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Click here for the full text of this decision FACTS:Medicare was established in 1965 as part of the Social Security Act. It is administered by the Centers for Medicare and Medicaid Services (CMS) and provides health insurance for most Americans over 65, for certain disabled persons under 65 and for persons with end-stage renal disease. In 1997, Medicare was amended to include Part C, also known as the Medicare Advantage program. The Medicare Advantage program provides Medicare beneficiaries with “a wider range of health plan choices through which to obtain their Medicare benefits.” Under Medicare Advantage, CMS contracts with health maintenance organizations and other private entities to provide health-care services to Medicare enrollees. Those that enter into such contracts with CMS are called Medicare Advantage organizations, and there are detailed requirements for entities that wish to qualify. Once CMS and a Medicare Advantage organization enter into a contract, CMS makes capitation payments to Medicare Advantage organizations for enrollee health care services. Upon payment from CMS, the Medicare Advantage organization “assume[s] full financial risk . . . for the provision of the health care services for which benefits are required to be provided” and “must adopt and maintain arrangements satisfactory to CMS to protect its enrollees from incurring liability (for example, as a result of an organization’s insolvency or other financial difficulties) for payment of any fees that are the legal obligation of the [Medicare Advantage] organization.” Medicare Advantage organizations may contract with third parties to provide administrative and health-care services to enrollees. Contracts between Medicare Advantage organizations or their delegates and downstream providers are freely negotiated, with very few exceptions. Aetna owned NYLCare, an HMO that became a Medicare Advantage organization by virtue of its contract with CMS. NYLCare contracted with North American Medical Management of Texas (NAMM) to administer the plan. CMS made capitation payments to Aetna which, in turn, made monthly payments to NAMM. NAMM was required to deposit the payments into a fund that was designated to pay covered claims for health-care services rendered by health care providers to NYLCare members. NAMM then contracted with health-care providers, including Christus Health Gulf Coast; Christus Health Southeast Texas; Gulf Coast Division Inc.; Memorial Hermann Hospital System; and Baptist Hospitals of Southeast Texas (collectively, the hospitals) to provide services to NYLCare enrollees. The hospitals allege that NAMM grossly mismanaged its accounting and failed to track claims accurately. Eventually, NAMM stopped paying the hospitals for their services. In August 2000, NAMM notified the hospitals and NYLCare that it was no longer able to satisfy its financial obligations, and on Aug. 31, 2000, the Texas Department of Insurance placed NAMM in supervision conservatorship. Aetna (through NYLCare) assumed responsibility for institutional claims incurred by NYLCare members for covered services rendered on or after Aug. 17, 2000. The hospitals sought payment from Aetna for services rendered before that date, but Aetna refused the “numerous demands” for payment. On Dec. 5, 2000, four of the five hospitals wrote CMS, describing in detail the situation and asking CMS to intervene to require Aetna to pay the hospitals for the unreimbursed services provided to enrollees. On March 30, 2001, CMS responded, in a four-page, single-spaced letter signed by the acting director of the Medicare Managed Care Group. The letter analyzed the hospitals’ claims and concluded: “[Y]ou overstate [CMS's] authority to hold [Aetna] responsible for unpaid claims in this instance. . . . This type of contract dispute is an issue for the state judiciary to decide. . . . “[Medicare Advantage] regulations clearly limit [CMS]‘s ability to intervene in payment disputes between [Medicare Advantage] organizations and their contracted [Medicare Advantage] providers. In fact, the existence of provider contracts that can be enforced by the courts is why the Congress limited [CMS]‘s regulatory authority in comparison to those afforded non-contracted providers.” The hospitals contended that they also attempted to pursue remedies through the Texas Department of Insurance but the agency denied jurisdiction over the matter and referred the hospitals to the Texas court system. The hospitals sued Aetna in Harris County district court, alleging $13,067,759.19 in unpaid services, for which they asserted claims under the Texas Insurance Code, suit on an account, breach of contract, breach of fiduciary duty and quantum meruit. Aetna answered and filed a third-party petition against NAMM. Aetna sought contribution and indemnity, alleging that NAMM “breached [its agreement with Aetna] and its contracts with each of the [Hospitals] by failing to pay for covered services rendered to NYLCare 65 members” before NAMM’s insolvency. Aetna then moved to dismiss the hospitals’ claims, contending that they were governed exclusively by the Medicare Act and that because the hospitals had not pursued Medicare’s administrative remedies, the trial court lacked subject matter jurisdiction over the claims. The hospitals responded, asserting that under the Texas Insurance Code, Aetna was directly liable to the hospitals for NAMM’s failure to pay. The hospitals argued that enrollees, not providers, were required to exhaust remedies before suing and that “[t]he administrative review process . . . has no application to the [H]ospitals and, in fact, provides them with no way to seek an administrative review.” On Oct. 2, 2003, the trial court heard and granted the plea to the jurisdiction, dismissing without prejudice the hospitals’ claims. The hospitals appealed, and the 14th Court of Appeals affirmed the trial court’s judgment. The 14th Court concluded that the hospitals’ claims arose under the Medicare Act and that the hospital therefore had to exhaust administrative remedies before suing in state court. The hospitals moved for rehearing, alleging that an opinion issued by the 5th U.S. Circuit Court of Appeals two days after the 14th Court of Appeals issued its opinion was inconsistent with the 14th Court’s holding. The court denied the motion for rehearing and issued an opinion on rehearing in which it discussed and distinguished the 5th Circuit opinion. The Texas Supreme Court granted the hospitals’ petition for review. HOLDING:Reversed and remanded. When a plea to the jurisdiction challenges the pleadings, the court stated, “we determine if the pleader has alleged facts that affirmatively demonstrate the court’s jurisdiction to hear the cause.” The court remarked that the underlying facts in the 5th Circuit’s 2004 opinion in RenCare, Ltd. v. Humana Health Plan of Texas Inc. were “strikingly similar” to the instant case. In RenCare, the 5th Circuit considered whether a health-care provider that contracted with a Medicare Advantage organization had to pursue administrative remedies before filing suit. The 5th Circuit found that RenCare’s claims did not arise under the Medicare Act and there were no administrative remedies for RenCare to exhaust. The court agreed with the RenCare court’s second conclusion in that “it appears that the administrative review process attendant to Part C does not extend to claims in which an enrollee has absolutely no interest.” The court noted that Part C and CMS’ implementing regulations establish mandatory administrative “appeals procedures” to resolve disputes over “organization determinations.” An organization determination is a decision by a Medicare Advantage organization “regarding the benefit an enrollee is entitled to receive under [a Medicare Advantage] plan . . . and the amount, if any, that the enrollee is required to pay for a health service.” Specifically, the administrative review process focuses on enrollees, not health-care providers, and is designed to protect enrollees’ rights to Medicare benefits. Here, Humana’s failure to pay RenCare is not an organization determination subject to the mandatory exhaustion of administrative remedies. No enrollee has requested an organization determination or appeal. No enrollee has been denied covered service or been required to pay for a service. Thus, because there was no organization determination for the hospitals to appeal through the federal administrative channels, the state-law claims by the hospitals were within the trial court’s jurisdiction. Accordingly, the 14th Court erred in concluding otherwise. OPINION:Jefferson, C.J., delivered the opinion of the court.

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