Opposition Brief — PacifiCare of California, Inc. v. McCall

[ UFFIC# OF IRE CLERK |

No. 01-199 “~~ 6

In The

Supreme Court of the United States

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PACIFICARE OF CALIFORNIA, INC.,

PACIFICARE HEALTH SYSTEMS, INC., and

GREATER NEWPORT PHYSICIANS, INC.,

Petitioners,

V.

BARBARA MCCALL,

Individually and as Trustee, etc.,

Respondent.

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On Petition For A Writ Of Certiorari

To The Supreme Court Of California

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RESPONDENT'S BRIEF IN OPPOSITION

¢

Russett S. BALISOK Carou S. JIMENEZ*

SteveEN C. WILHEIM Law OFFICE OF

Houck & BALIsoK Caro S. JIMENEZ

P.O. Drawer 8170 5182 Katella Avenue

Universal City, CA 91618 Suite 106

(818) 506-7890 Los Alamitos, CA 90720

(562) 430-0239

Counsel for Respondent

August 30, 2001 *Counsel of Record

COCKLE LAW BRIEF PRINTING CO., (800) 225-6964

OR CALL COLLECT (402) 342-2831

QUESTION PRESENTED

Whether state law claims against a Medicare-subsi-

dized HMO, which is required under the Medicare Act

(42 U.S.C. § 1395mm(b)) to operate under state law, that

are outside the scope of the Medicare administrative pro-

cess fall within Medicare’s exclusive administrative

review provisions.

ii

TABLE OF CONTENTS

Page

QUESTION PRESENT BO). «oi sndcissvecessesscaseses i

TABLE OF AUTHORISES cc cscccvocvcsessscessoces iii

OPINIONS BELAIW « oo 6sccunensdics cbedotwedessoses 1

STATUTORY PROVISIONS INVOLVED............. 1

STATEMENT OFF TYEE GAGs cs osss cccccctsdcadcccs 2

REASONS FOR DENYING THE WRIT............. 6

I. THIS COURT LACKS JURISDICTION TO

REVIEW THE NON-FINAL DECISION

II. NO CONFLICT EXISTS AMONG ANY FED-

ERAL CIRCUIT COURTS OR STATE HIGH

COURTS ON THE QUESTION PRESENTED... 9

Ii]. THE DECISION BELOW IS CORRECT....... 12

IV. THE IMPACT OF THE DECISION BELOW IS

LIMITE BE)... is0sscdsapabwhem awed s pepekeacees 15

A. The Decision Below is Limited in Scope... 15

B. The Decision Below Does Not Affect the

Operation or Funding of the Medicare Pro-

gram or Federal Treasury................ 16

CONCLUSION ..... Se Ee 17

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TABLE OF AUTHORITIES

Page

Cases

Affiliated Professional Home Health Care Agency v.

