Midland Psychiatric Associates, Inc. v. U.S.

• Decision Date: 08 July 1997
• Docket Number: No. 96-1245-CV-W-3.,96-1245-CV-W-3.
• Parties: MIDLAND PSYCHIATRIC ASSOCIATES, INC., Plaintiff, v. UNITED STATES of America and Mutual of Omaha Insurance Company, Defendants.
• Court: U.S. District Court — Western District of Missouri

969 F.Supp. 543

MIDLAND PSYCHIATRIC ASSOCIATES, INC., Plaintiff, v. UNITED STATES of America and Mutual of Omaha Insurance Company, Defendants.

No. 96-1245-CV-W-3.

United States District Court, W.D. Missouri, Western Division.

July 8, 1997.

COPYRIGHT MATERIAL OMITTED

James M. Ziegler, Humphrey, Farrington & McClain, P.C., Independence, MO, for Midland Psychiatric Associates, Inc.

Alleen S. VanBebber, U.S. Attorney's Office, Kansas City, MO, for Health Care Financing Administration, U.S Alleen S. VanBebber, U.S. Attorney's Office, Kansas City, MO, Sally B. Surridge, Blackwell, Sanders, Matheny, Weary & Lombardi, Kansas City, MO, for Mutual of Omaha Ins. Co.

ORDER GRANTING DEFENDANT'S MOTION TO DISMISS

SMITH, District Judge.

Pending is Defendants' Motion to Dismiss Plaintiff's First Amended Complaint.¹ For the reasons set forth below, the Motion to Dismiss is granted.

I. BACKGROUND

The following facts are gleaned from the First Amended Complaint and must be considered as true for purposes of the pending motions. The defendants are the United States (the "Government") and Mutual of Omaha Insurance Company ("Mutual"). Plaintiff provides partial hospitalization services to nursing home residents pursuant to contracts with various hospitals ("Hospitals"). Under these contracts, Plaintiff set up partial hospitalization programs in long term care facilities and billed the Hospitals for the services provided. The Hospitals then filed claims for reimbursement from Medicare. "Partial hospitalization" is a program furnished on an outpatient basis and is designed to provide "a more intensive functioning and reduce or control a patient's symptoms so as to prevent relapse or hospitalization." First Amended Complaint, ¶ 8.

Partial hospitalization is covered under Part B of Medicare.²

Part B of the Medicare Act, 42 U.S.C. § 1395j et seq., establishes a voluntary program of supplemental medical insurance covering expenses not covered by the Part A program, such as reasonable charges for physicians' services, medical supplies, and laboratory tests. Payments for Part B expenses are made by private insurance carriers under contract to the Department of Health and Human Services, 42 U.S.C. § 1395u, and the claimant is entitled to reconsideration of the carrier's initial denial of those claims. 42 CFR §§ 405.807-405.860 (1983).

Heckler v. Ringer, 466 U.S. 602, 609 n. 4, 104 S.Ct. 2013, 2018 n. 4, 80 L.Ed.2d 622 (1984); see also United States v. Bushman, 862 F.2d 1327, 1329 (8th Cir.1988), cert. denied, 493 U.S. 810, 110 S.Ct. 53, 107 L.Ed.2d 21 (1989). In this case, the intermediate insurance company was Mutual. In August 1993, Mutual began denying those portions of the Hospitals' claims that were based on services supplied by Plaintiff; the denials were ostensibly based on lack of medical necessity or failure to have a doctor present during treatment. These denials were issued even though allegedly similar claims for reimbursement were approved for other providers of partial hospitalization services. In October and November of 1993, officials from Plaintiff, the Hospitals, Mutual and the Health Care Financing Administration ("HCFA") (the Government agency charged with administering the Medicare program) met; Plaintiff and the Hospitals were assured that there were no problems with the claims submitted and the claims were reimbursable. Assurances similar to these were received as late as February 1994.

Meanwhile, in November 1993, Mutual advised one of the Hospitals that Plaintiff's program would be treated as a "new" program and would be placed on a "routine, focused review." Instead, Mutual reviewed all charts related to reimbursement requests involving Plaintiff's services, and claims continued to be denied. The degree of review is alleged to be improper because the manual provided to intermediaries calls for a sampling of claims as opposed to 100% review. These denials led some (if not all) of the Hospitals to terminate their contracts with Plaintiff. In addition, other hospitals that were considering entering contracts with Plaintiff decided not to do so.

