Opinion ID: 894907
Heading Depth: 1
Heading Rank: 2

Heading: The Hospitals, Aetna, and NAMM

Text: Aetna [4] owned NYLCare, an HMO that became a Medicare Advantage organization by virtue of its contract with CMS. [5] NYLCare contracted with North American Medical Management of Texas [6] (NAMM) to administer the plan. CMS made capitation payments to Aetna which, in turn, made monthly payments to NAMM. NAMM was required to deposit the payments into a fund that was designated to pay covered claims for health care services rendered by health care providers to NYLCare members. NAMM then contracted with health care providers, including Christus Health Gulf Coast; Christus Health Southeast Texas; Gulf Coast Division, Inc.; Memorial Hermann Hospital System; and Baptist Hospitals of Southeast Texas (collectively, the Hospitals), to provide services to NYLCare enrollees. The Hospitals allege that NAMM grossly mismanaged its accounting and failed to track claims accurately. Eventually, NAMM stopped paying the Hospitals for their services. In August 2000, NAMM notified the Hospitals and NYLCare that it was no longer able to satisfy its financial obligations, and on August 31, 2000, the Texas Department of Insurance placed NAMM in supervision conservatorship. Aetna (through NYLCare) assumed responsibility for institutional claims incurred by NYLCare members for covered services rendered on or after August 17, 2000. The Hospitals sought payment from Aetna for services rendered prior to that date, but Aetna refused the numerous demands for payment. On December 5, 2000, four of the five Hospitals wrote CMS, describing in detail the situation and asking CMS to intervene to require Aetna to pay the Hospitals for the unreimbursed services provided to enrollees. On March 30, 2001, CMS responded, in a four-page, single-spaced letter signed by the Acting Director of the Medicare Managed Care Group. The letter analyzed the Hospitals' claims and concluded: [Y]ou overstate [CMS's] authority to hold [Aetna] responsible for unpaid claims in this instance. . . . This type of contract dispute is an issue for the state judiciary to decide. . . . [Medicare Advantage] regulations clearly limit [CMS]'s ability to intervene in payment disputes between [Medicare Advantage] organizations and their contracted [Medicare Advantage] providers. In fact, the existence of provider contracts that can be enforced by the courts is why the Congress limited [CMS]'s regulatory authority in comparison to those afforded non-contracted providers. The Hospitals contend that they also attempted to pursue remedies through the Texas Department of Insurance, but the agency denied jurisdiction over the matter and referred the Hospitals to the Texas court system. The Hospitals sued Aetna in Harris County district court, alleging $13,067,759.19 in unpaid services, for which they asserted claims under the Texas Insurance Code, suit on an account, breach of contract, breach of fiduciary duty, and quantum meruit. Aetna answered and filed a third-party petition against NAMM. Aetna sought contribution and indemnity, alleging that NAMM breached [its agreement with Aetna] and its contracts with each of the [Hospitals] by failing to pay for covered services rendered to NYLCare 65 members before NAMM's insolvency. Aetna then moved to dismiss the Hospitals' claims, contending that they were governed exclusively by the Medicare Act and that because the Hospitals had not pursued Medicare's administrative remedies, the trial court lacked subject matter jurisdiction over the claims. The Hospitals responded, asserting that under the Texas Insurance Code, Aetna was directly liable to the Hospitals for NAMM's failure to pay. The Hospitals argued that enrollees, not providers, were required to exhaust remedies before suing and that [t]he administrative review process . . . has no application to the [H]ospitals and, in fact, provides them with no way to seek an administrative review. On October 2, 2003, the trial court heard and granted the plea to the jurisdiction, dismissing without prejudice the Hospitals' claims. The Hospitals appealed, and the court of appeals affirmed the trial court's judgment. 167 S.W.3d 879. The court concluded that the Hospitals' claims arose under the Medicare Act and that the Hospital therefore had to exhaust administrative remedies before suing in state court. The Hospitals moved for rehearing, alleging that an opinion issued by the United States Court of Appeals for the Fifth Circuit two days after the court of appeals issued its opinion, was inconsistent with the court of appeals' holding. See Ren-Care, Ltd. v. Humana Health Plan of Tex., Inc., 395 F.3d 555, 557-560 (5th Cir. 2004). The court denied the motion for rehearing and issued an opinion on rehearing in which it discussed and distinguished RenCare. 167 S.W.3d at 888 n. 10. We granted the Hospitals' petition for review. [7] 49 Tex. Sup.Ct. J. 966 (Sept. 1, 2006).