Redmond v. Secure Horizons, Pacificare, Inc.

• Decision Date: 18 July 1997
• Docket Number: No. H014397,H014397
• Citation: 70 Cal.Rptr.2d 174,60 Cal.App.4th 96
• Court: California Court of Appeals Court of Appeals
• Parties: , 54 Soc.Sec.Rep.Ser. 748, 97 Cal. Daily Op. Serv. 9516, 97 Daily Journal D.A.R. 15,245 Thelma REDMOND, Plaintiff and Appellant, v. SECURE HORIZONS, PACIFICARE, INC., Defendant and Respondent.

Page 174

70 Cal.Rptr.2d 174

60 Cal.App.4th 96, 54 Soc.Sec.Rep.Ser. 748,

97 Cal. Daily Op. Serv. 9516,

97 Daily Journal D.A.R. 15,245

Thelma REDMOND, Plaintiff and Appellant, v. SECURE HORIZONS, PACIFICARE, INC., Defendant and Respondent.

No. H014397.

Court of Appeal, Sixth District, California.

July 18, 1997.

Larry E. Hayes, Fenton & Keller, Lonnie Truax, Monterey, for Plaintiff and Appellant.

Mark Bonino Ropers, Majeski, Kohn & Bentley, Kelly C. Franks, Redwood City, for Defendant and Respondent.

MIHARA, Associate Justice.

Plaintiff brought a bad faith action against defendant based on its initial denial of coverage and subsequent delayed payment of her claim for reimbursement of health care expenses covered under her Medicare-subsidized agreement with defendant. Defendant's demurrer was sustained without leave to amend, and the action was dismissed on jurisdictional grounds. On appeal, plaintiff claims that (1) her claim did not fall within the exclusive review provisions of the Medicare Act because it did not arise under the Act, (2) the exclusive review provisions of the Medicare Act should not apply because Congress did not so intend and these provisions offer no remedy for her claim, and (3) the court abused its discretion in failing to grant her leave to amend her complaint. We affirm.

PLAINTIFF'S ALLEGATIONS

Defendant is a health maintenance organization which "arranges for the provision of" medical services to its "Subscribers." Plaintiff was one of defendant's "Subscribers." The agreement between plaintiff and defendant required that "[i]n determining whether a specific benefit is covered, [defendant] shall rely on Medicare guidelines...." Plaintiff and defendant agreed that "Subscriber complaints regarding reimbursement and coverage issues ... shall be resolved by the HCFA [federal Health Care Financing Administration] Appeals procedure...." This procedure, which was set forth in the parties' agreement, required the "Subscriber" to make a written request for "Reconsideration" of an adverse coverage determination within 60 days after the initial denial. ¹ If reconsideration was denied, defendant was required to submit the dispute to the Health Care Financing Administration (HCFA) for review. The HCFA's determination could be appealed by either party to an administrative law judge. Either party could then seek review of the administrative law judge's determination by the "Appeals Council." Under certain circumstances, a party could then obtain judicial review in a federal district court.

In May 1993, defendant denied coverage for "life-saving surgery" for plaintiff after she repeatedly requested a coverage determination prior to undergoing this surgery. Plaintiff underwent the surgery in June 1993 and incurred medical expenses for it. Defendant thereafter rejected plaintiff's demands for reimbursement of these expenses. In March 1994, defendant asked plaintiff to "execute a release of all claims against them" in return for reimbursement. Plaintiff refused. Nevertheless, defendant subsequently reimbursed plaintiff for these medical expenses.

PROCEDURAL BACKGROUND

Plaintiff filed an action against defendant for breach of contract, breach of the implied covenant of good faith and fair dealing in violation of Insurance Code section 790.03 and intentional and negligent infliction of emotional distress. These causes of action were based on defendant's initial denial of her request for coverage and subsequent delayed reimbursement of her expenses. Plaintiff alleged that she had satisfied all of her obligations under the contract including filing a timely "request for reconsideration" of defendant's rejection of her claim. She asserted that defendant had known that her claim was covered but had nevertheless initially rejected it and then delayed reimbursement. Plaintiff sought monetary damages for "loss of use" of money she expended for medical expenses prior to reimbursement by defendant, emotional distress and attorneys' fees and costs incurred in obtaining reimbursement of these medical expenses from defendant.

Defendant filed a demurrer to plaintiff's complaint. Defendant claimed that the court lacked subject matter jurisdiction because plaintiff's claim was one "arising under" the Medicare Act which was subject to an exclusive administrative review process and plaintiff had failed to exhaust her administrative remedies under this exclusive review process. Defendant also maintained that subject matter jurisdiction was lacking because of "plaintiff's non-joinder (defect)/misjoinder of parties." Plaintiff claimed that she was not required to utilize the Medicare Act's review process because her action "is not a coverage or reimbursement case" but "a bad faith case."

