MHA, LLC, ETC. VS. HEALTHFIRST, INC. (L-6822-13, BERGEN COUNTY AND STATEWIDE) ( 2018 )

NOT FOR PUBLICATION WITHOUT THE
APPROVAL OF THE APPELLATE DIVISION
This opinion shall not "constitute precedent or be binding upon any court."
Although it is posted on the internet, this opinion is binding only on the
parties in the case and its use in other cases is limited. R. 1:36-3.
SUPERIOR COURT OF NEW JERSEY
APPELLATE DIVISION
DOCKET NO. A-4206-15T3
MHA, LLC, d/b/a MEODOWLANDS
HOSPITAL MEDICAL CENTER,
Plaintiff-Appellant,
v.
HEALTHFIRST, INC., HEALTHFIRST
HEALTH PLAN OF NEW JERSEY, INC.,
SENIOR HEALTH PARTNERS, INC.,
MANAGED HEALTH INC., HF MANAGED
SERVICES, LLC, and HEALTHFIRST
PHSP, INC.,
Defendants-Respondents.
__________________________________
Argued March 20, 2018 – Decided August 3, 2018
Before Judges Hoffman, Gilson and Mayer.
On appeal from Superior Court of New Jersey,
Law Division, Bergen County, Docket No. L-
6822-13.
David M. Estes argued the cause for appellant
(Mazie Slater Katz & Freeman, LLC, attorneys;
David M. Estes and Eric D. Katz, on the
briefs).
Scott B. Klugman argued the cause for
respondents (Levine Lee, LLP, and The Epstein
Law Firm, PA, attorneys; Scott B. Klugman and
Michael J. Epstein, on the brief).
PER CURIAM
In September 2013, plaintiff MHA, LLC d/b/a Meadowlands
Hospital Medical Center (MHA), filed a complaint in the Law
Division against defendant insurance companies1 (collectively,
HealthFirst or defendants) for reimbursement for medical services
provided to their Medicare and Medicaid enrollees and subscribers.
Plaintiff sought reimbursement of all outstanding claims at its
published rates (in excess of the Medicare and Medicaid rates),
as well as reimbursement for claims that were allegedly underpaid,
denied, or not paid timely in accordance with the established
rates imposed by the Medicare and Medicaid statutory regime.
After the matter was removed to federal court and remanded
to state court following a Third Circuit appeal, defendants moved
to dismiss plaintiff's complaint pursuant to Rule 4:6-2(e) for
failure to state a claim upon which relief can be granted. The
Law Division granted defendants' motion, dismissing plaintiff's
complaint with prejudice, concluding: (a) plaintiff's Medicare-
based claims fail as a matter of law because "[t]he Medicare
regulations cap the rate that the non-participating provider may
1
Defendant HealthFirst, Inc. (HF Inc.), a New York corporation,
issues and administers health care plans nationally through its
wholly owned and controlled subsidiaries, including defendants
HealthFirst Health Plan of New Jersey, Inc. (HFNJ), HealthFirst
PHSP, Inc. (PHSP), Managed Health, Inc. (MHI), HF Management
Services, LLC (HFMS), and Senior Health Partners, Inc. (SHP).
2 A-4206-15T3
lawfully charge for any services at the original Medicare rate";
(b) the Medicare statute expressly preempts plaintiff's Medicare-
based claims and common law causes of action; and (c) plaintiff's
Medicaid-based claims fail because its complaint did not
sufficiently allege exhaustion of all available administrative
remedies.
After the court entered an amended confirming order on May
27, 2016, plaintiff filed this appeal. Before us, plaintiff argues
the trial court erred when it addressed the issue of preemption
prior to discovery and further erred when it dismissed plaintiff's
complaint with prejudice for failing to plead exhaustion of
administrative remedies or futility. We agree. For the reasons
that follow, we vacate the order of dismissal and remand to the
Law Division for further proceedings.
I.