Shalala, 164 F.3d 282 (5th Cir. 1999)............... 11

Alacare, Inc.-North v. Baggiano, 785 F.2d 963 (4th

ME JAR a SEE ice benceesdanssnednrincecudcdadin 10

Alcorn v. Anbro Engineering, Inc., 2 Cal.3d 493

RE REEEPTPUCET TY Cr LER T ETE ELECT EE TELE TPE Eee os

Ardary, et al. v. Aetna Health Plans of California, Inc.,

et al., 98 F.3d 496 (9th Cir. 1996), cert. denied, 520

i SE CEE Dees cpnscrsbdtecacisdeccesneesees 9, 12

Belknap v. Hale, 463 U.S. 491 (1983) .................. 8

Bodimetric Health Services, Inc. v. Aetna Life and

Casualty, 903 F.2d 480 (7th Cir. 1990).............. 11

Chevron USA, Inc. v. Natural Resources Defense

commen, Inc., 467 US. G57 (ISBE)... 2 ccccccscccaces 13

Cox Broadcasting Corp. v. Cohn, 420 U.S. 469 (1975) ...7, 8

reyat @. Cirle, 451 US. G19 (1961) .......ccccccveceses 6

Heckler v. Ringer, 466 U.S. 602 (1984)................ 10

Jefferson v. City of Tarrant, 522 U.S. 75 (1997)....... 6, 7

Midland Psychiatric Associates, Inc. v. United States,

SE. EE CE GS BODE P ccs crccsscccsesesence 11

Plocica v. Nylcare of Texas, Inc., 43 F.Supp.2d 658

SE UNOS 6rd sensatccdibadhcducridenacads 9, 10

Redmond v. Secure Horizons, Pacificare, Inc., 60

ee TY re 5

iv

TABLE OF AUTHORITIES - Continued

Page

Southland Corp. v. Keating, 465 U.S. 1 (1984).......... 8

Talbot v. Lucy Corr Nursing Home, 118 F.3d 215 (4th

COE RPE eit c avadcantvusavenssethbenccacetiatns 9, 10

U.S. v. Mead Corp., __ U.S. __, 121 S.Ct. 2164

GUD Cnc Son chins so andonnkae sc anGanaccalneuea bin 13

Wartenberg v. Aetna U.S. Healthcare, Inc., 2

PSunp.26 275 CEONLY. BORG). vce c ccc ccsecceeses 9, 11

Weinberger v. Salfi, 422 U.S. 749 (1975) ...........05. 10

Winkler v. Interim Services, Inc., 36 F.Supp.2d 1026

CU SD, Se hob nko can ce saRR Aas dabnbaann 9, 10

Zamora-Quezada, et al. v. HealthTexas, et al., 34

Pow 26 G55 CD. Tex. WORE) 26. ckcnccassccns 9, 10

STATUTES

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TABLE OF AUTHORITIES - Continued

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Ga TR | Td 0k. 56a vrs ek ba oi os ok eas 14

Gk WDA. B Ra hhc cvekadebaceess caus 14, 16

Balanced Budget Act of 1997, Pub.L. No. 105-33

(Ae. D, Peer) Gk Otis Cite scp edcnskexacin) Voce oe

Employee Retirement Income Security Act of 1974

(ERESA), 29 USC. § 1008 60 O006s iss ckiccscecaees 12

REGULATIONS

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CS GR 9 rs eva sn caei candeeiebsadee 14

Me CAR, BOF on 8s bcs ci enietstco eee 14

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63. Fed. Reg. 34967 (June 26, 1998) .............:.... 12

RESPONDENT'S BRIEF IN OPPOSITION

Respondent Barbara McCall respectfully requests

that this Court deny the petition for writ of certiorari. The

petition seeks review of the opinion of the California

Supreme Court affirming reversal of the trial court’s

order, which sustained Petitioners’ demurrers to the com-

plaint without leave to amend.

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OPINIONS BELOW

The opinion of the Supreme Court of California is

published at 25 Cal.4th 425 (2001) and the opinion of the

Court of Appeal of the State of California, Fourth Appel-

late District, is published at 74 Cal.App.4th 257 (1999).

+

STATUTORY PROVISIONS INVOLVED

Petitioners set forth two of the statutory provisions, 42

U.S.C. §§ 405(g) and 405(h), relevant to the opinion below.

In addition, the following statutory provision is critical to

the analysis of the issues underlying the Petition.

42 U.S.C. § 1395mm(b)! sets forth the requirements

that HMOs must meet in order to provide care to Medi-

care beneficiaries, providing in pertinent part that:

1 As noted by the California Supreme Court, subsequent to

the events in this case, Congress enacted a new part of Medicare

called “Medicare + Choice” (Pub.L. No. 105-33 (Aug. 5, 1997)

111 Stat. 328, codified at 42 U.S.C. §§ 1395w-21 et seq.). Effective

January 1, 1999, this new law applies to HMOs such as

PacifiCare, instead of the law at issue in this case. App. 14a.

For purposes of this section, the term ‘eligi-

ble organization’ means a public or private

entity (which may be a health maintenance

organization or a competitive medical plan)

organized under the laws of any State...

(Emphasis supplied.)

STATEMENT OF THE CASE

George McCall, the now deceased husband of

respondent Barbara McCall, enrolled in the HMO oper-

ated by petitioners PacifiCare of California, Inc. and

PacifiCare Health Systems, Inc. (jointly “PacifiCare”),

which was paid a flat monthly fee by Medicare to care for

George no matter how much care he needed. As required

by Medicare law and by state law, PacifiCare was

licensed by the State of California and was required to

operate under the provisions of California law. Petitioner

Greater Newport Physicians, Inc. (“GNP”) was the medi-

cal group that PacifiCare arranged to help it provide

medical care to George.

In 1997, George became extremely ill due to progres-

sive lung disease. Neither PacifiCare nor GNP denied

George coverage of a particular service. Rather, Pacifi- |

Care and GNP refused to care for George altogether and

intentionally withheld information from George about

available treatment options, knowing that their actions

would cause George’s health to continue to deteriorate,

would cause George to continue to suffer the debilitating

and life-threatening effects of his progressive lung dis-

ease, and would likely cause George’s untimely death.

