Cedars-Sinai v. National League of Postmasters of the United States ( 2007 )

FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
CEDARS-SINAI MEDICAL CENTER, a 
non-profit California Corporation,
Plaintiff-Appellant,
v. No. 05-55710
NATIONAL LEAGUE OF  D.C. No.
CV-05-01775-RGK
POSTMASTERS OF THE UNITED
STATES, a District of Columbia, OPINION
corporation doing business as PBP
Health Plans,
Defendant-Appellee.

Appeal from the United States District Court
for the Central District of California
R. Gary Klausner, District Judge, Presiding
Argued and Submitted
April 11, 2007—Pasadena, California
Filed August 10, 2007
Before: Harry Pregerson, Circuit Judge,
Ferdinand F. Fernandez, and Eugene E. Siler, Jr.,*
Senior Circuit Judges.
Opinion by Judge Pregerson
*The Honorable Eugene E. Siler, Jr., Senior United States Circuit Judge
for the Sixth Circuit, sitting by designation.
9629
9632 CEDARS-SINAI v. NAT’L LEAGUE OF POSTMASTERS
COUNSEL
Leo Luevanos (brief) and Barry Sullivan (argued), Law
Offices of Stephenson, Acquisto & Colman, Burbank, Cali-
fornia, for the plaintiff-appellant.
Robert C. Bohner (brief) and Michael L. Flowers (argued),
Sedgwich, Detert, Moran & Arnold, LLP, Los Angeles, Cali-
fornia, for the defendant-appellee.
OPINION
PREGERSON, Circuit Judge:
Plaintiff Cedars-Sinai hospital brought suit in California
Superior Court against Defendant National League of Post-
masters of the United States, doing business as PBP Health
Plans (“PBP Health”). Cedars-Sinai alleged that it had pro-
vided services to a patient insured by PBP Health’s health
care plan but that PBP Health did not reimburse Cedars-Sinai
according to the terms of their contract.
PBP Health removed the matter to federal court, asserting
diversity and federal question jurisdiction, and then promptly
moved to dismiss the action on the basis that Cedars-Sinai’s
claims were preempted. The district court granted the motion
to dismiss, finding that Cedars-Sinai’s claims were preempted
by the Federal Employee Health Benefits Act (“FEHBA”), 5
U.S.C. § 8901, et seq., and that Cedars-Sinai had failed to
exhaust FEHBA’s administrative remedies. Cedars-Sinai
appealed. We have jurisdiction under 28 U.S.C. § 1291. For
the reasons set forth below, we reverse the district court.
BACKGROUND
I. Factual Background
Cedars-Sinai is a licensed hospital and non-profit Califor-
nia corporation. PBP Health is a professional organization
CEDARS-SINAI v. NAT’L LEAGUE OF POSTMASTERS 9633
that administered a federal health benefit plan (“the Plan”).
The Plan was created pursuant to FEHBA, which authorizes
the U.S. Office of Personnel Management (“OPM”) to con-
tract with insurance carriers to provide health benefits for fed-
eral employees. The Plan was formed by contract between
OPM and PBP Health. Under the terms of the contract, PBP
Health was the administrator of the Plan and was responsible
for managing and paying claims for benefits owed to enroll-
ees. Cedars-Sinai and PBP Health entered into a separate con-
tract that governs the payment of services rendered by
Cedars-Sinai to members of the Plan.
On four separate occasions between October 18, 2001, and
January 24, 2002, patient “S.M.,” an enrollee and participant
in the Plan, went to Cedars-Sinai for treatment. On all four
occasions, PBP Health verified that S.M. was a Plan partici-
pant and authorized Cedars-Sinai to perform medical services.
Cedars-Sinai submitted claims totaling $742,217.93, but PBP
Health paid only $168,947.44. S.M. passed away on February
16, 2002.