Plaintiff, a privately held New Jersey limited liability
company, purchased all of the assets of Meadowlands Hospital
Medical Center (Meadowlands), a licensed general acute care
hospital, in December 2010. HealthFirst provides health benefit
plans and health insurance policies through its subsidiaries and
related companies.
HFNJ, an authorized Health Management Organization (HMO),
contracted with New Jersey to provide health insurance to New
3 A-4206-15T3
Jersey Medicaid beneficiaries. HFNJ also contracted with the
federal Center for Medicare and Medicaid Services (CMS) to provide
eligible residents with Medicare, through Medicare Advantage
contracts. HFNJ receives a capitation payment from CMS, and an
additional premium from the recipient, who may receive certain
benefits above those of regular Medicare, but must use the HMO's
network of facilities and providers.
Plaintiff did not contract with any defendant, and therefore
alleged it "was entitled to have its claims processed promptly
according to state and federal statutes and regulatory law."
Plaintiff electronically submitted its bills to defendants,
alleging that from 2010 through 2013, it rendered emergency and
other pre-authorized medical services to defendants' enrollees and
subscribers, but that "defendants refused and neglected to
properly process [its] claims for payment and induced [it] to sign
contracts . . ., promising to promptly pay [it] for services
rendered to . . . defendants' subscribers and enrollees."
According to plaintiff, it soon realized that the in-network
payments it received from defendants "were, and are so grossly
insufficient that the hospital cannot [] sustain itself and meet
its continuing obligations to provide the community access to
quality healthcare services, by continuing to provide medical
services to the defendants[] without adequate payments."
4 A-4206-15T3
Plaintiff also alleged that "[d]espite approvals for the
listed procedures, . . . defendants failed to pay the usual,
customary and reasonable charge billed by . . . plaintiff for
services rendered on behalf of the defendants['] various enrollees
and plan subscribers." According to plaintiff, from 2010 through
2013, it invoiced defendants for services "totaling
$28,874,756.96," but defendants paid "just $2,541,445.60, leaving
a balance now due of $26,333,311.36, together with lawful interest
and other charges."
In October 2013, defendants removed the action to federal
court on the basis of federal-question jurisdiction. In July
2014, defendants moved to dismiss the complaint for lack of
personal jurisdiction and for failure to state a claim upon which
relief may be granted, pursuant to Fed. R. Civ. P. 12(b)(2) and
12(b)(6). Defendants also filed an alternative motion to strike
the Medicare allegations in the complaint, based on plaintiff's
representation in its motion to remand that the complaint did not
relate to Medicare enrollees and subscribers.
Subsequently, plaintiff voluntarily dismissed four of the
named defendants: HF Inc., SHP, MHI, and PHSP, and also
voluntarily dismissed two of its claims: fraudulent/negligent
misrepresentation and violation of the Unfair Claim Settlement
Practices section of the Insurance Trade Practices Act, N.J.S.A.
5 A-4206-15T3
17B:30-13. Additionally, plaintiff later conceded that the
complaint did, in fact, relate to Medicare enrollees and
subscribers, which rendered defendants' motion to strike moot. On
August 26, 2014, plaintiff opposed the motion to dismiss and filed
a cross-motion for leave to amend its complaint.
On February 27, 2015, the district court dismissed
plaintiff's Medicaid-based claims because "neither the [c]omplaint
nor the proposed amended complaint aver that [p]laintiff availed
itself of – or exhausted all of [—] the statutorily available
procedures for resolving the disputed claims." MHA, LLC v.
HealthFirst, Inc., No. 2:13-cv-06036, 2015 WL 858051, at *4 (D.N.J.
Feb. 27, 2015). It also dismissed plaintiff's Medicare-based
claims, finding that the Medicare statute expressly preempted
plaintiff's common law claims of unjust enrichment and quantum
meruit, "because [p]laintiff's allegations are directly controlled
by federal standards." Ibid.