———Sae

When McCall learned about available treatment options

from another source and asked PacfiCare and GNP about

them, PacifiCare and GNP forced George to disenroll

from PacifiCare in order to obtain them. Petitioners

forced George to disenroll from PacifiCare for no reason

other than to save themselves money, as once George was

disenrolled from PacifiCare, the Medicare program and

not Petitioners would pay the cost of George’s care.

McCall brought this action in state court in 1997.

McCall alleges eight causes of action for tort damages

based on claims of negligence, wilful misconduct, four

counts of fraud including fraudulent misrepresentation

and constructive fraud, and intentional and negligent

infliction of emotional distress, as well as a ninth cause of

action for injunctive relief from unfair business practices,

all under state law. As part of the state law causes of

action, McCall alleges violation of a wide range of state

law requirements and also alleges violation of selected

provisions of Medicare law that are unrelated to benefits

determinations, such as the duty not to encourage George

to disenroll from PacifiCare. McCall does not seek any

Medicare covered benefit, either directly or indirectly.

Petitioners’ description of the allegations in this case

is simply wrong. For example, Petitioners’ “critical point”

(at p. 5) that “Each count [of Respondent’s complaint]

was based on alleged violations of duties under the Medi-

care Act, most notably the duty to provide coverage for a

lung transplant at UCSD” embellishes the complaint and

the opinion below with allegations and statements that

are nowhere to be found.? McCall’s claims do not rest on

petitioners’ alleged violations of duties under the Medi-

care Act. See, e.g., App. 76a, 79a, 82a, 88a-89a.

PacifiCare and GNP demurred to the First Amended

Complaint on the ground that all of McCall’s claims are

preempted by federal Medicare law. The trial court sus-

tained PacifiCare’s and GNP’s demurrers without leave

to amend, and entered judgment in their favor. The

appellate court reversed the trial court’s judgment.

The California Supreme Court granted review on the

sole question of whether state law claims against a Medi-

care-subsidized HMO fall within Medicare’s exclusive

review provisions. The California Supreme Court con-

cluded that none of the claims presented by McCall fall

within Medicare’s exclusive review provisions, stating

that “[a] Medicare provider may violate state common

law or statutory duties owing to beneficiaries, unrelated

to its Medicare coverage determinations.” App. 16a. In

reaching this conclusion, the court carefully reviewed the

allegations and elements of each cause of action in the

complaint (App. 2a-3a,16a-18a), the language and legisla-

tive history of the Medicare Act (App. 12a-13a), the case

2 Petitioners’ footnotes also misstate this case. For example,

the allegations they offer in footnote 3 (at p. 3) are nowhere to be

found in the complaint. The unsigned, uncertified excerpt from

Volume 3 of the Deposition of George McCall is not part of the

record, was not considered by any of the courts below, and may

not be considered on demurrer, the motion at issue in the court

below. See Alcorn v. Anbro Engineering, Inc., 2 Cal.3d 493, 496

(1970). Similarly, footnote 4 (at p. 4) contains “facts” that are not

part of the record, not found in App. 2a, footnote 1, which it

cites as support, and are in fact incorrect.

law interpreting the Medicare Act including the cases

relied on by Petitioners (App. 5a-10a, 19a), and HCFA’s?

explicit analysis and interpretation of the Medicare Act as

it relates to the question presented (App. 14a-15a).

Petitioners wrongly identify (at p. 7) as the California

Supreme Court’s holding in the McCall case, the court’s

discussion of the holding and rationale in a California

Court of Appeal case, Redmond v. Secure Horizons, Pacif-

icare, Inc., 60 Cal.App.4th 96 (1997). App. 12a. The Calli-

fornia Supreme Court did not hold, as Petitioners assert,

that “the McCalls’ claims did not arise under the Medi-

care Act, even though they were premised on the alleged

violations of duties under that Act. ...” To the contrary,

the court found that the claims presented by McCall were

not based on the HMO’s alleged failure to provide Medi-

care covered benefits. App. 16a-18a. Petitioners also erro-

neously imply (at p. 2) that allegations that are unrelated

to benefits determinations should nevertheless proceed

through the Medicare administrative appeals process,

even though such allegations are clearly outside its scope.