II. Procedural History
On January 7, 2005, Cedars-Sinai filed a complaint against
PBP Health in state court alleging: (1) breach of contract; (2)
negligent misrepresentation; (3) common count for work,
labor, and services; and (4) relief against forfeiture. Cedars-
Sinai contends that PBP Health refused to compensate it for
the medical services, supplies, and/or equipment it provided
for S.M.’s four visits at the rate at which the parties con-
tracted. Specifically, Cedars-Sinai contends that PBP Health
improperly claimed (1) that it was not required to pay the con-
tracted rate for federal employees because of S.M.’s death;
and (2) that it need not pay the medicare rate because S.M.
was no longer an employee. Cedars-Sinai contends that the
contracted rate for federal employees is due and owing for
medical services that Cedars-Sinai provided to S.M. Cedars-
9634 CEDARS-SINAI v. NAT’L LEAGUE OF POSTMASTERS
Sinai maintains that the outstanding balance for these medical
claims is $424,826.49.
On March 11, 2005, PBP Health removed this case to fed-
eral court because (1) federal courts have exclusive jurisdic-
tion over cases arising under FEHBA, and (2) diversity
jurisdiction exists. On March 14, 2005, PBP Health promptly
filed a motion to dismiss Cedars-Sinai’s complaint for failure
to state a claim. Relying heavily on St. Mary’s Hospital v.
Carefirst of Maryland, Inc., 192 F. Supp. 2d 384 (D. Md.
2002) — a district court opinion from another circuit — the
district court dismissed Cedars-Sinai’s complaint for lack of
subject matter jurisdiction. See Fed. R. Civ. P. 12(b)(1). Spe-
cifically, the court found that Cedars-Sinai’s claims were pre-
empted by FEHBA and that Cedars-Sinai failed to exhaust
FEHBA’s mandatory administrative remedies before bringing
this action. Cedars-Sinai filed a timely appeal on May 10,
2005.
Cedars-Sinai contends that FEHBA does not preempt its
claims because it is not asserting claims to recover medical
“benefits.” Rather, Cedars-Sinai maintains that this is an
action to recover on PBP Health’s independent contractual
obligation to pay for the care and treatment provided by
Cedars-Sinai to S.M.
DISCUSSION
I. Standard of Review
We review the district court’s decision regarding the
absence of subject matter jurisdiction de novo. See Delta Sav.
Bank v. United States, 265 F.3d 1017, 1024 (9th Cir. 2001).
Similarly, we review the district court’s determination of
complete preemption de novo. See Roach v. Mail Handlers
Benefit Plan, CNA, 298 F.3d 847, 849 (9th Cir. 2002).
We accept all allegations of material fact in the complaint
as true and construe them in the light most favorable to the
CEDARS-SINAI v. NAT’L LEAGUE OF POSTMASTERS 9635
non-moving party. See Burgert v. Lokelani Bernice Pauahi
Bishop Trust, 200 F.3d 661, 663 (9th Cir. 2000). However, we
are “not required to accept as true conclusory allegations
which are contradicted by documents referred to in the com-
plaint,” and we do “not . . . necessarily assume the truth of
legal conclusions merely because they are cast in the form of
factual allegations.” Warren v. Fox Family Worldwide, Inc.,
328 F.3d 1136, 1139 (9th Cir. 2003) (internal citations and
quotation marks omitted).
II. Cedars-Sinai’s Claims Are Not Preempted by
FEHBA
FEHBA requires that OPM contract with qualified insurers
so that the insurers can provide healthcare benefits for federal
employees. See 5 U.S.C. § 8902. FEHBA’s preemption provi-
sion, 5 U.S.C. § 8902(m)(1), ensures that FEHBA benefits are
administered uniformly. See Hayes v. Prudential Ins. Co. of
Am., 819 F.2d 921, 925 (9th Cir. 1987). The preemption pro-
vision states:
The terms of any contract under this chapter which
relate to the nature, provision, or extent of coverage
or benefits (including payments with respect to bene-
fits) shall supersede and preempt any State or local
law, or any regulation issued thereunder, which
relates to health insurance or plans.
5 U.S.C. § 8902(m)(1).
To preempt state-law causes of action, federal law must
both (1) provide remedies that displace state law remedies
(displacement of remedies) and (2) conflict with state law
(conflict preemption). See Botsford v. Blue Cross & Blue
Shield of Montana, Inc., 314 F.3d 390, 393 (9th Cir. 2002)
(citing Abraham v. Norcal Waste Sys., Inc., 265 F.3d 811, 819
(9th Cir. 2001) (discussing complete preemption in the con-
9636 CEDARS-SINAI v. NAT’L LEAGUE OF POSTMASTERS
text of the Employee Retirement Income Security Act of 1974
(“ERISA”), 29 U.S.C. §§ 1001-1461)).
