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Ninth Circuit Affirms Dismissal of Non-Contracted Provider’s Lawsuit Against Managed Care Organization for Failure to Exhaust Administrative Review Process

In a recent decision, the United States Court of Appeals for the Ninth Circuit affirmed dismissal of a medical provider’s complaint against a Medicare Advantage Organization (“MAO”) because the provider failed to exhaust all administrative remedies under the Medicare Act. Glob. Rescue Jets, LLC v. Kaiser Found. Health Plan, Inc., 30 F.4th 905 (9th Cir. 2022).

In Global Rescue, an air ambulance provider flew two Medicare Advantage members from Mexico to San Diego. Id. at 908–09. The provider and the member’s MAO did not have a contract, which otherwise would have set the rate of payment. Id. at 910. Therefore, the out-of-network provider billed its “usual and customary” rates. Id. at 909. The MAO, however, “paid only a fraction of the billed amount.” Id. The provider then “vigorously disputed” the alleged underpayments, and sought reconsideration for at least one of the claims. Id. at 910. Even so, the provider failed to pursue at least three additional steps in the administrative review process. Id. at 915.

Instead, the provider filed suit for the additional money it believed it was owed. Id. at 910. The trial court dismissed the complaint on jurisdictional grounds, as the provider admittedly failed to exhaust all of Medicare’s administrative remedies. Id. at 911. The provider appealed, arguing that exhaustion was not required and, to the extent it was, “should have been excused.” Id. at 909.

The Ninth Circuit affirmed. It described traditional Medicare’s five-step appeals process and the benefits it provides. Id. at 911–13. These include “reducing the burden on courts,” having the benefit of agency “experience and expertise,” and “compil[ing] a record” that “is adequate for judicial review.” Id. at 913 (internal quotation marks and citation omitted). The Court noted that Congress had applied traditional Medicare’s administrative appeals scheme—with only “slight revisions”—to disputes between MAOs and their enrollees. Id. Therefore, the Court held that “the constraints on judicial review” under traditional Medicare “apply equally to claims for benefits” administered by a MAO. Id. at 914. The Court also found that “the same rationale for requiring exhaustion under original Medicare applies to” MAOs “as well.” Id.

The Ninth Circuit rejected the provider’s argument that exhaustion should be “excused” because the claims involved “supplemental benefits” and, therefore, did not “arise under” the Medicare Act. Id. at 917–18. The Court found that regardless of whether the benefits were “supplemental,” they still “constitute[d] benefits that are offered under” the Medicare Advantage statutory scheme. Id. at 918. And the administrative review statute’s text confirmed that it applied to supplemental benefits. Id. Further, the Court deemed all of the provider’s claims “inextricably intertwined with claims for benefits under” the MAO portion of “the Medicare Act.” Id. at 919.

The Court also rejected the provider’s claim that the statute required exhaustion only for a federal “officer or employee,” terms that did not encompass a MAO. Id. at 915. The Court’s reasoning was three-fold. First, MAOs, despite being private companies, “are also an integral part of the administrative review scheme.” Id. at 916. Second, absent MAOs being officers or employees, the administrative review process would be “wholly optional,” and thus undermine the statutory scheme and the purposes of exhaustion. Id. at 916–17. Third, the provider’s interpretation of the statute would have made a separate provision nonsensical. Id. at 917.

Rescue Jets of course highlights the importance of exhausting all (not just some) available administrative remedies. Additionally and separately, the Ninth’s Circuit’s holding on whether a MAO is an “officer or employee” could impact other disputes. For example, courts have rejected some MAOs’ attempts to remove state court lawsuits under the federal “officer” removal statute or the Federal Tort Claims Act. Id. at 917 n.5 (citations omitted). The Ninth Circuit acknowledged this potential tension but failed to address it (id.), and the Court seemingly limited its interpretation of “officer or employee” to how “those terms are used in” one sentence of the administrative review statute (id. at 917). Thus, it remains to be seen how Rescue Jets will impact the broader question of how and when MAOs are federal officers and employees under federal law.

© Copyright 2023 Squire Patton Boggs (US) LLPNational Law Review, Volume XII, Number 342
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About this Author

Jeffrey DeBeer Litigation Attorney Squire Patton Boggs Cincinnati, OH
Senior Associate

Jeffrey W. DeBeer is a litigator with lead counsel experience at the trial and appellate court levels. He practices in both state and federal courts, often on matters involving complex payor-provider healthcare disputes and consumer protection statutes. Jeff has also represented clients in class actions, complex business disputes, arbitration proceedings, preliminary injunctions and government investigations.

An active member of the community, Jeff has coached mock trial at the University of Cincinnati College of Law, a local high school and as part of the Federal Bar Association’s...

513-361-1264
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