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Medevac Midatlantic, LLC v. Keystone Mercy Health Plan

August 31, 2011


The opinion of the court was delivered by: Rufe, J.


Before the Court is Defendant Keystone Mercy Health Plan's ("KMHP") Motion to Dismiss and Strike Medevac MidAtlantic LLC's ("Medevac") Amended Complaint in Part [doc. no. 25]. KMHP seeks to dismiss Counts I and II of Medevac's Amended Complaint under Federal Rule of Civil Procedure 12(b)(6), and seeks to strike, under Rule 12(f), portions of Plaintiff's Amended Complaint referencing "billed charges" and requesting attorneys' fees and costs. *fn1 Also pending is Medevac's Motion for Partial Summary Judgment, which the Court will address by separate opinion and order.

Medevac's claims against KMHP, a managed care organization providing healthcare services to Medicaid beneficiaries under the Commonwealth of Pennsylvania's HealthChoices Medicaid plan, arise from KMHP's denial of partial or full payment to Medevac for the emergency air transport services it has provided to KMHP's members.


A. The Medicaid Program

Medicaid *fn2 is a cooperative federal-state program in which the federal government offers funding to states that provide healthcare services to low-income individuals and families in designated eligibility groups. *fn3 Though state participation in Medicaid is voluntary, participating states must comply with the requirements of the Medicaid Act and accompanying regulations, including submission of a compliant state medical assistance plan for approval by the Secretary of the U.S. Department of Health and Human Services, or risk losing federal funding. *fn4 The Medicaid Act requires that beneficiaries be permitted to receive healthcare services from participating, qualified providers of their choice *fn5 (the "freedom-of-choice" provision), and that the state pay those providers directly on a fee-for-service basis according to state-established fee schedules. *fn6 States may seek waivers from the requirements of that traditional fee-for-service program. In particular, states may seek a waiver of the "freedom-of-choice" provision to provide healthcare services to Medicaid beneficiaries through managed care systems. In such systems, private contracting managed care organizations ("MCOs") administer the Medicaid program for their members, contract with a network of providers, arrange for care, and pay providers for their services. *fn7 Medicaid beneficiaries enrolled in managed care plans receive care from only those providers designated by the MCO, except that emergency care providers cannot be restricted. *fn8
Both the waiver itself and the contracts between MCOs and the state must be approved by the federal government, *fn9 and the contracts must comply with a series of statutory and regulatory requirements. *fn10
In Pennsylvania, the Department of Public Works ("DPW") administers the state's Medicaid program *fn11 through both a traditional fee-for-service program and a managed care program-HealthChoices-which is mandatory for beneficiaries in some parts of Pennsylvania. *fn12
Under HealthChoices, contracting MCO's receive payment on a capitated basis, *fn13 bearing the risk that the costs of service may exceed the capitation payments. *fn14 The MCOs negotiate contracts with the providers that form the provider network. Under such contracts, the MCOs direct their members to the network providers in exchange for receiving discounted rates for the medical services rendered to the members. *fn15 Non-contracting providers furnishing services to an MCO's members are referred to as "out-of-network" or "non-plan" providers. *fn16 Providers are not required to enter into a contract with an MCO. *fn17

In 2006, Congress passed the Deficit Reduction Act of 2005, *fn18 effective January 1, 2007. Section 6085 of that Act amended the Medicaid Act to limit a Medicaid MCO's obligation to pay non-plan emergency providers:

Any provider of emergency services that does not have in effect a contract with a Medicaid managed care entity . . . must accept as payment in full no more than the amounts . . . that it could collect if the beneficiary received medical assistance under this subchapter other than through enrollment in such an entity. *fn19

Thus, non-plan emergency service providers *fn20 serving Medicaid enrollees are entitled to payment at only the rate they would receive under the state's fee-for-service Medicaid program.

B. The Dispute

KMHP administers a Medicaid managed care program under a subcontract with Keystone Health Plan East, which holds a license issued by, and a prime contract with, DPW to serve as a private Medicaid MCO under the Commonwealth's HealthChoices program. *fn21 KMHP receives payment based on a fixed fee per member, per month. *fn22

