Health Law Daily Medicare Advantage organization’s exhaustion argument cracks, overpayment challenge gets sent back
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Wednesday, May 11, 2016

Medicare Advantage organization’s exhaustion argument cracks, overpayment challenge gets sent back

By Bryant Storm, J.D.

Chiropractors can challenge the overpayment determinations of Humana Health Plan—a Medicare Advantage organization (MAO)—in state court, without exhausting administrative remedies because Humana does not act under a federal agency in its MAO capacity, the Sixth Circuit ruled in an unpublished decision. The Sixth Circuit reversed and remanded the case to a federal district court with instructions that the case be remanded back to the Ohio state court where the case was originally filed. The appellate court explained that the relationship between CMS and MAOs was insufficient to give rise to federal jurisdiction (Ohio State Chiropractic Association v. Humana Health Plan, May 9, 2016, Boggs, D.).

Overpayment. Humana historically paid the chiropractors it contracted with under its MA plans in accordance with the Medicare Part B fee schedule. However, due to a “technical error,” Humana started paying out-of-network chiropractic service providers the full amounts billed, which was in excess of the fee schedule amounts. When Humana identified the error, it notified providers and requested repayment of the overpayments. When the chiropractors did not return the overpayments and took action to appeal the decision, Humana began withholding portions of payments that the chiropractors would have received for providing subsequent care to Humana’s MA plan members.

Lawsuit. On behalf of individual chiropractors, the Ohio State Chiropractic Association filed suit against Humana in Ohio state court seeking: (1) damages for conversion, unjust enrichment, and breach of implied contract; (2) an order declaring that Humana could not recoup overpaid fees; (3) an injunction human from recouping the fees it from doing so; and (4) class certification. Humana removed the case to federal court. The MAO then moved to dismiss, asserting that the chiropractors failed to exhaust administrative remedies as required by 42 U.S.C. § 405(g). The federal court granted the motion and dismissed the case for failure to exhaust administrative remedies (see Chiropractors can’t sue over adjustment of claims, January 28, 2015).

Removal. The chiropractors appealed asserting the federal court lacked subject-matter jurisdiction to hear the case and the exhaustion requirement did not apply to their claims. The Sixth Circuit decided that the case turned on whether Humana had the authority to remove the case from the Ohio state court under 28 U.S.C. § 1442(a). The court explained that the statute provided a federal forum for “the United States or any agency thereof or any officer (or any person acting under that officer) of the United States or of any agency thereof, in an official or individual capacity, for or relating to any act under color of such office.” Therefore, the court reasoned, removal was only proper if Humana was “acting under” an “agency” or “officer” of “the United States.”

Formal delegation. The court explained that a private firm does not act under an agency of the United States by virtue of the fact that its activities are directed, supervised, and monitored by an agency. An agency relationship that reaches the “acting under” level requires detailed monitoring and supervision. Thus, the court reasoned, the relationship between CMS and MAOs does not give rise to the formal delegation required by the removal statute.

The case is No. 15-3130.

Attorneys: Daniel James Rudary (Brennan, Manna & Diamond, LLC) for Ohio State Chiropractic Association and Thaddeus C. Bosman, D.C., Inc. Pierre H. Bergeron (Squire Patton Boggs) for Humana Health Plan Inc. and Humana Health Plan of Ohio, Inc.

Companies: Ohio State Chiropractic Association; Thaddeus C. Bosman, D.C., Inc.; Humana Health Plan Inc.; Humana Health Plan of Ohio, Inc.

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