IN THE SUPREME = COURT OF TEXAS

IN THE SUPREME COURT OF TEXAS

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No. 05-0710

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Christus Health = Gulf Coast,=20 Christus Health Southeast Texas, Gulf Coast Division, Inc., Memorial = Hermann=20 Hospital System and Baptist Hospitals of Southeast Texas

Petitioners,

Aetna, Inc. and = Aetna=20 Health, Inc.,

Respondents

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On Petition for Review from = the

Court of Appeals for the Fourteenth = District of=20 Texas

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Argued December 6,=20 2006

Chief Justice Jefferson = delivered the=20 opinion of the Court.

We = must=20 decide whether a Texas court has jurisdiction over = certain=20 state-law claims asserted by hospitals against a Medicare health = maintenance=20 organization, or whether the hospitals must first proceed through the = federal=20 administrative machinery. We conclude that the hospitals in this case = have=20 alleged facts supporting the trial court=92s jurisdiction. Accordingly, = we reverse=20 the court of appeals=92 judgment and remand to the trial court for = further=20 proceedings.

The = Medicare=20 Advantage Program

&nbs= p;=20 Medicare was established in 1965 as part of the Social Security Act. 42 = U.S.C.=20 =A7=A7 1395-1395ggg (2000). It is administered by the Centers for = Medicare and=20 Medicaid Services (=93CMS=94), an agency whose mission is to =93serve = Medicare and=20 Medicaid beneficiaries,=94 [1] and provides health insurance = for most=20 Americans over sixty-five, for certain disabled persons under = sixty-five, and=20 for persons with end-stage renal disease. 42 U.S.C. =A71395c. In 1997, = Medicare=20 was amended to include Part C, also known as the Medicare Advantage = program.[2] Medicare+Choice Program, 65 = Fed.=20 Reg. = 40170, 40171 (June 29, 2000). The = Medicare=20 Advantage program provides Medicare beneficiaries with =93a wider range = of health=20 plan choices through which to obtain their Medicare benefits.=94 = Establishment of=20 the Medicare Advantage Program, 70 Fed. Reg. 4588, 4589 (Jan. 28, = 2005).

&nbs= p;=20 Under Medicare Advantage, CMS contracts with health maintenance = organizations=20 and other private entities to provide health care services to Medicare=20 enrollees. Id. at 4589-90. Those that = enter into=20 such contracts with CMS are called Medicare Advantage organizations, 42 = C.F.R. =A7=20 422.2, and there are detailed requirements for entities that wish to = qualify. 42=20 C.F.R. =A7 422.503. Once CMS and a Medicare Advantage organization enter = into a=20 contract, CMS makes capitation payments [3] to Medicare Advantage = organizations for=20 enrollee health care services. 42 C.F.R. =A7 422.304(a). Upon payment = from CMS,=20 the Medicare Advantage organization =93assume[s] full financial risk . . = . for the=20 provision of the health care services for which benefits are required to = be=20 provided,=94 42 U.S.C. =A7 1395w-25(b), and =93must adopt and maintain = arrangements=20 satisfactory to CMS to protect its enrollees from incurring liability = (for=20 example, as a result of an organization=92s insolvency or other = financial=20 difficulties) for payment of any fees that are the legal obligation of = the=20 [Medicare Advantage] organization.=94 42 C.F.R. 422.504(g)(1). Medicare = Advantage=20 organizations may contract with third parties to provide administrative = and=20 health care services to enrollees. 42 C.F.R. =A7 422.214(a). Contracts = between=20 Medicare Advantage organizations or their delegates and downstream = providers are=20 freely negotiated, with very few exceptions. See, e.g., 42 C.F.R. = =A7=20 422.504(g)(1)(i) (requiring Medicare Advantage organizations to = =93[e]nsure that=20 all contractual or other written arrangements with providers prohibit = the=20 organization=92s providers from holding any beneficiary enrollee liable = for=20 payment of [fees that are the legal obligation of the Medicare Advantage = organization.]=94).

