The Caris MPI Decision: A Potential Turning Point in Out-of-Network Litigation Against Medicare Advantage Organizations

Nonparticipating providers have often struggled to recover fair reimbursement from vertically integrated, well-resourced Medicare Advantage Organizations (“MAOs”) through out-of-network litigation. The pattern is unfortunately all too familiar. The MAO shorts, denies, or recoups payments. The nonparticipating provider sues the MAO for fair reimbursement under state law. The MAO asserts administrative exhaustion and preemption under the Medicare Act as legal defenses. And a federal district court dismisses the case straight away.¹

The tide, however, may be turning. The recent decision by the U.S. Court of Appeals for the Fifth Circuit in Caris MPI, Inc. v. UnitedHealthcare, Inc., 108 F.4th 340 (5th Cir. 2024), offers nonparticipating providers a beachhead for pursuing state law claims against MAOs.

The nonparticipating provider in Caris MPI brought state law claims against UnitedHealthcare. UnitedHealthcare followed the MAO playbook and asserted administrative exhaustion and preemption as defenses. The Fifth Circuit rejected the exhaustion defense on its merits and remanded the case to allow the district court to consider the preemption defense. A future decision in Caris MPI that rejects the preemption defense would help clear the path for nonparticipating providers to bring state law claims against MAOs in the Fifth Circuit and other jurisdictions.

The District Court Litigation

Caris MPI, Inc., furnished cancer diagnostic services to the Medicare Advantage (“MA”) enrollees of UnitedHealthcare, Inc. for 10 years. Id. at 345. UnitedHealthcare and Caris never had a written contract; they “interacted ‘according to their long-standing course of dealings, representations…, and implied contracts.’” Id.

In 2020, UnitedHealthcare audited Caris’ past claims, asserted that Caris used incorrect billing codes for more than two years, and claimed that Caris was overpaid. Caris disagreed. Id. UnitedHealthcare nevertheless began recouping the purported overpayments by offsetting against payments on new claims. Caris then sued UnitedHealthcare in Texas state court, alleging claims under Texas state law for breach of implied-in-fact contract, unjust enrichment, conversion, and estoppel. Id.

UnitedHealthcare filed a notice of removal, citing federal officer jurisdiction under 28 U.S.C. § 1442(a)(1), which allows federal officers and agents to remove state law claims to federal court when there is a colorable federal defense. Caris, 108 F.4th at 345. UnitedHealthcare alleged administrative exhaustion and preemption under the Medicare Act as defenses.

Caris filed a motion to remand the case to state court. Id. The district court denied the motion and dismissed Caris’ claims without prejudice, finding only that Caris failed to exhaust its administrative remedies. Id. Caris appealed. Id.

The Fifth Circuit Appeal

The Fifth Circuit affirmed the denial of Caris’ motion to remand. Id. at 351. But it reversed the dismissal of Caris’ claims for failure to exhaust administrative remedies and remanded the case to the district court to consider the federal preemption defense. Id.

Removal Under Federal Officer Jurisdiction

Federal officer jurisdiction requires that the defendant act pursuant to the direction of a federal officer. The defendant must also assert a colorable federal defense, even if it later fails.

The Fifth Circuit agreed that UnitedHealthcare acted pursuant to the direction of a federal officer because the Centers for Medicare & Medicaid Services (“CMS”) contracted with UnitedHealthcare to effectuate Medicare coverage for program enrollees. Id. at 348. UnitedHealthcare’s contract with CMS allowed CMS to periodically audit UnitedHealthcare’s records regarding services provided to enrollees. Id. The existence of the agency’s contractual audit right demonstrated that the recoupment of payments from Caris was “connected or associated” with UnitedHealthcare’s obligations to the agency under the contract. Id.

The Fifth Circuit also agreed that administrative exhaustion and preemption were colorable federal defenses given the persuasive authority accepting those defenses. Id. at 346-347.

Administrative Exhaustion and Preemption on the Merits

The Fifth Circuit rejected the exhaustion defense on its merits, reasoning that an MA enrollee has no interest in a payment dispute between a provider and an MAO. Id. at 351. It underscored that Caris is prohibited from seeking additional payments from enrollees if Caris loses. Id. And UnitedHealthcare is prohibited from recouping any costs from enrollees if UnitedHealthcare loses. Id. So, regardless of the outcome in the litigation, there are no administrative remedies for Caris or anyone else to exhaust. Id.

The Fifth Circuit declined to reach the merits of the federal preemption defense because the district court premised its decision solely on administrative exhaustion. Id. at 347.

Implications for Providers

Caris MPI is a leap forward for nonparticipating providers with implied contract claims against MAOs. It eliminates the exhaustion defense in the Fifth Circuit and is persuasive elsewhere.

On remand, the district court will rule on UnitedHealthcare’s federal preemption defense. A rejection of that defense would help clear the path for nonparticipating providers to bring implied contract and possibly other state law claims against MAOs.

There are good reasons to believe the federal preemption defense will eventually fall in Caris MPI. For starters, the Fifth Circuit’s analysis of the exhaustion defense arguably extends to the federal preemption defense. The Fifth Circuit cited RenCare, Ltd. v. Humana Health Plan of Texas, Inc., 395 F.3d 555 (5th Cir. 2004) in concluding that the dispute between Caris and UnitedHealthcare related specifically to UnitedHealthcare’s recoupments of past payments to Caris. Because the dispute implicated no beneficiary rights or MA organization determinations, there was no reason for Caris to invoke, much less exhaust the Medicare appeals process. If such disputes are entirely outside the Medicare appeals process — and implicate only general state laws governing private contracting relationships, not the Medicare Act or its implementing regulations — then the express MA preemption provision² is arguably inapplicable to Caris’ claims.

The application of the federal preemption defense is a critical issue for both parties and has industry-wide implications for MAOs and providers. So, regardless of how the district court rules on the issue, we believe that a subsequent appeal to the Fifth Circuit is likely.

In the meantime, providers should use Caris MPI to their advantage in the Fifth Circuit, as well as federal circuits that have not yet adjudicated the same issues, like the Second, Third, Fourth, and Sixth Circuits. Providers should consider bringing state law claims based on similar fact patterns in state courts in those circuits. And providers should consider and raise the possibility of out-of-network recoveries under Caris MPI when negotiating network contracts with MAOs. If an MAO will pay no more than the Medicare rate, and the provider can obtain the Medicare rate through an implied contract under Caris MPI, then the administrative burdens of a network contract may well exceed the putative benefits.

[1] Tenet Healthsystem GB, Inc. v. Care Improvement Plus S. Cent. Ins. Co., 875 F.3d 584, 591 (11th Cir. 2017) (dismissing implied contract claim for failure to exhaust); Do Sung Uhm v. Humana, Inc., 620 F.3d 1134, 1149-50 (9th Cir. 2010) (dismissing implied contract claim for failure to exhaust, and state fraud and consumer protection act claim as preempted); Prime Healthcare Servs. v. Humana Ins. Co., 298 F. Supp. 3d 1316 (C.D. Cal. 2018) (collecting cases and dismissing implied contract claim as preempted).

[2] See 42 U.S.C. § 1395w-26(b)(3) (“The standards established under this part shall supersede any State law or regulation . . . with respect to MA plans which are offered by [MAOs] under this part.”); Medicare Program: Medicare Prescription Drug Benefit, 70 Fed. Reg. 4194, 4319 (Jan. 28, 2005) (explaining that “we do not believe” that general state laws “would be superseded or preempted[,] [f]or example . . . State environmental laws, laws governing private contracting relationships, tort law, labor law, civil rights laws, and similar areas.”).