Medicare Does Not Create Federal Jurisdiction in Hospital Billing Case, Judge Rules

On Friday, the court remanded the case a case brought against Providence St Joseph Health back to California state court. The case, initially removed by the defendants to the Northern District of California, was returned to the state court after the federal judge held that one of the parties involved being Medicare was not sufficient to state that there was a federal question in the case.

The case was filed as a class action against the Providence St. Joseph health system and its subsidiaries and affiliates on behalf of all patients who were treated for injuries related to motor vehicle accidents and who also had health insurance. According to the remand order, California law permits a medical professional or facility to have a lien against any recovery from third party motor vehicle insurance for health services provided on behalf of victims of the accident.  However, if the patient has health insurance, that health insurance can cover the medical bills, then receive reimbursement under the rules of subrogation from the third party motor vehicle insurance.

This route of receiving coverage is not always popular with health providers as the health insurance companies have negotiated rates with the hospital, resulting in the hospital receiving less reimbursement overall than they would have received by not billing the health insurance and instead directly imposing the lien on third party motor vehicle coverage. The named plaintiffs accused Providence St. Josephs Health of deliberately not billing the health insurance to receive this higher payment, which results in fewer proceeds being available directly to the patients for coverage of other bills incident to the accident.

In denying the defendant’s argument and remanding the case back to the state courts, the court stated that simply because Medicare, or a Medicare contracted payor is one of the parties to a claim does not mean that the claim arises under Medicare law. Medicare may dictate the payment rates, but the law being sued under for this case is the propriety of the application of the California Hospital Lien act. Therefore the state courts are the appropriate interpreters of this law.

The plaintiffs are represented by The Arns Law Firm and Erickson Kramer Osborne. The defendants are represented by Davis Wright Tremaine