Opinion
Civil Action No. 01-2601, Section: "R" (2)
March 13, 2002
ORDER AND REASONS
Plaintiff Ochsner Health Plan filed a claim for declaratory judgment and damages against defendant Northern Louisiana Physician Hospital Organization ("NLPHO") asserting, inter alia, that NLPHO breached a Network Access Agreement by failing to properly administer claims. Defendant now moves to dismiss for lack of subject matter jurisdiction under Rule 12(b)(1) of the Federal Rules or in the alternative, to dismiss for failure to state a claim under Rule 12(b)(6).
I. Background
For the purposes of this motion, the Court will accept the facts as set forth in the Complaint as true. Ochsner Health Plan is as a licensed health maintenance organization ("HMO") operating for profit and incorporated in Louisiana. (Compl. ¶ 2.) It provides access to healthcare services for both prepaid group and individual subscribers. Ochsner is also a "Medicare + Choice" organization that administers Medicare benefits on behalf of the United States Department of Health and Human Services through its "Total Health 65 Medicare + Choice" plan. ( Id.) NLPHO is a for-profit corporation, incorporated in Louisiana, that has developed a network composed of physicians, hospitals, and other health care providers. ( Id. ¶ 3.)
NLPHO argues that this motion to dismiss for lack of subject matter jurisdiction should be construed as a "factual attack," rather than a "facial attack." NLPHO urges the Court not to take the allegations in plaintiff's complaint as true for the purposes of the motion and to look beyond the pleadings to consider testimony and affidavits. NLPHO, however, has not submitted any such factual evidence: See Menchaca v. Chrysler Credit Corp., 613 F.2d 507;, 511 (5th Cir. 1980) (considering testimony in a "factual attack" on the existence of subject matter jurisdiction). Accordingly, the Court will view this motion as a "facial attack."
NLPHO asserts that it is a rionprof it corporation. (Mot. to Dismiss, at 2.)
In September 1998, Ochsner and NLPHO entered into a Network Access Agreement ("Agreement"). Beginning on January 1, 1999, Ochsner agreed to use NLPHO's provider network to supply healthcare services for its subscribers. ( Id. ¶ 12.) In return, NLPHO agreed to perform all medical management duties, such as determining the appropriate level of medical care to be received by each beneficiary. ( Id. ¶ 19.) Then, on April 1, 1999, NLPHO, with oversight by Ochsner, assumed responsibility for paying and processing claims from participating providers for services to Ochsner beneficiaries. ( Id.) NLPHO determined the eligibility for payment of each claim. ( Id. ¶ 21.) NLPHO also agreed to implement certain electronic billing systems so that Ochsner's Medical Director could review whether payments were properly made. ( Id. ¶ 21, ¶ 23.) Ochsner agreed to pay NLPHO capitation payments in advance so that NLPHO could pay participating providers within 60 days of a proper claim. ( Id. ¶ 13.)
Plaintiff alleges that NLPHO breached the Agreement when it (1) failed to administer claims properly; (2) failed to implement the electronic formatting system needed to transmit claims "and payment data between NLPHO and Ochsner; (3) failed to pay healthcare providers; and (4) diverted the capitation funds paid by Ochsner to pay for non-Ochsner participants' claims. ( Id. ¶ 22-26.)
As a result, Ochsner resumed exclusive responsibility for claims administration on November 1, 1999. In addition, Ochsner asserts that when it learned that NLPHO diverted capitation funds to pay claims of AmCare and CIGNA subscribers, it contacted NLPHO to determine whether it was fiscally solvent. ( Id. ¶ 27.) Ochsner alleges that NLPHO was non-responsive and threatened to declare bankruptcy if Ochsner attempted to change the Agreement. ( Id.) In response, Ochsner withheld capitation payments required by the Access Agreement from July 1, 1999 through October 31, 1999. Ochsner claims that it used these fund to pay healthcare providers.
In November 1999, the Louisiana Department of Insurance (DOI) intervened, and the three parties entered into an Accord which provided that Ochsner would release $10.2 million in withheld capitation payments to pay claims made between April 1, 1999 and October 31, 1999, and that DOI would oversee the claims payment process to ensure that the funds were used to pay only those providers specified under the Agreement. ( Id. ¶ 31-32; Ex. 5.) The Accord recognized that Ochsner regained responsibility for claims administration as of November 1, 1999.