The court granted defendant's demurrer without leave to amend. "[Defendant's demurrer is] sustained without leave to amend on the ground that the Court lacks subject matter jurisdiction over plaintiff's complaint. Plaintiff's tort and contract claims are 'inextricably intertwined' with the denial of Medicare benefits and are therefore subject to the administrative procedures mandated by the Medicare Act. (Bodimetric Health Services v. Aetna Life & Cas. (7th Cir.1990) 903 F.2d 480; 42 U.S.C. § 1395 et seq.; 42 C.F.R. § 417.600 et seq.) Further, the face of the complaint reveals that plaintiff has failed to join the proper defendant, the Secretary of [Health & Human Services], actions against whom must be brought in federal court. (CCP § 430.10(d); 42 U.S.C. § 405(g).)" Judgment was entered in defendant's favor, and plaintiff filed a timely notice of appeal.

DISCUSSION

A. STANDARD OF REVIEW

"When a demurrer is sustained, we determine whether the complaint states facts sufficient to constitute a cause of action. And when it is sustained without leave to amend, we decide whether there is a reasonable possibility that the defect can be cured by amendment: if it can be, the trial court has abused its discretion and we reverse; if not, there has been no abuse of discretion and we affirm. The burden of proving such reasonable possibility is squarely on the plaintiff." (Blank v. Kirwan (1985) 39 Cal.3d 311, 318, 216 Cal.Rptr. 718, 703 P.2d 58, internal citations omitted.)

B. NO JURISDICTION

The dispositive issue in this case is whether plaintiff's causes of action were based on a claim which was subject to the exclusive review provisions of the Medicare Act. Federal law specifies the services which health maintenance organizations such as defendant must provide to Medicare-eligible members such as plaintiff who are enrolled in Medicare-subsidized health care plans. (42 U.S.C. § 1395mm.) The authority to determine whether certain services are covered by such a plan has been vested by Congress in the Secretary of Health & Human Services. "The determination of whether an individual is entitled to benefits ... and the determination of the amount of benefits ..., and any other determination with respect to a claim for benefits ... shall be made by the Secretary [of Health & Human Services] in accordance with regulations prescribed by him." (42 U.S.C. § 1395ff, subd. (a), emphasis added.) "If the Secretary determines that an eligible organization with a contract under this section ... fails substantially to provide medically necessary items and services that are required (under law or under the contract), if the failure has adversely affected (or has substantial likelihood of adversely affecting) the individual ... the Secretary may provide, in addition to any other remedies authorized by law, for [civil money penalties, suspension of enrollment of individuals or suspension of payment to the organization]." (42 U.S.C. § 1395mm, subd. (i)(6).)

A claim which "arises under" the Medicare Act must be brought before the Secretary through a multi-level administrative review process. This administrative review process (which was expressly set forth in the contract between plaintiff and defendant) provides the "exclusive" remedy for such claims. (U.S.Code Congressional and Administrative News, 89th Congress, 1965, Vol. 1, Senate Report No. 404, Finance Committee's Report, p.1995.) Judicial review of such claims is available only after the claimant has pressed the claim through every level of the administrative review process to a "final" decision by the Secretary and even then such review may only be obtained in federal court. (Heckler v. Ringer (1984) 466 U.S. 602, 605-606, 104 S.Ct. 2013, 2016-2017, 80 L.Ed.2d 622.) It follows that such claims are never within the jurisdiction of a state court.

The trial court herein concluded that it lacked jurisdiction because plaintiff's causes of action were claims arising under the Medicare Act. Plaintiff maintains that the trial court was incorrect because (1) her causes of action are state law causes of action based on her contract with defendant rather than on the Medicare Act, (2) her causes of action are not a claim for benefits but a claim for "injuries" she suffered as a result of the delay and costs incurred in her successful pursuit of reimbursement for her medical expenses and (3) Congress did not intend to preclude state actions such as hers.

First, the fact that plaintiff's causes of action are based on her contractual relationship with defendant does not mean that her claims did not arise under the Medicare Act. Plaintiff's contract with defendant expressly specified that coverage determinations would be based on the Medicare Act. Moreover, the contract explicitly required that all "[s]ubscriber complaints regarding reimbursement and coverage issues" be resolved through the multi-level administrative review process specified in the Medicare Act. Plaintiff may choose to characterize her complaints as contractually-based causes of action, but her claims are necessarily "complaints regarding reimbursement." Her action is based on allegations that defendant initially wrongfully denied...