United Behavioral Health v. Maricopa Integrated Health Systems – 8/25/2016
Arizona Supreme Court holds that administrative appeals under the Medicare Act preempt arbitration of Medicare-related coverage disputes.
Several operators of inpatient psychiatric hospitals (“providers”) entered into separate agreements with a private administrator of Medicare benefits (“insurer”) to provide services to Medicare enrollees. After the insurer refused to reimburse the providers for certain services, the providers instituted arbitration proceedings asserting state law claims to obtain payment under the agreements, which were subject to the Federal Arbitration Act. The insurer sought to stay both arbitrations, arguing that disputes concerning coverage must be resolved through Medicare administrative appeal procedures. The court of appeals held that claims for payment under Medicare were not arbitrable, despite the FAA presumption of arbitrability, because the administrative appeals process under Medicare was the exclusive remedy for resolving coverage disputes.
The Supreme Court vacated the court of appeals opinion, but agreed that Medicare’s administrative appeals procedures preempted the providers’ efforts to arbitrate the Medicare claims. Under the Medicare Act, all claims “arising under” the Act must be resolved through U.S. Department of Health and Human Services (“HHS”) administrative review procedures. The United States Supreme Court has held that a claim arises under the 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. Heckler v. Ringer, 466 U.S. 611, 614-15 (1984). Although the providers’ claims, in this case, were based on state contract law, the Court held that the providers’ claims were “inextricably intertwined” with claims for Medicare benefits under the Medicare Act because resolution of those claims turned on whether the insurer properly applied Medicare standards. Additionally, the Medicare Act’s administrative review procedures were available to these providers because the providers obtained “full appeal rights” by waiving the right to payment directly from the enrollee patients, and because their claims challenged the validity of the insurer’s “determination that denied services as medically unnecessary.” The Court also noted that, as a policy matter, requiring providers to pursue remedies through administrative review would ensure HHS had the opportunity to consistently interpret coverage guidelines.
Justice Timmer authored the unanimous opinion; Justices Pelander, Brutinel, Berch (retired, designation), and Judge Vázquez (designation) joined. Chief Justice Bales and Justice Bolick recused.