Medicare Exhaustion and a Brewing Circuit Split?

August 23, 2017

The U.S. Court of Appeals for the 11th Circuit issued its opinion in Tenet Healthsystem GB, Inc. v. Care Improvement Plus South Central Insurance Company on Aug. 18, setting up a brewing circuit split with the 6th Circuit’s 2016 decision in Ohio State Chiropractic Ass’n. v. Humana Health Plan, Inc.The central issue in both cases is whether a noncontracted hospital must first exhaust Medicare administrative remedies before suing a Medicare Advantage Organization (MAO) over payment disputes.

In the 11th Circuit case, several hospitals treated the health plan’s members after obtaining authorization for the services. Later, the health plan determined that the services were not covered and recouped payment. The hospitals sued in federal court and the district court dismissed the case based on the conclusion that the hospitals, as noncontracted providers, must pursue and exhaust the administrative remedies available to Medicare providers pursuant to 42 C.F.R. Part 422.

On appeal, the 11th Circuit affirmed, holding that the hospitals must pursue and exhaust their remedies because they were parties to an “organization determination” as de facto assignees of the health plan’s members, since they agreed to hold the members harmless and not bill them for the services rendered. The court expressed its sympathy for the hospitals and the Department of Health and Human Services’ concerns — which the government articulated in amicus briefs — about the backlog of Medicare appeals. However, the court explained that if “this result strains the resources of [the Centers for Medicare and Medicaid Services], any solution must come from Congress or the agency.”

In Ohio State Chiropractic Association, the health plan recouped payments from a noncontracted provider after it overpaid the provider due to a computer “glitch.” The provider sued in state court, and the health plan removed the matter to federal court based on the “federal officer” doctrine and moved to dismiss the case based on the failure to exhaust administrative remedies. The district court granted the motion to dismiss.

On appeal, however, the 6th Circuit found removal to be improper and reversed the district court. The court did not stop there, addressing the failure-to-exhaust argument in dicta. As the court explained, although it did not need to decide that issue, it found the argument unpersuasive because the heart of the case did not involve the denial of benefits to a Medicare beneficiary; the only dispute was over payment between the provider and the health plan.

Prior to these two decisions, district courts and state courts grappled with the issue of Medicare exhaustion in the context of lawsuits between providers and MAOs and reached differing conclusions. As these cases play out in the lower courts, noncontracted providers will need to consider what steps to take, if any, to administratively appeal MAO payment disputes before bringing lawsuits.