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Texas Appeals Court Says Trial Court Lacked Jurisdiction Because Plaintiffs Failed To Exhaust Administrative Remedies

 
 

HLD, v. 33, n. 2 (February 2005)

Texas Appeals Court Says Trial Court Lacked Jurisdiction Because Plaintiffs Failed To Exhaust Administrative Remedies

Aetna, Inc. owns a health maintenance organization, which became a Medicare+Choice (M+C) organization. Aetna contracted with North American Medical Management (NAMM) to administer the M+C program. As part of the contract, Aetna paid NAMM a monthly capitation payment, and NAMM paid the claims for the M+C patients. NAMM in turn contracted with Christus Health Gulf Coast, Christus Health Southeast Texas, Gulf Coast Division, Inc., Memorial Hermann Hospital System, and Baptist Hospitals of Southeast Texas (collectively Hospitals) to provide the healthcare services. NAMM became insolvent and failed to pay 6,000 outstanding claims worth over $13 million to the Hospitals. Aetna refused the Hospitals' demand for payment, and the Hospitals sued Aetna on claims of breach of contract, quantum meruit, breach of fiduciary duty, and to collect on the accounts. Aetna moved to dismiss on the ground the Hospitals failed to exhaust their administrative remedies under Medicare, and thus the trial court did not have subject matter jurisdiction. The trial court granted the motion and the Hospitals appealed.

The Texas Court of Appeals affirmed the trial court's judgment on the ground the Hospitals had not exhausted their administrative remedies. The appeals court noted that courts have subject matter jurisdiction to review a Medicare claim only if the party seeking payment has exhausted their administrative remedies. It does not matter what label the party puts on a claim for it to constitute a claim arising under the Medicare Act, said the court, as long as the claim is either based on the Medicare Act or the claim is "inextricably intertwined" with a claim for benefits. The appeals court concluded the Hospitals' claims arose under the Medicare Act even though the Hospitals characterized them as contract claims because the contract claims were intertwined with claims for benefits under Medicare. Because the Hospitals' claims were based on the Medicare Act they were required to exhaust their administrative remedies before pursuing judicial review, and thus the trial court did not have subject matter jurisdiction over the claims.

The Hospitals argued the administrative process did not apply to their claims because the administrative process does not apply to providers, there was no coverage dispute, and there was no organizational determination that would have triggered the administrative process. On the Hospitals' first argument that the administrative process did not apply to them, the appeals court determined that, although the beneficiaries are the primary focus of the administrative process, providers that have an interest in the outcome are parties to the proceedings and are provided for in the administrative process.

The Hospitals also argued that the administrative process only applies to a coverage determination and did not apply to their claims because the claims were based on an interpretation of the contract. The appeals court determined that even if the claims required contract interpretation, the agency should be allowed to consider the issue before it could be brought before a court.

The Hospitals then argued that nonpayment by default is not an organization determination and the administrative process could not be invoked. The appeals court concluded that Aetna clearly made an organization determination by refusing to pay the claims NAMM failed to pay, and that the administrative process applied to the dispute. Accordingly, the appeals court affirmed the trial court's judgment.

Christus Health Gulf Coast v. Aetna, Inc., No. 14-03-01281-CV (Tex. Ct. App. Dec. 28, 2004).   

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