See App. 15a; 42 C.RR. §§ 417.600, 417.604, 417.606. The

California Supreme Court found that none of McCall’s

claims requires a Medicare coverage determination, none

seeks at bottom payment or reimbursement of a Medicare

claim, none falls within the Medicare administrative

3 HCFA stands for the Health Care Financing

Administration, which until recently was the name of the

federal agency charged with administering the Medicare

program. Since Petitioners refer to the federal agency as HCFA

rather than by its current name, Center for Medicare and

Medicaid Services, Respondent will do the same.

review process, and none is remediable through the Med-

icare administrative review process. App. 18a-19a.

By the opinion below, the Supreme Court of Califor-

nia has ordered that the judgment against McCall be

reversed and that Petitioners’ demurrers be overruled.

This case may now proceed to trial and there is no way to

predict whether McCall will prevail on any of the claims

against PacifiCare and GNP.

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REASONS FOR DENYING THE PETITION

Review is unwarranted for three reasons. First, a

proper jurisdictional basis is lacking because the state

court decision below is not a “final judgment” within the

meaning of 28 U.S.C. § 1257. Jefferson v. City of Tarrant, 522

U.S. 75 (1997); Flynt v. Ohio, 451 U.S. 619, 622 (1981).

Second, there is no conflict among the federal circuit

courts or state high courts of last resort regarding the

question presented here. Third, the decision below is

correct.

I. THIS COURT LACKS JURISDICTION TO REVIEW

THE NON-FINAL DECISION BELOW.

“This case, still sub judice in [California], was brought

to this Court too soon.” Jefferson v. City of Tarrant, 522 U.S.

at 77. This Court’s review of state-court decisions is lim-

ited to “[f]inal judgments or decrees rendered by the

highest court of a State in which a decision could be

had.” 28 U.S.C. § 1257(a). Here, the ruling of the Califor-

nia Supreme Court affirms the appellate court’s ruling

reversing the trial court’s judgment against McCall. The

case has now been remanded for further proceedings and

may now proceed to trial. App. 1-5. Thus, the decision

below does not qualify as a “final judgment” within the

meaning of Section 1257.

This Court has identified four categories of cases that

constitute exceptions to the finality requirement of Sec-

tion 1257. Cox Broadcasting Corp. v. Cohn, 420 U.S. 469,

477-87 (1975). As to the first three, this Court recognizes

exceptions where (1) “the federal issue is conclusive or

the outcome of further proceedings preordained,” (2) the

federal issue “will survive and require decision regard-

less of the outcome of further state court proceedings,”

and (3) “later review of the federal issue cannot be had,

whatever the ultimate outcome of the case.” Id. at 479-81;

see also Jefferson v. City of Tarrant, 522 U.S. at 82. As to

these three categories, the judgment involved here does

not even arguably apply. If Petitioners prevail on remand,

the question presented will no longer require decision.

Thus, as in Jefferson v. City of Tarrant, “[t]he outcome of

those further proceedings could moot the federal ques-

tion” presented here. 522 U.S. at 77. On the other hand, if

Petitioners do not prevail on remand, they “will be free to

seek [Supreme Court] review when the vtate-court pro-

ceedings reach an end.” Id.

The fourth exception has two requirements. First, the

state court judgment must represent the final word

within the state court system on a federal issue, “with

further proceedings pending in which the party seeking

review here might prevail on the merits on nonfederal

grounds, thus rendering unnecessary review of the fed-

eral issue by this Court, and where reversal of the state

ne ee ee

court on the federal issue would be preclusive of any

further litigation on the relevant cause of action.” In

addition, “a refusal immediately to review the state-court

decision” must present a risk of “seriously erod[ing] fed-

eral policy.” Cox Broadcasting, 420 U.S. at 482-83.

This category is also inapplicable here. Allowing this

case to proceed to final judgment, rather than imme-

diately reviewing the decision below, does not risk “seri-

ously erod[ing]” any federal policy. Petitioners are

required by Medicare law to operate under the laws of

the State of California and, as discussed infra, the opinion

below has no impact on the Medicare program. Cf. South-

land Corp. v. Keating, 465 U.S. 1, 6-8 (1984) (allowing

adjudication of dispute where parties had contracted for

arbitration might erode federal policy embodied in Fed-

eral Arbitration Act); Belknap v. Hale, 463 U.S. 491, 497 n.5

(1983) (allowing case to go forward would risk eroding

federal policy requiring matter at issue to be decided by

NLRB, not by state courts); Cox Broadcasting, 420 U.S. at

485-87 (delaying review would leave important question

regarding freedom of press in “uneasy and unsettled

constitutional posture [that] could only further harm the

operation of a free press”). Therefore, this case does not

satisfy the requirements of the fourth exception.

