Medicare Advantage Plan Arbitration Clauses Preempted by Medicare Appeals Process

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The Arizona Supreme Court, in an interesting case involving a Medicare-related coverage dispute between a Medicare Advantage plan administrator, United Behavioral Health (UBH), and two inpatient psychiatric care providers, held that the Medicare administrative appeals process preempts the arbitration language contained in the UBH provider agreements. The court also remanded the case back to the state appeals court to determine whether ERISA similarly preempts arbitration of coverage disputes involving ERISA-regulated plans. The UBH case raises concerns over the availability and use of remedies beyond those set out in Medicare Advantage provider agreements when addressing coverage claims and disputes.

Coverage Pre-Authorization Denial

The dispute in United Behavioral Health v. Maricopa Integrated Health System concerns whether continued inpatient treatment of Medicare Advantage plan and ERISA plan beneficiaries initially hospitalized for mental health treatment was medically necessary, and therefore compensable. UBH refused to authorize the extended inpatient care as medically necessary. Notwithstanding the UBH denial, providers continued the beneficiaries’ inpatient care and made claims for reimbursement, which UBH denied. The providers then sought arbitration pursuant to the arbitration provisions in the provider agreements. UBH filed suit to stay the arbitration proceedings claiming that Congress provided exclusive procedures in the Medicare Act and in ERISA for resolving coverage disputes that preempt arbitration contending that the disputes must be resolved through the Medicare and ERISA administrative processes.

Preemption of Provider Agreement’s Arbitration Clause

Finding the court of appeals erred by deciding that whether the provider’s ERISA-related claims are arbitrable depends on whether the provider has standing to assert its claim, the Arizona Supreme Court vacated the court of appeals’ opinion and remanded the case back to the state appeals court to determine whether ERISA preempts the provider agreement’s arbitration clause.

Holding that all claims "arising under" the Medicare Act must be resolved through the U.S. Department of Health and Human Services’ (HHS) administrative review procedures, the Arizona Supreme Court stated that “[a] claim arises under the Medicare Act if "both the standing and the substantive basis for the presentation" of the claim is the Medicare Act or if the claim is ‘inextricably intertwined’ with a claim for Medicare benefits.” As a result, the court found the dispute was not subject to arbitration.

Concluding that if a “claim is "wholly collateral" to the Medicare Act's review provisions and outside HHS's expertise, it is not subject to” the Medicare appeals process, the court cited a 2004 decision by the Fifth Circuit Court of Appeals [RenCare, Ltd. v. Humana Health Plan of Texas, Inc., 395 F.3d 555 (5th Cir. 2004)] wherein the Fifth Circuit found the Medicare appeals process was not applicable to the following disputes:

  • Services that the Medicare Advantage plan has approved for an enrollee such that no enrollee is seeking benefits or
  • Services for which no enrollee was at risk of paying, and
  • Services where the government has no financial stake in the outcome.

In leaving providers with a back door to seek arbitration should HHS preclude the providers, as Medicare Advantage contract providers, from pursuing Medicare appellate rights, the court determined if:

“these remedies … do not apply to contract providers, this would foreclose the [p]roviders' ability to use the Act's administrative review procedures, and [p]roviders could then exercise their arbitration rights.”

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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