Plaintiff alleges that Mutual took these actions in order to shut down Plaintiff's business as a cost-cutting effort. Accordingly, Count I alleges that Mutual intentionally interfered with Plaintiff's contracts and other business expectations. Count II alleges that the Government was negligent in its failure to properly supervise Mutual. The Defendants contend this Court lacks jurisdiction over both claims and request dismissal pursuant to Fed.R.Civ.P. 12(b)(1).

II. DISCUSSION

A. Count I

Count I alleges a common-law tort against Mutual, and jurisdiction is ostensibly based on the parties' diversity of citizenship. The elements for tortious interference with business expectation are as follows: "(1) a contract or valid business expectancy; (2) defendant's knowledge of the contract or relationship; (3) a breach induced or caused by defendant's intentional interference, (4) absence of justification; and (5) damages." Rice v. Hodapp, 919 S.W.2d 240, 245 (Mo. banc 1996). The fourth element is crucial to some of the Court's reasoning with respect to Defendants' motion. "A requisite element of tortious interference with a business relationship is absence of justification. A defendant cannot be held liable for interfering with a business relationship if it has an unqualified right to perform the act." Id.

1. Statutory Bar to Review of Claims

42 U.S.C. § 405(h) is made applicable to the Medicare statutes by virtue of 42 U.S.C. § 1395ii and provides as follows:³

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.

This provision is significant because Plaintiff contends that Mutual intended to drive it out of business and accomplished this goal by denying reimbursement for its services. In order to prove all the elements of this tort, Plaintiff must demonstrate that Mutual acted without justification, thus requiring the Court (or a jury) to decide whether Mutual had "an unqualified right" to deny those claims. This will necessarily require the Court to decide whether the claims should or should not have been granted — or, in other words, to review the correctness of Mutual's decision. Plaintiff understandably wants to shift the focus to Mutual's alleged decision to drive Plaintiff out of business. However, this is an unduly narrow view of the wrongful act being challenged. The act that allegedly interfered with Plaintiff's business expectations was the denial of claims; therefore it is the denial of claims that must be examined. Unfortunately, Section 405(h) prohibits such an inquiry.

The Supreme Court discussed § 405(h) in Weinberger v. Salfi, 422 U.S. 749, 95 S.Ct. 2457, 45 L.Ed.2d 522 (1975) and declared that the first two sentences "assure that administrative exhaustion will be required." 422 U.S. at 757, 95 S.Ct. at 2463. The third sentence, however, has a different, broader sweep. Id. Application of the first two and the last sentences are discussed separately below.

a. Exhaustion of Administrative Remedies: Sentences One and Two

The first two sentences require, as Salfi explains, exhaustion of administrative remedies. Plaintiff contends that it was not a party to the administrative process and therefore it need not exhaust its remedies. It may be that Plaintiff is still bound by the administrative proceedings because it was in privity with a party to those proceedings. Plaintiff contends that it was not eligible to participate, but it is not immediately clear why it could not have qualified under 42 U.S.C. § 1395cc and applicable regulations. It may simply be that the decision to let the Hospitals present the claims in the administrative process was a matter of negotiation between Plaintiff and the Hospitals. In any event, Defendants do not contest the matter, so the Court will accept that Plaintiff was not a party within the meaning of sentence one.

However, sentence two flatly declares that "[n]o findings of fact or decision of the Secretary shall be reviewed by any person, tribunal, or governmental agency except as herein provided." Sentence two's reach is not limited to participants, but rather guards the Secretary's decisions from review other than as specifically provided. It cannot be read to simply bind participants to the results of the administrative process; this is already accomplished by sentence one. Cf. Salfi, 422 U.S. at 757-58, 95 S.Ct. at 2462-64 (adopting interpretation of § 405(h) that does not render any one sentence superfluous). Sentence two's natural interpretation is to bar second-guessing, reconsideration, or any other type of review except as part of the process Congress established for review of Medicare claims. Consequently, this Court lacks the authority to determine whether the claims involved in this case were correctly or incorrectly denied, so it is impossible for Plaintiff to prove that Mutual did not have a right to deny the claims.

b. Suits for Damages: Sentence Three

Section 405(h)'s third sentence provides that "[n]o 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." Although there are several issues to be addressed in applying this provision, it is this Court's conclusion that it bars Plaintiff's claim on Count I.

The first issue to be addressed is whether Mutual is an "officer or employee" of the United States or the Secretary of Health and Human Services....