A. Displacement of Remedies
[1] By its terms, FEHBA’s administrative dispute mecha-
nism applies to disputes between “covered individuals” and
carriers over “claims filed under the plan.” 5 C.F.R.
§ 890.105(a)(1). A “covered individual” is defined as “an
enrollee or a covered family member.” Id. § 890.101(a). A
“claim” is defined as a request for “payment of a health-
related bill” or “provision of a health-related service or sup-
ply.” Id. All claims must be submitted first to the carrier. See
id. § 890.105(a)(1). If the carrier denies the claim in whole or
in part, the covered individual may ask the carrier for recon-
sideration. See id. §§ 890.105(a)(1), 890.105(b). If the carrier
affirms its denial of the claim, the covered individual may ask
OPM to review the claim. See id. §§ 890.105(a)(1),
890.105(e). FEHBA’s implementing regulations impose an
express exhaustion requirement, pursuant to which the cov-
ered individual “must exhaust both the carrier and OPM
review processes . . . before seeking judicial review of the
denied claim.” Id. §§ 890.105(a)(1), 890.107(d)(1).
[2] This preemption mechanism was not designed for, nor
available to resolve, contractual disputes between carriers and
health care providers. By the express terms of FEHBA’s
implementing regulations, the administrative process is con-
fined to requests for “payment of a health-related bill” or
“provision of a health-related service or supply” that are
“filed under the plan.” Id. §§ 890.101(a), 890.105(a)(1). A
provider’s contractual claim against a carrier does not consti-
tute a request for “payment of a health-related bill” within the
meaning of this provision. And even if it did, it would not be
a claim “under the plan,” because it is predicated not on the
plan but on the contract between the carrier and the medical
services provider.
CEDARS-SINAI v. NAT’L LEAGUE OF POSTMASTERS 9637
Moreover, FEHBA’s implementing regulations make clear
that OPM has created a remedial mechanism solely for the
claims of “covered individuals,” not for the claims of provid-
ers. A “covered individual” is an enrollee or a covered family
member. Id. § 890.101. The regulations provide that “the cov-
ered individual may ask the carrier to reconsider its denial” of
a claim and that “[t]he covered individual has 6 months” to
seek reconsideration. Id. §§ 890.105(a)(1), 890.105(b)(1)
(emphasis added). Thereafter, “the covered individual may
ask OPM to review the claim” following a denial by the car-
rier. Id. § 890.105(a)(1) (emphasis added); see also id.
§ 890.105(b)(3) (“The covered individual may write to OPM
and request that OPM review the carrier’s decision”) (empha-
sis added). Finally, “a covered individual may seek judicial
review of OPM’s final action on the denial of a health bene-
fits claim.” Id. § 890.107(c) (emphasis added).
[3] FEHBA’s implementing regulations do permit “other
individuals or entities” to pursue a claim administratively if
they are “acting on behalf of a covered individual and . . .
have the covered individual’s specific written consent to pur-
sue payment of the disputed claim.” Id. § 890.105(a)(2). Nei-
ther party contends that Cedars-Sinai has S.M.’s specific
written consent to pursue payment of a disputed claim.
Where, as here, a health care provider seeks to recover money
on its own behalf pursuant to its contract with a carrier, it is
not “acting on behalf of a covered individual.” Thus, Cedars-
Sinai cannot invoke the administrative review process, even
if it were pursuing a “claim filed under the plan.”1
1
We note that if Cedars-Sinai’s contractual claims against PBP Health
are held to be subject to FEHBA’s administrative scheme, the result would
not only be that Cedars-Sinai cannot sue PBP Health now, but that Cedars-
Sinai can never sue PBP Health. This is because the implementing regula-
tions provide that a suit seeking judicial review of a denied claim “must
be brought against OPM and not against the carrier . . . .” 5 C.F.R.
§ 890.107(c). Thus, if the district court’s view of the regulatory scheme
were accepted, exhaustion of FEHBA’s administrative remedies would
lead not to a suit by Cedars-Sinai against PBP Health, but instead to a suit
by Cedars-Sinai against OPM — a suit to which PBP Health (whose rights
and obligations under its contract with Cedars-Sinai are at issue) would
not be a party.