The = Hospitals,=20 Aetna, and NAMM

&nbs= p;=20 Aetna[4] owned NYLCare, an HMO that = became a=20 Medicare Advantage organization by virtue of its contract with CMS.[5] NYLCare contracted with North = American=20 Medical Management of Texas [6] (NAMM) to administer the plan. = CMS made=20 capitation payments to Aetna which, = in turn,=20 made monthly payments to NAMM. NAMM was required to deposit the payments = into a=20 fund that was designated to pay covered claims for health care services = rendered=20 by health care providers to NYLCare members. NAMM then contracted with = health=20 care providers, including Christus Health Gulf Coast; Christus Health = Southeast=20 Texas; Gulf Coast Division, Inc.; Memorial Hermann Hospital System; and = Baptist=20 Hospitals of Southeast Texas (collectively, the Hospitals), to provide = services=20 to NYLCare enrollees.

&nbs= p;=20 The Hospitals allege that NAMM grossly mismanaged its accounting and = failed to=20 track claims accurately. Eventually, NAMM stopped paying the Hospitals = for their=20 services. In August 2000, NAMM notified the Hospitals and NYLCare that = it was no=20 longer able to satisfy its financial obligations, and on August 31, = 2000, the=20 Texas Department of Insurance placed NAMM in supervision = conservatorship.=20 Aetna (through NYLCare) assumed = responsibility=20 for institutional claims incurred by NYLCare members for covered = services=20 rendered on or after August 17, 2000. The Hospitals sought payment from = Aetna=20 for services rendered prior to that date, but Aetna refused the =93numerous demands=94 for = payment.

&nbs= p;=20 On December 5, 2000, four of the five Hospitals wrote CMS, describing in = detail=20 the situation and asking CMS to intervene to require Aetna to pay the Hospitals for the unreimbursed = services=20 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=20 Group. The letter analyzed the Hospitals=92 claims and concluded:

[Y]ou=20 overstate [CMS=92s] authority to hold [Aetna]=20 responsible for unpaid claims in this instance. . . . This type of = contract=20 dispute is an issue for the state judiciary to decide.

. . .

[Medicare=20 Advantage] regulations clearly limit [CMS]=92s ability to intervene in = payment=20 disputes between [Medicare Advantage] organizations and their contracted = [Medicare Advantage] providers. In fact, the existence of provider = contracts=20 that can be enforced by the courts is why the Congress limited [CMS]=92s = regulatory authority in comparison to those afforded non-contracted=20 providers.

The Hospitals=20 contend that they also attempted to pursue remedies through the Texas = Department=20 of Insurance, but the agency denied jurisdiction over the matter and = referred=20 the Hospitals to the Texas court system.

&nbs= p;=20 The Hospitals sued Aetna in Harris County district court, alleging=20 $13,067,759.19 in unpaid services, for which they asserted claims under = the=20 Texas Insurance Code, suit on an account, breach of contract, breach of=20 fiduciary duty, and quantum meruit. Aetna=20 answered and filed a third-party petition against NAMM. Aetna sought=20 contribution and indemnity, alleging that NAMM =93breached [its = agreement with=20 Aetna] and its contracts with each of = the=20 [Hospitals] by failing to pay for covered services rendered to NYLCare = 65=20 members=94 before NAMM=92s insolvency.

&nbs= p;=20 Aetna then moved to dismiss the = Hospitals=92=20 claims, contending that they were governed exclusively by the Medicare = Act and=20 that because the Hospitals had not pursued Medicare=92s administrative = remedies,=20 the trial court lacked subject matter jurisdiction over the claims. The=20 Hospitals responded, asserting that under the Texas Insurance Code, = Aetna was directly liable to the Hospitals for = NAMM=92s=20 failure to pay. The Hospitals argued that enrollees, not providers, were = required to exhaust remedies before suing and that =93[t]he = administrative review=20 process . . . has no application to the [H]ospitals and, in fact, = provides them=20 with no way to seek an administrative review.=94

On = October 2,=20 2003, the trial court heard and granted the plea to the jurisdiction, = dismissing=20 without prejudice the Hospitals=92 claims. The Hospitals appealed, and = the court=20 of appeals affirmed the trial court=92s judgment. 167 S.W.3d 879. The = court=20 concluded that the Hospitals=92 claims arose under the Medicare Act and = that the=20 Hospital therefore had to exhaust administrative remedies before suing = in state=20 court.