Plaintiff appealed and the Third Circuit vacated, holding
that the district court lacked subject matter jurisdiction and,
therefore, vacated the dismissal of plaintiff's claims and
remanded to the district court with instructions to remand the
case to the state court. MHA, LLC v. HealthFirst, Inc., 629 F.
App'x 409, 415 (3d Cir. 2015). The Third Circuit noted that "any
statutory interpretation required by this case is incidental to
6 A-4206-15T3
the application of Medicare and Medicaid law to disputed facts."
Id. at 414. It further held, "The parties have not identified a
dispute over the meaning of particular statutory text; rather,
HealthFirst generally avers that the parties disagree over the
application of the Medicare Act to their situation." Ibid.
On remand, plaintiff advised defendants it intended to
proceed on its initially-filed complaint, notwithstanding that it
had previously voluntarily dismissed several parties and claims
in the federal court. Before any discovery, defendants filed a
motion to dismiss the complaint pursuant to Rule 4:6-2(b), for
lack of personal jurisdiction, and Rule 4:6-2(e), for failure to
state a claim upon which relief can be granted.
On May 25, 2016, the Law Division granted defendants' motion
and issued a written opinion and order dismissing plaintiff's
complaint with prejudice.2 However, the court qualified the with-
prejudice dismissal,
to the extent . . . [p]laintiff seeks to
recover on the basis that [defendants] failed
to pay or reimburse [its] claims in accordance
with the Medicare statute and regulations,
i.e., that [defendants] paid . . . [p]laintiff
less than the statutory amount or failed to
pay entirely, . . . plaintiff may bring a
cause of action to seek reimbursement for such
claims, . . . [by filing] a new complaint
2
On May 27, 2016, the court issued an amended opinion and order
"to correct a clerical error."
7 A-4206-15T3
sufficiently alleging that certain disputed
claims were not paid at the statutory rate.
This appeal followed.
II.
Rule 4:6-2(e) provides that a complaint may be dismissed for
"failure to state a claim upon which relief can be granted . . . ."
That rule tests "the legal sufficiency of the facts alleged on the
face of the complaint." Printing Mart-Morristown v. Sharp Elec.
Corp., 116 N.J. 739, 746 (1989) (citation omitted).
On a motion to dismiss, a plaintiff need not prove the case,
but need only "make allegations which, if proven, would constitute
a valid cause of action." Kieffer v. High Point Ins. Co., 422
N.J. Super. 38, 43 (App. Div. 2011) (quoting Leon v. Rite Aid
Corp., 340 N.J. Super. 462, 472 (App. Div. 2001)). On such a
motion, plaintiff is entitled to "every reasonable inference of
fact." Printing Mart, 116 N.J. at 746 (citing Indep. Dairy Workers
Union v. Milk Drivers & Dairy Emp. Local 680, 23 N.J. 85, 89
(1956)).
A reviewing court must search "the complaint in depth and
with liberality to ascertain whether the fundament of a cause of
action may be gleaned even from an obscure statement of claim,
opportunity being given to amend if necessary." Ibid. (quoting
Di Cristofaro v. Laurel Grove Mem. Park, 43 N.J. Super. 244, 252
8 A-4206-15T3
(App. Div. 1957)). This review should be "at once painstaking and
undertaken with a generous and hospitable approach." Ibid.
A motion to dismiss "should only be granted in 'the rarest
of instances.'" Kieffer, 422 N.J. Super. at 43 (quoting Printing
Mart, 116 N.J. at 772). Only when "even a generous reading of the
allegations does not reveal a legal basis for recovery" should the
motion be granted. Ibid. (quoting Edwards v. Prudential Prop. &
Cas. Co., 357 N.J. Super. 196, 202 (App. Div. 2003)).
A.
