United Behavioral Health v. Maricopa Integrated Health Sys.

• Decision Date: 25 August 2016
• Docket Number: No. CV–15–0239–PR,CV–15–0239–PR
• Citation: 240 Ariz. 118,377 P.3d 315
• Parties: United Behavioral Health, a California Corporation and its Subsidiary Pacificare Behavioral Health, Inc., Plaintiffs/Appellants, v. Maricopa Integrated Health System, an Arizona Special Taxing District, Defendant/Appellee. United Behavioral Health, a California Corporation, Plaintiff/Appellee, v. Aurora Behavioral Health Care—Tempe, LLC; and Aurora Behavioral Health System, LLC, Defendants/Appellants.
• Court: Arizona Supreme Court

240 Ariz. 118

377 P.3d 315

United Behavioral Health, a California Corporation and its Subsidiary Pacificare Behavioral Health, Inc., Plaintiffs/Appellants

v.Maricopa Integrated Health System, an Arizona Special Taxing District, Defendant/Appellee.

United Behavioral Health, a California Corporation, Plaintiff/Appellee

v.Aurora Behavioral Health Care—Tempe, LLC; and Aurora Behavioral Health System, LLC, Defendants/Appellants.

No. CV–15–0239–PR

Supreme Court of Arizona.

Filed August 25, 2016

John C. West, Robert M. Kort (argued), Lewis Roca Rothgerber Christie LLP, Phoenix, Attorneys for United Behavioral Health and PacifiCare Behavioral Health, Inc.

Russell A. Kolsrud, Mark S. Sifferman (argued), Clark Hill PLC, Scottsdale, Attorneys for Maricopa Integrated Health System, Aurora Behavioral Health Care—Tempe, LLC, and Aurora Behavioral Health System, LLC

David L. Abney, Dana R. Roberts, Knapp & Roberts, P.C., Scottsdale; and Geoffrey M. Trachtenberg, Levenbaum Trachtenberg, PLC, Phoenix, Attorneys for Amici Curiae Law Firms

JUSTICE TIMMER authored the opinion of the Court, in which VICE CHIEF JUSTICE PELANDER, JUSTICES BRUTINEL and BERCH (RETIRED) and JUDGE VÁSQUEZ joined.^*

JUSTICE TIMMER, opinion of the Court:

¶ 1 Medicare Part C, 42 U.S.C. §§ 1395w–21 et seq., permits enrollees to obtain Medicare-covered healthcare services from private healthcare organizations and their third-party contractors. The Employee Retirement Income Security Act (“ERISA”), 29 U.S.C. §§ 1001 et seq., regulates health plans offered by private employers to employees. We today hold that the administrative appeals process provided under the Medicare Act preempts arbitration of Medicare-related coverage disputes between private healthcare administrators and providers, even though arbitration would otherwise be required by the parties' contracts and the Federal Arbitration Act (“FAA”), 9 U.S.C. §§ 1 et seq. We remand to the court of appeals to decide whether ERISA similarly preempts arbitration of ERISA-related coverage disputes.

I. BACKGROUND

¶ 2 Congress passed the Medicare Act in 1965 to provide a federal health insurance program for qualified enrollees, most of whom are either elderly or disabled. 42 U.S.C. §§ 1395 et seq. For many years, enrollees could obtain healthcare benefits only through Parts A and B of the Act, which is administered by the Centers for Medicare and Medicaid Services (“CMS”), a division of the Department of Health and Human Services (“HHS”). See Douglas v. Indep. Living Ctr. of S. Cal., Inc. , ––– U.S. ––––, 132 S.Ct. 1204, 1207–08, 182 L.Ed.2d 101 (2012).

¶ 3 In 1997, Congress enacted Part C, commonly known as the Medicare Advantage Program, to permit enrollees to obtain Part A and Part B coverage through private organizations, known as Medicare Advantage Organizations (“MA Organization” or “Organization”). 42 U.S.C. §§ 1395w–21, 1395w–27. CMS contracts with MA Organizations through a bidding process. Id. § 1395w–24(A). Among other things, Organizations agree to comply with all Medicare laws, CMS rules, and federal coverage guidelines. Id. , § 1395y(a)(1)(A); 42 C.F.R. § 422.101(a), (b)(1)–(3), (c). MA Organizations offer Medicare benefits, not private insurance. Cf. Pagarigan v. Superior Court , 102 Cal.App.4th 1121, 126 Cal.Rptr.2d 124, 134 (2002) (noting that the relationship between MA Organizations and Part C enrollees is “not between an insurer and its policyholder, but rather, between Medicare ... and Medicare beneficiaries”).

¶ 4 CMS pays an MA Organization a fixed monthly “capitation” fee for each Medicare beneficiary served by the Organization. 42 U.S.C. § 1395w–23. The Organization thereafter assumes the financial risk of providing health care services to those enrollees. Id. § 1395w–25(b). MA Organizations can either provide services directly or contract with third-party healthcare providers to provide services. 42 C.F.R. §§ 422.100(a), 422.202.

¶ 5 Petitioners Maricopa Integrated Health System (“MIHS”) and Aurora Behavioral Health Care – Tempe and Aurora Behavioral Health System, LLC (“Aurora”) (collectively, “Providers”) operate acute inpatient psychiatric hospitals. They entered into Facility Participation Agreements (“Agreements”) with respondent United Behavioral Health, Inc. (“UBH”), an MA Organization that issues and administers various types of health insurance plans, including Medicare Advantage plans and ERISA-regulated plans. MIHS and Aurora provide mental health and substance abuse treatment services to Medicare enrollees enrolled with UBH (“MA Plan Members”). Aurora also provides these services to members of ERISA-regulated plans administered by UBH (“ERISA Plan Members”).

