# Atrio Health Plans, Inc. v. Performance Health Technology, Ltd.

> District Court, D. Oregon · August 13, 2019

URL: https://www.frixlaw.com/law-library/cases/10391094

## Case

- **Court:** District Court, D. Oregon
- **Decided:** August 13, 2019
- **Opinion:** 100trialcourt
- **Cited by:** 0 later opinions in the Frix Law Library

## Citator (automated)

- No negative treatment found by the automated citator. That is not the same as a confirmation that the case is good law; read the citing cases.
- Full citator and citing cases: https://www.frixlaw.com/law-library/cases/10391094

## How later opinions describe it (automated extraction)

- noting caselaw on this issue resembles a Jackson Pollock painting

## Opinion text

IN THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF OREGON

ATRIO HEALTH PLANS, INC., an
Oregon corporation; MID VALLEY IPA, Case No. 6:19-cv-00818-MC
INC., an Oregon nonprofit corporation dba
Health Authority; CASCADE ORDER
COMPREHENSIVE CARE, INC., an
Oregon Corporation; and UMPQUA
HEALTH, LLC, an Oregon limited
liability company,

Plaintiffs,
v.

PERFORMANCE HEALTH
TECHNOLOGY, LTD., an Oregon
Corporation dba PERFORMANCE
HEALTH TECHNOLOGY, INC.; and
OPTIMA, LLC, an Oregon limited
liability company dba INTELIGENZ

Defendants.
_____________________________
MCSHANE, Judge:
This action arises from a contract dispute between Plaintiff ATRIO Health Plans, Inc.
(ATRIO) and Defendants Performance Health Technology, Ltd. (PH TECH) and Optima, LLC
(Optima). Plaintiff brings breach of contract and negligence claims against Defendants based on
alleged actions (or inactions) by Defendants causing Plaintiff to submit incorrect information to
the Centers for Medicare and Medicaid Services (CMS). PH TECH removed this action from
state court citing federal question jurisdiction. ATRIO moves to remand back to Marion County
Circuit Court based on lack of federal jurisdiction. ATRIO’s motion to remand, ECF No. 13, is
GRANTED.

BACKGROUND
ATRIO operates a Medicare Advantage plan in Oregon, providing insurance plans to
Medicare beneficiaries within the state. ATRIO works with Service Area Contractors
(hereinafter “SACs”), independent physician associations and hospital organizations, to provide
medical care for ATRIO’s members. ATRIO’s SACs include Plaintiffs Mid Valley IPA, Inc.,
Cascade Comprehensive Care, Inc., and Umpqua Health, LLC. In exchange for providing its
members with Medicare benefits, ATRIO receives monthly payments from CMS based on a
calculation of certain factors. Compl. ¶ 15. CMS provides a higher payment amount to ATRIO
for its enrolled members that meet certain high-risk conditions or are diagnosed with specific

serious diseases. Compl. ¶ 16. In order to receive these higher payouts from CMS, ATRIO must
submit member medical information to the CMS Risk Adjustment Processing System (“RAPS”).
Compl. ¶ 17. If the information submitted to RAPS meets certain criteria, then ATRIO is allotted
the more substantial payments to supplement the increased cost of providing care to its higher-
risk members.
Since 2011, ATRIO has contracted with PH TECH to perform administrative duties and
to process claims from ATRIO’s members. Compl. ¶ 26. Within these contractual duties, PH
TECH was responsible for “filtering” claims that did not qualify for risk adjustment based on the
RAPS criteria. To synthesize the complaint, ATRIO claims that PH TECH failed to properly
perform this filtering responsibility, resulting in misinformation being submitted to CMS.
Submission of this misinformation regarding the risk status of some of ATRIO’s members
resulted in overpayment to ATRIO by CMS of allegedly $30,791,181. Compl. ¶ 106. ATRIO
alleges similar claims of failure to perform contractual duties against Optima. ATRIO seeks
reimbursement from the Defendants for the overpayment amount that is due for repayment to