Ochsner contends that after the Accord, NLPHO failed to meet its contractual responsibilities to pay healthcare providers, failed to pay interest and failed to provide Ochsner with data necessary for Ochsner to perform its management and auditing functions. ( Id. ¶ 33.) On March 9, 2000, with the urging of DOI, Ochsner tendered an offer to NLPHO of an amount of money in excess of that required under the capitation provisions of the Access Agreement. ( Id. ¶ 35.) NLPHO rejected the offer and demanded that Ochsner assume sole financial responsibility for all claims made from October 31, 1998 to December 31, 1999. ( Id. ¶ 36; Ex. 6.) Ochsner claims that it had already paid NLPHO all the capitation payments required by the Agreement for that time period. ( Id., ¶ 36.) Ochsner contends that NLPHO representatives blamed Ochsner for the shortfall publically, in letters to physicians and in articles in the Shreveport Times. ( Id. ¶ 37-39; Ex. 8.) In March 2000, NLPHO began to send boxes of unpaid claims back to Ochsner. ( Id. ¶ 40; Ex. 9.)
On August 23, 2001, Ochsner filed a declaratory judgment action in this Court against NLPHO seeking a determination that Ochsner had fulfilled its obligation under the Agreement to furnish capitation payments and that any excess amounts owed were to be paid by NLPHO. ( Id. ¶ 44.) Ochsner also seeks damages for breach of contract, breach of fiduciary duty under the Louisiana Insurance Code, violations of the Unfair Trade Practices Act, and Trade Libel. Ochsner asserts that this Court has three grounds for federal jurisdiction. First, Ochsner contends that this Court has exclusive jurisdiction pursuant to ERISA over Ochsner's claim that NLPHO wrongfully administered and breached its fiduciary duties in its handling of the employer group health plan claims. ( Id. at ¶ 5.) Second, Ochsner asserts that the Court has jurisdiction over OPH's claims alleging that NLPHO wrongfully administered "Medicare + Choice" claims and breach of contract for failing to pay Medicare claims pursuant to 42 U.S.C. § 1395w-23. ( Id.) Third, Ochsner contends that since it has asked for declaratory relief, the Court has jurisdiction under 28 U.S.C. § 2201. ( Id. ¶ 7.) Ochsner acknowledges that all of its claims against NLPHO relate to contractual obligations established under the Agreement.
NLPHO moves to dismiss this case for lack of subject matter jurisdiction under Rule 12(b)(1), arguing that Ochsner's claims are solely state law claims involving the Agreement and therefore not preempted by ERISA. In addition, NLPHO argues that Ochsner's claims do not arise under Medicare legislation, pursuant to 42 U.S.C. § 1395w-23. NLPHO also moves to dismiss Ochsner's claims for failure to state a claim pursuant to Rule 12(b)(6).
II. Discussion
1. Federal Declaratory Judgment Act
A. Federal Jurisdiction Under ERISA
The Federal Declaratory Judgment Act, codified at 28 U.S.C. § 2201, is a procedural statute, not a jurisdictional statute. See Franchise Tax Bd. v. Construction Laborers Vacation Trust, 463 U.S. 1, 15-16, 103 S.Ct. 2841, 2849-50 (1983); Skelly Oil Co. v. Phillips Petroleum Co., 339 U.S. 667, 671-72, 70 S.Ct. 876, 878-79 (1950). Accordingly, federal jurisdiction is proper only if this case comes within an express congressional grant of jurisdiction. Federal courts have jurisdiction "of all civil actions arising under the Constitution, laws, or treaties of the United States." 28 U.S.C. § 1331. The "well-pleaded complaint" rule further limits federal-question jurisdiction to those cases in which the plaintiff's own complaint establishes that the action arises under federal law. See Franchise Tax Bd., 463 U.S. at 10, 103 U.S. at 2846-47; Louisville Nashville R.R. v. Mottley, 211 U.S. 149, 152, 29 S.Ct. 42, 43 (1908).
An action for declaratory judgment is merely a substitute for a more traditional action for damages or injunctive relief. As a result, the Court must consider whether a well-pleaded complaint in such a traditional action would present a federal issue. See Franchise Tax Bd., 463 U.S. at 19-20, 103 S.Ct. at 2851-52 ("Federal courts have regularly taken original jurisdiction over declaratory judgment suits in which, if the declaratory judgment defendant brought a coercive action to enforce its rights, that suit would necessarily present a federal question.") (dictum); Public Serv. Comm'n v. Wycoff Co., 344 U.S. 237, 248, 73 S.Ct. 236, 242 (1952) (noting that when the complaint in declaratory judgment action seeks to assert a defense to impending or threatened state court action, character of threatened action, and not of the defense, determines existence of federal-question jurisdiction) (dictum).
