MHA, LLC, ETC. VS. HEALTHFIRST, INC. (L-6822-13, BERGEN COUNTY AND STATEWIDE)

NOT FOR PUBLICATION WITHOUT THE

APPROVAL OF THE APPELLATE DIVISION

This opinion shall not "constitute precedent or be binding upon any court."

Although it is posted on the internet, this opinion is binding only on the

parties in the case and its use in other cases is limited. R. 1:36-3.

SUPERIOR COURT OF NEW JERSEY

APPELLATE DIVISION

DOCKET NO. A-4206-15T3

MHA, LLC, d/b/a MEODOWLANDS

HOSPITAL MEDICAL CENTER,

Plaintiff-Appellant,

v.

HEALTHFIRST, INC., HEALTHFIRST

HEALTH PLAN OF NEW JERSEY, INC.,

SENIOR HEALTH PARTNERS, INC.,

MANAGED HEALTH INC., HF MANAGED

SERVICES, LLC, and HEALTHFIRST

PHSP, INC.,

Defendants-Respondents.

__________________________________

Argued March 20, 2018 – Decided August 3, 2018

Before Judges Hoffman, Gilson and Mayer.

On appeal from Superior Court of New Jersey,

Law Division, Bergen County, Docket No. L-

6822-13.

David M. Estes argued the cause for appellant

(Mazie Slater Katz & Freeman, LLC, attorneys;

David M. Estes and Eric D. Katz, on the

briefs).

Scott B. Klugman argued the cause for

respondents (Levine Lee, LLP, and The Epstein

Law Firm, PA, attorneys; Scott B. Klugman and

Michael J. Epstein, on the brief).

PER CURIAM

In September 2013, plaintiff MHA, LLC d/b/a Meadowlands

Hospital Medical Center (MHA), filed a complaint in the Law

Division against defendant insurance companies1 (collectively,

HealthFirst or defendants) for reimbursement for medical services

provided to their Medicare and Medicaid enrollees and subscribers.

Plaintiff sought reimbursement of all outstanding claims at its

published rates (in excess of the Medicare and Medicaid rates),

as well as reimbursement for claims that were allegedly underpaid,

denied, or not paid timely in accordance with the established

rates imposed by the Medicare and Medicaid statutory regime.

After the matter was removed to federal court and remanded

to state court following a Third Circuit appeal, defendants moved

to dismiss plaintiff's complaint pursuant to Rule 4:6-2(e) for

failure to state a claim upon which relief can be granted. The

Law Division granted defendants' motion, dismissing plaintiff's

complaint with prejudice, concluding: (a) plaintiff's Medicare-

based claims fail as a matter of law because "[t]he Medicare

regulations cap the rate that the non-participating provider may

1

Defendant HealthFirst, Inc. (HF Inc.), a New York corporation,

issues and administers health care plans nationally through its

wholly owned and controlled subsidiaries, including defendants

HealthFirst Health Plan of New Jersey, Inc. (HFNJ), HealthFirst

PHSP, Inc. (PHSP), Managed Health, Inc. (MHI), HF Management

Services, LLC (HFMS), and Senior Health Partners, Inc. (SHP).

2 A-4206-15T3

lawfully charge for any services at the original Medicare rate";

(b) the Medicare statute expressly preempts plaintiff's Medicare-

based claims and common law causes of action; and (c) plaintiff's

Medicaid-based claims fail because its complaint did not

sufficiently allege exhaustion of all available administrative

remedies.

After the court entered an amended confirming order on May

27, 2016, plaintiff filed this appeal. Before us, plaintiff argues

the trial court erred when it addressed the issue of preemption

prior to discovery and further erred when it dismissed plaintiff's

complaint with prejudice for failing to plead exhaustion of

administrative remedies or futility. We agree. For the reasons

that follow, we vacate the order of dismissal and remand to the

Law Division for further proceedings.

I.

