Prime Healthcare can challenge Medicare Advantage contracts with Humana, judge rules

Prime Healthcare scored a key victory in its breach of contract lawsuit with Humana, which allegedly underpaid or denied payment for services provided to Medicare Advantage beneficiaries.

A Los Angeles federal judge denied the insurer's motion to dismiss the case based on an "overly broad" interpretation of the Medicare Act, which payers have previously used to avoid breach of contract lawsuits. Prime claims that Humana "downcoded" its charges related to services provided to Medicare Advantage patients or denied them altogether. The health system is seeking an unspecified amount of damages of no less than $75,000.

Humana and other Medicare Advantage plans have argued that their network providers cannot sue them for breach of contract because those claims are pre-empted by the Medicare Advantage statute. The decision marks one of the first federal court rulings to recognize that providers can challenge private contracts with Medicare Advantage insurance companies, according to the law firm King & Spalding that is representing Prime, along with the law firm Buchalter.

If the pre-emption applied, providers would not have any other means of legal recourse, which was not the intent of Congress, Judge Virginia Phillips said in her court order.

"This interpretation of the clause is overly broad and inconsistent with fundamental principles of pre-emption," she said.

Prime described it as a huge win for the provider community, while Humana declined to comment on ongoing litigation.

Ontario, Calif.-based Prime, which operates 45 hospitals in 14 states, sued Humana for allegedly underpaying or failing to pay claims for hospital services provided to Humana's Medicare Advantage enrollees from August 2012 through February 2016.

This decision may play a pivotal role as enrollment in Medicare Advantage grows. Advantage enrollment reached 18.9 million in 2017, or 32% of all Medicare beneficiaries, up from 17.5 million, or 31% of all Medicare beneficiaries in 2016.