Since this case may now proceed to trial, there has

been no “final judgment” within the meaning of Section

1257. Thus, Supreme Court jurisdiction is lacking.

—

atin ieee

a

II. NO CONFLICT EXISTS AMONG ANY FEDERAL

CIRCUIT COURTS OR STATE HIGH COURTS ON

THE QUESTION PRESENTED.

Six different federal courts have published opinions

directly on point with the issue raised by Petitioners.

Without exception, each of these courts has found that

state law claims, including those seeking tort remedies

based upon failure to provide Medicare covered services,

may be asserted against an HMO or other health care

provider as they do not arise under the Medicare Act.

Ardary, et al. v. Aetna Health Plans of California, Inc., et al.,

98 F.3d 496 (9th Cir. 1996), cert. denied, 520 U.S. 1251

(1997); Talbot v. Lucy Corr Nursing Home, 118 F.3d 215 (4th

Cir. 1997); Plocica v. Nylcare of Texas, Inc., 43 FSupp.2d 658

(N.D. Tex. 1999); Winkler v. Interim Services, Inc., 36

F.Supp.2d 658 (M.D. Tenn. 1999); Zamora-Quezada, et al. v.

HealthTexas, et al., 34 FSupp.2d 433 (W.D. Tex. 1998);

Wartenberg v. Aetna U.S. Healthcare, Inc., 2 F.Supp.2d 273

(E.D.N.Y. 1998).

Whether state law claims must go through the Medi-

care administrative review process was addressed in Ard-

ary v. Aetna Health Plans of California, Inc., 98 F.3d 496 (9th

Cir. 1996), cert. denied, 520 U.S. 1251 (1997). In Ardary,

Justice O’Scannlain explained that the Ninth Circuit

could find nothing in either the language or the legisla-

tive history of the Medicare Act that suggested Congres-

sional intent to abolish all state remedies for torts

committed by a Medicare provider. Although the com-

plaint in Ardary did not seek recovery of Medicare bene-

fits, it was undisputed that all of the claims were

predicated on the allegation that a Medicare covered

benefit had been wrongfully denied. (Ardary v. Aetna, 98

10

F.3d at 498.) Applying Heckler v. Ringer, 466 U.S. 602

(1984), and Weinberger v. Salfi, 422 U.S. 749 (1975), the

Ninth Circuit found that the standing for the six tort

claims was state common law theories and not the Medi-

care Act.

In Talbot v. Lucy Corr Nursing Home, 118 F.3d 215 (4th

Cir. 1997), a Medicare beneficiary challenging discharge

from a nursing home alleged violations of Medicare law

regarding residents’ rights including laws governing dis-

charge and quality of care. The Fourth Circuit found that

the Medicare administrative review process did not

encompass all of plaintiff’s claims and did not afford the

relief sought by plaintiff. Since plaintiff’s claims were not

for benefits under the Medicare Act, but rather for dam-

ages resulting from violation of certain of its provisions,

Medicare’s exhaustion of administrative remedies

requirement did not apply. See also Alacare, Inc.-North v.

Baggiano, 785 F.2d 963 (4th Cir. 1997) (The Eleventh Cir-

cuit reached a similar conclusion with respect to claims

by a Medicaid patient); Plocica v. Nylcare of Texas, Inc., et

al., 43 FSupp.2d 658 (N.D. Tex. 1999) (The Medicare Act

does not preempt common law claims against a Medicare

HMO for alleged inadequate quality of care and treat-

ment); Winkler v. Interim Services, Inc., 36 F.Supp.2d 1026

(M.D. Tenn. 1999) (Tort and other claims by Medicare

beneficiaries against a Medicare provider for failure to

provide medically necessary care because of cost consid-

erations are not preempted by 42 U.S.C. §§ 405(g) and (h)

because they do not seek anything of the Secretary or the

U.S. government); Zamora-Quezada, et al. v. HealthTexas, et

al., 34 FSupp.2d 433 (W.D. Tex. 1998) (Medicare’s exhaus-

tion of administrative remedies requirement does not

11

apply to claims by beneficiaries against their HMOs alleg-

ing state law causes of action as well as violations of the

Americans with Disabilities Act and Section 504 of the

Rehabilitation Act); Wartenberg v. Aetna U.S. Healthcare,

Inc., 2 F.Supp.2d 273 (E.D.N.Y. 1998) (state law tort claims

against a Medicare HMO that are related to services

under Medicare but do not seek to recover Medicare

benefits are wholly collateral to a claim for benefits and

thus are not preempted by Medicare).