CMS and monetary damages for ATRIO’s lost revenue and other harms from Defendants’
alleged actions.
STANDARDS
A defendant may remove a civil action from state court to federal district court if the
federal court would have had original jurisdiction over the matter. 28 U.S.C. § 1441(a). In other
words, when the court lacks diversity jurisdiction, removal is proper only when the court has
federal-question jurisdiction over the subject matter of the complaint. Caterpillar Inc. v.
Williams, 482 U.S. 386, 392 (1987). “The presence or absence of federal-question jurisdiction is
governed by the well-pleaded complaint rule, which provides that federal jurisdiction exists only

when a federal question is presented on the face of the plaintiff’s properly pleaded complaint.”
Id. (internal quotations and citation omitted). In the context of the well-pleaded complaint rule,
federal-question jurisdiction means that the complaint itself “establishes that the case ‘arises
under’ federal law.” Franchise Tax Bd. v. Constr. Laborers Vacation Trust, 463 U.S. 1, 10
(1983). In order to arise under federal law, “[a] right or immunity created by the Constitution or
laws of the United States must be an element, and an essential one, of the plaintiff’s cause of
action.” Id. at 10-11 (quoting Gully v. First Nat’l Bank, 299 U.S. 109, 112 (1936)).
There is a narrow exception to the well-pleaded complaint rule where federal jurisdiction
may be asserted over strictly state law claims which pose a disputed federal issue. Grable & Sons
Metal Products, Inc. v. Darue Engineering & Mfg., 545 U.S. 308, 313-14 (2005). The
applicability of this exception is governed by a four-factor test set forth by the Supreme Court in
Gunn v. Minton, 568 U.S. 251, 258 (2013). Federal jurisdiction can be exerted over strictly state
law claims only if “a federal issue is: (1) necessarily raised, (2) actually disputed, (3) substantial,
and (4) capable of resolution in federal court without disrupting the federal-state balance

approved by Congress.” Id.
If, following removal, the court determines it lacks original jurisdiction, it must remand
the matter to state court. 28 U.S.C. § 1447(c); Franchise Tax Bd., 463 U.S. at 8. “Federal
jurisdiction must be rejected if there is any doubt as to the right of removal in the first instance.”
Gaus v. Miles, Inc., 980 F.2d 564, 566 (9th Cir. 1992). “The ‘strong presumption’ against
removal jurisdiction means that the defendant always has the burden of establishing that removal
is proper.” Id. (quoting Nishimoto v. Federman-Bachrach & Assoc., 903 F.2d 709, 712 n.3 (9th
Cir. 1990)).
DISCUSSION

Plaintiffs bring claims of breach of contract and negligence against Defendants in
connection with alleged failures to perform contractual obligations. Although Plaintiffs bring no
claims under federal law, Defendants removed this action citing federal question jurisdiction.
Federal jurisdiction exists here only if the Plaintiffs’ claims fall within the narrow exception to
the well-pleaded complaint rule established in Grable. To be within this slim category, the
Defendants must show that the claims meet the four factors set forth in Gunn. Failure to meet
any of the factors will result in remand.
I. This Court Lacks Federal Jurisdiction Over Plaintiffs’ Claims
A federal issue is “necessarily raised” if it must be resolved in the determination of the
case. Gunn, 568 U.S. at 259.The claims here necessarily raise federal issues. As noted above,
ATRIO alleges its contract with PH TECH required PH TECH to comply with certain CMS
regulations and federal laws. For example, ATRIO alleges:

