Arbitration of Medicare Coverage Disputes: An End-Around Preemption?

It is fairly common for a contract between a health care provider and a private insurance plan to include an arbitration provision governing disputes that arise under their contract. As a result, disputes between payors and their contracted providers—for example, overpayment and underpayment disputes—are often resolved through private arbitration, rather than the court system. But we have begun to see a new trend: providers attempting to use the arbitration process to appeal coverage decisions made by the payor under its health plans, including Medicare Advantage plans. For example, in one recent case, a contracted mental health care facility filed a demand for arbitration, alleging that our client, a Medicare Advantage organization, improperly denied coverage, based on medical necessity grounds, for acute inpatient services the facility provided to various plan members over a prolonged period of time. The problem with this type of an arbitration demand is that the Medicare Act, and its regulations, requires Medicare coverage disputes to proceed through an administrative process with the Department of Health and Human Services (HHS) that includes, among other steps, a hearing before an administrative law judge and review by the Medicare Appeals Council. Only after exhausting those administrative procedures can the claimant seek judicial review by filing suit in federal district court. This remedial process was implemented to assure HHS an opportunity to apply, interpret or revise its own policies and regulations without judicial interference. In Heckler v. Ringer, 466 U.S. 602, 614-15 (1984), the U.S. Supreme Court recognized the foregoing appeal process as the “sole avenue” for review of all claims “arising under the Medicare Act.” Courts have broadly applied the “arising under” language to preempt any claim where, “at bottom,” the party (whether a Medicare enrollee or a provider) is complaining about the denial of Medicare benefits. See Uhm v. Humana, Inc., 620 F.3d 1134, 1142-43 (9th Cir. 2010).

When the provider and the insurer agree to arbitrate their disputes, however, the issue can become murky. The arbitration provision, depending on its language, may be construed as an agreement by the parties to bypass the administrative appeals procedures under the Medicare Act, even if they would otherwise apply to the provider’s claim. Further, in at least one case—Rencare, Ltd. v. Humana Health Plan of Texas, Inc., 395 F.3d 555 (5th Cir. 2004)—a court suggested that the Medicare Act’s broad preemption powers may not apply when the Medicare Advantage enrollee received the health care services at issue and has no financial interest in the dispute between the provider and the payor. So what can be done to help clarify uncertainty in this area?

Three steps to avoid uncertainty:

  1.  Review and update your arbitration clause. Provider contracts often contain “form” arbitration provisions that have been used for several years. The law concerning arbitration is constantly evolving. Using an outdated or ambiguous arbitration provision may result in an unnecessary, prolonged battle over whether a particular claim is arbitrable. In the place of broad, open-ended language (“all disputes arising out of the contract”), you can limit the scope of the arbitration provision by (i) identifying certain types of disputes under specified contract provisions; and (ii) excluding certain categories of disputes (for example, the merits of an adverse coverage determination). The arbitration provision can also address who—an arbitrator or a court—will decide whether a particular claim is subject to arbitration. Fine-tuning the arbitration provision in your contract to address these issues can avoid much uncertainty and expense down the road.
  2. Clarify appeal procedures. Health insurance companies typically publish provider manuals, bulletins and other materials outlining the procedures for its contracted providers to follow in appealing claims decisions. These materials may not clearly recognize the distinction between payment disputes and coverage disputes, suggesting that arbitration is available when the Medicare Act’s grievance procedures should apply.
  3. Avoid inadvertent consent. A party may be deemed to have consented to arbitration if it does not raise the issue of arbitrability in a timely fashion. It is important to determine at the outset of receiving an arbitration demand (and even during pre-arbitration discussions) whether you intend to contest arbitrability. If so, you need to be careful that, through your communications and actions, you do not waive this argument.

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