Plaintiff, a privately held New Jersey limited liability

company, purchased all of the assets of Meadowlands Hospital

Medical Center (Meadowlands), a licensed general acute care

hospital, in December 2010. HealthFirst provides health benefit

plans and health insurance policies through its subsidiaries and

related companies.

HFNJ, an authorized Health Management Organization (HMO),

contracted with New Jersey to provide health insurance to New

3 A-4206-15T3

Jersey Medicaid beneficiaries. HFNJ also contracted with the

federal Center for Medicare and Medicaid Services (CMS) to provide

eligible residents with Medicare, through Medicare Advantage

contracts. HFNJ receives a capitation payment from CMS, and an

additional premium from the recipient, who may receive certain

benefits above those of regular Medicare, but must use the HMO's

network of facilities and providers.

Plaintiff did not contract with any defendant, and therefore

alleged it "was entitled to have its claims processed promptly

according to state and federal statutes and regulatory law."

Plaintiff electronically submitted its bills to defendants,

alleging that from 2010 through 2013, it rendered emergency and

other pre-authorized medical services to defendants' enrollees and

subscribers, but that "defendants refused and neglected to

properly process [its] claims for payment and induced [it] to sign

contracts . . ., promising to promptly pay [it] for services

rendered to . . . defendants' subscribers and enrollees."

According to plaintiff, it soon realized that the in-network

payments it received from defendants "were, and are so grossly

insufficient that the hospital cannot [] sustain itself and meet

its continuing obligations to provide the community access to

quality healthcare services, by continuing to provide medical

services to the defendants[] without adequate payments."

4 A-4206-15T3

Plaintiff also alleged that "[d]espite approvals for the

listed procedures, . . . defendants failed to pay the usual,

customary and reasonable charge billed by . . . plaintiff for

services rendered on behalf of the defendants['] various enrollees

and plan subscribers." According to plaintiff, from 2010 through

2013, it invoiced defendants for services "totaling

$28,874,756.96," but defendants paid "just $2,541,445.60, leaving

a balance now due of $26,333,311.36, together with lawful interest

and other charges."

In October 2013, defendants removed the action to federal

court on the basis of federal-question jurisdiction. In July

2014, defendants moved to dismiss the complaint for lack of

personal jurisdiction and for failure to state a claim upon which

relief may be granted, pursuant to Fed. R. Civ. P. 12(b)(2) and

12(b)(6). Defendants also filed an alternative motion to strike

the Medicare allegations in the complaint, based on plaintiff's

representation in its motion to remand that the complaint did not

relate to Medicare enrollees and subscribers.

Subsequently, plaintiff voluntarily dismissed four of the

named defendants: HF Inc., SHP, MHI, and PHSP, and also

voluntarily dismissed two of its claims: fraudulent/negligent

misrepresentation and violation of the Unfair Claim Settlement

Practices section of the Insurance Trade Practices Act, N.J.S.A.

5 A-4206-15T3

17B:30-13. Additionally, plaintiff later conceded that the

complaint did, in fact, relate to Medicare enrollees and

subscribers, which rendered defendants' motion to strike moot. On

August 26, 2014, plaintiff opposed the motion to dismiss and filed

a cross-motion for leave to amend its complaint.

On February 27, 2015, the district court dismissed

plaintiff's Medicaid-based claims because "neither the [c]omplaint

nor the proposed amended complaint aver that [p]laintiff availed

itself of – or exhausted all of [—] the statutorily available

procedures for resolving the disputed claims." MHA, LLC v.

HealthFirst, Inc., No. 2:13-cv-06036, 2015 WL 858051, at *4 (D.N.J.

Feb. 27, 2015). It also dismissed plaintiff's Medicare-based

claims, finding that the Medicare statute expressly preempted

plaintiff's common law claims of unjust enrichment and quantum

meruit, "because [p]laintiff's allegations are directly controlled

by federal standards." Ibid.

