PRINTER FRIENDLY
 

In a lengthy, detailed, and complex decision, a federal appellate court rejected the right of Part D beneficiaries to sue a plan for damages when the plan fails to enroll them in a timely manner.[1]  The decision, which was issued on August 31, 2010, makes clear the Court's view that Congress did not intend beneficiaries to employ state law damages claims in lieu of the procedures and mechanisms provided in the Part D statute. 

Emphasizing the impact of the decision is that it was issued by a panel of the Ninth Circuit Court of Appeals, which is generally considered the most liberal federal appeals court in the country.  The three panel members, who were appointed by Presidents Carter and Clinton, are regarded as among the more liberal on that Court.  Not only will the decision prevent Part D beneficiaries within the jurisdiction of the Ninth Circuit from resorting to state law damage claims,[2] but it will probably discourage beneficiaries in the rest of the country from bringing such a case.

Background

The lawsuit against Humana was filed by a married couple, the Uhms.  The couple sought to represent a nationwide class of Part D beneficiaries who had tried to enroll in Humana's Medicare Part D Plan (PDP) but whom Humana failed to enroll or enrolled later than promised.  After reviewing the marketing materials from Humana in late 2005, the Uhms submitted the correct forms for enrollment and had their plan premiums deducted from their January and February 2006 Social Security checks, but received no follow-up information and had to buy their prescription drugs out-of-pocket.  Just over a month after Part D took effect, on February 6, 2006, they filed suit against Humana, contending that Humana's inactions in the face of its marketing materials was a breach of contract, violation of state consumer protection statutes, unjust enrichment, fraud, and fraud in the inducement.  The district court agreed with Humana that the case should be dismissed, and, consequently, the case was never certified as a class action. 

The Court of Appeals issued a decision affirming the district judge, but then, in response to the Uhms' petition for rehearing, the appellate court withdrew that decision, asked the Centers for Medicare & Medicaid Services (CMS) to file an amicus brief explaining the position of the federal government, and then issued a new decision – again affirming the district court.[3]

Exhaustion of Administrative Remedies

The Court first delved into the arcane and convoluted world of exhaustion of administrative remedies under the Social Security Act, of which the Medicare statute is a part.  Under that scheme, if claims "arise under" Medicare, beneficiaries must utilize to completion the administrative process spelled out in the statute before they go to court.  Since the Uhms filed suit without exhausting any administrative remedies, the Court of Appeals reasoned that it would not have jurisdiction – i.e., it could not even consider the claims on the merits – if the claims did in fact arise under Medicare. 

Reviewing other decisions that had looked at this issue from various angles, the Court concluded that "where, at bottom, a plaintiff is complaining about the denial of Medicare benefits – here, drug benefits under Part D – the claim 'arises under' the Medicare Act."[4]  With that as its standard, the panel first considered the Uhms' breach of contract and unjust enrichment claims.  The lengthy analysis that followed determined that the contract did not extend Humana's obligations beyond those provided in the statute, that the alleged injury could be remedied through retroactive payment of Medicare drug benefits, and that the remedy was available through the administrative process.  The claims were thus "at bottom" claims for benefits, and they should have been raised to the Secretary of Health and Human Services before judicial review was sought.[5] 

For the consumer protection and fraud claims – for which the Uhms contended that Humana had made material misrepresentations and committed other deceptive acts – the Court held that the claims were collateral to a claim for benefits and therefore did not arise under the Medicare Act.  Consequently, these claims were not subject to the exhaustion requirement.  But, the Court explained, that led to a different concern, preemption.  The Court's detailed analysis of that issue may be the more important aspect of the decision for purposes of the impact on the ability of beneficiaries to enforce plan's obligations.[6]

Preemption

Under this legal theory, Congress "may displace state law through express preemption provisions."[7]  Noting that Part D incorporated the Part C preemption rules and that 2003 amendments to the statute had intended to expand the scope of preemption, the Court concluded that "any state law or regulation falling within the specified categories and 'inconsistent' with a standard established under the Act remains preempted."[8]

Applying this norm, the Court determined first that state consumer protection laws were inconsistent with the standards established in the Act.  Allowing the lawsuit to proceed could result in a plan's materials, that had been determined by CMS not to be misleading, to be found misleading under state law: "That is precisely the situation that … the Act's preemption provision … contemplated and sought to avoid."[9]

With respect to the fraud claims, the Court meandered through an extensive analysis of whether the Medicare preemption provision was applicable only to state statutory provisions or whether it could also apply to common law theories of liability.  After determining that some common law claims fell within the ambit of the preemption rule, the Court finally concluded that the fraud claims in this case were among those so affected – again for the reason that to hold otherwise might lead to a court reaching a conclusion that differed from CMS' analysis of what constituted misleading information.[10]

Conclusion

Although the Court was careful not to suggest that all claims against Part D plans were necessarily preempted by the Part C/Part D preemption language, the reality is probably otherwise.  The Court obviously believed that the harm to the Uhms – a two-month delay in obtaining their prescription drugs through a PDP – simply did not warrant a nationwide class action for damages against the plan.  Resolution of these kinds of problems, the Court indicated, should be effected through the administrative process created by Congress, rather than by weighing down the court system with unnecessary litigation. 

Although the majority opinion itself did not expressly criticize the plaintiffs or their attorneys for turning Humana's actions and inactions into a major damages case, one of the panel members, a respected judge who has been on the Court for over 30 years, appended a short but pointed and unusual concurring opinion in which she blasted the plaintiffs' attorneys for bringing a lawsuit to remedy the plan's mistake:

What have Uhms' counsel accomplished for the Uhms, for justice, or for the law? …. A bit of common sense and attention to the available administrative remedies should have been applied.  Instead we have an opinion with endless pages of legal analysis, months of study and delay, and a determination that no benefit can be awarded to the Uhms.  Counsel particularly should take heed.[11]

For more information, contact attorney Gill Deford (gdeford @ medicareadvocacy.org) in the Center for Medicare Advocacy's Connecticut office at (860) 456-7790.