KGV Easy Leasing v. NHIC





Filed 1/27/11 KGV Easy Leasing v. NHIC CA2/1



NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS


California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.


IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

SECOND APPELLATE DISTRICT

DIVISION ONE

KGV EASY LEASING, INC., Plaintiff and Appellant, v. NHIC CORPORATION, Defendant and Respondent.

B216828 (Los Angeles County Super. Ct. No. LC082340)

APPEAL from a judgment of the Superior Court of Los Angeles County, Michael B. Harwin, Judge. Affirmed.
Law Office of Bruce Adelstein and Bruce Adelstein for Plaintiff and Appellant.
Conkle, Kremer & Engel, John A. Conkle and Kevin Keegan for Defendant and Respondent.

___________________________________________


Plaintiff KGV Easy Leasing, Inc. (KGV), a medical provider under the Medicare Act (42 U.S.C. § 1395 et seq.), filed this action on August 12, 2008. The record does not include a copy of the original complaint. Defendant NHIC Corporation (NHIC), which processes and pays Medicare claims, removed the action to the United States District Court for the Central District of California, then moved to dismiss the action for lack of subject matter jurisdiction. The record does not include the removal papers or the motion to dismiss. By order dated November 3, 2008, the federal district court concluded it lacked subject matter jurisdiction — for reasons unstated — and remanded the case to the trial court “[i]n the unlikely event that plaintiff can state a [cause of action] under state law.” (KGV Easy Leasing, Inc. v. NHIC Corporation (C.D.Cal., Nov. 3, 2008, No. CV-08-6374-DSF (RZx).)
On remand, KGV filed a first amended complaint, a copy of which is not contained in the record. NHIC again removed the complaint to federal district court. By order dated January 7, 2009, the district court concluded it lacked subject matter jurisdiction, explaining: “On November 6, 2008, Plaintiff KGV Easy Leasing, Inc. (‘KGV’ filed the First Amended Complaint (‘FAC’ in the Superior Court of the County of Los Angeles. On December 1, 2008, Defendants removed the case to federal court.
“The Court finds that it lacks removal jurisdiction over this suit. The Court lacks subject matter jurisdiction for the following reason. 42 U.S.C. § 405(h) provides that ‘[n]o action against the United States, the Commissioner of Social Security, or any officer or employee thereof shall be brought under section 1331 or 1346 of Title 28 to recover on any [cause of action] arising under [the Medicare Act].’ This provision applies to [causes of action] against a fiscal intermediary such as Defendant NHIC Corp. Bodimetric Health Servs., Inc. v. Aetna Life & Cas., 903 F.2d 480, 488 (7th Cir. 1990).
“A [cause of action] arises under the Act when: (1) ‘both the standing and the substantive basis for the presentation’ is the Act or (2) the [cause of action] is ‘inextricably intertwined’ with a claim for Medicare benefits. Heckler v. Ringer, 466 U.S. 602, 614-15 (1984). A [cause of action] is ‘inextricably intertwined’ with a Medicare claim when the [cause of action] seeks recovery of Medicare benefits or when the harm plaintiffs suffer from incorrect application of the Act can be remedied by provisions within the Act. Ardary v. Aetna Health Plans of California, Inc., 98 F.3d 496, 500 (9th Cir. 1966). [Causes of action] arise under the act where, at bottom, they seek to recover benefits under the Act. Id. All of KGV’s [causes of action] at bottom seek recovery of benefits under the Medicare Act. Therefore, the Court lacks subject matter jurisdiction over this suit.” (KGV Easy Leasing, Inc. v. NHIC Corporation (C.D.Cal., Jan. 7, 2009, No. CV-08-07899-DSF (JTLx).)
On remand, KGV filed a second amended complaint, a copy of which is in the record. NHIC filed a demurrer, arguing the action was barred for the same reason the federal district court lacked subject matter jurisdiction: KGV was attempting to recover damages based on NHIC’s failure to pay KGV’s Medicare claims, allegedly in violation of Medicare regulations. KGV filed opposition, asserting it had made sufficient changes in the first amended complaint to avoid the statutory prohibition against such claims, namely, title 42, United States Code, section 405(h).
At the April 3, 2009 hearing on the demurrer, KGV argued it had cured the defects in the first amended complaint. The trial court disagreed, stating that KGV’s causes of action were intertwined with the processing of Medicare claims. On April 7, 2009, the trial court entered an order sustaining the demurrer without leave to amend. On May 14, 2009, judgment was entered in favor of NHIC. KGV appealed.