Plaintiff appealed and the Third Circuit vacated, holding

that the district court lacked subject matter jurisdiction and,

therefore, vacated the dismissal of plaintiff's claims and

remanded to the district court with instructions to remand the

case to the state court. MHA, LLC v. HealthFirst, Inc., 629 F.

App'x 409, 415 (3d Cir. 2015). The Third Circuit noted that "any

statutory interpretation required by this case is incidental to

6 A-4206-15T3

the application of Medicare and Medicaid law to disputed facts."

Id. at 414. It further held, "The parties have not identified a

dispute over the meaning of particular statutory text; rather,

HealthFirst generally avers that the parties disagree over the

application of the Medicare Act to their situation." Ibid.

On remand, plaintiff advised defendants it intended to

proceed on its initially-filed complaint, notwithstanding that it

had previously voluntarily dismissed several parties and claims

in the federal court. Before any discovery, defendants filed a

motion to dismiss the complaint pursuant to Rule 4:6-2(b), for

lack of personal jurisdiction, and Rule 4:6-2(e), for failure to

state a claim upon which relief can be granted.

On May 25, 2016, the Law Division granted defendants' motion

and issued a written opinion and order dismissing plaintiff's

complaint with prejudice.2 However, the court qualified the with-

prejudice dismissal,

to the extent . . . [p]laintiff seeks to

recover on the basis that [defendants] failed

to pay or reimburse [its] claims in accordance

with the Medicare statute and regulations,

i.e., that [defendants] paid . . . [p]laintiff

less than the statutory amount or failed to

pay entirely, . . . plaintiff may bring a

cause of action to seek reimbursement for such

claims, . . . [by filing] a new complaint

2

On May 27, 2016, the court issued an amended opinion and order

"to correct a clerical error."

7 A-4206-15T3

sufficiently alleging that certain disputed

claims were not paid at the statutory rate.

This appeal followed.

II.

Rule 4:6-2(e) provides that a complaint may be dismissed for

"failure to state a claim upon which relief can be granted . . . ."

That rule tests "the legal sufficiency of the facts alleged on the

face of the complaint." Printing Mart-Morristown v. Sharp Elec.

Corp., 116 N.J. 739, 746 (1989) (citation omitted).

On a motion to dismiss, a plaintiff need not prove the case,

but need only "make allegations which, if proven, would constitute

a valid cause of action." Kieffer v. High Point Ins. Co., 422

N.J. Super. 38, 43 (App. Div. 2011) (quoting Leon v. Rite Aid

Corp., 340 N.J. Super. 462, 472 (App. Div. 2001)). On such a

motion, plaintiff is entitled to "every reasonable inference of

fact." Printing Mart, 116 N.J. at 746 (citing Indep. Dairy Workers

Union v. Milk Drivers & Dairy Emp. Local 680, 23 N.J. 85, 89

(1956)).

A reviewing court must search "the complaint in depth and

with liberality to ascertain whether the fundament of a cause of

action may be gleaned even from an obscure statement of claim,

opportunity being given to amend if necessary." Ibid. (quoting

Di Cristofaro v. Laurel Grove Mem. Park, 43 N.J. Super. 244, 252

8 A-4206-15T3

(App. Div. 1957)). This review should be "at once painstaking and

undertaken with a generous and hospitable approach." Ibid.

A motion to dismiss "should only be granted in 'the rarest

of instances.'" Kieffer, 422 N.J. Super. at 43 (quoting Printing

Mart, 116 N.J. at 772). Only when "even a generous reading of the

allegations does not reveal a legal basis for recovery" should the

motion be granted. Ibid. (quoting Edwards v. Prudential Prop. &

Cas. Co., 357 N.J. Super. 196, 202 (App. Div. 2003)).

A.

