McCall v. PacifiCare of Cal., Inc.

Decision Date03 May 2001
Docket NumberNo. S082236.,S082236.
Citation21 P.3d 1189,106 Cal.Rptr.2d 271,25 Cal.4th 412
CourtCalifornia Supreme Court
PartiesBarbara McCALL, Individually and as Trustee, etc., Plaintiff and Appellant, v. PACIFICARE OF CALIFORNIA, INC., et al., Defendants and Respondents.

Houck & Balisok, Russell S. Balisok, Steven C. Wilheim, Los Angeles; Law Office of Carol S. Jimenez and Carol S. Jiminez, Long Beach, for Plaintiff and Appellant.

Sara Lenz Lock, Bruce Vignery, Michael Schuster, San Diego; Gill Deford; and Herbert Semmel, Los Angeles, for American Association of Retired Persons and Center for Medicare Advocacy as Amici Curiae on behalf of Plaintiff and Appellant.

Konowiecki & Rank, Jon N. Manzanares, Keith A. Weaver, Jeffrey D. Olster; Greines, Martin, Stein & Richland and Timothy T. Coates, for Defendants and Respondents PacifiCare of California, Inc. and PacifiCare Health Systems, Inc.

Rosato & Samuels, Cary S. Samuels, Ellen Kamon, Pamela Sirkin, N. Hollywood; Hemer, Barkus & Clark, Davis, Grass, Goldstein & Housouer, Upland, and Edward A. Stumpp, Santa Ana, for Defendant and Respondent Greater Newport Physicians, Inc.

Bonne, Bridges, Mueller, O'Keefe & Nichols, Los Angeles, Nancy Flores, Los Angeles; Greines, Martin, Stein & Richland, Robert A. Olson and Laura Boudreau, Beverly Hills, for Empire Physicians Medical Group as Amicus Curiae on behalf of Defendants and Respondents.


We granted review in this case, limited to the issue whether state law claims against a health maintenance organization (HMO), arising out of its refusal to provide services under a Medicare-subsidized health plan, fall within the exclusive review provisions of the Medicare Act requiring exhaustion of administrative remedies. (42 U.S.C. § 1395 et seq.) As will appear, some disagreement exists among state and federal courts on this question, which has not yet been addressed by the United States Supreme Court. We conclude the claims made here do not fall within Medicare's exclusive review provisions. Accordingly, we affirm the judgment of the Court of Appeal.


On review of the judgment of the Court of Appeal reversing the superior court's orders sustaining defendants' demurrers, we examine the complaint de novo to determine whether it alleges facts sufficient to state a cause of action under any legal theory, such facts being assumed true for this purpose. (Santa Monica Beach, Ltd. v. Superior Court (1999) 19 Cal.4th 952, 957, 81 Cal.Rptr.2d 93, 968 P.2d 993; Blank v. Kirwan (1985) 39 Cal.3d 311, 318, 216 Cal.Rptr. 718, 703 P.2d 58.)

George McCall, who suffered from progressive lung disease, was a Medicare beneficiary enrolled in PacifiCare of California, Inc. (PacifiCare), an HMO. His primary care physician was Dr. Lakshmi Shukla; his physician provider group, Greater Newport Physicians, Inc. (GNP). Allegedly, Dr. Shukla, PacifiCare and GNP repeatedly refused to refer Mr. McCall to a specialist for a lung transplant or provide other needed care, and ultimately forced him to disenroll from Pacifi-Care in order to get on the Medicare list for a transplant. During that time, Mr. McCall's condition worsened.1

George McCall and his wife, Barbara (the McCalls), brought suit against Dr. Shukla, PacifiCare and GNP, alleging in their operative first amended complaint eight causes of action for tort damages (negligence, wilful misconduct, four counts of fraud including fraudulent misrepresentation and constructive fraud, and negligent and intentional infliction of emotional distress) and a ninth cause of action for injunctive relief from unfair business practices. The complaint alleged defendants had violated statutory duties they owed plaintiffs, including (A) the duty to provide ready referrals consistent with good professional practice (Health & Saf.Code, § 1367, subd. (d)); (B) the duty to render medical decisions unhindered by fiscal and administrative management (id., § 1367, subd. (g)); (C) the duty to provide for expedited review and to notify Mr. McCall of his right to expedited review from the California Department of Corporations when defendants' decisions involved imminent and serious threat to his health (id, § 1368.01, subd. (b)); (D) the duty to engage in sufficient quality assurance activities to ensure that the requirements of California law were met in providing services to Mr. McCall (id., § 1370); (E) the duty not to require Mr. McCall to disenroll except for very limited reasons, such as nonpayment of premiums (id., § 1365, subd. (a)); (F) PacifiCare's duty to retain responsibility for all services, including those that it contracted with others to provide Mr. McCall (42 C.F.R. § 417.401 (1999)); (G) the duty to ensure that required services were available and accessible to Mr. McCall (42 C.F.R. § 417.416 (1999)); (H) the duty to provide written notice of noncoverage, including the reason for noncoverage and Mr. McCall's appeal rights, before discharging him from hospital care (42 C.F.R. § 417.440(f) (1999)); (I) the duty not to disenroll Mr. McCall, and not to encourage him to disenroll, from PacifiCare (42 C.F.R. § 417.460(a) (1999)); and (J) the duty to provide grievance procedures for issues that do not involve organizational determinations and Medicare appeal rights (42 C.F.R. §§ 417.600, 417.604, 417.606 (1999)). GNP and PacifiCare (hereafter defendants)2 demurred, arguing each of plaintiffs' causes of action arose under the Medicare Act, 42 United States Code section 1395 et seq. and, pursuant to 42 United States Code section 405(g), was therefore subject to judicial review only in federal court, after exhaustion of administrative review procedures. The trial court sustained the demurrers without leave to amend and entered judgment accordingly. The Court of Appeal reversed, and we granted review.