Plaintiff contends the motion court erred by dismissing its
Medicaid-based claims for failing to adequately plead exhaustion
of administrative remedies or futility. N.J.S.A. 26:2J-8.1(e)(1)
to (4) establishes a two-step administrative process: (1) an
internal appeal mechanism; and (2) non-appealable, binding
arbitration. Plaintiff argues that even if it were required to
exhaust both steps of the administrative process prior to filing
suit, "the allegations in the complaint of exhaustion and futility
of defendants' process are sufficient to defeat a pre-discovery
motion to dismiss at the inception of a case."
Plaintiff further argues that even if exhaustion were
required, various exceptions to the exhaustion doctrine apply to
its claims that precluded dismissal of its complaint. Furthermore,
it claims even if the allegations of exhaustion and futility were
9 A-4206-15T3
lacking, "it was error to not give [it] an opportunity to amend
its pleadings."
In dismissing plaintiff's Medicaid-based claims, the court
found that plaintiff did "not adequately aver that it exhausted"
the Health Claims Authorization, Processing and Payment Act
(HCAPPA), N.J.S.A. 26:2J-1 to -47, "administrative remedies prior
to commencing this lawsuit in the Law Division. Additionally, the
[p]laintiff's [c]omplaint did not adequately aver that following
such administrative remedies would be futile."
New Jersey is a notice pleading state, which means that only
a short, concise statement of the claim need be given in the
complaint. See Velop, Inc. v. Kaplan, 301 N.J. Super. 32, 56
(App. Div. 1997). A pleading must contain "a statement of facts
on which a claim is based, showing that the pleader is entitled
to relief, and a demand for judgment for [that] relief." R. 4:5-
2. "Pleadings must fairly apprise the adverse party of the claims
and issues to be raised at trial." See Spring Motors Distribs.,
Inc. v. Ford Motor Co., 191 N.J. Super. 22, 29 (App. Div. 1983),
aff'd in part and rev'd in part on other grounds, 98 N.J. 555
(1985); see also Pressler & Verniero, Current N.J. Court Rules,
cmt. 1 on R. 4:5-2 (2018).
We hold that the court erred by dismissing the complaint for
failure to plead exhaustion of administrative remedies or
10 A-4206-15T3
futility. Plaintiff was not required to plead exhaustion of
administrative remedies, or futility, because exhaustion is an
affirmative defense and defendants bore the burden of pleading and
proving it. The court erred by shifting the burden onto plaintiff
instead of requiring defendants to demonstrate that plaintiff had
not exhausted its administrative remedies. Paese v. Hartford Life
& Accident Ins. Co, 449 F.3d 435, 446 (2d Cir. 2006); Williams v.
Runyon, 130 F.3d 568, 573 (3d Cir. 1997).
We further note that, contrary to the position of defendants
and the ruling of the motion court, plaintiff did make generalized
allegations of exhaustion and futility in its complaint. Plaintiff
alleged, among other things, that defendants employed "automated
programs that 'pend' claims, i.e., puts them in a state of suspense
before they are even processed, even though no additional
information [was] needed or requested from the plaintiff." Thus,
according to plaintiff, "it was impossible to appeal HealthFirst's
adjudication of numerous claims, when defendants refused to
acknowledge or process the claims from the outset."
Plaintiff also specifically claimed that it submitted
documentation but that such documentation was "not accepted for
the appeals." Also, defendants' practice of "unilaterally
adjusting and underpaying . . . claims submitted by [plaintiff],
without providing the requisite advance written notice of such
11 A-4206-15T3
attempts to seek reimbursement of any alleged overpayment of claims
. . . has effectively denied [plaintiff] its statutory right of
an internal appeal."
Thus, even if plaintiff was required to plead exhaustion or
futility, its generalized allegations satisfied our liberal
pleading standards. Printing Mart, 116 N.J. at 746, 771-72; Velop,
301 N.J. Super. at 56. At the very least, the court should have
provided plaintiff the opportunity to amend its pleading. Printing
Mart, 116 N.J. at 746.