125. The Administrative Services Agreements required PH TECH to
comply with all applicable Medicare laws, regulations, and CMS instructions.
126. The Administrative Services Agreements required PH TECH to
comply with ATRIO’s rules of participation as such rules relate to the
administration of the CMS Agreement.
127. The Administrative Services Agreements required PH TECH to
comply with all required terms of 42 C.F.R. Part 422.
128. Pursuant to each of the Administrative Services Agreements, PH
TECH warranted and agreed that any services or other activities performed by PH
TECH pursuant to the Administrative Services Agreements would comply with
ATRIO’s contractual obligations under the CMS Agreement.
129. Under the terms of the Administrative Services Agreements, PH
TECH agreed to perform all assigned processes and functions according to
ATRIO’s specifications.
130. The terms of the Administrative Services Agreements required PH
TECH to perform all assigned processes and functions according to CMS
specifications.
131. Under terms of the 2016 ASA, PH Tech was classified as a “first tier”
entity as defined under 42 C.F.R. §§ 422.500(b) and 423.501 and PH TECH
agreed to follow the regulatory provisions that are incorporated into contracts
with first tier entities pursuant to 42 C.F.R. § 422.504, including the requirement
that PH TECH shall comply with all applicable Medicare laws and regulations
and CMS instructions.
132. The Administrative Services Agreements required PH TECH to
maintain “written administrative and operational policies and procedures to
administer the Plan in compliance with CMS requirements as set forth in 42
C.F.R. Part 422 and the CMS Agreement.
Compl. ¶¶ 125-132.
The underlying claims stem from ATRIO’s allegations that PH TECH failed to comply
with federal regulations as required in their contract. For example, the complaint alleges:
142. PH TECH committed a material breach of the Administrative
Services Agreements by failing to process and filter RAPS files in accordance
with CMS methodology.
143. PH TECH committed a material breach of the Administrative
Services Agreements by not properly processing RAPS files.
144. PH TECH committed a material breach of the Administrative
Services Agreements by submitting risk adjustment claims to CMS that were not
based on diagnosed conditions received from a qualified healthcare provider for
treatment in the twelve-month period before the payment year for the submitted
where the diagnosis for risk adjustment (1) stemmed from a face-to-face visit; (2)
with a qualified healthcare provider; (3) during the appropriate service period; and
(4) documented in a medical record.
145. PH TECH committed a material breach of the Administrative
Services Agreements by submitting to CMS risk adjustment claims that included
invalid diagnoses to CMS.
146. PH TECH committed a material breach of the Administrative
Services Agreements by submitting to CMS risk adjustment claims that included
ineligible provider types.
147. PH TECH committed a material breach of the Administrative
Services Agreements by submitting to CMS ATRIO”s risk adjustment claims that
included services that were ineligible for risk adjustment payments.
Compl. ¶¶ 142-147.
But even though a court resolving this action will determine whether (1) these laws apply
to the Defendants under the relevant contracts and (2) if so, whether Defendants breached the
contracts (or violated the relevant standard of care), such determinations do not necessarily
establish federal jurisdiction over this action.
A federal issue is “actually disputed” if there is a genuine dispute “respecting the validity,
construction or effect of [federal] law.” Grable 545 U.S. at 313 (alteration in original) (quoting
Shulthis v. McDougal, 225 U.S. 561, 569 (1912)). Broadly, PH TECH argues that the Court must
resolve four disputed federal issues: (1) whether PH TECH is a “first tier entity” under 42 C.F.R.
§ 422.500 and had to comply with federal regulations; (2) whether PH TECH violated federal
regulations in submitting allegedly erroneous RAPS data; (3) whether ATRIO could “delegate”
to PH TECH its responsibilities to CMS; and (4) whether Defendants’ alleged actions caused the
harm Plaintiffs are claiming . Def.’s Opp’n to Pls.’ Mot. To Remand 12-18, ECF No. 18. While

the presence of federal regulations in this case is undeniable, the federal issues involved are not
in dispute with respect to “the validity, construction or effect of [federal] law.” Grable, 545 U.S.
at 313. A closer look at Grable is instructive.
In Grable, the plaintiff brought a quiet title action, claiming an IRS seizure was invalid.
The relevant statute required the IRS to give written notice “to the owner of the property [or] left
at his usual place of abode or business. Id. at 310. Plaintiff argued “that the statute required
personal service, not service by certified mail.” Id. The Court noted that “[w]hether Grable was
given notice within the meaning of the federal statute is thus an essential element of its quiet title
claim, and the meaning of the federal statute is actually in dispute; it appears to be the only legal

