On June 22, 2018, the United States District Court for the Central District of California denied Humana’s motion to dismiss a suit brought by a large nationwide hospital system, Prime Healthcare Services (Prime). In a significant victory for Prime, the court ruled that Prime could sue Humana for breach of contract relating to Medicare Advantage underpayments. This decision is among the first in which a Federal court has allowed a healthcare provider to sue a Medicare Advantage Organization (MAO) for underpayments.

The Prime hospitals at issue were in-network with Humana and contend they were underpaid for certain Medicare Advantage claims from 2012 to 2016. Humana moved to dismiss the suit on the grounds that Prime’s claims were preempted by the express preemption provision within the Medicare Advantage statute. That provision states that all State laws and regulations “with respect to” Medicare Advantage plans are preempted, except for laws relating to licensing or plan solvency. The district court disagreed and held that the Medicare Advantage preemption statute only bars State laws in those cases in which the Medicare statute or CMS has established Federal standards. Stating that Federal law does not set standards for contractual terms between MAOs and providers, the court found that Humana could not identify a regulation governing billing disputes between an MAO and in-network providers. Therefore, Prime’s breach of contract claims are not preempted. Additionally, the court noted that if it dismissed Prime’s suit, then Prime would be left without recourse to pursue its claims because Humana’s payment decisions are not subject to administrative review by HHS.

The case is Prime Healthcare Servs., et al. v. Humana Ins. Co., Case No. EDCV 16-1097-VAP. To view the court’s decision, click here.