Defendants argue that plaintiff's own admissions established
that it deliberately abandoned the internal appeals process, and
refutes any claim that the process was futile. However, in doing
so, defendants referred to materials outside of the pleadings,
which the court incorrectly considered on a motion to dismiss.
Rieder v. State, 221 N.J. Super. 547, 552 (App. Div. 1987).
Therefore, defendants' argument lacks persuasion.
Because plaintiff was not required to plead exhaustion of
administrative remedies or futility, dismissal of its claims for
failure to do so was not appropriate on defendants' motion to
dismiss. We therefore vacate the dismissal of plaintiff's
Medicaid-based claims and remand for further proceedings.
B.
Plaintiff further contends the motion court erred by holding
12 A-4206-15T3
that the two-step administrative process set forth in N.J.S.A.
26:2J-8.1(e) is mandatory. Plaintiff argues the plain language
of the statute dictates that the administrative remedies are
elective rather than mandatory, and that a statute cannot be
construed to eliminate an existing right unless it does so
explicitly and clearly.
In granting defendants' motion to dismiss, the court held:
The HCAPPA affords . . . [p]laintiff express
administrative remedies under which it should
resolve its claims disputes prior to
commencing an action in the Law Division. The
HCAPPA sets forth a two-step mechanism, which
requires a complainant to complete the appeal
process and participate in nonappealable,
binding arbitration performed by an
independent organization.
We hold the motion court erred when it held that the two-step
administrative process set forth in N.J.S.A. 26:2J-8.1(e) is
mandatory. Although the determination of whether it is or is not
mandatory is neither necessary nor dispositive to this appeal, we
address the issue to provide guidance to the Law Division on
remand.
The HCAPPA governs the establishment and operation of health
maintenance organizations and health care providers. N.J.S.A.
26:2J-8.1. It affords certain adjudicative or administrative
procedures by which health maintenance organizations, such as
plaintiff, should resolve claims for unpaid or improperly paid
13 A-4206-15T3
claims. Ibid. The relevant provisions of the HCAPPA provide:
(1) A health maintenance organization or
its agent, hereinafter the payer, shall
establish an internal appeal mechanism to
resolve any dispute raised by a health care
provider regardless of whether the health care
provider is under contract with the payer
regarding compliance with the requirements of
this section or compliance with the
requirements of [N.J.S.A. 17B:30-51 to -54]
. . . .
A health care provider may initiate an
appeal on or before the 90th calendar day
following receipt by the health care provider
of the payer's claims determination, which is
the basis of the appeal, on a form prescribed
by the Commissioner of Banking and Insurance
which shall describe the type of
substantiating documentation that must be
submitted with the form. The payer shall
conduct a review of the appeal and notify the
health care provider of its determination on
or before the 30th calendar day following the
receipt of the appeal form. If the health
care provider is not notified of the payer's
determination of the appeal within 30 days,
the health care provider may refer the dispute
to arbitration as provided by paragraph (2)
of this subsection.
If the payer issues a determination in
favor of the health care provider, the payer
shall comply with the provisions of this
section and pay the amount of money in
dispute, if applicable . . . .
. . . .
(2) Any dispute regarding the
determination of an internal appeal conducted
pursuant to paragraph (1) of this subsection
may be referred to arbitration as provided in
this paragraph. The Commissioner of Banking
14 A-4206-15T3
and Insurance shall contract with a nationally
recognized, independent organization that
specializes in arbitration to conduct the
arbitration proceedings.
Any party may initiate an arbitration
proceeding on or before the 90th calendar day
following the receipt of the determination
which is the basis of the appeal, on a form
prescribed by the Commissioner of Banking and
Insurance . . . .
(3) The arbitrator shall conduct the
arbitration proceedings pursuant to the rules
of the arbitration entity, including rules of
discovery subject to confidentiality
requirements established by State or federal
law.
. . . .
The arbitration shall be nonappealable and
binding on all parties to the dispute.
[N.J.S.A. 26:2J-8.1(e)(1) to (4) (emphasis
added).]
