W.D.Ky: Medicare fraud and breach of contract claims not preempted

Distinguishing Uhm v. Humana, Inc., 620 F.3d 1134 (9th Cir. 2010), the district court for the Western District of Kentucky denied a motion to dismiss fraud and breach of contract state law claims in regard to Medicare marketing, holding that exhaustion of administrative remedies was not required and that the claims were not preempted. Mann v. Reeder, 2011 WL 665749 (W.D. Ky Feb. 15, 2011). The judge was appointed by Clinton.

Plaintiffs alleged that a Humana agent sold them a no-premium policy and guaranteed that the premium would not increase by more than $3 per month.  However, the premium was increased to $50/month within a few weeks of their enrollment.  Plaintiffs sought to disenroll, but based on the disenrollment request being outside the allowable time limit, Humana denied the request.  Plaintiffs brought suit in state court, alleging that Humana fraudulently misrepresented the premium structure and then failed to disenroll them.  Plaintiffs also claimed that Humana breached the contract by increasing premiums beyond the promised premium rate.

Humana first argued that there was no jurisdiction, because plaintiffs had not exhausted their administrative remedies.  This raised the question of whether the claims arose under the Medicare statute and were inextricably intertwined with a claim for benefits.  The court held that the issue of the failure to disenroll arose under the Medicare Act’s rules for disenrollment, and therefore that claim was dismissed for failure to exhaust administrative remedies.  However, the court reached the opposite conclusion regarding the fraud and breach of contract claims.  The court held that the fraud claim was collateral to a claim for benefits, seeking a remedy for the misrepresentations, unrelated to benefits.  Similarly, the breach of contract claims sought a remedy for duties imposed by the contract, not the Medicare Act.

Defendants next argued, based on Uhm, that claims regarding marketing misrepresentations were preempted by the Medicare Act’s regulation of marketing.  The court disagreed, relying on the exclusion in the definition of marketing materials of “ad hoc enrollee communications.”  The court distinguished Uhm, on the basis that the Uhm suit was brought as a class action alleging systematic oral misrepresentations.  Construing the facts in the light most favorable to plaintiffs, the Humana agent’s misrepresentations were not consistent with or identical to CMS approved marketing materials.  The court noted that if the facts proved otherwise, then the claim would likely be dismissed as preempted.

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