9638 CEDARS-SINAI v. NAT’L LEAGUE OF POSTMASTERS
B. Conflict Preemption
As both parties recognize, FEHBA was established to gov-
ern employee benefit plans established for federal employees.
The parties dispute whether Cedars-Sinai’s suit “relates to” a
“benefit.” 5 U.S.C. § 8902(m)(1).
[4] In Botsford, we analyzed the parameters of FEHBA’s
preemption provision. Analyzing the meaning of “benefits,”
we stated that “ ‘an assertion that the plan failed to live up to
its contractual duty in ways that [state] law would deem
appropriate’ is, at its root, ‘a demand for contractual benefits
that were not realized.’ ” Botsford, 314 F.3d at 395 (internal
citations omitted). Unlike this case, however, Botsford
involved claims brought by a plan enrollee for reimbursement
related to the benefits that he received from a medical pro-
vider. In contrast, in this case the claims are brought by a
third-party hospital which could not be not considered a “cov-
ered individual” or other relevant party under FEHBA or its
implementing regulations. Consequently, Cedars-Sinai does
not have a remedy under the statute. Because Cedars-Sinai’s
claims arise from PBP Health’s contractual obligation to
Cedars-Sinai — an obligation that arose when PBP Health
represented that S.M. was covered by the Plan — Cedars-
Sinai’s claims do not “relate to” “benefits” to S.M.
[5] Because Cedars-Sinai’s claims do not meet both
requirements for complete preemption — displacement of
remedies and conflict preemption — we find that Cedars-
Sinai’s claims are not preempted.
III. ERISA Caselaw Supports Cedars-Sinai’s
Contention that FEHBA Does Not Preempt its
Claims Against PBP Health
[6] Cedars-Sinai cites to several ERISA cases to support its
position that its claims are not preempted by FEHBA.2
2
Because there is no Ninth Circuit authority discussing FEHBA pre-
emption issues involving the claims of a third-party health care provider,
CEDARS-SINAI v. NAT’L LEAGUE OF POSTMASTERS 9639
Cedars-Sinai first cites to The Meadows v. Employers Health
Insurance Corp., 47 F.3d 1006 (9th Cir. 1995). In that case,
we held that ERISA did not preempt the plaintiff health care
provider’s state law claims for breach of contract, estoppel,
and negligent misrepresentation. The claims arose out of the
defendant health insurer’s representation to the plaintiff health
care provider that the wife of one of defendant’s former
employee’s was covered by the plan’s policy. See id. at 1007.
After services were rendered, the defendant refused to reim-
burse or recognize an obligation to the plaintiff, despite prior
assurances of coverage. See id. at 1008.
we may look to analogous cases involving the application of ERISA’s pre-
emption provision. See Botsford, 314 F.3d at 393-94 (recognizing that
FEHBA’s preemption provision “closely resembles ERISA’s express pre-
emption provision, and precedent interpreting the ERISA provision thus
provides authority for cases involving the FEHBA provision”).
Section 514(a) of ERISA provides that ERISA provisions “supersede
any and all State law insofar as they may now or hereafter relate to any
employee benefit plan . . . .” 29 U.S.C. § 1144(a) (emphasis added). Sev-
eral years ago, the Supreme Court found the “relate to” language of
§ 514(a) to be vague and noted
“our prior attempt[s] to construe the phrase ‘relate to’ d[o] not
give us much help drawing the line here.” In order to evaluate
whether the normal presumption against pre-emption has been
overcome in a particular case, we concluded that we “must go
beyond the unhelpful text and the frustrating difficulty of defin-
ing its key term, and look instead to the objectives of the ERISA
statute as a guide to the scope of the state law that Congress
understood would survive.”
De Buono v. NYSA-ILA Med. & Clinical Servs. Fund, 520 U.S. 806, 813-
14 (1997) (quoting N.Y. State Conference of Blue Cross & Blue Shield
Plans v. Travelers Ins. Co., 514 U.S. 645, 655-56 (1995)). The Supreme
Court’s efforts at interpreting the “relate to” language in § 514(a) have
yielded the following two-part test: “A law ‘relate[s] to’ a covered
employee benefit plan for the purposes of § 514(a) ‘if it [1] has a connec-
tion with or [2] [a] reference to such a plan.’ ” Blue Cross of Cal. v. Anes-
thesia Care Assocs. Med. Group, Inc., 187 F.3d 1045, 1052 (9th Cir.