Plaintiff argues that the plain language of the statute
dictates that the HCAPPA's administrative remedies are elective,
rather than mandatory. We agree.
When interpreting a statute, the overriding goal must be to
determine and effectuate the Legislature's intent. Tlumac v. High
Bridge Stone, 187 N.J. 567, 573 (2006). Our analysis begins with
an examination of the plain language of the statute, which provides
the most reliable indicium of statutory intent. L.W. ex rel. L.G.
v. Toms River Reg'l Sch. Bd. of Educ., 189 N.J. 381, 400 (2007);
15 A-4206-15T3
DiProspero v. Penn, 183 N.J. 477, 492 (2005) ("[T]he best indicator
of [legislative] intent is the statutory language."). A reviewing
court should "ascribe to the statutory words their ordinary meaning
and significance, and read them in context with related provisions
so as to give sense to the legislation as a whole." Am. Fire &
Cas. Co. v. N.J. Div. of Taxation, 189 N.J. 65, 79 (2006) (quoting
DiProspero, 183 N.J. at 492).
If the language of the statute is clear, the reviewing court
should interpret the statute consistent with its plain meaning.
Lozano v. Frank DeLuca Constr., 178 N.J. 513, 522 (2004); Watt v.
Mayor & Council of Franklin, 21 N.J. 274, 277 (1956). The
judiciary does not sit as a "superlegislature," and it is not the
function of the courts to evaluate the efficacy or wisdom of a
particular legislative enactment. In re Am. Reliance Ins. Co.,
251 N.J. Super. 541, 549 (App. Div. 1991).
We find the language of N.J.S.A. 26:2J-8.1(e) clear and
unambiguous. It first provides that HMOs, or their agents, "shall"
establish an internal appeal mechanism to resolve any dispute
raised by a health care provider. N.J.S.A. 26:2J-8.1(e)(1). Thus,
it is clear that the HMOs are required to establish that mechanism;
however, the statute also provides that a health care provider
"may initiate an appeal" of claims determinations, and any dispute
regarding the determination of an internal appeal "may" be referred
16 A-4206-15T3
to arbitration. N.J.S.A. 26:2J-8.1(e)(2). Nothing in the statute
specifically states that parties are required to refer such
disputes to arbitration.
Moreover, the statute specifically states that the
arbitration "shall be nonappealable and binding on all parties to
the dispute." N.J.S.A. 26:2J-8.1(e)(4). Such a nonappealable and
binding arbitration would eliminate the parties' right to bring
suit. Nothing in the statute suggests that it intended to
eliminate or abrogate the parties' right to bring suit, and such
an interpretation should not be read into the statute. See Oswin
v. Shaw, 129 N.J. 290, 310 (1992) (citation omitted) ("No statute
is to be construed as altering the common law, farther than its
words import. It is not to be construed as making any innovation
upon the common law which it does not fairly express."), superseded
by statute N.J.S.A. 39:6A-8(a), as recognized in DiProspero, 183
N.J. at 481. However, because the statute is silent on that issue,
and given the parties may choose to waive their right to a trial,
the arbitration process in N.J.S.A. 26:2J-8.1(e) should be
considered elective or permissive, rather than mandatory.
Still, New Jersey's exhaustion of administrative rules may
apply as long as an administrative remedy is available, regardless
whether an administrative remedy is permissive or mandatory. See,
e.g., Abbott v. Burke, 100 N.J. 269, 296 (1985) (citation omitted)
17 A-4206-15T3
("In general, available and appropriate 'administrative remedies
should be fully explored before judicial action is sanctioned.'");
Garrow v. Elizabeth Gen. Hosp. & Dispensary, 79 N.J. 549, 558-59
(1979) ("Exhaustion of administrative remedies before resort to
the courts is a firmly embedded judicial principle.").