Plaintiff contends the motion court erred by dismissing its

Medicaid-based claims for failing to adequately plead exhaustion

of administrative remedies or futility. N.J.S.A. 26:2J-8.1(e)(1)

to (4) establishes a two-step administrative process: (1) an

internal appeal mechanism; and (2) non-appealable, binding

arbitration. Plaintiff argues that even if it were required to

exhaust both steps of the administrative process prior to filing

suit, "the allegations in the complaint of exhaustion and futility

of defendants' process are sufficient to defeat a pre-discovery

motion to dismiss at the inception of a case."

Plaintiff further argues that even if exhaustion were

required, various exceptions to the exhaustion doctrine apply to

its claims that precluded dismissal of its complaint. Furthermore,

it claims even if the allegations of exhaustion and futility were

9 A-4206-15T3

lacking, "it was error to not give [it] an opportunity to amend

its pleadings."

In dismissing plaintiff's Medicaid-based claims, the court

found that plaintiff did "not adequately aver that it exhausted"

the Health Claims Authorization, Processing and Payment Act

(HCAPPA), N.J.S.A. 26:2J-1 to -47, "administrative remedies prior

to commencing this lawsuit in the Law Division. Additionally, the

[p]laintiff's [c]omplaint did not adequately aver that following

such administrative remedies would be futile."

New Jersey is a notice pleading state, which means that only

a short, concise statement of the claim need be given in the

complaint. See Velop, Inc. v. Kaplan, 301 N.J. Super. 32, 56

(App. Div. 1997). A pleading must contain "a statement of facts

on which a claim is based, showing that the pleader is entitled

to relief, and a demand for judgment for [that] relief." R. 4:5-

2. "Pleadings must fairly apprise the adverse party of the claims

and issues to be raised at trial." See Spring Motors Distribs.,

Inc. v. Ford Motor Co., 191 N.J. Super. 22, 29 (App. Div. 1983),

aff'd in part and rev'd in part on other grounds, 98 N.J. 555

(1985); see also Pressler & Verniero, Current N.J. Court Rules,

cmt. 1 on R. 4:5-2 (2018).

We hold that the court erred by dismissing the complaint for

failure to plead exhaustion of administrative remedies or

10 A-4206-15T3

futility. Plaintiff was not required to plead exhaustion of

administrative remedies, or futility, because exhaustion is an

affirmative defense and defendants bore the burden of pleading and

proving it. The court erred by shifting the burden onto plaintiff

instead of requiring defendants to demonstrate that plaintiff had

not exhausted its administrative remedies. Paese v. Hartford Life

& Accident Ins. Co, 449 F.3d 435, 446 (2d Cir. 2006); Williams v.

Runyon, 130 F.3d 568, 573 (3d Cir. 1997).

We further note that, contrary to the position of defendants

and the ruling of the motion court, plaintiff did make generalized

allegations of exhaustion and futility in its complaint. Plaintiff

alleged, among other things, that defendants employed "automated

programs that 'pend' claims, i.e., puts them in a state of suspense

before they are even processed, even though no additional

information [was] needed or requested from the plaintiff." Thus,

according to plaintiff, "it was impossible to appeal HealthFirst's

adjudication of numerous claims, when defendants refused to

acknowledge or process the claims from the outset."

Plaintiff also specifically claimed that it submitted

documentation but that such documentation was "not accepted for

the appeals." Also, defendants' practice of "unilaterally

adjusting and underpaying . . . claims submitted by [plaintiff],

without providing the requisite advance written notice of such

11 A-4206-15T3

attempts to seek reimbursement of any alleged overpayment of claims

. . . has effectively denied [plaintiff] its statutory right of

an internal appeal."

Thus, even if plaintiff was required to plead exhaustion or

futility, its generalized allegations satisfied our liberal

pleading standards. Printing Mart, 116 N.J. at 746, 771-72; Velop,

301 N.J. Super. at 56. At the very least, the court should have

provided plaintiff the opportunity to amend its pleading. Printing

Mart, 116 N.J. at 746.

