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Liberty Dialysis - Hawaii LLC v. Kaiser Foundation Health Plan, Inc.

United States District Court, D. Hawaii

September 28, 2017

LIBERTY DIALYSIS - HAWAII LLC, Plaintiff,
v.
KAISER FOUNDATION HEALTH PLAN, INC., and KAISER FOUNDATION HOSPITALS, Defendants.

          ORDER DENYING DEFENDANTS KAISER FOUNDATION HEALTH PLAN, INC. AND KAISER FOUNDATION HOSPITALS' MOTION TO DISMISS COMPLAINT, ECF NO. 9

          J. MICHAEL SEABRIGHT CHIEF UNITED STATES DISTRICT JUDGE

         I. INTRODUCTION

         Defendants Kaiser Foundation Health Plan, Inc. (“KFHP” or the “Plan”) and Kaiser Foundation Hospitals (“KFH”) (collectively “Kaiser Foundation”) move to dismiss the complaint filed against them by Plaintiff, Liberty Dialysis-Hawaii LLC (“Liberty”). ECF No. 9. Kaiser Foundation contends that this court lacks subject-matter jurisdiction because Liberty's claims arise under the Medicare Act and Liberty has neither presented its claims to the Secretary of the Department of Health and Human Services nor exhausted administrative remedies under the Act. Id. The court finds that the claims do not arise under the Medicare Act and therefore DENIES the motion to dismiss.

         II. BACKGROUND

         A. Basic Statutory Framework

         Medicare Advantage, which was established in 1997 as Medicareਚ≱ under Part C of the Medicare Act, [1] is an alternative to the original fee-for-service option that is included in Parts A and B of the Act (referred to as “traditional” or “original” Medicare). 42 U.S.C. § 1395w-21(a). Under the Medicare Advantage option, Medicare beneficiaries elect to receive Medicare benefits through a plan offered by a Medicare Advantage Organization (“MAO”), generally a private insurer, that contracts with the Centers for Medicare and Medicaid (“CMS”) to administer Medicare benefits to plan enrollees. 42 U.S.C. § 1395w-21, 27. The MAO assumes the risk of providing benefits to its enrollees in exchange for fixed payments from CMS that are based on the number of beneficiaries enrolled in the plan or plans. See 42 U.S.C. § 395w-23, -25(b); 42 CFR § 422.208(a).

         The MAO may select third-party providers to treat its enrollees, and these providers may or may not have contractual relationships with the MAO. See 42 U.S.C. § 395w-22(d)(1), -25(b)(4). Those that do are called “contract providers, ” and the MAO pays them at contractually agreed-upon rates. “The Medicare Act permits these types of contracts, and provides very few limitations on how they can be drafted.” Tenet Healthsystem GB, Inc. v. Care Improvement Plus S. Cen. Ins. Co., 2017 WL 3567819 at *2 (11th Cir. Aug. 18, 2017) (citing as an example 42 C.F.R. § 422.520(b), requiring contracts between MAOs and providers to contain a prompt-payment provision); RenCare, Ltd. v Humana Health Plan of Tex., Inc., 395 F.3d 555, 559 (2004) (same). But an MAO must pay providers with whom it has no contract (“noncontract providers”) the same rates set by the Medicare Act and its regulations. 42 U.S.C. § 1395w-22(a)(2)(A); 42 C.F.R. § 422.214(a).

         B. Factual Background

         KHFP is a Medicare Advantage Organization. Compl. ¶ 8, ECF No. 1-2; Notice of Removal ¶ 5, ECF No. 1. Under the terms of a 2007 letter of agreement (the “Agreement”) between Liberty and KFH, Liberty agreed to provide outpatient renal dialysis and related services to KFHP members, including the Plan's Medicare Advantage members. Compl. ¶ 7. KFH agreed to pay Liberty for such treatment and services according to a rate table appended to the Agreement. Id. ¶¶ 7-9. According to Liberty, beginning in January 2011, Kaiser Foundation stopped paying Liberty on time and at the contracted rates for services provided to KFHP's members, including, but not limited to, its Medicare Advantage plan members. Compl. ¶ 17. It reduced its payments for some services, stopped paying altogether for others, and extended its payment cycle. Compl. ¶ 17. Liberty contends that Kaiser Foundation's actions coincided with changes to the Medicare reimbursement structure that have no bearing on its contract with KFH. Compl. ¶¶ 18-19.

         C. Procedural Background

         Liberty filed a state-court action asserting claims for breach of contract, accounting, and declaratory judgment. Compl. ¶¶ 41-56. Kaiser Foundation removed the case to federal court. Notice of Removal, ECF No. 1. On July 20, 2017, Kaiser filed this Motion to Dismiss Complaint for Lack of Subject Matter Jurisdiction. ECF No. 9. Liberty filed an Opposition on September 18, 2017, ECF No. 22, and Kaiser Foundation filed its Reply on September 11, 2017. ECF No. 24. A hearing was held on September 25, 2017.

         III. STANDARD OF REVIEW

         Federal Rule of Civil Procedure 12(b)(1) authorizes a court to dismiss claims over which it lacks subject-matter jurisdiction. The moving party “should prevail [on a Rule 12(b)(1) motion to dismiss] only if the material jurisdictional facts are not in dispute and the moving party is entitled to prevail as a matter of law.” Casumpang v. Int'l Longshoremen's & Warehousemen's Union, 269 F.3d 1042, 1060-61 (9th Cir. 2001) (citation and quotation marks omitted); Tosco Corp. v. Cmtys. for a Better Env't, 236 F.3d 495, 499 (9th Cir. 2001).

         A Rule 12(b)(1) challenge may be either facial or factual. Safe Air for Everyone v. Meyer, 373 F.3d 1035, 1039 (9th Cir. 2004). In a facial attack such as the one here, the court may dismiss a complaint when the allegations of and documents attached to the complaint are insufficient to confer subject-matter jurisdiction. See Savage v. Glendale Union High Sch. Dist. No. 205, 343 F.3d 1036, 1039 n.2 (9th Cir. 2003). When determining whether subject-matter jurisdiction exists, all allegations of material fact are taken as true and ...


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