HLD, v. 33, n. 2 (February 2005)
Texas Appeals Court
Says Trial Court Lacked Jurisdiction Because Plaintiffs Failed To Exhaust
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
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.
v. Aetna, Inc., No. 14-03-01281-CV (Tex. Ct. App. Dec. 28, 2004).