Defendants argue that plaintiff's own admissions established

that it deliberately abandoned the internal appeals process, and

refutes any claim that the process was futile. However, in doing

so, defendants referred to materials outside of the pleadings,

which the court incorrectly considered on a motion to dismiss.

Rieder v. State, 221 N.J. Super. 547, 552 (App. Div. 1987).

Therefore, defendants' argument lacks persuasion.

Because plaintiff was not required to plead exhaustion of

administrative remedies or futility, dismissal of its claims for

failure to do so was not appropriate on defendants' motion to

dismiss. We therefore vacate the dismissal of plaintiff's

Medicaid-based claims and remand for further proceedings.

B.

Plaintiff further contends the motion court erred by holding

12 A-4206-15T3

that the two-step administrative process set forth in N.J.S.A.

26:2J-8.1(e) is mandatory. Plaintiff argues the plain language

of the statute dictates that the administrative remedies are

elective rather than mandatory, and that a statute cannot be

construed to eliminate an existing right unless it does so

explicitly and clearly.

In granting defendants' motion to dismiss, the court held:

The HCAPPA affords . . . [p]laintiff express

administrative remedies under which it should

resolve its claims disputes prior to

commencing an action in the Law Division. The

HCAPPA sets forth a two-step mechanism, which

requires a complainant to complete the appeal

process and participate in nonappealable,

binding arbitration performed by an

independent organization.

We hold the motion court erred when it held that the two-step

administrative process set forth in N.J.S.A. 26:2J-8.1(e) is

mandatory. Although the determination of whether it is or is not

mandatory is neither necessary nor dispositive to this appeal, we

address the issue to provide guidance to the Law Division on

remand.

The HCAPPA governs the establishment and operation of health

maintenance organizations and health care providers. N.J.S.A.

26:2J-8.1. It affords certain adjudicative or administrative

procedures by which health maintenance organizations, such as

plaintiff, should resolve claims for unpaid or improperly paid

13 A-4206-15T3

claims. Ibid. The relevant provisions of the HCAPPA provide:

(1) A health maintenance organization or

its agent, hereinafter the payer, shall

establish an internal appeal mechanism to

resolve any dispute raised by a health care

provider regardless of whether the health care

provider is under contract with the payer

regarding compliance with the requirements of

this section or compliance with the

requirements of [N.J.S.A. 17B:30-51 to -54]

. . . .

A health care provider may initiate an

appeal on or before the 90th calendar day

following receipt by the health care provider

of the payer's claims determination, which is

the basis of the appeal, on a form prescribed

by the Commissioner of Banking and Insurance

which shall describe the type of

substantiating documentation that must be

submitted with the form. The payer shall

conduct a review of the appeal and notify the

health care provider of its determination on

or before the 30th calendar day following the

receipt of the appeal form. If the health

care provider is not notified of the payer's

determination of the appeal within 30 days,

the health care provider may refer the dispute

to arbitration as provided by paragraph (2)

of this subsection.

If the payer issues a determination in

favor of the health care provider, the payer

shall comply with the provisions of this

section and pay the amount of money in

dispute, if applicable . . . .

. . . .

(2) Any dispute regarding the

determination of an internal appeal conducted

pursuant to paragraph (1) of this subsection

may be referred to arbitration as provided in

this paragraph. The Commissioner of Banking

14 A-4206-15T3

and Insurance shall contract with a nationally

recognized, independent organization that

specializes in arbitration to conduct the

arbitration proceedings.

Any party may initiate an arbitration

proceeding on or before the 90th calendar day

following the receipt of the determination

which is the basis of the appeal, on a form

prescribed by the Commissioner of Banking and

Insurance . . . .

(3) The arbitrator shall conduct the

arbitration proceedings pursuant to the rules

of the arbitration entity, including rules of

discovery subject to confidentiality

requirements established by State or federal

law.

. . . .

The arbitration shall be nonappealable and

binding on all parties to the dispute.

[N.J.S.A. 26:2J-8.1(e)(1) to (4) (emphasis

added).]