However, "the preference for exhaustion of administrative
remedies is one 'of convenience, not an indispensable pre-
condition.'" Abbott, 100 N.J. at 297 (quoting Swede v. City of
Clifton, 22 N.J. 303, 315 (1956)). "Thus, except in those cases
where the legislature vests exclusive primary jurisdiction in an
agency, a plaintiff may seek relief in our trial courts." Ibid.
(citation omitted); see also Borough of Matawan v. Monmouth Cty.
Bd. of Taxation, 51 N.J. 291, 296 (1968) (holding administrative
exhaustion not an absolute jurisdictional requirement). "In any
case amenable to administrative review, however, upon a
defendant's timely petition, the trial court should consider
whether exhaustion of remedies will serve the interests of
justice." Abbott, 100 N.J. at 297.
In City of Atlantic City v. Laezza, 80 N.J. 255, 265 (1979),
the New Jersey Supreme Court identified the interests that may be
furthered by an exhaustion requirement:
(1) the rule ensures that claims will be
heard, as a preliminary matter, by a body
possessing expertise in the area; (2)
18 A-4206-15T3
administrative exhaustion allows the parties
to create a factual record necessary for
meaningful appellate review; and (3) the
agency decision may satisfy the parties and
thus obviate resort to the courts.
Nevertheless, in Garrow, 79 N.J. at 561, the Court explained,
"[t]he exhaustion doctrine is not an absolute. Exceptions exist
when only a question of law need be resolved, . . . when the
administrative remedies would be futile, . . . when irreparable
harm would result, . . . when jurisdiction of the agency is
doubtful, . . . or when an overriding public interest calls for a
prompt judicial decision . . . ."
Furthermore, "where the considerations that are relevant to
the exhaustion requirement are in near-equipoise, . . . the court
must weigh them carefully to find the proper balance." Abbott,
100 N.J. at 298 (citation omitted). "In general, in cases
'involving only legal questions, the doctrine of exhaustion of
remedies does not apply.'" Ibid. (citation omitted).
On remand, after plaintiff amends its pleadings and
defendants assert the affirmative defense of failure to exhaust
administrative remedies, and the parties complete discovery, the
court can then determine whether exhaustion of remedies "will
serve the interests of justice." Id. at 297. If the interests
of justice would be served by the exhaustion of remedies, the
court would then be required to determine whether defendants met
19 A-4206-15T3
their burden of proving plaintiff had not exhausted the
administrative remedies available to it, or whether an exception
to exhaustion, such as when compliance with the administrative
process would be futile, excused plaintiff's failure to exhaust
the administrative remedies set forth in N.J.S.A. 26:2J-8.1(e).
However, that determination should occur after appropriate
consideration of the record following discovery, and not on the
pleadings.
C.
Plaintiff also contends the motion court erred by holding
that all of its Medicare-related claims were preempted, arguing
that the motion court's dismissal was overbroad and premature. We
agree, and hold the motion court erred by dismissing all of
plaintiff's Medicare-related claims with prejudice. We therefore
vacate the dismissal and remand to permit plaintiff the opportunity
to amend its pleading.
We review legal issues de novo, Toll Bros., Inc. v. Township
of West Windsor, 173 N.J. 502, 549 (2002), and decide such legal
questions without deference to a "trial court's construction of
the legal principles." Lombardo v. Hoag, 269 N.J. Super. 36, 47
(App. Div. 1993).
The Medicare statute contains a preemption provision. 42
U.S.C. § 1395w-26(b)(3). "If the statute contains an express pre-
20 A-4206-15T3
emption clause, the task of statutory construction must in the
first instance focus on the plain wording of the clause, which
necessarily contains the best evidence of Congress' pre-emptive
intent." CSX Transp., Inc. v. Easterwood, 507 U.S. 658, 664
(1993), superseded by statute on other grounds.
The preemption provision in the Medicare statute, which was
adopted in 2003, provides: "Relation to State laws. The standards
established under this part . . . shall supersede any State law
or regulation (other than State licensing laws or State laws
relating to plan solvency) with respect to [Medicare Advantage
(MA)] plans which are offered by MA organizations under this part."