Petitioners fail to apprise (at pp. 11, 18-19) this Court

of the numerous federal cases directly on point with the

present case (and cited by both the California Supreme

Court and the Court of Appeal in their decisions (App.

8a-9a, 45a-47a)) and that the opinion below is in confor-

mity with every published federal court opinion regard-

ing the question presented here.

Instead of discussing the case law directly on point,

Petitioners focus on federal court cases that have been

brought by medical providers against the Secretary of

DHHS (or her fiscal intermediaries, whose sole role is to

process claims for payment by the Secretary) and have

involved an issue of claims processing or termination of

their own contract with the Secretary. See Petition at pp.

11, 14, 16-18, citing Bodimetric Health Services, Inc. v. Aetna

Life and Casualty, 903 F.2d 480 (7th Cir. 1990), Midland

Psychiatric Associates, Inc. v. United States, 145 F.3d 1000

(8th Cir. 1998), and Affiliated Professional Home Health Care

Agency v. Shalala, 164 F.3d 282 (5th Cir. 1999). The present

case is not brought by a provider against the government,

but rather is brought by a patient against those making

treatment decisions, and the present case does not

involve claims processing or federal funds. By focusing

12

on inapposite cases, Petitioners claim a conflict between

the decision of the California Supreme Court and the

federal courts that simply does not exist.

Ill. THE DECISION BELOW IS CORRECT.

An examination of the Medicare Act itself, its legisla-

tive history and HCFA’s interpretation of it underscores

the correctness of the opinion below. As the court below

noted, the Medicare Act explicitly requires HMOs to operate

under state law (42 U.S.C. § 1395mm(b))* and prohibits any

federal officer or employee from exercising any supervi-

sion or control over the manner in which medical services

are provided or over any institution providing health

services (42 U.S.C. § 1395). App. 13a-14a. Nothing in the

legislative history of the Medicare Act indicates that Con-

gress intended to obliterate state laws governing Medi-

care-subsidized HMOs including state tort remedies. See

Ardary v. Aetna, 98 F.3d at 501-502; App. 12a-14a. The

court below also reviewed HCFA’s interpretation of the

law, which plainly states that tort and other state law

claims against an HMO are not preempted, even if such

claims also involve Medicare coverage determinations.

App. 14a-15a, citing 63 Fed. Reg. 34967, 35012, 35013

4 In contrast to the Medicare Act which is at issue here, the

express language of a different federal statutory scheme, the

Employee Retirement Income Security Act of 1974 (ERISA), 29

U.S.C. § 1001 et seg., governing employee benefit plans

including health insurance, does preempt state tort law. ERISA

specifically provides that it “shall supersede any and all State

laws insofar as they may now or hereafter relate to any

employee benefit plan... .” 29 U.S.C. § 1144(a); App. 13a.

13

(June 26, 1998). See also U.S. v. Mead Corp., __ U.S. __,

121 S.Ct. 2164 (2001) (In a program for which Congress

has delegated rule making authority, courts should

accord great deference to interpretations promulgated

pursuant to the Administrative Procedure Act by the

implementing administrative agency); Chevron USA, Inc.

v. Natural Resources Defense Council, Inc., 467 U.S. 837

(1984). HCFA’s view makes sense in light of the fact that

Medicare beneficiaries who receive medical care in the

fee-for-service system can bring state tort claims against

medical providers for bad care and treatment decisions.

There is nothing legally or logically different about Medi-

care beneficiaries who receive medical care from HMOs

bringing state tort claims against their HMOs and other

medical providers for bad care and treatment decisions.

The correctness of the decision below is also high-

lighted by the disparity between how the Medicare Act

treats fiscal intermediaries and carriers (jointly referred

to herein as “intermediaries”), on the one hand, and

HMOs, on the other hand. Intermediaries are insurance

companies with which Medicare contracts to process fee-

for-service claims on behalf of the Secretary. 42 U.S.C.

§ 1395h(i). The Secretary and intermediaries neither pro-

vide nor arrange for medical care; they simply make after

the fact determinations as to payment. Intermediaries

determine claims for payment and then pay allowed

claims using federal funds, not their own funds. 42 U.S.C.

§§ 1395h (Part A claims) and 1395u (Part B claims). The

Secretary provides the intermediaries the funds to pay

claims and simply pays the intermediaries an administra-

tive fee for performing this function. Id. The Secretary,

14

and not intermediaries, is liable for any payments certi-

fied by intermediaries for payment. 42 U.S.C. §§ 1395h(i)

(fiscal intermediaries) and 1395u(e) (carriers).