Plaintiff argues that the plain language of the statute

dictates that the HCAPPA's administrative remedies are elective,

rather than mandatory. We agree.

When interpreting a statute, the overriding goal must be to

determine and effectuate the Legislature's intent. Tlumac v. High

Bridge Stone, 187 N.J. 567, 573 (2006). Our analysis begins with

an examination of the plain language of the statute, which provides

the most reliable indicium of statutory intent. L.W. ex rel. L.G.

v. Toms River Reg'l Sch. Bd. of Educ., 189 N.J. 381, 400 (2007);

15 A-4206-15T3

DiProspero v. Penn, 183 N.J. 477, 492 (2005) ("[T]he best indicator

of [legislative] intent is the statutory language."). A reviewing

court should "ascribe to the statutory words their ordinary meaning

and significance, and read them in context with related provisions

so as to give sense to the legislation as a whole." Am. Fire &

Cas. Co. v. N.J. Div. of Taxation, 189 N.J. 65, 79 (2006) (quoting

DiProspero, 183 N.J. at 492).

If the language of the statute is clear, the reviewing court

should interpret the statute consistent with its plain meaning.

Lozano v. Frank DeLuca Constr., 178 N.J. 513, 522 (2004); Watt v.

Mayor & Council of Franklin, 21 N.J. 274, 277 (1956). The

judiciary does not sit as a "superlegislature," and it is not the

function of the courts to evaluate the efficacy or wisdom of a

particular legislative enactment. In re Am. Reliance Ins. Co.,

251 N.J. Super. 541, 549 (App. Div. 1991).

We find the language of N.J.S.A. 26:2J-8.1(e) clear and

unambiguous. It first provides that HMOs, or their agents, "shall"

establish an internal appeal mechanism to resolve any dispute

raised by a health care provider. N.J.S.A. 26:2J-8.1(e)(1). Thus,

it is clear that the HMOs are required to establish that mechanism;

however, the statute also provides that a health care provider

"may initiate an appeal" of claims determinations, and any dispute

regarding the determination of an internal appeal "may" be referred

16 A-4206-15T3

to arbitration. N.J.S.A. 26:2J-8.1(e)(2). Nothing in the statute

specifically states that parties are required to refer such

disputes to arbitration.

Moreover, the statute specifically states that the

arbitration "shall be nonappealable and binding on all parties to

the dispute." N.J.S.A. 26:2J-8.1(e)(4). Such a nonappealable and

binding arbitration would eliminate the parties' right to bring

suit. Nothing in the statute suggests that it intended to

eliminate or abrogate the parties' right to bring suit, and such

an interpretation should not be read into the statute. See Oswin

v. Shaw, 129 N.J. 290, 310 (1992) (citation omitted) ("No statute

is to be construed as altering the common law, farther than its

words import. It is not to be construed as making any innovation

upon the common law which it does not fairly express."), superseded

by statute N.J.S.A. 39:6A-8(a), as recognized in DiProspero, 183

N.J. at 481. However, because the statute is silent on that issue,

and given the parties may choose to waive their right to a trial,

the arbitration process in N.J.S.A. 26:2J-8.1(e) should be

considered elective or permissive, rather than mandatory.

Still, New Jersey's exhaustion of administrative rules may

apply as long as an administrative remedy is available, regardless

whether an administrative remedy is permissive or mandatory. See,

e.g., Abbott v. Burke, 100 N.J. 269, 296 (1985) (citation omitted)

17 A-4206-15T3

("In general, available and appropriate 'administrative remedies

should be fully explored before judicial action is sanctioned.'");

Garrow v. Elizabeth Gen. Hosp. & Dispensary, 79 N.J. 549, 558-59

(1979) ("Exhaustion of administrative remedies before resort to

the courts is a firmly embedded judicial principle.").