¶ 6 The Agreements require MIHS and Aurora to obtain authorization from UBH before providing healthcare services to MA Plan Members and ERISA Plan Members. Providers must accept UBH's payment for services as “payment in full” for services rendered to enrollees and cannot collect from them for unpaid services deemed medically unnecessary by UBH, unless enrollees agree to pay for these services.

¶ 7 The dispute in these cases concerns whether continued inpatient treatment by Providers was medically necessary, and therefore compensable, for several MA Plan Members and ERISA Plan Members initially hospitalized for mental health evaluations or treatment. UBH denied authorization for extended inpatient care as not medically necessary. Providers nonetheless continued providing inpatient care and sought reimbursement, which UBH denied.

¶ 8 Providers demanded arbitration with the American Arbitration Association pursuant to arbitration provisions in the Agreements, which are governed by the FAA. UBH filed separate lawsuits against MIHS and Aurora to stay the arbitration proceedings and determine arbitrability, with conflicting results. In the case against MIHS, the trial court found that the dispute was subject to arbitration and refused to stay the arbitration proceedings. In the case against Aurora, the court stayed the arbitration proceedings, ruling that the dispute concerned coverage and must be resolved through Medicare and ERISA administrative procedures.

¶ 9 The court of appeals consolidated the cases for purposes of appeal. It held that although the FAA presumptively favors arbitration, Congress overrode this presumption in the Medicare context by adopting an extensive administrative appeals process to resolve coverage disputes. United Behavioral Health v. Maricopa Integrated Health System , 237 Ariz. 559, 563, 565 ¶¶ 13, 24, 354 P.3d 1118, 1122, 1124 (App. 2015). The court determined that Providers' claims are coverage disputes that turn on construction of Medicare benefit plans and applicable Medicare standards. Id. at 567 ¶¶ 33–34, 354 P.3d at 1126. It therefore concluded that administrative review is Providers' exclusive remedy, making the disputes concerning MA Plan Members nonarbitrable. Id . ¶ 35 ; id. at 565 ¶ 24, 354 P.3d at 1124.

¶ 10 The court of appeals did not decide whether ERISA claims are subject to arbitration. Id. at 567 ¶¶ 36, 40, 354 P.3d at 1126. The record was unclear whether Aurora has standing to assert ERISA claims, so the court remanded for the trial court to make that determination. Id . at ¶ 40.

We granted Providers' petition for review because it presents issues of statewide importance. We have jurisdiction pursuant to article 6, section 5 of the Arizona Constitution and A.R.S. § 12–120.24.

II. DISCUSSION

A. Scope of the arbitration provisions

¶ 12 The arbitration provisions in the Agreements are sufficiently broad to encompass the disputes here. They require the parties to arbitrate disputes “about their business relationship” (MIHS Agreement) and “arising out of their business relationship” (Aurora Agreement). Although the Agreements do not explicitly define “business relationship,” they implicitly do so by setting forth the terms and conditions under which Providers participate in UBH's networks. Because Providers' entitlement to payment for unauthorized services concerns the terms and conditions of the parties' relationship, the arbitration provisions, unless preempted, apply to these disputes.

B. Preemption

¶ 13 The Agreements provide that because they affect interstate commerce, the FAA applies. The FAA establishes “a liberal federal policy favoring arbitration agreements” and requires courts to enforce these agreements “unless the FAA's mandate has been overridden by a contrary congressional command.” CompuCredit Corp. v. Greenwood , ––– U.S. ––––, 132 S.Ct. 665, 669, 181 L.Ed.2d 586 (2012). Contrary to Providers' argument, this “command” does not have to be expressly stated. Congressional intent may be deduced from the statute's text, history, or “an inherent conflict between arbitration and the statute's underlying purposes.” Shearson/Am. Express, Inc. v. McMahon , 482 U.S. 220, 227, 107 S.Ct. 2332, 96 L.Ed.2d 185 (1987).

¶ 14 UBH contends that Congress provided exclusive procedures in the Medicare Act and in ERISA for resolving coverage disputes that preempt arbitration here. UBH, as the party resisting arbitration, bears the burden to prove preemption. See CompuCredit , 132 S.Ct. at 672 n.4. Whether arbitration is preempted is a question of law we decide de novo. See Hutto v. Francisco, 210 Ariz. 88, 90 ¶ 7, 107 P.3d 934, 936 (App. 2005).

1. The Medicare Act

¶ 15 Congress has decreed that all claims “arising under” the Medicare Act must be resolved through HHS administrative review procedures. See Heckler v. Ringer , 466 U.S. 602, 611, 614–15, 104 S.Ct. 2013, 80 L.Ed.2d 622 (1984) (citing 42 U.S.C. § 405(g) ). A claim arises under the Medicare Act if “both the standing and the substantive basis for the presentation” of the claim is the Medicare Act or if the claim is “inextricably intertwined” with a claim for Medicare benefits. Id. at 614–15, 104 S.Ct. 2013. Funneling such claims through the Act's administrative procedures promotes uniformity and consistency in administering Medicare. Cf. ...