In contrast, HMOs that serve Medicare beneficiaries

do not simply pay claims for services already rendered;

they actually provide or arrange for care. 42 U.S.C.

§ 1395mm(c)(4); 42 C.F.R. §§ 417.401, 417.414, 417.416. The

Medicare program pays such HMOs a flat amount per

month per enrollee, regardless of the frequency, extent or

kind of health services actually provided to, paid for, or

needed by a member. 42 U.S.C. §§ 1395mm(a)(1), (a)(4),

(b)(1). The HMO, and not the Medicare program, is liable

for any care needed by a member and for any payments

to be made for a member’s care (42 U.S.C. §§ 1395mm(b),

(g)(6)), and the HMO profits from any remaining balance.

The monthly amount the Medicare program pays an

HMO is completely unaffected by any HMO administra-

tive costs or by the HMO’s liability for claims or tort

damages. Id.

In addition, only limited types of claims, called

“organization determinations,” may be funneled through

the administrative review process. All other types of

claims are considered to be “grievances” and are speci-

fically excluded from administrative review. 42 U.S.C.

§ 1395mm(c)(5); 42 C.F.R. §§ 417.600, 417.604(a), 417.606.

Included in the broad category of grievances are issues

regarding marketing problems, quality of care and in-

voluntary disenrollment. Id.; see also 42 C.F.R.

§§ 417.428(b)(2), 417.460(a). Thus, by definition, as noted

by the court below (App. 15a-18a), McCall’s claims are

outside the scope of Medicare’s administrative review.

15

The decision of the court below is based on the

language of the Medicare Act, its legislative history, the

uniformly consistent case law regarding the issue pre-

sented here, and the distinguishable case law involving

claims against intermediaries and carriers which has been

offered by Petitioners. The opinion of the court below is

correct.

IV. THE IMPACT OF THE DECISION BELOW IS LIM-

ITED.

A. The Decision Below Is Limited in Scope.

Petitioners argue (at p. 25) that this case opens the

door for Medicare beneficiaries, and even Social Security

recipients, nationwide to sue Medicare carriers and inter-

mediaries when their benefit claims are denied. As dis-

cussed above, this case brings California into conformity

with the federal courts. The impact of this case is limited

to California Medicare beneficiaries who have claims

against their HMOs that do not fall within the scope of

the Medicare administrative review process. App. 1a.

Moreover, as noted by the California Supreme Court, its

decision is based upon the law prior to the Balanced

Budget Act of 1997 (Pub.L. No. 105-33 (Aug. 5, 1997) 111

Stat. 328, codified at 42 U.S.C. §§ 1395w-21 et seq.), which

governs Medicare HMOs including PacifiCare effective

January 1, 1999. App. 14a-15a. Thus, the impact of this

case may be limited in time as well.

16

B. The Decision Below Does Not Impact the Oper-

ation or Finances of the Medicare Program or

Federal Treasury.

Petitioners also suggest (at pp. 26-28) that the deci-

sion below will increase the costs of administering the

Medicare program, will divert scarce federal resources to

state court litigation, and will have a dramatic impact on

federal funding of Medicare. Petitioners cite no authority

for such propositions because none exists. Petitioners

erroneously portray the way the Medicare program oper-

ates and the way the Medicare program pays HMOs.

As stated above, the Secretary pays HMOs a prede-

termined flat amount per month per enrollee, regardless

of the frequency, extent or kind of health services actually

provided to or paid for a member’s care. 42 U.S.C.

§§ 1395mm(a)(1), (b)(1). HMOs actually provide or

arrange for care, and the Medicare program’s cost or

liabilities are not affected by the amount of care needed

by the HMO’s Medicare members or by the amount of

claims against the HMO. 42 U.S.C. § 1395mm(c)(4). The

Medicare program has no liability for the HMO’s obliga-

tions. 42 U.S.C. §§ 1395mm(a)(1), (b)(1), (c)(4). In fact, if

the Medicare program pays any amount that should have

been paid by the HMO, the Medicare program may

recoup such amounts from the HMO. 42 U.S.C.

§ 1395mm(g)(6). The funds for enrollees’ medical care

and for paying enrollees’ claims come directly out of

Petitioners’ proverbial pocket and Petitioners profit by

any monies not spent on enrollees’ care. The particular

type of care or claim that might be at issue has no impact

on federal funds.

17

CONCLUSION

Petitioners’ petition for a writ of certiorari should be

denied.

