to Whittaker's death by contracting with incompetent providers, failing to pay providers enough, and giving providers financial incentives to deny or delay care.
The trial court granted PacifiCare's motion for judgment on the pleadings, ruling that plaintiffs' claims were expressly preempted by federal Medicare law. We will hold that PacifiCare has not carried its burden of overcoming the presumption that Congress does not intend to preempt the exercise of historic state police powers. Accordingly, we will reverse and remand.
Because this is an appeal from a judgment on the pleadings, we draw our facts from plaintiffs' complaint.
Under an agreement between PacifiCare and the federal government, Medicare beneficiaries can enroll in PacifiCare's "Secure Horizons" health care services plan. Enrollees must assign their Medicare benefits to PacifiCare; in return, PacifiCare must provide them with the same range of benefits that they would receive under Medicare.
PacifiCare contracted with Prime Care of Inland Valley, Inc. (Prime Care) for physician services. It also contracted with San Antonio Community Hospital, Inc. (the Hospital) for hospital services. It paid Prime Care and the Hospital on a "capitated" basis; that is, it paid each of them a fixed fee per enrollee per month. It also required them to enter into a revenue-sharing agreement with each other, which provided that, if Prime Care's hospital admissions were below a certain target, the Hospital had to pay Prime Care; conversely, it they were above this target, Prime Care had to pay the Hospital. Allegedly, this arrangement "unduly influences physicians to avoid utilization of hospital services."
Prime Care and the Hospital, in turn, contracted with Upland Convalescent Hospital, Inc. (Upland) for skilled nursing facility services. Upland "consistently (and by [a] substantial margin) failed to meet . . . patients' basic standards of nursing, custodial and medical care." It had been "routinely" cited by the state Department of Health Services for failing to meet basic standards of care. It was facing both eviction and loss of its Medicare certification.
Marjorie Whittaker was one of PacifiCare's enrollees. On May 14, 2004, when she was 84 or 85 years old, she was admitted to the Hospital for a knee replacement operation. On May 17, 2004, even though she was not yet in a fit state to be discharged from the Hospital, she was transferred to Upland, supposedly for rehabilitation and therapy.
While at Upland, Whittaker was neglected, deprived of food and water "for extended periods of time," and physically abused. On June 27, 2004, she was transferred back to the Hospital, where she was found to be "profoundly malnourished, dehydrated, septic from infections which had not been previously assessed or treated, and filthy." Nevertheless, on June 30, 2004, she was transferred back to Upland, where on July 8, 2004, she died.
Plaintiffs filed this action against numerous defendants, including Upland, the Hospital, Prime Care, and PacifiCare. As against PacifiCare, they asserted the following causes of action:*
1. Negligence: PacifiCare allegedly (1) contracted with providers without first determining, after a reasonably diligent inquiry, that they could meet the reasonable needs of its enrollees; (2) gave providers undue financial incentives to deny or delay reasonably necessary care; and (3) failed to conduct utilization review so as to ensure that reasonably necessary care was provided to its enrollees.
2. Willful misconduct: PacifiCare allegedly (1) failed to pay providers adequate capitation rates, creating a conflict of interest between them and its enrollees; (2) insisted on the revenue-sharing agreement, which gave Prime Care an undue financial incentive to deny or delay hospital care; (3) contracted with unreliable and incompetent providers; and (4) used utilization review to limit its enrollees' access to health care.
3. Elder abuse: This cause of action alleged that the conduct previously alleged constituted elder abuse.
4. Wrongful death: This cause of action alleged that the conduct previously alleged resulted in Whittaker's death.
PacifiCare filed a motion for judgment on the pleadings, on two grounds: (1) plaintiffs' claims were preempted by the Medicare Act; and (2) plaintiffs had failed to exhaust their administrative remedies. After hearing argument, the trial court granted the motion, based solely on preemption. Accordingly, it entered judgment in favor of PacifiCare and against plaintiffs. Plaintiffs filed a timely notice of appeal.
The Medicare Act (42 U.S.C. § 1395 et seq.), originally enacted in 1965 (Pub.L. No. 89-97 (July 30, 1965) 79 Stat. 291), provides federally subsidized health insurance for the aged and disabled. In broad general outline, Medicare Part A provides coverage for hospital-related services; it is an entitlement, funded by the government through taxation. (42 U.S.C. § 1395c et seq.) Medicare Part B provides coverage for other health services; it is elective and funded by premiums paid by participants. (42 U.S.C. § 1395j et seq.) The Centers for Medicare and Medicaid Services (CMS), a federal agency within the Department of Health and Human Services, administers the Medicare Act. (See 42 C.F.R. § 400.200; Robert F. Kennedy Medical Center v. Leavitt (9th Cir. 2008) 526 F.3d 557, 558.)
Prior to 1997, the Medicare Act contained no express preemption provision. (See McCall v. PacifiCare of Cal., Inc. (2001) 25 Cal.4th 412, 423.) In that year, however, Congress amended the Medicare Act by adding the Medicare + Choice program as Medicare Part C. (Pub.L. No. 105-33 (Aug. 5, 1997) § 4001, 111 Stat. 276, codified at 42 U.S.C. § 1395w-21 et seq.; see generally Zolezzi v. PacifiCare of California (2003) 105 Cal.App.4th 573, 579-580.) Medicare + Choice gave Medicare beneficiaries the option of enrolling in private, managed health care organizations, which provided the same benefits otherwise available under Medicare in exchange for fixed monthly capitation payments. (RenCare, Ltd. v. Humana Health Plan of Texas, Inc. (5th Cir. 2004) 395 F.3d 555, 556; Minnesota Senior Federation, Metropolitan Region v. U.S. (8th Cir. 2001) 273 F.3d 805, 807-808.)
The 1997 amendments authorized the Secretary of Health and Human Services (the Secretary) to establish certain standards for the Medicare + Choice program. (Pub.L. No. 105-33, supra, § 4001, 111 Stat. 317, codified at 42 U.S.C. § 1395w-26(b)(1).) The amendments also gave these standards express preemptive effect, as follows:
It was generally understood that these provisions did not preempt state-law tort or contract claims. (McCall v. PacifiCare of Cal., Inc., supra, 25 Cal.4th at p. 424, quoting and citing 63 Fed.Reg. 34967, 35012, 35013 (June 26, 1998).)
Finally, in 2003, Congress enacted the Medicare Prescription Drug, Improvement, and Modernization Act of 2003. (Pub.L. No. 108-173 (Dec. 8, 2003) 117 Stat. 2066, codified at 42 U.S.C. § 1301 et seq.) This renamed Medicare + Choice "Medicare Advantage" (MA). (Pub.L. No. 108-173, supra, § 201, 117 Stat. 2176, codified at 42 U.S.C. § 1395w-21.) It also completely rewrote the preemption provision, which now provides:
"The standards established under this part shall supersede any State law or regulation (other than State licensing laws or State laws relating to plan solvency) with respect to MA plans which are offered by MA organizations under this part." (Pub.L. No. 108-173, supra, § 232, 117 Stat. 2208, codified at 42 U.S.C. § 1395w-26(b)(3).)
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