1999) (quoting Cal. Div. of Labor Standards Enforcement v. Dillingham
Constr., 519 U.S. 316, 324 (1997))
9640 CEDARS-SINAI v. NAT’L LEAGUE OF POSTMASTERS
The Arizona Superior Court initially dismissed the plain-
tiff’s claims, noting that because the plaintiff had sued as an
assignee of the former employee, the plaintiff’s claims were
preempted. See id. The court went on to note that had the
plaintiff not sued derivatively, it “might have had a claim
based simply on the representations that the company made”
to it. Id. Thereafter, the plaintiff filed a second action against
the defendant for claims that were non-derivative and inde-
pendent of those which the former employee might have had.
See id.
The case was removed to federal court and the district court
found that ERISA did not preempt the plaintiff’s claims. See
The Meadows v. Employers Health Ins., 826 F. Supp. 1225
(D. Ariz. 1993). We agreed. We recognized that ERISA pre-
empts the state claims of a provider suing as an assignee of
the beneficiary’s rights to benefits under an ERISA plan. See
The Meadows, 47 F.3d at 1008 (citing Misic v. Bldg. Servs.
Employees Health & Welfare Trust, 789 F.2d 1374, 1378 (9th
Cir. 1986)). However, we held that ERISA does not preempt
“claims by a third-party who sues an ERISA plan not as an
assignee of a purported ERISA beneficiary, but as an indepen-
dent entity claiming damages,” id., because such claims do
not “relate” to ERISA preemption, id. at 1009.
Here, Cedars-Sinai is suing as a third-party claiming dam-
ages, and not as an assignee of rights to benefits. Thus, The
Meadows supports Cedars-Sinai’s position that its claims do
not “relate to” FEHBA and consequently are not preempted
by FEHBA.
Cedars-Sinai also cites to Memorial Hospital System v.
Northbrook Life Insurance Co., 904 F.2d 236 (5th Cir. 1990),
a case we cited with approval in The Meadows. Like The
Meadows, the plaintiff hospital in Memorial Hospital relied
on the defendant employer and the employer’s health insur-
er’s representation that the employee’s wife was covered by
the plan, stating that “it would not have extended treatment to
CEDARS-SINAI v. NAT’L LEAGUE OF POSTMASTERS 9641
her without such assurances of payment.” Id. at 238. The
plaintiff filed suit asserting a breach of contract claim for ben-
efits (as the employee’s assignee) and claims for negligent
misrepresentation and equitable estoppel (brought in its inde-
pendent status as a third-party health care provider.) See id. at
239. The district court held that the plaintiff’s breach of con-
tract claim was preempted because the claim “related to” a
claim for benefits under an ERISA plan. See id. However, the
district court held that the plaintiff’s third-party claims were
not preempted because they were not assigned claims; they
did not “relate to” the ERISA plan because the claims “could
stand alone absent any issue regarding the application of a
welfare benefit plan.” Id.
The Fifth Circuit took up the appeal and affirmed in part
and vacated in part. In Memorial Hospital, the court affirmed
the district court’s finding that the plaintiff’s assigned claims
were preempted, noting that “[i]t is clear that ERISA pre-
empts a state law cause of action brought by an ERISA plan
participant or beneficiary alleging improper processing of a
claim for plan benefits,” id. at 245, and, as an assignee, “[the
plaintiff] stands in the shoes of [the employee] and may pur-
sue only whatever rights [the employee] enjoyed under the
terms of the plan,” id. at 250.
To better analyze the plaintiff’s non-derivative claims, the
court in Memorial Hospital articulated a test, recognized by
The Meadows and the cases discussed below, that emphasizes
unifying characteristics of cases where ERISA preemption
was found:
(1) the state law claims address areas of exclusive
federal concern, such as the right to receive benefits
under the terms of an ERISA plan; and (2) the claims
directly affect the relationship among the traditional
ERISA entities — the employer, the plan and its
fiduciaries, and the participants and beneficiaries.
