Phillips v. Kaiser Found. Health Plan, Inc., C 11–02326 CRB.

• Decision Date: 25 July 2011
• Docket Number: No. C 11–02326 CRB.,C 11–02326 CRB.
• Citation: 953 F.Supp.2d 1078
• Parties: Sharon PHILLIPS, Plaintiff, v. KAISER FOUNDATION HEALTH PLAN, INC., et al., Defendants.
• Court: U.S. District Court — Eastern District of California

953 F.Supp.2d 1078

Sharon PHILLIPS, Plaintiff,

v.KAISER FOUNDATION HEALTH PLAN, INC., et al., Defendants.

No. C 11–02326 CRB.

United States District Court, N.D. California.

July 25, 2011.

Christine Mary Doyle, Arnold Law Firm, Clayeo C. Arnold, Clifford Lee Carter, Clayeo C. Arnold, A Professional Law Corporation, Sacramento, CA, for Plaintiff.

Kirk J. Wolden, Clayeo C. Arnold, A Professional Law Corporation, Sacramento, CA.

David Bruce Anderson, Mark Aaron Palley, Thomas Michael Freeman, Marion's Inn LLP, Oakland, CA, for Defendants.

MEMORANDUM AND ORDER DENYING MOTION TO REMAND AND GRANTING MOTION TO DISMISS WITH PREJUDICE

CHARLES R. BREYER, District Judge.

This is a case by a disgruntled enrollee in Kaiser's Medicare Advantage Plan (“MAP”). She was injured in a car accident, received medical treatment paid for by Kaiser via her MAP, and then got a $100,000 settlement from a liability insurer in connection with the car accident. Kaiser attempted to recover a substantial portion of that settlement pursuant to its rights under the Medicare statutes as a secondary payer to a third party source of funds (liability insurance).

Plaintiff then filed a putative class action against Kaiser,¹ alleging that it “[has] and continue[s] to act illegally in [its] demand for and collection of repayments for medical services arising out of Personal Injury Claims at rates in excess of applicable Medicare rates.” Compl. (dkt. 1) ¶ pattern and practice of deception by omission, misleading reasonable California consumers into entering into contracts for medical services with the Kaiser Defendants ... thereby violating the Unfair Competition Law [ (“UCL”) ] ... and [ ] provisions of Section 1770 of the Consumer Legal Remedies Act [ (“CLRA”) ]....” Id.

Kaiser removed this action from the Superior Court of California, Alameda County, claiming two bases for federal court jurisdiction: (1) diversity jurisdiction under the Class Action Fairness Act (“CAFA”); and (2) complete preemption of Plaintiff's state law claims (meaning, essentially, that Plaintiff is actually asserting federal claims disguised as state law claims). Kaiser then moved to dismiss (dkt. 19), arguing preemption and failure to exhaust administrative remedies. Plaintiff, in turn, moves to remand (dkt. 23) and argues, in the alternative, that her state claims are not preempted and do not require exhaustion.

For the reasons that follow, Plaintiff's Motion to Remand is DENIED, and Defendants' Motion to Dismiss is GRANTED with prejudice.

I. BACKGROUND

The Medicare Advantage (“MA”) program permits eligible individuals to elect to receive Medicare benefits from a private health insurer like Kaiser. See 42 U.S.C. § 1395w21, 22.² Under the traditional Medicare fee-for-service (“FFS”) program, Medicare pays health care providers directly for services rendered to Medicare beneficiaries. Id. § 1395d. Such payments are based on a FFS fee schedule. Id. § 1395g. In contrast, the MA program pays MA organizations, like Kaiser, monthly fees for Medicare beneficiaries who enroll in a MAP. Id. §§ 1395w–21, 23, & 24. The MA organization then bears the risk that the fees it receives from the MA program will be less than the cost of covered care, thereby incentivizing preventative care (or less patient favorable cost-saving strategies) rather than procedure based care and, hopefully, saving the government money in the long run. See id. § 1395w–22(a)(2)(A). The amount an MA organization receives per enrollee is based on a contract with the Centers for Medicare & Medicaid Services (“CMS”), an agency within Health and Human Services that administers the MA program. Id. § 1395w–27.

The Medicare Act grants MA organizations the right to be placed in a secondary-payer position to third-party sources of funds, such as funds from liability insurers, that are liable for the costs of a Medicare beneficiary's care. See id. § 1395w–22(a)(4) (an MA organization “may ... charge or authorize the provider of such services to charge, in accordance with the charges allowed under a law, plan, or policy described in this section—(A) the insurance carrier ... which under such law, plan, or policy is to pay for the provision of such services, or (B) such individual to the extent that the individual has been paid under such law, plan, or policy for such services.”).