However, "the preference for exhaustion of administrative

remedies is one 'of convenience, not an indispensable pre-

condition.'" Abbott, 100 N.J. at 297 (quoting Swede v. City of

Clifton, 22 N.J. 303, 315 (1956)). "Thus, except in those cases

where the legislature vests exclusive primary jurisdiction in an

agency, a plaintiff may seek relief in our trial courts." Ibid.

(citation omitted); see also Borough of Matawan v. Monmouth Cty.

Bd. of Taxation, 51 N.J. 291, 296 (1968) (holding administrative

exhaustion not an absolute jurisdictional requirement). "In any

case amenable to administrative review, however, upon a

defendant's timely petition, the trial court should consider

whether exhaustion of remedies will serve the interests of

justice." Abbott, 100 N.J. at 297.

In City of Atlantic City v. Laezza, 80 N.J. 255, 265 (1979),

the New Jersey Supreme Court identified the interests that may be

furthered by an exhaustion requirement:

(1) the rule ensures that claims will be

heard, as a preliminary matter, by a body

possessing expertise in the area; (2)

18 A-4206-15T3

administrative exhaustion allows the parties

to create a factual record necessary for

meaningful appellate review; and (3) the

agency decision may satisfy the parties and

thus obviate resort to the courts.

Nevertheless, in Garrow, 79 N.J. at 561, the Court explained,

"[t]he exhaustion doctrine is not an absolute. Exceptions exist

when only a question of law need be resolved, . . . when the

administrative remedies would be futile, . . . when irreparable

harm would result, . . . when jurisdiction of the agency is

doubtful, . . . or when an overriding public interest calls for a

prompt judicial decision . . . ."

Furthermore, "where the considerations that are relevant to

the exhaustion requirement are in near-equipoise, . . . the court

must weigh them carefully to find the proper balance." Abbott,

100 N.J. at 298 (citation omitted). "In general, in cases

'involving only legal questions, the doctrine of exhaustion of

remedies does not apply.'" Ibid. (citation omitted).

On remand, after plaintiff amends its pleadings and

defendants assert the affirmative defense of failure to exhaust

administrative remedies, and the parties complete discovery, the

court can then determine whether exhaustion of remedies "will

serve the interests of justice." Id. at 297. If the interests

of justice would be served by the exhaustion of remedies, the

court would then be required to determine whether defendants met

19 A-4206-15T3

their burden of proving plaintiff had not exhausted the

administrative remedies available to it, or whether an exception

to exhaustion, such as when compliance with the administrative

process would be futile, excused plaintiff's failure to exhaust

the administrative remedies set forth in N.J.S.A. 26:2J-8.1(e).

However, that determination should occur after appropriate

consideration of the record following discovery, and not on the

pleadings.

C.

Plaintiff also contends the motion court erred by holding

that all of its Medicare-related claims were preempted, arguing

that the motion court's dismissal was overbroad and premature. We

agree, and hold the motion court erred by dismissing all of

plaintiff's Medicare-related claims with prejudice. We therefore

vacate the dismissal and remand to permit plaintiff the opportunity

to amend its pleading.

We review legal issues de novo, Toll Bros., Inc. v. Township

of West Windsor, 173 N.J. 502, 549 (2002), and decide such legal

questions without deference to a "trial court's construction of

the legal principles." Lombardo v. Hoag, 269 N.J. Super. 36, 47

(App. Div. 1993).

The Medicare statute contains a preemption provision. 42

U.S.C. § 1395w-26(b)(3). "If the statute contains an express pre-

20 A-4206-15T3

emption clause, the task of statutory construction must in the

first instance focus on the plain wording of the clause, which

necessarily contains the best evidence of Congress' pre-emptive

intent." CSX Transp., Inc. v. Easterwood, 507 U.S. 658, 664

(1993), superseded by statute on other grounds.

The preemption provision in the Medicare statute, which was

adopted in 2003, provides: "Relation to State laws. The standards

established under this part . . . shall supersede any State law

or regulation (other than State licensing laws or State laws

relating to plan solvency) with respect to [Medicare Advantage

(MA)] plans which are offered by MA organizations under this part."