Respectfully submitted,

Russe. S. BALISOK

STeEvEN C. WILHEm™M

Houck & BALISOK

P. O. Drawer 8170

Universal City, CA 91618

(818) 506-7890

Carot S. JIMENEZ*

Law OrFicE OF CAROL S. JIMENEZ

5182 Katella Avenue, Suite 106

Los Alamitos, CA 90720

(562) 430-0239

Counsel for Respondent

*Counsel of Record

App. 1

No. S082236

IN THE SUPREME COURT OF CALIFORNIA

REMITTITUR

TO THE Court of Appeal,

Fourth Appellate District, Division Three

BARBARA McCALL, S082236

Individually and as Ct. App. #G024030

Trustee, eic., -~Orange County Superior

Court — Main

Plaintiff and Appellants, —¢wer. Ct. No. 788545

v.

PACIFICARE, et al.,

Respondents.

I, FREDERICK K. OHLRICH, Clerk of the Supreme

Court of the State of California, do hereby certify that the

attached are copies of the original judgment now final

entered in the above-entitled cause on May 3, 2001.

Costs, if any, shall be awarded by the Court of

Appeal.

WITNESS MY HAND AND

OFFICIAL SEAL OF THE COURT,

06/06/2001

FREDERICK K. OHLRICH, Clerk

[SEAL]

By /s/ Deborah Benko

DEPUTY

[Attached Opinion Of The Supreme Court

Of California Omitted In Printing.]

App. 2

COURT OF APPEAL - STATE OF CALIFORNIA

FOURTH APPELLATE DISTRICT

DIVISION THREE

Carol S. Jimenez

5182 Katella Avenue

Suite 106

Los Alamitos, CA 90720

GEORGE McCALL et al.,

Plaintiffs and Appellants,

V.

PACIFICARE OF CALIFORNIA, INC.,

Defendant and Respondent.

G024030

788545

**REMITTITUR**

I, Stephen M. Kelly, Clerk/Administrator of the

Court of Appeal of the State of California, for the Fourth

Appellate District, Division III, do hereby certify that the

decision entered in the above-entitled cause on December

6, 1999 has now become final.

[X] Appellant [ ] Respondent to recover costs

[ ] Each party to bear own costs

[ ] Costs are not awarded in this proceeding

[ ] See decision for costs determination

App. 3

Witness my hand and the Seal of the Court affixed at

my office this June 14, 2001.

Stephen M. Kelly

Clerk / Administrator

By: /s/ Diane R. Hernandez

Deputy Clerk

cc: All Counsel (copy of remittitur only, California Rules

of court, Rule 25(e)).

App. 4

SUPERIOR COURT OF CALIFORNIA

COUNTY OF ORANGE,

CENTRAL JUSTICE CENTER

MINUTE ORDER

Department: C24

COURT CONVENED AT: ON: 7-12-2001

JUDGE/COMM: CLERK: C. FALKENBERG

THIERRY P. COLAW REPORTER:

BAILIFF:

M. AGUILAR

AND THE FOLLOWING PROCEEDINGS WERE HAD:

788545 MCCALL VS PACIFICARE

NO APPEARANCES.

IN ACCORDANCE WITH SUPREME COURT RULING

DIRECTING THE TRIAL COURT TO REVERSE THE

RULING OF 7-17-2001 [SIC], THE COURT HEREBY

RULES AS FOLLOWS: THE ORDER DISMISSING THE

ACTION AND SUSTAINING THE DEMURRER OF

PACIFIC CARE AND GREATER NEWPORT PHYSI-

CIANS WITHOUT PREJUDICE IS VACATED. COURT

RULES THAT THE DEMURRER IS OVERRULED WITH

30 DAYS LEAVE TO ANSWER. PLAINTIFF TO GIVE

NOTICE. ENTERED 7-12-2001

HOUCK & BALISOK, RUSSELL BALISOK, 535 NORTH

BRAND BLVD., STE 501, GLENDALE, CA 91203

App. 5

CERTIFICATE OF SERVICE BY MAIL

I, ALAN SLATER, Executive Officer/Clerk of the Supe-

rior Court, in and for the County of Orange, State of

California, hereby certify that I am not a party to the

within action or proceeding and that on July 12, 2001, I

served a copy of this document on the parties named

herein by depositing true copies, enclosed in a sealed

envelope with postage thereon fully prepaid, in the

United States mail box at Santa Ana, California addressed

as indicated above.

Dated: July 12, 2001 by CHRISTINE FALKENBERG,

Deputy Clerk

Chris Falkenberg