or factual issue contested in the case.” Id. at 314.
PH TECH, on the other hand, disputes that it is a first-tier entity factually. It does not
dispute how a first-tier entity is defined under federal law, nor does it challenge the validity of
this definition. Instead, PH TECH disputes the application of this definition to the contracts in
dispute. The resolution of ATRIO’s claim focuses on a factual determination of whether the
contracts require PH Tech to “comply with all Medicare laws and regulations and CMS
instructions,” Compl. ¶ 131, and, if so, did PH TECH breach the contracts by failing to comply
“with applicable provisions of the Medicare Advantage Program, 42 C.F.R. Part 422, and other
applicable state and federal law,” Compl. ¶ 155. Simply put, this case is not “the rare exception
to the general rule that federal-question jurisdiction exists only where there is a federal cause of
action.” Oregon ex rel. Kroger v. Johnson & Johnson, 832 F.Supp.2d 1250, 1255 (D. Or. 2011).
Instead, this case is “fact-bound and situation-specific,” and federal jurisdiction is not warranted.
Empire HealthChoice Assurance, Inc. v. McVeigh, 547 U.S. 677, 701 (2006).
Likewise, ATRIO’s claims lack a “substantial” federal issue. To determine if a federal

issue is substantial, courts look “to the importance of the issue to the federal system as a whole.”
Gunn, 568 U.S. at 260. Gunn is on point. There, the plaintiff brought a malpractice claim against
his former attorneys, arguing they should have raised a valid defense (the “experimental use”
argument) in plaintiff’s earlier patent case. Gunn argued that because his malpractice case
depended on the interpretation of federal patent law (i.e., a “case within a case”), the federal
issue was necessarily substantial. The Court disagreed. Although “resolution of a federal patent
question is ‘necessary’ . . . [and] “actually disputed,” it “is not substantial in the relevant sense.”
Id. at 259-60. “[I]t is not enough that the federal issue be significant to the particular parties in
the immediate suit; that will always be true when the state claim ‘necessarily raise[s]’ a disputed

federal issue, as Grable separately requires. The substantiality inquiry under Grable looks
instead to the importance of the issue to the federal system as a whole.” Id. at 260 (second
alteration in original).
Here, ATRIO’s claims have little impact on any non-party or the CMS regulations.
Defendants are generally correct that CMS and the regulation of Medicare are of federal interest.
They point to the heavy regulations put on Medicare Advantage plan providers like ATRIO as
evidence of a federal interest in this case. However, CMS is not a party to this case, and ATRIO
does not challenge the validity, or even the interpretation, of the regulations. After all, “ATRIO
has reported to CMS the overpayments set forth above and opened remedy tickets to correct the
overpayments.” Compl. ¶ 107. The complaint acknowledges it is ATRIO, not defendants, who
are liable to CMS. See Compl. ¶ 204 (The alleged breaches “have exposed ATRIO to those CMS
claims.”). Additionally, ATRIO is paying the claims, seeking only to later recover its damages
from defendants. See Compl. ¶ 207 (“ATRIO is currently discharging its legal obligation owed to
CMS as a result of CMS’ overpayment”). Resolution of this case will have no bearing on the

regulations of CMS, nor the amount of funds CMS will receive for the overpayments it is owed.
In Grable, the interpretation of the IRS notice provision would resonate nationwide.
Grable, 545 U.S. at 314 (The meaning of the federal tax provision is an important issue of
federal law that sensibly belongs in a federal court. The Government has a strong interest in the
prompt and certain collection of delinquent taxes, and the ability of the IRS to satisfy its claims
from the property of delinquents requires clear terms of notice to allow buyers . . . to satisfy
themselves that the Service has touched the bases necessary for good title.” (internal quotations
and citations omitted)). Here, the dispute concerns only the specific contracts at issue, including
what specific obligations the contracts imposed on the parties to the contracts.

