Medical Card System v. Equipo Pro Convalecencia

• Decision Date: 24 November 2008
• Docket Number: Civil No. 08-2007 (JAF).
• Citation: 587 F.Supp.2d 384
• Parties: MEDICAL CARD SYSTEM, INC., et al., Plaintiffs, v. EQUIPO PRO CONVALECENCIA, et al., Defendants.
• Court: U.S. District Court — District of Puerto Rico

587 F.Supp.2d 384

MEDICAL CARD SYSTEM, INC., et al., Plaintiffs, v. EQUIPO PRO CONVALECENCIA, et al., Defendants.

Civil No. 08-2007 (JAF).

United States District Court, D. Puerto Rico.

November 24, 2008.

Ramon L. Vinas-Bueso, Guelmarie Aguila-Melendez, Alvarado, Vinas & Fernandez PSC, San Juan, PR, for Plaintiffs.

Leila S. Castro-Moya, Rovira-Rodriguez Attorneys and Counsellors at Law, Hato Rey, PR, Rosa M. Cruz-Niemiec, Cruz Niemiec & Vazquez, San Juan, PR, for Defendants.

OPINION AND ORDER

JOSÉ ANTONIO FUSTÉ, Chief Judge.

Plaintiffs, Medical Card System, Inc. ("MCS"), MCS Life Insurance Company ("MCS-Life"), and MCS Advantage, Inc. ("MCS Advantage"), bring this action against Defendant medical equipment suppliers¹ for breach of contract and violation of regulations contained in Medicare Part C, 42 U.S.C. §§ 1395w-21 to 1395w-29. Docket No. 1. Defendants jointly move to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(1), alleging lack of federal question jurisdiction. Docket No. 11. Plaintiffs oppose, Docket No. 19, Defendants supplement their motion, Docket No. 25, Plaintiffs oppose, Docket No. 46, and Defendants reply, Docket No. 60.

I. Factual and Procedural Synopsis

Unless otherwise indicated, we derive the following factual summary from Plaintiffs' complaint, Docket No. 1. As we must, we assume all Plaintiffs' allegations are true and make all reasonable inferences in their favor. Alternative Energy, Inc. v. St. Paul Fire & Marine Ins. Co., 267 F.3d 30, 36 (1st Cir.2001).

Medicare is a federally-run health insurance program providing coverage to people who are age sixty-five and older or who suffer from certain health conditions and meet other eligibility criteria. Medicare originally was a government-run plan consisting of Part A, which covered inpatient care, and Part B, which covered outpatient care. First Med. Health Plan, Inc. v. Vega-Ramos, 479 F.3d 46, 48 (1st Cir. 2007) (citing 42 U.S.C. § 1395c et seq. (Part A) and 42 U.S.C. § 1395j et seq. (Part B)). Medicare Part C, enacted in 1997, allows Medicare beneficiaries to enroll in privately-run Medicare Advantage ("MA") plans. Id. (citing 42 U.S.C. § 1395w-21 et seq. (Part C)). The Centers for Medicare and Medicare Services ("CMS") is the federal agency that administers Medicare and other social programs.

Plaintiff MCS is a privately-owned corporation that provides third-party administration of health care benefits. Plaintiffs MCS Advantage and MCS-Life are subsidiaries of MCS in Puerto Rico. MCS Advantage is a Medicare Advantage organization under Medicare Part C. Defendants are Puerto-Rico-based suppliers of durable medical equipment ("DME"), including oxygen tents, hospital beds, wheelchairs, and enteral and paraenteral nutrition.

On September 7, 2005, MCS-Life signed a contract ("the Contract") with CMS to furnish Medicare services to its beneficiaries as an MA organization under Medicare Part C. The Contract was assigned to MCS Advantage some time in 2007.

Between May 1999 and April 2007, MCS and MCS-Life signed contracts ("the Supplier Agreements") with the various Defendants for the provision of DME services to MCS beneficiaries. The Supplier Agreements require Defendants to comply with "all regulations related to [Medicare Part C], as established from time to time by [CMS]." The Supplier Agreements also provide that if a given Supplier Agreement terminates, at the end of a term or otherwise, the Defendant who is party to that agreement must continue providing DME at the contract price until MCS can make alternative arrangements with another supplier. The Supplier Agreements further require Defendants to cooperate in transferring beneficiaries to other suppliers following termination.

On June 7, 2008, MCS notified Defendants that it intended to terminate the Supplier Agreements as of September 7, 2008. Following this notice, Defendants indicated that they intended to discontinue supplying DME services to MCS beneficiaries as of September 8, 2008. Defendants have refused to cooperate with MCS in transferring Medicare beneficiaries to other suppliers.

On September 5, 2008, Plaintiffs filed the present action for declaratory and injunctive relief in federal district court. Docket No. 1. They argued that Defendants' actions violated both the Supplier Agreements and Medicare regulations requiring them to provide continued care to beneficiaries, and requested that we issue a declaratory judgment and temporary and permanent injunctions prohibiting Defendants from discontinuing provision of DME. Id. Plaintiffs further requested a temporary restraining order preventing Defendants from discontinuing services on September 8, 2008. Id. Plaintiffs argued that hundreds of medicare beneficiaries depend on DME services such as enteral nutrition and liquid oxygen, and that if Defendants cut off service, these beneficiaries would suffer immediate, life-threatening damages. Id. On September 5, 2008, we issued a ten-day temporary restraining order requiring Defendants to continue providing DME services. Docket No. 3.

