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“Federal jurisdiction cannot be based solely on the presence of a federal issue raised in a defense,” U.S. District Court Judge William H. Yohn Jr. wrote in Howard Medical Inc. v. Temple University Hospital, et al. Instead, the Eastern District of Pennsylvania judge said, the existence of a federal question must be clear from the face of the plaintiff’s complaint. And if the suit sounds only in state tort claims, Yohn said, the defendants must show that the plaintiff’s claim itself — and not just their defenses to it — “arises under” federal law. The plaintiff, Howard Medical, an ambulance company, sued three hospitals and four dialysis centers for “negligent misrepresentation” for allegedly assuring Howard Medical that a doctor had approved each request for transporting dialysis patients as “medically necessary.” According to the suit, filed in federal court in Philadelphia, Howard Medical was audited by HighMark, the carrier appointed by Pennsylvania’s Department of Health and Human Services to review its Medicare claim, and was denied reimbursement for ambulance rides to dialysis centers between June 1996 and July 1999. Howard Medical responded by asking each hospital to provide Medicare with a physician’s certificate demonstrating the medical necessity, but none ever provided it. The suit, filed by attorney Stephen R. Bolden of Philadelphia-based Fell & Spaulding, names as defendants Temple University Hospital, the University of Pennsylvania Hospital, Belmont Court Dialysis Inc., Delaware County Memorial Hospital, the BMA Dialysis Inc., Gambro Healthcare Inc. and the Mount Airy Kidney Center. The suit was originally filed in the Philadelphia Court of Common Pleas, but the defendants removed it to federal court, arguing that the claims were pre-empted by the Medicare Act. In a 19-page opinion handed down in November, Yohn found that the claims are not pre-empted by the Medicare Act because Howard Medical is not asking the court to award Medicare payments but instead is seeking compensation for the hospitals’ alleged tortious conduct. “The mere fact that Howard Medical’s complaint refers to the payments that it thought it would receive from Medicare does not automatically convert Howard Medical’s state law tort and equity claims into a claim for Medicare reimbursement,” Yohn wrote. The claim for negligent misrepresentation survived, Yohn said, because it met all the elements of that tort. Now Yohn has ruled that the case must be remanded to the Philadelphia Court of Common Pleas because the Medicare issues raised by the defendants are not enough to confer federal jurisdiction. “A state law cause of action may arise under federal law where the vindication of a right under state law necessarily turns on some construction of federal law,” Yohn wrote. But the U.S. Supreme Court, he said, cautioned in Merrell Dow Pharmaceuticals Inc. v. Thompson that “the mere presence of a federal issue in a state cause of action does not automatically confer federal-question jurisdiction.” Instead, Yohn said, for a federal court to have jurisdiction of a state law action, the resolution of such action must raise a “substantial disputed question of federal law.” And the existence of the federal question “must be clear from the face of the plaintiff’s ‘well-pleaded’ complaint. A defense that raises a federal question is inadequate to confer federal jurisdiction.” Yohn found that the Supreme Court has never offered a single definition of what constitutes a federal question, instead saying only that the analysis depends on “an evaluation of the nature of the federal interest at stake.” “Beyond that,” Yohn said, “the Supreme Court has not elaborated on the inquiry that must be conducted to determine whether a federal question is substantial enough to confer federal jurisdiction. Because the Supreme Court has left the scope of federal question jurisdiction relatively undefined, commentators have found that district courts are left with great discretion in determining whether the nature of the federal interest at stake merits federal jurisdiction for the state law claim.” Turning to Howard Medical’s suit, Yohn found that its negligent misrepresentation claim “is a garden variety state law cause of action.” But defense lawyers argued that the case presented a substantial federal question since Howard Medical will have the burden of proving its justifiable reliance on the alleged misrepresentations and any fact finder who considers the question will also need to consider the duties and standards established by the Medicare Act. Under the Medicare Act, the defense lawyers argued, Howard Medical, as an ambulance service provider, had a “non-delegable” duty to verify the medical necessity of transporting patients by ambulance. Howard Medical abdicated its federally imposed duty, the defense team argued, by relying on the hospitals’ and dialysis centers’ allegedly false representations that ambulance transportation had been certified as medically necessary instead of assessing medical necessity on its own. Yohn disagreed, saying it was not clear that the federal regulations impose any such non-delegable duty. “While this guideline establishes Howard Medical’s responsibility to assess the medical necessity of ambulance transportation, it does not establish Howard Medical’s duty to make this assessment independently, rather than by relying on the representations of the health care providers for whose patients the service is provided,” Yohn wrote. To win, Yohn said, Howard Medical does not need to rely on Medicare regulations but instead can set out to prove that the defendants all had superior knowledge and ability to assess the medical necessity of transporting patients by ambulance and that Howard Medical relied on their representations. Defense lawyers also argued that the damages issues in the case raise federal questions because Howard Medical must prove that its Medicare claims were denied solely for lack of medical necessity and that this proof requires a consideration of the medical necessity requirements as set forth in the Medicare regulations. They also argued that Howard Medical can prove it was injured only if it can show that its claim for Medicare benefits would ultimately have been denied even if it had exhausted its administrative remedies by appealing the denial of payment. Yohn rejected both arguments and found that the defense team seemed to misunderstand the nature of Howard Medical’s claim. “Here, Howard Medical does not contest the denial of its Medicare benefits; rather, Howard Medical brings this action against defendants to gain relief for the damages it suffered as a result of defendants’ misrepresentations,” Yohn wrote. The defense also overstated the plaintiff’s burden for proving causation in such a case, Yohn found. “Causation will be shown as long as defendants’ misrepresentations of medical necessity were a substantial factor in causing Howard Medical’s injury,” Yohn wrote. Temple University Hospital is represented by Roland J. Atkins of Atkins & Cohen, Delaware County Memorial is represented by Patrick K. McCoyd and Jonathan B. Sprague of Post & Schell, Belmont Dialysis is represented by William J. Mundy of McKissock & Hoffman, the University of Pennsylvania Hospital is represented by Wayne C. Stansfield of Reed Smith, and BMA Dialysis is represented by William R. Mitchelson, Shannon Klinger and Steven D. Henry of Alston & Bird in Atlanta, along with Jan P. Levine and Stephen J. McConnell of Dechert.

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