42 U.S.C. § 1395w-26(b)(3).
"Prior to 2003, the Medicare preemption provision stated that
federal standards would supersede state law and regulations with
respect to MA plans to the extent that such law or regulation was
'inconsistent' with such standards, and it identified certain
standards that were specifically superseded." N.Y.C. Health &
Hosps. Corp. v. WellCare of N.Y., Inc., 801 F. Supp. 2d 126, 135
(S.D.N.Y. 2011) (citing 42 U.S.C. § 1395w-26(b)(3)(A) (2000),
amended by 42 U.S.C. § 1395w-26(b)(3) (2003)).
The legislative history clarifies that the
2003 amendment was intended to increase the
scope of preemption, noting that, "the [MA
Program] is a federal program operated under
Federal rules and that State laws, do not, and
21 A-4206-15T3
should not apply, with the exception of state
licensing laws or state laws related to plan
solvency."
[Id. at 135-36 (citing H.R. Rep. No. 108-391
at 557); see also Do Sung Uhm v. Humana, Inc.,
620 F.3d 1134, 1148-49 (9th Cir. 2010)
(analyzing the intent behind and effect of the
revised preemption provision).]
"The Secretary [of Health and Human Services] adopted the
same reading of the Conference Report in promulgating the final
rules: 'We believe that the Conference Report was clear that the
Congress intended to broaden the scope of preemption in the
[Medicare Prescription Drug Improvement and Modernization Act of
2003].'" Id. at 136 (quoting Do Sung Uhm, 620 F.3d at 1149-50
n.23). However, simultaneously, the "CMS explained that
regardless of the increased breadth of the preemption provision,
preemption 'operates only when CMS actually creates standards in
the area regulated. To the extent we do not create any standards
whatsoever in a particular area, we do not believe preemption
would be warranted.'" WellCare, 801 F. Supp. 2d at 136 (quoting
Medicare Prescription Drug Benefit, 70 Fed. Reg. 4194-01, 4320
(Jan. 28, 2005)).
The Medicare statute expressly preempts plaintiff's claims
to the extent they seek to recover in excess of the statutorily
imposed reimbursement rate. The Medicare statute and regulations
explicitly list the services for which an MA organization must
22 A-4206-15T3
reimburse a provider, cap the rates for non-participating
providers, and include standards for the timing of claims. 42
C.F.R. §§ 422.100(b), 422.214(b).
Plaintiff essentially concedes that such claims are
preempted. However, it argues that not all of its claims are
preempted, as its "claims are much broader" than merely seeking
recovery in excess of the statutorily imposed reimbursement rate.
Plaintiff alleges that its damages arose from defendants "(1)
claiming preauthorization was not obtained, when it was, to deny
coverage based on [plaintiff]'s out-of-network status; (2)
engaging in recoupment practices that violate New Jersey law; and
(3) simply ignoring and refusing to process proper claims from the
outset."
Those claims, to the extent that they seek recovery from
defendants for failure to pay plaintiff's claims in accordance
with the Medicare statute and regulations, should not have been
dismissed. Indeed, there is no bar on claims seeking to enforce
a provider's right to be paid the Medicare statutory rate. The
motion court reached the same conclusion, and therefore limited
the scope of its with-prejudice dismissal to allow plaintiff to
seek recovery "on the basis that the [defendants] failed to pay
or reimburse [p]laintiff's claims in accordance with the Medicare
statute and regulations . . . ." Rather than dismissing
23 A-4206-15T3
plaintiff's complaint, the court should have granted plaintiff
leave to amend its pleading. Accordingly, we vacate the dismissal
of all of plaintiff's Medicare-related claims, and remand to permit
plaintiff the opportunity to amend its pleading.
Reversed and remanded. We do not retain jurisdiction.
24 A-4206-15T3