* * *

Plaintiff has been a Kaiser MAP enrollee since 2009. Compl. ¶ 6. Prior to becoming an enrollee, she received documents from Kaiser, including Kaiser's Evidence of Coverage (“EOC”) for the Senior Advantage plan in which she was being enrolled. Id. ¶ 19.³ “At no time during her review of the documentation she received from Kaiser did she ever, to her knowledge, review any information which explained to her potential obligation to reimburse Kaiser out of the proceeds of a Personal Injury Claim settlement or verdict relating to an accident for which she required medical care under her Kaiser MAP, the extent of that alleged obligation of reimbursement, or how the right of reimbursement the Kaiser defendants would claim differed from the amount that Medicare might attempt to enforce against her had she chosen to enroll in traditional Medicare as opposed to Kaiser's MAP.” Id.

Plaintiff was involved in a serious car crash in mid-November 2009 and “was treated under her Kaiser MAP and by Kaiser as the result.” Id. ¶ 21. Approximately one month later, she made a claim for compensation arising out of the accident, and the case settled shortly thereafter for $100,000. Id. ¶ 22. In the spring of 2010, Plaintiff received a letter from a law firm claiming to represent defendant Healthcare Recoveries. Id. ¶ 23. The firm enclosed a list of “medical benefits advanced on the Plan Members' behalf” by Kaiser in the amount of $88,205.46. Id. The letter further provided that the $88,205.46 figure was calculated pursuant to California Civil Code section 3040.⁴Id. Kaiser, through various intermediaries, continued to press its position that it was entitled to reimbursement of the $88,205.46, ultimately disrupting Plaintiff's receipt of those funds. Id. ¶¶ 24–27. In Plaintiff's view, Kaiser has no right to recover against her under federal law, ⁵ nor is there any authority for Kaiser to recover at rates in excess of Medicare FFS rates, notwithstanding whatever is provided in section 3040. Id. ¶ 25.

Plaintiff filed suit in state Court on her own behalf and on behalf of a putative class.⁶ She alleges violations of the UCL and CLRA.⁷ Her claims are essentially that (1) Kaiser is violating the law by seeking reimbursement “in excess of standard Medicare rates[,]” and (2) in marketing the plan without telling potential enrollees that Kaiser will seek reimbursement at all or beyond that which would be sought in a traditional Medicare plan, Kaiser acted fraudulently,⁸ unfairly, and unlawfully. Id. ¶ 34. She seeks equitable relief, money damages including restitution (presumably consisting of the difference between what enrollees would have had to reimburse under traditional Medicare and what they were required to reimburse to Kaiser), as well as attorneys' fees and costs.

II. MOTION TO REMAND

Kaiser removed this action from state court to this Court asserting that the case was removable on the basis of CAFA diversity and because it presents a federal question artfully pleaded as a state law claim. See Notice of Removal (dkt. 1) ¶¶ 9–10 (complete preemption) ¶ 11 (CAFA diversity). Plaintiff moves to remand to state court, arguing that (1) CAFA diversity jurisdiction does not exist because Kaiser has not shown that the amount in controversy exceeds $5 million and, in any case, a mandatory exception applies; and (2) Plaintiff's claims are not artfully pleaded federal claims, and the Medicare Act does not completely preempt them. Mot. to Remand (dkt. 23).

A. CAFA Diversity Jurisdiction

28 U.S.C. § 1332(d)(2) and (4) provide as follows:

(2) The district courts shall have original jurisdiction of any civil action in which the matter in controversy exceeds the sum or value of $5,000,000, exclusive of interest and costs, and is a class action in which—

(A) any member of a class of plaintiffs is a citizen of a State different from any defendant;

....

(4) A district court shall decline to exercise jurisdiction under paragraph (2)—

(A) (i) over a class action in which—

(I) greater than two-thirds of the members of all proposed plaintiff classes in the aggregate are citizens of the State in which the action was originally filed;

(II) at least 1 defendant is a defendant—

(aa) from whom significant relief is sought by members of the plaintiff class; (bb) whose alleged conduct forms a significant basis for the claims asserted by the proposed plaintiff class; and

(cc) who is a citizen of the State in which the action was originally filed; and

(III) principal injuries resulting from the alleged conduct or any related conduct of each defendant were incurred in the State in which the action was originally filed; and

(ii) during the 3–year period preceding the filing of that class action, no other class action has been filed asserting the same or similar factual allegations against any of the defendants on behalf of the same or other persons; or

(B) two-thirds or more of the members of all proposed plaintiff classes in the aggregate, and the primary defendants, are citizens of the State in which the action was originally filed.

Id. Plaintiff argues that Kaiser has failed to show that the amount in controversy exceeds $5 million and that, regardless, this case falls within CAFA's mandatory exception to diversity jurisdiction under § 1332(d)(4).

1. Kaiser Has Shown That it is More Likely Than Not That More Than $5 Million is in Controversy

Nowhere in the Complaint does Plaintiff allege that more than $5 million is in controversy. Thus, Kaiser “must prove by a preponderance of the evidence that the amount in controversy requirement has been met.” Abrego Abrego v. Dow Chem. Co., 443...