42 U.S.C. § 1395w-26(b)(3).

"Prior to 2003, the Medicare preemption provision stated that

federal standards would supersede state law and regulations with

respect to MA plans to the extent that such law or regulation was

'inconsistent' with such standards, and it identified certain

standards that were specifically superseded." N.Y.C. Health &

Hosps. Corp. v. WellCare of N.Y., Inc., 801 F. Supp. 2d 126, 135

(S.D.N.Y. 2011) (citing 42 U.S.C. § 1395w-26(b)(3)(A) (2000),

amended by 42 U.S.C. § 1395w-26(b)(3) (2003)).

The legislative history clarifies that the

2003 amendment was intended to increase the

scope of preemption, noting that, "the [MA

Program] is a federal program operated under

Federal rules and that State laws, do not, and

21 A-4206-15T3

should not apply, with the exception of state

licensing laws or state laws related to plan

solvency."

[Id. at 135-36 (citing H.R. Rep. No. 108-391

at 557); see also Do Sung Uhm v. Humana, Inc.,

620 F.3d 1134, 1148-49 (9th Cir. 2010)

(analyzing the intent behind and effect of the

revised preemption provision).]

"The Secretary [of Health and Human Services] adopted the

same reading of the Conference Report in promulgating the final

rules: 'We believe that the Conference Report was clear that the

Congress intended to broaden the scope of preemption in the

[Medicare Prescription Drug Improvement and Modernization Act of

2003].'" Id. at 136 (quoting Do Sung Uhm, 620 F.3d at 1149-50

n.23). However, simultaneously, the "CMS explained that

regardless of the increased breadth of the preemption provision,

preemption 'operates only when CMS actually creates standards in

the area regulated. To the extent we do not create any standards

whatsoever in a particular area, we do not believe preemption

would be warranted.'" WellCare, 801 F. Supp. 2d at 136 (quoting

Medicare Prescription Drug Benefit, 70 Fed. Reg. 4194-01, 4320

(Jan. 28, 2005)).

The Medicare statute expressly preempts plaintiff's claims

to the extent they seek to recover in excess of the statutorily

imposed reimbursement rate. The Medicare statute and regulations

explicitly list the services for which an MA organization must

22 A-4206-15T3

reimburse a provider, cap the rates for non-participating

providers, and include standards for the timing of claims. 42

C.F.R. §§ 422.100(b), 422.214(b).

Plaintiff essentially concedes that such claims are

preempted. However, it argues that not all of its claims are

preempted, as its "claims are much broader" than merely seeking

recovery in excess of the statutorily imposed reimbursement rate.

Plaintiff alleges that its damages arose from defendants "(1)

claiming preauthorization was not obtained, when it was, to deny

coverage based on [plaintiff]'s out-of-network status; (2)

engaging in recoupment practices that violate New Jersey law; and

(3) simply ignoring and refusing to process proper claims from the

outset."

Those claims, to the extent that they seek recovery from

defendants for failure to pay plaintiff's claims in accordance

with the Medicare statute and regulations, should not have been

dismissed. Indeed, there is no bar on claims seeking to enforce

a provider's right to be paid the Medicare statutory rate. The

motion court reached the same conclusion, and therefore limited

the scope of its with-prejudice dismissal to allow plaintiff to

seek recovery "on the basis that the [defendants] failed to pay

or reimburse [p]laintiff's claims in accordance with the Medicare

statute and regulations . . . ." Rather than dismissing

23 A-4206-15T3

plaintiff's complaint, the court should have granted plaintiff

leave to amend its pleading. Accordingly, we vacate the dismissal

of all of plaintiff's Medicare-related claims, and remand to permit

plaintiff the opportunity to amend its pleading.

Reversed and remanded. We do not retain jurisdiction.

24 A-4206-15T3