Global Rescue Jets, LLC v. Kaiser Foundation Health Plan, Inc., ___ F.4th ___, 2022 WL 1052671 (9th Cir. Apr. 8, 2022)

Medicare Advantage plan beneficiaries must exhaust administrative remedies before seeking judicial review of a benefits claim.

Jet Rescue transported two Kaiser Medicare Advantage enrollees by air from Mexico to a Kaiser hospital in the United States. The enrollees assigned their claims for benefits under Kaiser’s plans to Jet Rescue. Jet Rescue lacked a services contract with Kaiser so Jet Rescue billed Kaiser $516,200, its “usual and customary” rate. Kaiser paid only $40,461, the Medicare-approved rate. Jet Rescue sued to recover the balance. The district court dismissed for lack of subject matter jurisdiction, ruling that Jet Rescue had failed to exhaust its administrative remedies.  Jet Rescue appealed.

The Ninth Circuit affirmed, holding that Medicare Advantage plan beneficiaries, and their assignees (like Jet Rescue here), must exhaust administrative remedies before seeking judicial review. The court explained that, under Parts A and B of the original Medicare Act, the federal government pays healthcare providers on a fee-for-service basis at rates approved by the Centers for Medicare & Medicaid Services. Congress amended the Medicare Act in 1997 to add Part C, under which the CMS pays Medicare Advantage organizations fixed monthly sums per enrollee to provide all services under Parts A and B. Medicare Advantage organizations also may offer enrollees “supplemental benefits” for an additional premium, as approved by the CMS, and they may have contracts with providers that fix the rates for services. If a non-contracting provider provides services to enrollees that would have been covered under Parts A and B, the Medicare Advantage organization must pay the provider at least the Medicare rate and the provider must accept that rate as payment in full. Jet Rescue and Kaiser disputed whether the air ambulance services were covered under Parts A and B, or only as a supplemental benefit.

Under 42 U.S.C. § 405, claimants must exhaust five levels of administrative review before seeking judicial review. Jet Rescue argued that § 405 did not apply because Kaiser is a private entity, but the Ninth Circuit disagreed because a Medicare Advantage organization such as Kaiser qualifies as an “officer or employee” of the United States or the Secretary for purposes of § 405. The court also held that Jet Rescue’s claims were “inextricably intertwined” with a claim for Medicare benefits and therefore arose under Part C. The exhaustion requirement may be excused if exhaustion would be futile or the claim is wholly collateral to a Medicare benefits claim. Because Jet Rescue could not make that showing here, the failure to exhaust administrative remedies deprived the district court of subject matter jurisdiction.