Court rules Medicare plans can be sued for nonpayment

The decision could help doctors in a similar case the Texas Medical Assn. has pending against PacifiCare.

By — Posted Oct. 8, 2007

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A recent Texas Supreme Court decision gives physicians and hospitals a remedy when health plans don't make payments under Medicare Advantage contracts, doctors and lawyers say.

The state high court on Aug. 31 ruled that a group of Texas hospitals can sue Aetna in state court for allegedly failing to reimburse them. This means the facilities won't have to go through the Medicare administrative appeals process.

The court said that under the law governing Medicare's private health plan component, the appeals system is intended to deal with coverage disputes, not payment disagreements over services provided.

"The federal administrative scheme exists, first and foremost, to protect enrollees' rights to health care, not to act as a de facto claims administrator for Medicare Advantage organizations and their delegates," the unanimous opinion states.

The case heads to a trial court, where a judge will determine Aetna's obligations to reimburse the hospitals for $13 million in back pay owed by a company with which an Aetna subsidiary contracted to administer its Medicare Advantage plan.

Although the case involves hospitals, the ruling also could have implications for a similar suit the Texas Medical Assn. and several physician groups brought against PacifiCare, said Rocky Wilcox, TMA general counsel. "This really puts the burden on insurers to take responsibility."

Aetna denies liability for the claims. "The decision does not address the merits of the hospitals' claims," said spokeswoman Cynthia B. Michener. "[It] simply allows the trial court to determine whether Aetna can be held responsible, if at all."

But Scott M. Clearman, an attorney for the hospitals, said that if Aetna succeeded in pushing facilities into what he said is a costly, time-consuming appeals process, "it would have meant there was no remedy at all."

In Christus Health Gulf Coast v. Aetna, five hospital groups had contracted with North American Medical Management of Texas to provide Medicare services to members of an Aetna subsidiary that participated in the Medicare Advantage program. NAMM went bankrupt in 2000 and stopped paying the hospitals, so the facilities turned to Aetna for reimbursement, court records show. Aetna said it already had paid NAMM for the services, and the health plan declined the hospitals' claims. The hospitals then wrote to the Centers for Medicare & Medicaid Services, asking it to hold Aetna accountable.

But CMS responded that Medicare Advantage regulations clearly limit the agency's ability to intervene in payment disputes between health plans and the hospitals with which they contract. "This type of contract dispute is an issue for the state judiciary to decide," CMS argued.

The hospitals sued Aetna in state court for breach of contract. A trial court in 2003 sided with Aetna, saying the Medicare Act preempted the hospitals' claims and the facilities first had to seek an administrative appeal. An appeals court upheld the ruling.

But the state Supreme Court disagreed, citing a 2004 decision by the 5th U.S. Circuit Court of Appeals in Rencare v. Humana. Judges in that case concluded that once the government distributes payments to Medicare health plans, it no longer has a financial interest in the matter.

Wider implications?

The TMA's Wilcox said the high court decision strengthens an Aug. 27 state trial court ruling holding PacifiCare liable for payment problems.

PacifiCare in the late 1990s contracted with a group of IPAs that eventually went bankrupt and failed to pay thousands of claims owed to doctors under its Medicare Advantage plan, Wilcox said. The insurer argued that it was not responsible for the unpaid claims, so the TMA and several physician groups sued in 2003. Though PacifiCare settled some of the claims, the TMA and some doctors continued their lawsuit.

A trial judge recently ruled that even when an HMO delegates reimbursement or other duties to another entity, the insurer "may not avoid its ultimate liability for the delegated entity's failure to comply with the applicable statutes and regulations" and remains subject to the Texas prompt-payment law. Doctors could recover up to $8 million, the TMA stated.

Officials from UnitedHealthcare, PacifiCare's parent company, did not return calls for comment.

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