The Court, therefore, must look to see what kind of traditional or coercive action NLPHO could assert against Ochsner. Ochsner asserts that NLPHO could bring a state law breach of contract suit against Ochsner to recover additional capitation payments. Such a suit, Ochsner contends, would be a suit for benefits and preempted by ERISA. See Metropolitan Life Ins. Co. v. Taylor, 481 U.S. 58, 62-63, 107 S.Ct. 1542, 1546 (1987).
In Hermann Hospital v. MEBA Medical Benefits Plan, 845 F.2d 1286, 1290 (5th Cir. 1988), the Fifth Circuit considered whether a hospital's state law causes of action, including breach of contract, were preempted by ERISA. In that case, the Fifth Circuit engaged in a two part analysis. First, it determined whether the hospital had standing to sue under ERISA. Id. at 1287-1290. Then it considered whether the hospital's state law claims were preempted by ERISA by virtue of being "related to" any employee benefit plan. Id. at 1290.
Following the test established by Hermann, the Court must first decide whether NLPHO would have standing to sue under ERISA. Section 502 of ERISA, 29 U.S.C. § 1132(a) lists the parties who may file a civil action under ERISA and provides:
A civil action may be brought —
(1) by a participant or beneficiary-(A) for the relief provided for in subsection (c) of this section, or (B) to recover benefits due to him under the terms of his plan, to enforce his rights under the terms of the plan, or to clarify his rights to future benefits under the terms of the plan;
(2) by the Secretary, or by a participant, beneficiary or fiduciary for appropriate relief under section 1109. of this title;
(3) by a participant, beneficiary, or fiduciary (A) to enjoin any act or practice which violated any provision of this subchapter or the terms of the plan, or (B) to obtain other appropriate equitable relief (i) to redress such violations or (ii) to enforce any provision of this subchapter or the terms of the plan;
(4) by the Secretary, or by a participant, or beneficiary for appropriate relief in the case of a violation of 1025(c) of this title . . .29 U.S.C. § 1132(a). In Hermann, the Fifth Circuit held that standing to pursue an action described in section 1132(a) is exclusive to the three types of parties identified in the statute: participants, beneficiaries and fiduciaries. Hermann, 845 F.2d at 1288-89. Even though the hospital did not fit within any of these categories, the Fifth Circuit nevertheless found that the hospital had derivative standing to sue as the assignee of a plan beneficiary — an enumerated party. Id. at 1290.
The Fifth Circuit did not decide whether a pension plan had standing to sue under section 1132(d), which authorizes an ERISA plan "to sue and be sued under this subchapter." Hermann, 845 F.2d at 1288, n. 4 (noting that the Sixth and Seventh Circuits have found that pension plans have standing to sue under section 1132(d)).
Here, Ochsner asserts that NLPHO has standing as an agent for the treating health care providers in its network to sue Ochsner for payment. (Pl.'s Mem. Opp'n. Mot. to Dismiss, at 8.) The status of an agent is not the same as that of an assignee who owns the claim. Even assuming that the physicians and hospitals authorized NLPHO to sue as their agent, and that agency would confer standing when the principal is an ERISA party, the Court finds that NLPHO has no standing to sue. Physicians and hospitals are not "participants, beneficiaries or fiduciaries." See Memorial Hospital System v. Northbrook Life Insurance Co., 904 F.2d 236, 247, 249 (5th Cir. 1990) ("The Act imposes no fiduciary responsibilities in favor of third-party health care providers regarding accurate disclosure of information, or indeed, regarding any matter."); Hermann, 845 F.2d at 1289 (holding hospital does not have independent standing to sue under section 1132(a)); Lakeview Medical Center LLC v. Aetna Health Management, Inc., 2000 WL 1727553, at 3 (E.D. La. 2000) (finding hospital has no standing to sue under section 1132(a) when hospital could not show that participant or beneficiary assigned his or her rights to it). Accordingly, the Court finds that it does not have subject matter jurisdiction over plaintiff's claim for declaratory relief.
2. Equitable Relief
Ochsner also asserts that this Court has subject matter jurisdiction over its claims that NLPHO "wrongfully administered and breached its fiduciary duties with regard to the handling of the employer group health plan claims." (Compl., ¶ V.) Ochsner asserts that it has standing to sue under section 1132(a)(3) as a fiduciary of the plan.
