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United Behavioral Health v. Maricopa Integrated Health System

Supreme Court of Arizona

August 25, 2016

United Behavioral Health, a California corporation and its subsidiary PacifiCare Behavioral Health, Inc., Plain tiffs/Appellants,
Maricopa Integrated Health System, an Arizona special taxing district, Defendant/Appellee. United Behavioral Health, a California corporation, Plaintiff/Appellee,
Aurora Behavioral Health Care - Tempe, LLC; and Aurora Behavioral Health System, LLC, Defendants/Appellants.

         Appeal from the Superior Court in Maricopa County, Honorable Michael J. Herrod, Judge, Honorable Douglas L. Rayes, Judge Nos. CV2013-003331; CV2013-016433

         Opinion of the Court of Appeals, Division One 237 Ariz. 559, 354 P.3d 1118 (App. 2015)

          John C. West, Robert M. Kort (argued), Lewis Roca Rothgerber Christie LLP, Phoenix, Attorneys for United Behavioral Health and PacifiCare Behavioral Health, Inc.

          Russell A. Kolsrud, Mark S. Sifferman (argued), Clark Hill PLC, Scottsdale, Attorneys for Maricopa Integrated Health System, Aurora Behavioral Health Care - Tempe, LLC, and Aurora Behavioral Health System, LLC

          David L. Abney, Dana R. Roberts, Knapp & Roberts, P.C., Scottsdale; and Geoffrey M. Trachtenberg, Levenbaum Trachtenberg, PLC, Phoenix, Attorneys for Amici Curiae Law Firms

          JUSTICE TIMMER authored the opinion of the Court, in which VICE CHIEF JUSTICE PELANDER, JUSTICES BRUTINEL and BERCH (RETIRED) and JUDGE VASQUEZ joined.[*]



         ¶1 Medicare Part C, 42 U.S.C. §§ 1395w-21 et seq., permits enrollees to obtain Medicare-covered healthcare services from private healthcare organizations and their third-party contractors. The Employee Retirement Income Security Act ("ERISA"), 29 U.S.C. §§1001 et seq., regulates health plans offered by private employers to employees. We today hold that the administrative appeals process provided under the Medicare Act preempts arbitration of Medicare-related coverage disputes between private healthcare administrators and providers, even though arbitration would otherwise be required by the parties' contracts and the Federal Arbitration Act ("FAA"), 9 U.S.C. §§ 1 et seq. We remand to the court of appeals to decide whether ERISA similarly preempts arbitration of ERISA-related coverage disputes.

         I. BACKGROUND

         ¶2 Congress passed the Medicare Act in 1965 to provide a federal health insurance program for qualified enrollees, most of whom are either elderly or disabled. 42 U.S.C. §§ 1395 et seq. For many years, enrollees could obtain healthcare benefits only through Parts A and B of the Act, which is administered by the Centers for Medicare and Medicaid Services ("CMS"), a division of the Department of Health and Human Services ("HHS"). See Douglas v. Indep. Living Ctr. of S. Cal., Inc., Ybl S.Ct. 1204, 1207-08 (2012).

         ¶3 In 1997, Congress enacted Part C, commonly known as the Medicare Advantage Program, to permit enrollees to obtain Part A and Part B coverage through private organizations, known as Medicare Advantage Organizations ("MA Organization" or "Organization"). 42 U.S.C. §§ 1395w-21, 1395w-27. CMS contracts with MA Organizations through a bidding process. Id. § 1395w-24(A). Among other things, Organizations agree to comply with all Medicare laws, CMS rules, and federal coverage guidelines. Id., § 1395y(a)(1)(A); 42 C.F.R. § 422.101(a), (b)(1)-(3), (c). MA Organizations offer Medicare benefits, not private insurance. Cf. Pagarigan v. Superior Court, 126 Cal.Rptr.2d 124, 134 (Ct. App. 2002) (noting that the relationship between MA Organizations and Part C enrollees is "not between an insurer and its policyholder, but rather, between Medicare ... and Medicare beneficiaries").

         ¶4 CMS pays an MA Organization a fixed monthly "capitation" fee for each Medicare beneficiary served by the Organization. 42 U.S.C. § 1395w-23. The Organization thereafter assumes the financial risk of providing health care services to those enrollees. Id. § 1395w-25(b). MA Organizations can either provide services directly or contract with third-party healthcare providers to provide services. 42 C.F.R. §§ 422.100(a), 422.202.

         ¶5 Petitioners Maricopa Integrated Health System ("MIHS") and Aurora Behavioral Health Care - Tempe and Aurora Behavioral Health System, LLC ("Aurora") (collectively, "Providers") operate acute inpatient psychiatric hospitals. They entered into Facility Participation Agreements ("Agreements") with respondent United Behavioral Health, Inc. ("UBH"), an MA Organization that issues and administers various types of health insurance plans, including Medicare Advantage plans and ERISA-regulated plans. MIHS and Aurora provide mental health and substance abuse treatment services to Medicare enrollees enrolled with UBH ("MA Plan Members"). Aurora also provides these services to members of ERISA-regulated plans administered by UBH ("ERISA Plan Members").

         ¶6 The Agreements require MIHS and Aurora to obtain authorization from UBH before providing healthcare services to MA Plan Members and ERISA Plan Members. Providers must accept UBH's payment for services as "payment in full" for services rendered to enrollees and cannot collect from them for unpaid services deemed medically unnecessary by UBH, unless enrollees agree to pay for these services.

         ¶7 The dispute in these cases concerns whether continued inpatient treatment by Providers was medically necessary, and therefore compensable, for several MA Plan Members and ERISA Plan Members initially hospitalized for mental health evaluations or treatment. UBH denied authorization for extended inpatient care as not medically necessary. Providers nonetheless continued providing inpatient care and sought reimbursement, which UBH denied.

         ¶8 Providers demanded arbitration with the American Arbitration Association pursuant to arbitration provisions in the Agreements, which are governed by the FAA. UBH filed separate lawsuits against MIHS and Aurora to stay the arbitration proceedings and determine arbitrability, with conflicting results. In the case against MIHS, the trial court found that the dispute was subject to arbitration and refused to stay the arbitration proceedings. In the case against Aurora, the court stayed the ...

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