Medevac provides emergency air transportation services from trauma scenes to medical facilities and between medical facilities. *fn23 Though Medevac is not among KMHP's network providers and has no contract with KMHP, *fn24 KMHP cannot, under state and federal law, restrict its members from using Medevac's emergency services and is obligated under the contract with DPW to pay providers for medically necessary services, including emergency medical transportation services. *fn25 Additionally, under Pennsylvania law, Medevac is obligated to provide its emergency transport services without regard to a patient's ability to pay. *fn26
Medevac's claims arise from KMHP's alleged failure to adequately pay Medevac for emergency air transport provided to KMHP's members. Medevac began providing emergency services to KMHP's members in April 2006, billing KMHP its usual and customary charges for emergency air transportation. *fn27 Between April 2006 and fall of 2007, KMHP paid Medevac for half of the billed amount per service. *fn28 Then, in fall 2007, KMHP began paying only 2% of billed charges per service. *fn29 KMHP claimed that under Section 6085 of the 2005 Deficit Reduction Act, Medevac, as a non-network "emergency services" provider, was entitled to payment at only Pennsylvania's fee-for-service rates-which equated to 2% of Medevac's billed charges. *fn30 Additionally, because KMHP determined that, at the 50% reimbursement rate, it had been significantly overpaying Medevac, it asserted the right to recoup nearly $300,000 in overpayments made since June 2006. *fn31 Therefore, at some point after it asserted the applicability of Section 6085, KMHP ceased making any payments for Medevac's emergency air transport services provided to KMHP enrollees: Each time Medevac provided emergency air transport to KMHP's enrollees, rather than paying the bill, KMHP deducted from the total claimed overpayment an amount equal to the 2% of the billed charge for that particular transport service. *fn32 For example, when Medevac transported a KMHP member and submitted a bill for $11,684 to KMHP, rather than paying the bill, KMHP reduced Medevac's overpayment balance by $218-2% of the billed charges. *fn33

C. Procedural History

Medevac filed a three-count complaint in the Philadelphia Court of Common Pleas, bringing two state contract claims and a claim under the Pennsylvania Declaratory Relief Act. KMHP removed that action to this Court, on grounds that the complaint contained an embedded federal question, conferring jurisdiction on this Court. *fn34 Medevac did not contest removal. *fn35 After the Court ordered additional briefing as to why subject-matter jurisdiction was appropriate under Grable & Sons Metal Products, Inc. v. Darue Engineering & Manufacturing, Inc., *fn36 the

Parties stipulated that Medevac would be permitted to file an amended complaint, *fn37 and the Court entered the stipulation.

Medevac's Amended Complaint brings six counts: (1) a claim under 42 U.S.C. § 1983 for KMHP's violation of the timely payment provisions of the Medicaid Act; (2) a claim that KMHP breached its contract with the state, to which Medevac is a third-party beneficiary, by failing to make prompt payment to Medevac; (3) a claim under the federal Declaratory Judgment Act, seeking judgment that Medevac is not a provider of emergency services under Section 6085 of the 2005 Deficit Reduction Act; (4) a claim for unjust enrichment, seeking payment for the reasonable value of Medevac's services; (5) a claim, in the alternative to Count IV, for breach of an implied-in-fact contract for KMHP's failure to continue remitting payment at the 50% rate agreed to by the Parties; and (6) a claim under Pennsylvania's declaratory relief statute seeking, inter alia , judgment that KMHP has no right to recoup the purported "overpayments."

KMHP now moves, under Rule 12(b)(6) of the Federal Rules of Civil Procedure, to dismiss the Section 1983 claim (Count I) and the state law claim for breach of a contract on a third-party beneficiary theory (Count II). KMHP also moves, under Rule 12(f), to strike Medevac's requests for relief in the form of attorneys' fees and costs and reimbursement of "billed charges." *fn38


In reviewing a Rule 12(b)(6) motion to dismiss for failure to state a claim upon which relief may be granted, the Court must accept a plaintiff's factual allegations as true and draw all logical inferences in favor of the non-moving party. *fn39 Courts are not, however, bound to accept as true legal conclusions couched as factual allegations. *fn40 The Complaint must set forth "direct or inferential allegations [for] all the material elements necessary to sustain recovery under some viable legal theory." *fn41 And the plaintiff must allege "enough facts to state a claim for relief that is plausible on its face." *fn42

Rule 12(f) provides that a court may strike from a pleading "any redundant, immaterial, impertinent, or scandalous matter." *fn43 The purpose of the provision is to clean-up the pleadings, streamline the litigation and avoid inquiry into irrelevant matters. *fn44 Motions to strike are to be decided on the pleadings alone. *fn45

Though this Court has considerable discretion to grant or deny a motion to strike a pleading or portions thereof, such motions are highly disfavored, and even where a statement in a pleading falls within the four corners of Rule 12(f), a court should grant the motion only when "the allegations have no possible relation to the controversy and may cause prejudice to one of the parties, or if the allegations confuse the issues." *fn46 In such cases, granting a motion may save resources of the court and parties by preventing litigation of claims that will ultimately not affect the outcome. *fn47 Despite ...

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