The District Court of the Southern District of New York dismissed a third party beneficiary breach of contract claim involving alleged underpayments by WellCare of New York (“WellCare”) to New York City Health and Hospitals Corp. (“HHC”) for non-contracted emergency services for WellCare’s Medicare enrollees.
The applicable contract was mandated by the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (“MMA”), which did not provide a private right of action for the claim. The court concluded that a third party contract claim was barred by the lack of a private right of action. However, the court denied WellCare’s motion to dismiss HHC’s claim of unjust enrichment for the same alleged underpayments. The court held that the MMA did not preempt this state law claim, which was remanded to state court. New York City Health and Hospitals Corp. v. WellCare of New York, Inc., No. 10 Civ. 6748(SAS), 2011 WL 1842396 (S.D.N.Y. May 10, 2011).
WellCare provides Medicare enrollees with benefits as a managed health care organization (“MA Organization”) under Medicare Part C in a contract with the Centers for Medicare and Medicaid Services (“CMS”), which pays MA Organizations a fixed amount for each Medicare beneficiary. HHC has provided emergency services to Medicare enrollees of WellCare, as required by the Emergency Medical Treatment and Active Labor Act, without a contract. Thus, HHC, as a Non-Contracted Provider, is a third-party beneficiary to the contract between WellCare and CMS.
For these emergency services, HHC listed “Posted Charges,” which apply to uninsured and out-of-network patients, and diagnosis related group (“DRG”) payments, which are the amounts set by CMS that it would receive under Original Medicare (Parts A and B). Due to the “large number of low-income patients that it serves,” HHC’s Posted Charges were typically below the DRG payment amounts. In these cases, WellCare paid only the amount of the Posted Charges.
Alleging underpayments of over $2.8 million over “an unspecified number of years,” HHC sued for breach of contract as a third-party beneficiary and for unjust enrichment. The opinion is the Court’s decision as to WellCare’s motions to have both claims dismissed for failure to state a legal claim (Rule 12(b)(6)).
For the third party breach of contract claim, the District Court relied on Astra USA, Inc. v. Santa Clara County, California, 131 S.Ct. 1342 (2011), which held, “[T]here was no private right to sue for breach of contract as a third party beneficiary of a government contract when the statute mandating the contract contained no express or implied right of action.” In addition to finding that the MMA and its predecessors do not explicitly provide a right of action, and the court found that CMS’s voluntary, non-binding dispute resolution process indicates Congressional implicit intent to disallow private suits. Thus, the Court dismissed HHC’s third party breach of contract claim because the contract derived from a statute that allows no private right of action for third-party beneficiaries.
However, it did not dismiss HHC’s unjust enrichment claim because it found no evidence of preemption by the MMA. Specifically, it found the MMA did not expressly preempt state law, The court distinguished Uhm v. Humana, Inc., 620 F.3d 1134 (9th Cir. 2010), as undermining CMS standards regarding marketing material. The court explained:
“CMS has established standards for payments to Non–Contracted Providers. However, until very recently, CMS had not set standards governing an MA Organization’s responsibility to pay the Original Medicare amount when the bill contained a lower charge. Though CMS has now provided clarification, judicial resolution of claims predating the recent CMS pronouncements would not upset the statutory regime. Furthermore, a court would not have to overrule a previous CMS determination in order to find in favor of HHC on its unjust enrichment claim. In fact, CMS has refused to make a determination on the dispute. Because the specific allegations underlying HHC’s unjust enrichment claim would not interfere with federal standards governing MA plans, the claim is not expressly preempted” (footnotes omitted).
The court further held that “Congress has not demonstrated an intent to exclusively dominate the field” of healthcare law. In addition, there was no conflict between HHC’s claim for CMS’ DRG payment amounts and the CMS regulations. The court also determined that permitting the claim to proceed under state common law did not stand as an obstacle to the accomplishment and execution of the full purposes and objectives of Congress.
The breach of contract claim had encompassed a federal question. But after the dismissal of that claim, there was no longer a basis for federal jurisdiction. The District Court remanded the unjust enrichment claim to state court.
