King & Spalding successfully defended Prime Health Services (“Prime”) against a motion to dismiss Prime’s breach of contract lawsuit against Humana in the United States District Court for the Central District of California. The court’s decision to deny Humana’s motion is significant because it is one of the first federal court decisions to recognize that hospitals and other healthcare providers can pursue private contractual remedies against Medicare Advantage insurance companies and that such claims are not preempted by federal law.
Humana offers several insurance plans under Medicare Part C, which is the managed care alternative to the traditional Medicare program. Humana and other insurers who offer such plans contract with hospitals and other healthcare providers to create networks to serve their enrollees.
Prime owns and operates several acute care hospitals. It sued Humana for breach of contract for failing to pay claims for hospital services provided to Humana’s Medicare Advantage enrollees. Humana moved to dismiss, arguing that Prime’s breach of contract claims were preempted by the broad sweep of the Medicare Advantage statute which preempts all state laws and regulations “with respect to” Medicare Advantage plans. King & Spalding’s Mark Polston and Justin Torres convinced the court that the Medicare statute did not regulate private breach of contract claims and, therefore, Humana’s motion to dismiss should be denied.
In the past, Humana and other Medicare Advantage insurers have been successful in convincing arbitrators and some courts that their network providers’ breach of contract claims were preempted by federal law, leaving these providers with no legal remedy. This case is significant to Prime and other hospital organizations because it rejects this legal theory and can be used as precedent to successfully defend against future motions.