On September 9, 2008, Defendants jointly moved to dismiss pursuant to Rule 12(b)(1), arguing that we lack jurisdiction because Plaintiffs only have contractual claims under the Supplier Agreements, which do not provide the basis for federal jurisdiction. Docket No. 11. On September 19, 2008, Plaintiffs opposed. Docket No. 19. Defendants supplemented their motion to dismiss on September 22, 2008 Docket No. 25, and Plaintiffs opposed on September 27, 2008, Docket No. 46. Defendants replied on October 15, 2008. Docket No. 60.

II.

Motion to Dismiss Standard Under Rule 12(b)(1)

Under Rule 12(b)(1), a defendant may move to dismiss an action against him for lack of federal subject matter jurisdiction. See Fed.R.Civ.P. 12(b)(1). The party asserting jurisdiction has the burden of demonstrating its existence. See Skwira v. United States, 344 F.3d 64, 71 (1st Cir. 2003) (citing Murphy v. United States, 45 F.3d 520, 522 (1st Cir.1995)).

Rule 12(b)(1) is a "large umbrella, overspreading a variety of different types of challenges to subject-matter jurisdiction." Valentin v. Hosp. Bella Vista, 254 F.3d 358, 362-63 (1st Cir.2001). A moving party may base a challenge to the sufficiency of the plaintiffs assertion of subject matter jurisdiction solely on the pleadings. Id. at 363. In that case, we take the plaintiffs "jurisdictionally-significant facts as true" and "assess whether the plaintiff has propounded an adequate basis for subject-matter jurisdiction." Id. at 363; see Pejepscot Indus. Park, Inc. v. Maine Cent. R.R. Co., 215 F.3d 195, 197 (1st Cir.2000).

III. Analysis

Defendants argue that we lack jurisdiction because Plaintiffs' claims are based exclusively on the Supplier Agreements and depend solely on Puerto Rico contract law. Docket No. 11. Plaintiffs counter that we have jurisdiction because Medicare Part C, 42 U.S.C. § 1395w-26(b)(3), expressly preempts state law remedies and 42 C.F.R. §§ 422.504(g) requires Defendants to provide continued benefits to plan beneficiaries. Docket No. 19.

We have original federal question jurisdiction over "all civil actions arising under the Constitution, laws, or treaties of the United States." 28 U.S.C. § 1331. A federal statute expressly preempts state law remedies, conferring federal question jurisdiction, where Congress has "unmistakably ... ordained" that its enactments alone regulate a given subject matter. First Med. Health Plan, Inc. v. Vega-Ramos, 479 F.3d 46, 51 (1st Cir.2007).

The preemption provision of Medicare Part C states that "[t]he 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." 42 U.S.C. § 1395w-26(b)(3); 42 C.F.R. § 422.402. Thus, federal law controls to the extent that federal standards exist; state common law prevails where neither Congress nor CMS has established standards. Uhm v. Humana, Inc., 540 F.3d 980, 985 (9th Cir.2008). For purposes of the preemption provision, a "standard" is "a statutory provision or a regulation promulgated under the [MMA] and published in the [Code of Federal Regulations]." Id. at 985 n. 9.

Plaintiffs contend that the federal government has provided standards to regulate the continuity of care of Medicare beneficiaries. Docket No. 19. 42 C.F.R. § 422.504(g) provides that:

(2) The MA organization must provide for the continuation of enrollee health care benefits—

(i) For all enrollees, for the duration of the contract period for which CMS payments have been made; and

(ii) For enrollees who are hospitalized on the date its contract with CMS terminates, or, in the event of an insolvency, through discharge.

(3) In meeting the requirements of this paragraph ... the MA organization may use—

(i) Contractual arrangements.

The CMS managed care manual further states that "[t]he MA organization must ensure continuity of services through arrangements that include, but are not limited to ... [d]eveloping and implementing procedures to ensure that the MA organization and its provider network have the information required for effective and continuous patient care and quality review." Medicare Managed Care Manual, # 100-16, at Chapter 4, § 120.3 (2007), http:// www.cms.hhs.gov/manuals/downloads/mc 86c04.pdf.

Plaintiffs also rely on Uhm v. Humana, Inc., 2006 WL 1587443 (W.D.Wash. June 2, 2006) (aff'd, 540 F.3d 980 (9th Cir.2008)) for the proposition that state laws are presumptively preempted under the Medicare Act. Docket No. 19. In Uhm, the plaintiffs, who were Medicare beneficiaries, unsuccessfully attempted to enroll in Humana's prescription drug benefit plan, and paid premiums for the prescription drug plan out of their social security checks. Uhm, 540 F.3d at 982. When they were ultimately forced to purchase their own prescription drugs out of pocket,...