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Hospitals can sue insurer, avoid lengthy Medicare appeals process

Patient Financial Services Weekly Advisor, October 5, 2007

A group of Texas hospitals can sue a major national insurer for failure to reimburse it for medical procedures instead of filing a federal appeal with Medicare, according to a report in American Medical News.

The recent Texas Supreme Court decision gives hospitals and physicians the ability to fight health plans that fail to pay under Medicare Advantage contracts, the report says.

The decision means the group of hospitals can sue Aetna rather than going through the Medicare administrative appeals process.

"The federal administrative scheme exists, first and foremost, to protect enrollees' rights to healthcare, not to act as a de facto claims administrator for Medicare Advantage organizations and their delegates," the unanimous opinion by the state high court says.

Aetna owes the hospitals $13 million in back pay, the report says. The insurer had hired a subsidiary to administer its Medicare Advantage plan. According to the case, Christus Health Gulf Coast v. Aetna, five Texas hospital groups contracted with North American Medical Management of Texas to administer Medicare services.

However, after NAMM went bankrupt in 2000 and stopped paying the hospitals, the groups went after Aetna for back pay. Aetna claims it already paid NAMM and was not liable.

That is when it went to the Supreme Court.

"The decision does not address the merits of the hospitals' claims," Aetna spokesperson Cynthia B. Michener tells American Medical News. "[It] simply allows the trial court to determine whether Aetna can be held responsible, if at all."

Scott M. Clearman, an attorney for the hospitals, says the decision avoids a costly Medicare appeals process. Had it gone that way, he says, "it would have meant there was no remedy at all."

In a similar case in Texas, a trial judge recently ruled that when an insurer contracts with a subsidiary, and the subsidiary fails to comply, the insurer "may not avoid its ultimate liability for the delegated entity's failure to comply with the applicable statutes and regulations."

To read the full story in the American Medical News, click here.

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