&nbs= p;=20 The Hospitals moved for rehearing, alleging that an opinion issued by = the United=20 States Court of Appeals for the Fifth Circuit two days after the court = of=20 appeals issued its opinion, was inconsistent with the court of = appeals=92 holding.=20 See Rencare, Ltd. v. Humana Health Plan of Tex., Inc., 395 F.3d 555, = 557-560 (5th=20 Cir. 2004). The court denied the motion for rehearing and issued an = opinion on=20 rehearing in which it discussed and distinguished Rencare. 167 = S.W.3d at=20 888 n.10. We granted the Hospitals=92 petition for review.[7] 49 Tex. Sup. Ct. J. 966 (Sept. 1, = 2006).

III

Discussion

Plea = to the=20 Jurisdiction

As = an initial=20 matter, we note that this case comes to us on a plea to the = jurisdiction. As=20 such, the abbreviated record=97a single volume of trial court pleadings = and the=20 reporter=92s record from the non-evidentiary hearing on the = jurisdictional=20 plea=97leaves many questions unanswered. For example, none of the = contracts=20 referred to are in the record. Nor is there evidence of the types of = services=20 rendered to the NYLCare enrollees; the sparse record simply shows unpaid = balances totalling some thirteen million dollars. Because this is a=20 jurisdictional plea, however, we construe the pleadings liberally in = favor of=20 the plaintiffs and look to the pleaders=92 intent. Texas Dept. of Parks and Wildlife v.=20 Miranda, 133 S.W.3d 217, 226 (Tex. 2004). When a plea to the = jurisdiction=20 challenges the pleadings, we determine if the pleader has alleged facts = that=20 affirmatively demonstrate the court's jurisdiction to hear the cause. = Id.

Medicare=20 Administrative Remedies

In = a case=20 strikingly similar to this one, the United States Court of Appeals for = the Fifth=20 Circuit Court recently considered whether a healthcare provider that = contracted=20 with a Medicare Advantage organization had to pursue administrative = remedies=20 before filing suit. Rencare, Ltd. v. Humana Health Plan of Tex., = Inc., 395 F.3d=20 555 (5th Cir. 2004). Humana, a Medicare Advantage HMO, contracted with = RenCare=20 to provide kidney dialysis services to Humana=92s enrollees. Id. at = 556-57.=20 Humana and RenCare then disagreed about reimbursement for end-stage = renal=20 dialysis services that RenCare provided to the enrollees, and RenCare = sued=20 Humana in Texas state court, alleging breach = of=20 contract, detrimental reliance, fraud, and violations of state law. = Id. at = 557. Humana=20 removed the claims to federal district court, arguing that RenCare=92s = claims were=20 preempted by the Medicare Act. The federal district court ultimately = dismissed=20 RenCare=92s claims relating to Medicare Advantage enrollees, finding = that RenCare=20 had failed to exhaust its administrative remedies under the Medicare = Act.=20 Id.=20

&nbs= p;=20 The Fifth Circuit reversed, concluding that: (1) RenCare=92s claims did = not arise=20 under the Medicare Act, and (2) there were no administrative remedies = for=20 RenCare to exhaust. Id. at 558. As to the first = issue, the=20 court considered Heckler v. Ringer, =93the seminal case = discussing whether=20 a claim =91arises under=92 the Medicare Act.=94 Id. at 558 (citing Heckler = v.=20 Ringer, 466 U.S. 602 (1984)). In Heckler, three individuals = who had=20 been denied reimbursement for bilateral carotid body resection = (=93BCBR=94) surgery=20 sued the Secretary of Health and Human Services. The plaintiffs sought = an=20 invalidation of the Secretary=92s policy against BCBR reimbursement, a = declaration=20 that the surgery expenses were reimbursable, and an injunction barring = the=20 Secretary from forcing claimants to pursue administrative appeals in = order to=20 obtain payment. 466 U.S. at 611. The Supreme = Court=20 concluded that because the claims were not =93anything more than, at = bottom, a=20 claim that they should be paid,=94 they were =93inextricably = intertwined=94 with a=20 claim for benefits and therefore arose under the Medicare Act. = Id. at = 614.

&nbs= p;=20 The Fifth Circuit, distinguishing Heckler, concluded that RenCare = =93present[ed] a vastly different situation.=94 RenCare, 395 F.3d = at 558.=20 There, Medicare enrollees were not denied services or reimbursement for=20 services. The court noted that RenCare waived its right to seek payment = from=20 enrollees, and the government, having tendered its capitation payment, = no longer=20 had a financial interest in the case. Id. Thus, Humana bore the = ultimate=20 responsibility for providing services to its Medicare Advantage = enrollees, and=20 =93[w]ith the government=92s risk extinguished, any dispute over payment = to RenCare=20 is solely between RenCare and Humana.=94 Id. at 559.