Finally, opening cases of this kind up to federal jurisdiction would upset the balance of
judicial responsibilities between federal and state courts. “[I]t takes more than a federal element
‘to open the “arising under” door.’” Empire HealthChoice Assurance, Inc. v. McVeigh, 547 U.S.
677, 701 (2006) (quoting Grable, 545 U.S. at 313). Without a clear federal interest or a
necessarily raised and disputed federal issue, the mere implication of CMS or Medicare generally
is not sufficient to establish federal jurisdiction over traditional state contract and tort claims. See
Hofler v. Aetna US Healthcare of Cal., Inc., 296 F.3d 764, 768 (9th Cir. 2002), abrogated on
other grounds by Martin v. Franklin Capital Corp., 546 U.S. 132, 126 (2005) (“Congress clearly
did not manifest any intention to convert all state tort claims arising from the administration of
Medicare benefits into federal questions.”); See also Commonwealth v. TAP Pharm. Prods., 415
F.Supp.2d,525 n.6 (E.D. Penn. 2005) (“Medicare does not preempt a state’s ability to regulate
fraudulent billing practices under state consumer protection statutes.”).
II. Attorney Fees
Plaintiffs cite 28 U.S.C. § 1447(c) as the basis for their request for attorney fees

following the improper removal. A court may award fees under § 1447(c) “only where the
removing party lacked an objectively reasonable basis for seeking removal. Conversely, when an
objectively reasonable basis exists, fees should be denied.” Martin v. Franklin Capital Corp.,
546 U.S. 132, 141 (2005). “Removal is not objectively unreasonable solely because the
removing party’s arguments lack merit and the removal is ultimately unsuccessful.” Bergen v.
Tualatin Hills Swim Club, Inc., 170 F.Supp.3d 1309, 1315–16 (D. Or. 2016). Instead, courts ask
“whether the relevant case law clearly foreclosed the defendant’s basis for removal[.]” Id. at
1316 (quoting Lussier v. Dollar Tree Stores, 518 F.3d 1062, 1065 (9th Cir. 2008)). As explained
by the Supreme Court:

The appropriate test for awarding fees under § 1447(c) should recognize the
desire to deter removals sought for the purpose of prolonging litigation and
imposing costs on the opposing party, while not undermining Congress’ basic
decision to afford defendants a right to remove as a general matter, when statutory
criteria are satisfied.
Martin, 546 U.S. at 140.
While ultimately unsuccessful in removal, PH TECH was not “clearly foreclosed” from
removing this action based on relevant case law. In making this determination, I note the
question of whether a state claim arises under federal law is often less-than crystal clear. See
Gunn, 568 U.S. at 258 (noting caselaw on this issue resembles a Jackson Pollock painting).
Likewise, there is no evidence to suggest that PH TECH removed to federal court simply to
prolong the litigation or impose extra costs on plaintiffs. Plaintiffs’ request for fees is DENIED.
CONCLUSION
“Federal jurisdiction must be rejected if there is any doubt as to the right of removal in
the first instance.” Gaus, 980 F.2d at 566. Defendants have not met their burden of establishing
that removal was proper. Therefore, I must remand this matter to state court. 28 U.S.C. §
1447(c); Franchise Tax Bd., 463 U.S. at 8. Plaintiffs’ motion to remand, ECF No. 13, is

GRANTED.1
IT IS SO ORDERED
DATED this 13th day of August, 2019.

__________/s/ Michael McShane____________
Michael McShane
United State District Judge

1 Also pending are defense motions to compel arbitration and for summary judgment. As the Court lacks jurisdiction
over the complaint, a state court judge will presumably consider those arguments should defendants raise them
going forward.

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Source: Frix Law Library, https://www.frixlaw.com/law-library/cases/10391094. Public record. Not legal advice.