9642 CEDARS-SINAI v. NAT’L LEAGUE OF POSTMASTERS
Memorial Hospital, 904 F.2d at 245. Applying this test, the
court in Memorial Hospital held that the plaintiff’s non deriv-
ative claims were not preempted because those claims did not
fit into either category.3 See id. at 245-46.
Because the court found that the plaintiff’s non-derivative
claims did not “relate to” the ERISA plan, and were conse-
quently not preempted, Memorial Hospital supports Cedars-
Sinai’s assertion that its non-derivative claims are not pre-
empted by FEHBA. See also Cypress Fairbanks Med. Ctr.
Inc., v. Pan American Life Ins. Co., 110 F.3d 280, 283 (5th
Cir. 1997) (reinforcing Memorial Hospital’s holding that non-
3
The Memorial Hospital court asserted three justifications for its con-
clusion. First, it recognized the “commercial realities” facing third-party
providers of health care services, noting that in situations in which it is not
clear whether a patient is covered by a health insurance plan, “the provider
wants to know if payment reasonably can be expected. Thus, one of the
first steps in accepting a patient for treatment is to determine a financial
source for the cost of care to be provided.” Id. at 246.
Second, when an insurance company erroneously informs a health care
provider that a patient is covered by health insurance, state law, which “al-
locat[es] . . . risks between commercial entities that conduct business in
a state,” normally provides a remedy. Id. at 246-47. This is so, because
“[a] provider’s state law action under these circumstances would not arise
due to the patient’s coverage under an ERISA plan, but precisely because
there is no ERISA plan coverage.” Id. at 246.
Third, depriving an independent third-party provider of a state-law
cause of action does not further, but rather defeats, Congress’s purpose
behind enacting ERISA. The court recognized that third-party providers
would be less likely to accept the risk of nonpayment, and as a result,
might require patients to make up-front payments or subject those patients
to other unnecessary inconveniences before treatment is offered. Id. at
247. Health care providers, like Cedars-Sinai, do not receive the same pro-
tections afforded traditional ERISA entities, and the Memorial Hospital
court found that Congress could not have intended to shield plan adminis-
trators “from the consequences of their acts toward non-ERISA health care
providers when a cause of action . . . would not relate to the terms or con-
ditions of a welfare plan, nor affect — or affect only tangentially — the
ongoing administration of the plan.” Id. at 250.
 CEDARS-SINAI v. NAT’L LEAGUE OF POSTMASTERS 9643
derivative third-party claims do not “relate to” ERISA and
are, therefore, not preempted).
Finally, Cedars-Sinai cites to Hoag Memorial Hospital v.
Managed Care Administrators, 820 F. Supp. 1232 (C.D. Cal
1993). In Hoag, the plaintiff hospital brought an action
against the defendant employer and the employer’s benefit
plan, seeking recovery of fees for treatment for one of the
defendant’s employees. See id. at 1233. The defendants had
made representations to the plaintiff that the employee was
covered, but later stated that an exclusion applied to deny
coverage. See id. The plaintiff sued because the plan refused
to reimburse it for any treatment. See id.
Reviewing the plaintiff’s claims, the district court noted
that the plaintiff’s initial complaint “suggested” that it may
have been suing under the plan as the employee’s assignee.
Id. at 1234. The plaintiff then amended its complaint to
remove any derivative claims and to assert only third-party
claims for damages based solely on the defendants’ alleged
misrepresentations of coverage. See id. Relying heavily on
Memorial Hospital, because there was no guiding Ninth Cir-
cuit precedent, the district court found that the plaintiff’s
claims were not preempted by FEHBA. See id. at 1235-37.
