Court ruling gives Prime hospitals the right to sue Humana over Medicare Advantage contracts

In what an attorney for the health system has called a precedent-setting victory for in-network Medicare Advantage providers, a federal court has ruled against Humana's request to dismiss a lawsuit brought by Prime Healthcare Services.

The U.S. District Court in California on Friday ruled that as an in-network provider of MA plans through Humana, Prime has the right to sue the insurer for alleged breach of contract, rather than go through the appeals process of the Centers for Medicare and Medicaid Services.

"This is a significant victory for providers who are in-network with Medicare Advantage Plans." said Damaris Medina of Buchalter, one of the attorneys for Prime. "Humana and other Medicare Advantage payers have made several arguments to prevent providers from suing them for breach of contract." 

Humana declined comment saying by statement, "As a long-standing company policy, Humana does not comment on pending litigation."

The litigation is ongoing as Prime can now get to the heart of its issue with Humana that began over two years ago, according to Medina. 

Prime Healthcare Services is a health system made up of 45 hospitals in 14 states. Prime hospitals in five states brought the complaint, claiming Humana either underpaid or did not pay  submitted claims for in-network services from August 2012 through February 2016.

At stake is millions of dollars in disputed claims, Medina said.

Issues alleged by Prime hospitals in California, Nevada, New Jersey, Michigan and Texas include Humana decreasing the payment based on medical necessity concerns, questioning the rates or down-coding services to pay a lower rate, according to Medina. 

The contract stipulated that the hospitals would charge Humana at the lowest of either the Medicare rate or their billed charges, according to the court document.

Humana argued that because plans are within the regulations of Medicare, Prime was legally required to exhaust appeal remedies through CMS before the complaint could be heard.

However, the court ruled that while the contract Humana has with Medicare is governed by federal law, its contracts with Prime for in-network services fall under state law. Prime has the right to sue Humana, the court said.

"Has it set a precedent? I believe it has," Medina said. "It's a victory for in-network providers." 

The decision will affect providers nationwide when they feel there's been a breach of contract, according to Medina. 

Until this case, insurers could argue that providers could not sue until they had exhausted the Medicare Appeals process, or that they were unable to sue because they were preempted by the Medicare Act.  

"These two arguments together would leave a contracted provider without recourse against a Medicare Advantage Plan for breach of contract for improper reimbursement of their claims," Medina said. "This decision confirms that contracted providers do not have appeal rights through the Medicare Appeals process and therefore do not have to exhaust such a process before suing; and that they are not preempted by the Medicare Act from suing a Medicare Advantage Plan for breach of contract."

Twitter: @SusanJMorse
Email the writer: susan.morse@himssmedia.com