We independently review the second amended complaint (complaint) to determine if the trial court properly dismissed the case on demurrer. We find no error.
The complaint alleged as follows. KGV is an independent diagnostic testing facility for purposes of Medicare. It administered medical tests to patients and sought payment under the Medicare Act through fiscal intermediaries like NHIC. Such intermediaries pay Medicare claims pursuant to contracts entered into with the Centers for Medicare and Medicaid Services. When a patient received health care services from KGV, he or she assigned to KGV the right to be reimbursed by Medicare for the cost of the service. Reimbursement is paid out of the Federal Supplementary Medical Insurance Trust Fund. NHIC promised to process KGV’s claims in accordance with Medicare rules and regulations. But NHIC applied unlawful methods to deny KGV’s claims. In February 2003, during a meeting between KGV’s president and NHIC’s top management, NHIC falsely represented it would apply lawful methods in processing KGV’s claims. KGV, without knowledge of that falsity, continued to provide diagnostic tests to patients. Contrary to its representation, NHIC did not pay KGV’s future claims.
KGV sought relief through the requisite administrative process. After a series of decisions by administrative law judges, the Medicare Appeals Council issued a final decision denying KGV’s claims due to insufficient documentation to support the medical necessity of the diagnostic tests performed. NHIC, in contrast, had denied the claims on the ground they fell within the exclusion for “routine services.” That was the wrong reason, although, in light of the council’s final decision, NHIC acted properly in denying the claims. In other words, NHIC properly denied KGV’s claims albeit on incorrect grounds. KGV’s patients blamed it for the denial of the Medicare claims, resulting in a loss of patients, physicians, and income, and in the expenditure of funds for marketing and advertising.
NHIC also improperly notified KGV’s patients that the claims had been denied and that the patients were responsible for the payment of KGV’s services. The notice of denial was sent to both KGV and the patient, and resembled a standard “explanation of benefits” issued by private health insurers.
The complaint alleged causes of action for fraud, conspiracy to commit fraud, intentional misrepresentation, conspiracy to commit intentional misrepresentation, breach of quasi-contract, breach of the covenant of good faith and fair dealing, and negligent administration of claims.
We conclude that because KGV’s causes of action “arise under” the Medicare Act or are “inextricably intertwined” with the processing of Medicare claims, the trial court lacked subject matter jurisdiction over them. (See Heckler v. Ringer (1984) 466 U.S. 602, 614–615 [104 S.Ct. 2013]; McCall v. Pacificare of California, Inc. (2001) 25 Cal.4th 412, 416–419; Bodimetric Health Services v. Aetna Life & Cas. (7th Cir. 1990) 903 F.2d 480, 487–488; Kaiser v. Blue Cross of California (9th Cir. 2003) 347 F.3d 1107, 1112, 1114–1115.)
It is irrelevant that KGV does not seek to recover the claim payments denied by NHIC but instead seeks consequential damages based on that denial, namely, the financial losses sustained from the “destruction of [its] business.” Regardless of how KGV characterizes its damages, its causes of action either arise under the Medicare Act or are inextricably intertwined with the claims handling process mandated by the act. Accordingly, the causes of action are barred. (See Bodimetric Health Services v. Aetna Life & Cas., supra, 903 F.2d at p. 486, fn. 5; Kaiser v. Blue Cross of California, supra, 347 F.3d at p. 1112; Regional Medical Transport, Inc. v. Highmark, Inc. (E.D.Pa. 2008) 541 F.Supp.2d 718, 727–732; see also Schweiker v. Chilicky (1988) 487 U.S. 412, 424–429 [108 S.Ct. 2460] [Social Security recipients who endured months of delay in receipt of benefits are ultimately entitled only to payments of benefits; Congress did not provide for consequential damages caused by denial or delay of benefits].) KGV’s causes of action are neither incidental nor collateral to the processing of Medicare benefits. (See McCall v. Pacificare of California, Inc., supra, 25 Cal.4th at pp. 416–426.)
KGV’s exclusive remedy for claims handling errors, intentional or otherwise, was to challenge NHIC’s determinations in an administrative proceeding and then seek review of the administrative decision in federal court. (See McCall v. Pacificare of California, Inc., supra, 25 Cal.4th at pp. 416–417.)
DISPOSITION
The judgment is affirmed.
NOT TO BE PUBLISHED.

MALLANO, P. J.
We concur:

ROTHSCHILD, J.

JOHNSON, J.


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