ERISA defines "fiduciary" as "anyone who exercises discretionary authority over the plan's management, anyone who exercises authority over the management of its assets, and anyone having discretionary authority or responsibility in the plan's administration." Reich v. Lancaster, 55 F.3d 1034, 1046 (5th Cir. 1995), citing Pacificare Inc. v. Martin, 34 F.3d 834, 837 (9th Cir. 1994). The definition of a "fiduciary" under ERISA turns on function rather than form. See Mertens v. Hewitt Assocs., 508 U.S. 248, 262, 113 S.Ct. 2063 (1993) (stating that ERISA "defines `fiduciary' not in terms of formal trusteeship, but in functional terms of control and authority over the plan . . ."); Fisher v. Metropolitan Life Insurance Co., 895 F.2d 1073, 1076 (5th Cir. 1990). Further, the Fifth Circuit "gives the term fiduciary a liberal construction in keeping with the remedial purpose of ERISA." Id.
Here, it is undisputed that Ochsner is a health maintenance organization that offers several different types of employee health plans to employers. (Compl., Ex. 1, Agreement, at 73.) Ochsner asserts that these plans are "employee welfare benefit plans," which are regulated by ERISA. See 29 U.S.C. § 1002(1). Ochsner administers these plans and establishes procedures for receiving benefits. See Reich, 55 F.3d at 1047 (finding plan administrator that investigated, processed, resolved and paid claims, and maintained claims files was fiduciary). For the purposes of this motion, the Court accepts those facts as true and finds that Ochsner is a fiduciary of the plans. See also Corsini v. United Healthcare Corp., 51 F. Supp.2d 103, 107 (D.R.I. 1999) (finding HMO owes fiduciary duty to ERISA plan).
While NLPHO asserts that Ochsner is not a fiduciary because it offered its employees a "guaranteed benefit policy," it has failed to support its assertion with any facts.
To find ERISA preemption, however, the claim must "relate to" an ERISA plan. Here, the Court finds Ochsner has not shown that its claim is "related to" an ERISA plan. In general, section 514(a) of ERISA preempts all state law claims that "relate to any employee benefit plan." 29 U.S.C. § 1144(a). The Supreme Court has interpreted this preemption provision broadly: "A law `relates to' an employee benefit plan in the normal sense of the phrase, if it as a connection with or reference to such a plan." Shaw v. Delta Air Lines, Inc., 463 U.S. 85, 96-97, 103 S. Ct. 2890, 2899 (1983). Nevertheless, the Court has noted that there are limits: "Some state actions may affect employee benefit plans in too tenuous, remote, or peripheral a manner to warrant a finding that the law "relates to' the plan." Id. at 100 n. 21, 103 S.Ct. at 2901 n. 21. In the Fifth Circuit, as a rule of thumb, preempted state laws share two characteristics: "(1) the state law claims address areas of exclusive federal concerns, such as the right to receive benefits under the terms of an ERISA plan; and (2) the claims directly affect the relationship among the traditional ERISA entities — the employer, the plan and its fiduciaries, and the participants and beneficiaries." Memorial Hospital, 904 F.2d at 244.
Ochsner characterizes its claim as a claim for benefits. NLPHO contends that any breach of contract would be a breach of the Agreement, rather than a violation of an ERISA-governed plan. Defendant contends that Blue Cross of California v. Anesthesia Care Associates Medical Group, 187 F.3d 1045 (9th Cir. 1999), should be followed here. In Blue Cross, a group of health care providers sued a health care plan for breach of their provider agreements. Blue Cross contended that the providers' fraud claims were preempted under ERISA's civil enforcement provision, 29 U.S.C. § 1132, and the complete preemption provision, 29 U.S.C. § 1144(a). The Ninth Circuit rejected these arguments for two reasons. It found that the claims did not fall with section 1132's civil enforcement provision since the providers' claims arose from the terms of their provider agreements, could not be asserted by plan beneficiaries and were not claims for benefits under the terms of the ERISA plans. It also reasoned that the providers' claims did not "relate to" ERISA plans because they did not involve construction of the terms of ERISA-covered benefit plans, did not encroach upon the relationship between beneficiaries and the plans, and concerned only promises Blue Cross made as a health plan provider to the participating physicians. Id. at 1050-54. Accordingly, the Ninth Circuit found that the providers' state law claims had only a "tenuous, remote, or peripheral connection with covered plans," and therefore did not "relate to an ERISA plan sufficient to justify preemption." Id. at 1054 (quoting New York State Conference of Blue Cross Blue Shield Plans v. Travelers, Ins. Co., 514 U.S. 645, 661, 115 S.Ct. 1671, 1680 (1995)).
