The Broad Reach Of Medicare Act’s Preemption Provision
This article by partners Jeffrey J. Bushofsky and Laura G. Hoey and associate Samuel Perrone was published by Law360 on November 28, 2017.
Civil actions alleging state-law claims premised on violations of Medicare’s rules may turn on specific procedures outlined in the Medicare Act — which contains an express preemption provision — and its implementing regulations. The doctrine of preemption can be invoked to contend that federal law displaces state or local laws that encroach on areas governed by federal laws and regulations.1 Preemption may be express when Congress has stated its intent to supersede state or local laws or, instead, implied from the nature of the federal laws and regulations at issue.2 Accordingly, when defending claims involving Medicare, it is important to consider whether they may be preempted. A recent decision from a federal district court in the Northern District of Illinois,3 highlights the reach of Medicare preemption.
Medicare Act’s Preemption Provision
The Medicare Act’s express preemption provision states as follows:
The standards established under this part shall supersede any State law or regulation (other than State licensing laws or State laws relating to plan solvency) with respect to [Medicare Advantage] plans which are offered by [Medicare Advantage] organizations under this part.4
Notably, unlike its predecessor,5 the preemption provision applies broadly to any state law or regulation, not just those that are inconsistent with federal law.6 This is consistent with Congress’ stated intent: “[T]he [Medicare Advantage] program is a federal program operated under Federal rules. State laws, do not, and should not apply, with the exception of state licensing laws or state laws related to plan solvency.”7
Preemption of State-Law Claims
A number of courts have held that the Medicare Act expressly preempts various state laws. For instance, the Ninth Circuit in Do Sung Uhm v. Humana Inc. affirmed dismissal of, inter alia, state consumer protection and common law claims of fraud and fraud in the inducement arising from a Medicare Part D plan’s marketing communications.8 The Ninth Circuit concluded that, because the Medicare Act regulates such communications directly, the state-law claims would undermine the federal standards and were therefore preempted.9
Following the Ninth Circuit’s reasoning in Uhm, a federal district court in the Northern District of Illinois held that similar state-law claims were preempted by the Medicare Act.10 The plaintiff asserted consumer protection and other claims against a Medicare plan for its alleged failure to provide timely notice of termination. Because federal regulations set forth detailed requirements for notifying enrollees of termination, the district court held that the Medicare Act preempted all of the plaintiff’s claims.11 The court concluded that “[d]efining a provider’s duties to enrollees under [state-law] standards creates a risk of inconsistent enforcement regimes among the various states and the imposition of duties that vary from those imposed by the Medicare Act itself. It is that variation that a broad preemption provision aims to prevent.”12
Mayberry v. Walgreens Co.
Most recently, in Mayberry v. Walgreens Co., et al., another Northern District of Illinois judge held that the Medicare Act preempted state-law claims, including those for common-law fraud and violation of the Illinois Consumer Fraud and Deceptive Business Practices Act.13 There, the plaintiff alleged that the defendant pharmacies sought reimbursement for his insulin under Medicare Part D instead of Medicare Part B, which allegedly caused the plaintiff to incur certain out-of-pocket costs. The court held that the Medicare Act preempted the claims because the case’s “central issues” involved a review of Medicare Act regulations and a determination of compliance with Medicare’s billing requirements. That is, the trier of fact would have to determine whether, under Medicare regulations, the pharmacies should have submitted (or were even allowed to submit) claims under Part B.14 Notably, the court rejected the plaintiff’s argument that preemption depended on the entity sued, calling it a “back-door attempt” to recover Medicare benefits from the pharmacies, and holding that preemption was not limited to cases “brought directly against the federal government or medical providers.”15
Taken together, these cases illustrate the broad reach of the Medicare Act’s preemption provision. If successfully invoked, preemption can result in dismissal at the motion-to-dismiss stage, so defense counsel should take a close look at any claim touching on Medicare rules to determine whether the Medicare Act might preempt the claim.
1 15-103 Moore's Federal Practice - Civil § 103.45 (2017).
3 Mayberry v. Walgreens Co., et al., No. 17 C 1748, 2017 WL 4228205 (N.D. Ill. Sept. 21, 2017) (Der-Yeghiayan, J.). The suit also named as defendants Albertsons Companies Inc., individually and d/b/a “Osco Drug,” SUPERVALU INC., individually and d/b/a “Osco Drug,” and CVS Pharmacy Inc.
4 42 U.S.C. § 1395w-26(b)(3); see 42 U.S.C. § 1395w-112(g) (“The provisions of sections 1395w-24(g) and 1395w-26(b)(3) of this title shall apply with respect to [Prescription Drug Plan] sponsors and prescription drug plans under this part in the same manner as such sections apply to [Medicare Advantage] organizations and [Medicare Advantage] plans under part C of this subchapter.”).
5 42 U.S.C. § 1395w-26(b)(3)(A) (2000).
6 See Do Sung Uhm v. Humana Inc., 620 F.3d 1134, 1149 (9th Cir. 2010) (Paez, J.).
7 H.R. Rep. No. 108-391, at 557.
8 620 F.3d at 1152–57.
10 Rudek v. Presence Our Lady of Resurrection Med. Ctr., No. 13 C 06022, 2014 WL 5441845 (N.D. Ill. Oct. 27, 2014) (Tharp, J.).
11 Id. at *6.
13 2017 WL 4228205, at *2–3. As in Uhm, 620 F.3d at 1144, the court held further that it lacked subject-matter jurisdiction over the plaintiff’s claims because he had failed to exhaust administrative remedies under the Medicare Act. Id. at *3.
14 Id. at *2.
15 Id. at *3.