The Medicare Act, 42 United States Code section 1395 et seq. (the Act or Medicare), a part of the Social Security Act, established a federally subsidized health insurance program that is administered by the Secretary of Health and Human Services (the Secretary) through the Health Care Financing Administration (HCFA). Part A of Medicare, 42 United States Code section 1395c et seq., covers the cost of hospitalization and related expenses that are "reasonable and necessary" for the diagnosis or treatment of illness or injury. (42 U.S.C. § 1395y(a)(1)(A).) Part B of Medicare (42 U.S.C. § 1395j et seq.) establishes a voluntary supplementary medical insurance program for Medicare-eligible individuals and certain other persons over age 65, covering specified medical services, devices, and equipment. (See 42 U.S.C. §§ 1395k, 1395o) The Act provides for the delegation of Medicare benefit administration to HMO's, which are authorized, pursuant to contracts with the HCFA, to manage benefit requests by Medicare beneficiaries. (Wartenberg v. Aetna U.S. Healthcare, Inc. (E.D.N.Y.1998) 2 F.Supp.2d 273, 276.)

The determination whether an individual is entitled to benefits, and the amount of benefits, is entrusted to the Secretary in accordance with regulations prescribed by him or her. (42 U.S.C. § 1395ff(a).) Judicial review of a claim for benefits is available only after the Secretary has rendered a "`final decision'" on the claim, and only in the manner provided for claims for old age and disability benefits arising under the Social Security Act. (Heckler v. Ringer (1984) 466 U.S. 602, 605, 104 S.Ct. 2013, 80 L.Ed.2d 622 (Ringer); 42 U.S.C. §§ 405(g), (h), 1395ff(b)(1).)3 The relevant provisions of the Social Security Act, 42 United States Code section 405(g) and (h), read together, provide that a final decision by the Secretary on a claim "arising under" Medicare may be reviewed by no person, agency or tribunal except in an action brought in federal district court, and then only after exhausting administrative remedies as described above. (42 U.S.C. §§ 405(h), 1395ii; see 42 U.S.C. §§ 1395ff(b)(1), 1395mm(c)(5)(B).)

The question in this case, then, is whether the McCalls' complaint alleges a claim "arising under" the Medicare Act, even though none of the claims seeks payment or reimbursement of Medicare claims. The seminal decision in this area, Ringer, supra, 466 U.S. 602, 104 S.Ct. 2013, 80 L.Ed.2d 622, held that a claim arises under Medicare if (1) "`both the standing and the substantive basis for the presentation'" of the claim is the Medicare Act (id. at p. 615, 104 S.Ct. 2013), or (2) the claim is "`inextricably intertwined'" with a claim for Medicare benefits (id. at p. 614, 104 S.Ct. 2013). The high court, however, recognized that a claim that is "wholly `collateral' " to a claim for benefits under the Act is not subject to the administrative process; the court also suggested exhaustion would be excused if a claimant made a colorable showing that an erroneous denial of benefits would injure him or her in a way that could not be remedied by the later payment of benefits. (Id. at p. 618, 104 S.Ct. 2013.)4

In Ringer, the plaintiffs were four Medicare beneficiaries who suffered from respiratory distress; three had had surgery known as bilateral carotid body resection (BCBR) and were seeking reimbursement of the cost thereof, and one sought to have BCBR surgery but claimed he could not afford it absent Medicare coverage. (Ringer, supra, 466 U.S. at pp. 605, 609-610, 104 S.Ct. 2013.) The Secretary had ruled that Medicare did not cover BCBR when performed to relieve respiratory distress because the procedure lacked the general acceptance of the professional medical community and thus was not "reasonable and necessary" within the meaning of Medicare. (Id. at p. 607, 104 S.Ct. 2013.) The Ringer plaintiffs, none of whom had exhausted their administrative remedies, filed a complaint in federal district court seeking declaratory and injunctive relief. (Id. at pp. 610-611, 104 S.Ct. 2013.) The district court dismissed the complaint in its entirety for lack of jurisdiction, concluding the essence of the claim...

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