The Court finds the reasoning in Blue Cross persuasive. Here, plaintiff's claims relate solely to the obligations established by the Agreement between Ochsner and NLPHO. The specific breach claim relates to NLPHO's failure to properly administer the capitation payments made by Ochsner under the terms of the contract. This claim involves the purely economic arrangement between Ochsner and NLPHO. The claim does not relate to issues of substantive coverage under the ERISA plan or encroach up on relationships governed by ERISA. In fact, the benefits issue arises only to the extent that Ochsner seeks to clarify its and NLPHO's respective obligations under the Agreement to pay providers; the suit is unrelated to the participants' or beneficiaries' rights to benefits under the plan. See Memorial Hospital, 904 F.2d at 247. Indeed, the claims asserted here could not be asserted by plan beneficiaries and as such, are not claims for benefits under the terms of the ERISA plans. See, e.g., Agreement, §§ 3.3, 3.3.4. The Court finds that plaintiff's claim, therefore, does not "relate to" ERISA sufficiently to confer federal jurisdiction.
Because the Court finds that Ochsner's claims do not "relate to" an ERISA plan and therefore are not preempted by ERISA, the Court neednot consider whether NLPHO is a proper party defendant under ERISA.
C. Federal Jurisdiction under Medicare + Choice Statutes
Ochsner asserts federal question jurisdiction under 42 U.S.C. § 1395w-23(b)(3)(B) on two grounds. First, Ochsner argues that its claim is one for benefits, which is preempted by section 1395w-23(b)(3)(B)(i). Specifically, it alleges that NLPHO breached its fiduciary duties as the delegated claims administrator by failing to process and pay claims made by Ochsner's Medicare + Choice members. Second, Ochsner alleges that NLPHO failed to pay providers in accordance with regulations promulgated by Medicare, which is a cause of action preempted by section 1395w-23(b)(3)(B)(ii). See Massachusetts Association of Health Maintenance Organizations v. Ruthardt, 194 F.3d 176, 185 (1st Cir. 1999) (finding that section 1395w-26(b)(3)(b) preempts all state benefit requirements).
In enacting the Medicare + Choice program, Congress expressly provided that the program's standards had a preemptive effect over certain state laws:
(3) Relation to state laws
(A) In general
The standards established under this subsection shall supersede any State law or regulation (including standards described in subparagraph (B)) with respect to Medicare + Choice plans which are offered by Medicare + Choice organizations under this part to the extent such law or regulation is inconsistent with such standards.
(B) Standards specifically superseded State standards relating to the following are superseded under this paragraph:
(i) Benefit requirements.
(ii) Requirements relating to inclusion or treatment of providers.
(iii) Coverage determinations (including related appeals and grievance processes).42 U.S.C. § 1395w-26.
It is undisputed that NLPHO is not an M+C organization. Ochsner cites no legal authority, and the Court finds none that suggests that a M+C organization like Ochsner may sue a subcontractor like NLPHO, which is not an M+C organization, under section 1395w-23(b)(3)(B)(i). Ochsner points to no statutory grant of authority giving it the right to sue on its own behalf or on behalf of HCFA. In addition, in Hill Physicians Medical Group, Inc. v. Pacificare of California, 2001 WL 492481, at 3 (N.D. Cal. 2001), a case similar to this one, the district court found that federal jurisdiction under the Medicare Act did not exist. There, the court found that a health provider's allegation that a health care plan improperly processed claims was not preempted by section 1395w-26(b)(3). Id. Accordingly, the Court finds that Ochsner's claims do not arise under the cited provisions of the Medicare Act.
III. Conclusion
For the foregoing reasons, the Court dismisses plaintiff's claims without prejudice for lack of subject matter jurisdiction. Further, there is no basis for the Court to exercise supplemental jurisdiction over the remaining state law' claims. The state law causes of action are therefore dismissed without prejudice for lack of subject matter jurisdiction.
The Court rejects defendant's motion to dismiss plaintiff's claims with prejudice. See Smith v. City of New Orleans, 1996 WL 34136 (E.D. La. 1996) (finding that claims dismissed for lack of subject matter jurisdiction should be dismissed without prejudice).