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.
from the Superior Court in Maricopa County, Honorable Michael
J. Herrod, Judge, Honorable Douglas L. Rayes, Judge Nos.
of the Court of Appeals, Division One 237 Ariz. 559, 354 P.3d
1118 (App. 2015)
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
L. Abney, Dana R. Roberts, Knapp & Roberts, P.C.,
Scottsdale; and Geoffrey M. Trachtenberg, Levenbaum
Trachtenberg, PLC, Phoenix, Attorneys for Amici Curiae Law
JUSTICE TIMMER authored the opinion of the Court, in which
VICE CHIEF JUSTICE PELANDER, JUSTICES BRUTINEL and BERCH
(RETIRED) and JUDGE VASQUEZ joined.[*]
JUSTICE TIMMER JUDGE
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.
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).
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").
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.
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
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
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.
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 ...