The New Jersey Superior Court dismissed claims for nonpayment and underpayment of medical services brought by a New Jersey hospital against a managed care organization (MCO) dedicated to providing low- or no-cost health insurance to eligible individuals through Medicare and New Jersey Medicaid. In an unpublished opinion, the court found that the hospital’s Medicare-based claims failed as a matter of law because the non-participating hospital was not entitled to reimbursement for claims above the statutory rate imposed by the Medicare statute. With regards to the hospital’s Medicaid-based claims, the court found that the hospital’s complaint did not adequately state that it exhausted all administrative remedies prior to commencing its lawsuit ( MHA, LLC v. Healthfirst, Inc., May 25, 2016, Wilson, R.).
Facts. MHA, LLC operates the Meadowlands Hospital Medical Center, a general acute hospital in Secaucus, New Jersey (hospital). Healthfirst, Inc. (HF Inc.) is a New York corporation that administers health care plans to health care facilities through various wholly owned subsidiaries, including: Healthfirst PHSP, Inc. (PHSP); Managed Health, Inc. (MHI); HF Management Services, LLC (HFMS); Senior Health Partners, Inc. (SHP); and, Healthfirst Plan of New Jersey, Inc. (HFNJ). HFNJ is a not-for-profit Medicare Advantage (MA) MCO providing health insurance through Medicare and New Jersey Medicaid.
The crux of the hospital’s inadequate compensation complaint was that it provided medical services to HFNJ’s Medicare and Medicaid beneficiaries and billed HFNJ for medical services at its published rates for a total of $28.9 million. The hospital alleged that HFNJ only reimbursed for the statutory Medicare and Medicaid rates of $2.5 million and that its unpaid balance for 2010 to 2013 totaled in excess of $26.3 million.
HF Inc. responded that it is not bound to pay the hospital’s unilaterally derived rates and had no such contractual obligation with the hospital to do so. The hospital asserted that as a non-participating provider, it was entitled to be compensated at its “usual” and “customary” rate for all services that it provided to HFNJ’s enrollees.
Procedural history. The lawsuit, initially filed in New Jersey state court, was removed to federal district court based on diversity jurisdiction. However, while pending in the federal district court, the hospital voluntarily dismissed certain defendants and thereby extinguished diversity jurisdiction. The district court eventually dismissed the hospital’s remaining claims in February 2015. On appeal, the Third Circuit remanded the case to New Jersey state court because: (1) the hospital voluntarily dismissed the foreign (New York) defendants, thereby extinguishing diversity jurisdiction; (2) the hospital’s complaint alleged only state law claims that did not raise a substantial federal issue; and (3) the state court was capable of interpreting and applying the Medicare and Medicaid Act to state law claims.
Back in the New Jersey state court again, the hospital conceded that the court could not exercise jurisdiction over the SHP, MHI, and PHSP subsidiaries. As such, these subsidiaries were dismissed. HF Inc. then filed a motion to dismiss the complaint.
Medicare-based claims. The court found that the hospital’s Medicare-based claims failed as a matter of law because the hospital was not entitled to reimbursement for claims above the statutory rate imposed by the Medicare statute. The Medicare statute and regulations explicitly limit the rate at which a MA organization, such as HFNJ, must reimburse a non-participating provider and the rate a non-participating provider may receive as reimbursement. Accordingly, the hospital’s claims that it should have been reimbursed in excess of this statutorily imposed reimbursement rate were dismissed with prejudice.
Medicaid-based claims. The court decided that the hospital's Medicaid-based claims should be dismissed because neither the hospital’s complaint nor its submissions, both written and oral, sufficiently alleged that it exhausted all available administrative procedures for resolving disputed claims prior to filing suit. According to the court, the hospital, in effect, initiated its lawsuit with the intent that the court act as a claims administrator, thereby discounting the expertise of the arbitrator and undermining the purpose of the state’s arbitration process. The Medicaid-based claims were also dismissed.