Because the plaintiff hospital was a third-party with non-
derivative claims, the court found that the plaintiff’s claims
did not “relate to” the ERISA plan. Id. at 1236 (“Hoag Memo-
rial’s claims to recover promised payment from the employer
and the administrator of the Plan must be distinguished from
an action by an ERISA participant or beneficiary to recover
benefits under the terms of the plan. It is this Court’s opinion
that ERISA’s preemption provision was intended to preclude
the latter, not the former.”). The district court’s holding in
Hoag that third-party claims that do not involve assigned
rights to benefits are not preempted by FEHBA is persuasive
9644 CEDARS-SINAI v. NAT’L LEAGUE OF POSTMASTERS
and bolsters Cedars-Sinai’s position that its claims for reim-
bursement are not preempted.4
IV. Cedars-Sinai Was Not Required to Exhaust
Administrative Remedies
[7] As mentioned above, FEHBA’s implementing regula-
tions establish a mandatory administrative remedy that is
available to a party who believes that a carrier has wrongfully
denied benefits. See 5 C.F.R. § 890.105. OPM’s finding may
be challenged in federal court, but only after exhaustion of
this process. See 5 C.F.R. §§ 890.107(c), 890.107(d)(1). Nei-
ther party disputes that Cedars-Sinai failed to exhaust its
administrative remedies under FEHBA and its corresponding
implementing regulations.
4
PBP Health contends that we should adopt the reasoning in St. Mary’s
Hospital v. Carefirst of Maryland, Inc., 192 F. Supp. 2d 384 (D. Md.
2002), a case relied on by district court in the decision below. In St.
Mary’s Hospital, the plaintiff hospital brought suit against a health insurer
for several claims, including breach of contract based on the insurer’s
refusal to reimburse the plaintiff for services provided to plan enrollees.
The plaintiff argued that preemption was inappropriate because the plain-
tiff was a health care provider; it was not a plan enrollee, nor did it have
an assignment of rights from the enrollee. See id. at 389.
The court recognized that this was a novel situation in the Fourth Cir-
cuit but disagreed with the plaintiff. Instead, the court found that the plain-
tiff’s claims were preempted because the “nature” of its claims
“implicated the terms and provisions” of the FEHBA plan. Id. at 389. The
court also noted that “[t]o allow state contract law to decide the matter
would disrupt the national uniformity of coverage for federal employees
intended by Congress in enacting [the] FEHBA.” Id.
We decline PBP Health’s invitation to adopt St. Mary’s Hospital’s rea-
soning as law of this circuit. St. Mary’s Hospital is contrary to our holding
in The Meadows, 47 F.3d at 1009-11 (holding that third-party claims that
do not involve assigned rights to benefits do not “relate to” ERISA and,
consequently, are not preempted by ERISA), and does not recognize that
FEHBA’s implementing regulations state that preemption applies to only
“covered individuals” and those “acting on behalf of a covered individual
and . . . have the covered individual’s specific written consent to pursue
payment of the disputed claim,” 5 C.F.R. §§ 890.101, 890.105.
CEDARS-SINAI v. NAT’L LEAGUE OF POSTMASTERS 9645
[8] As discussed in the preceding section, however, the
exhaustion mechanism was designed for disputes between
carriers and “covered persons” or their assignees. Because
Cedars-Sinai is not a covered person or an assignee, it has no
role in the administrative exhaustion process and, conse-
quently, the process can provide no relief to Cedars-Sinai.
Further, Cedars-Sinai’s claims did not constitute a request for
“payment of a health-related bill” . . . “under the plan”
because Cedars-Sinai’s claim is predicated not on the plan but
on its contract with PBP Health. Id. §§ 890.101(a),
890.105(a)(1). Because Cedars-Sinai is not a party contem-
plated by FEHBA’s implementing regulations and because
Cedars-Sinai’s claims arise from PBP Health’s contractual
obligation to Cedars-Sinai — an obligation that arose when
PBP Health represented that S.M. was covered by the Plan —
Cedars-Sinai’s claims do not “relate to” FEHBA. Therefore,
we hold that Cedars-Sinai was not required to exhaust
FEHBA’s administrative remedies.5
CONCLUSION
For the reasons set forth above, we reverse the district
court’s order dismissing this action. Cedars-Sinai’s claims
were not preempted by FEHBA and, consequently, Cedars-
Sinai was not required to exhaust its administrative remedies.
REVERSED and REMANDED.
5
We also hold that the district court erred when it concluded that it
lacked subject matter jurisdiction over Cedars-Sinai’s state law claims.
Cedars-Sinai is a California corporation with its principal place of busi-
ness in California; PBP Health is a District of Columbia corporation with
its principal place of business in Virginia; and the amount in controversy,
$424, 826.49, exceeds $75,000. Accordingly, diversity jurisdiction exists.
See 28 U.S.C. § 1332(a).