&nbs= p;=20 While the Fifth Circuit=92s holding on this point is persuasive,[8] it is unclear whether = Heckler=92s=20 =93arising under=94 test even applies to Medicare Advantage claims. = See=20 Stephen M. Elwell, Note, Preemption of Contract Claims by the = Medicare Act:=20 An Analysis of the Recent Holding in Lifecare Hospitals v. Ochsner = Health=20 Plan, 24 Rev. Litig. = 125, 127=20 (2005) (noting that =93[c]ourts must also decide whether the test in=20 Heckler applies to claims arising under the Medicare Advantage = program=94=20 and noting that Heckler was based on claims arising under the = traditional=20 Medicare program, not Medicare Advantage). Amicus HHS urges that = Heckler=20 is an =93unfortunate . . . red herring=94 that has been interjected into = this=20 dispute and that =93[t]he significance of the =91arising under=92 = analysis set forth=20 in Heckler is relevant only for purposes of assessing subject = matter=20 jurisdictional issues in federal court when plaintiffs pursue = =91action[s] against=20 the United States, the [Secretary of HHS], or any officer or employee = thereof.=92=94=20 42 U.S.C. =A7 405(h) (as applied to Medicare by 42 U.S.C. =A7 1395ii). = Aetna=20 contends that it should be considered an =93officer or employee=94 of = the=20 United=20 States or the Secretary and, therefore, = that=20 Heckler=92s =93arising under=94 test=20 controls. &nbs= p; =20

&nbs= p;=20 We need not decide that question today, however, as we agree with the=20 RenCare court=92s second conclusion: =93it appears that the = administrative=20 review process attendant to Part C does not extend to claims in which an = enrollee has absolutely no interest.=94 Id. The court noted that Part = C and=20 CMS's implementing regulations establish mandatory administrative = =93appeals=20 procedures=94 to resolve disputes over =93organization = determinations.=94[9] Id. (citing 42 U.S.C. =A7 = 1395w-22(g); 42=20 C.F.R. =A7=A7 422.560-422.622). An organization determination is a = decision by a=20 Medicare Advantage organization =93regarding the benefit an = enrollee is=20 entitled to receive under [a Medicare Advantage] plan . . . and the = amount, if=20 any, that the enrollee is required to pay for a health = service.=94 42=20 C.F.R. =A7 422.566(a) (emphasis added). More specifically, an = organization=20 determination may be the Medicare Advantage organization=92s =93refusal = to provide=20 or pay for services, in whole or in part, . . . that the enrollee = believes should be furnished or arranged for by the [Medicare Advantage] = organization.=94 42 C.F.R. =A7 422.566(b)(3) (emphasis added). Enrollees = have a=20 right to a timely organization determination, 42 C.F.R. =A7 = 422.562(b)(2), and a=20 right to appeal that decision through several levels of review. 42 = C.F.R. =A7=20 422.562(b)(4)(i)-(vi). However, if an =93enrollee has no further = liability=20 to pay for services that were furnished by [a Medicare Advantage] = organization,=20 a determination regarding these services is not subject to appeal.=94 42 = C.F.R. =A7=20 422.562(c)(2) (emphasis added).

&nbs= p;=20 The court concluded:

As is=20 evident from the regulations, the administrative review process focuses = on=20 enrollees, not health care providers, and is designed to protect = enrollees=92=20 rights to Medicare benefits. Here, Humana=92s failure to pay RenCare is = not an=20 organization determination subject to the mandatory exhaustion of = administrative=20 remedies. No enrollee has requested an organization determination or = appeal. No=20 enrollee has been denied covered service or been required to pay for a = service.=20 Rather, the [Medicare Advantage] enrollees in this case bear no = financial risk=20 inasmuch as they have already received the services for which RenCare = seeks=20 reimbursement. In fact, there is a complete absence of [Medicare = Advantage]=20 beneficiary interest in this dispute. The only interest at issue is = RenCare's=20 interest in receiving payment under its contract with Humana.

Rencare, 395 = F.3d at=20 559-60.

&nbs= p;=20 Here, although the parties did not contract directly with each other, = each had=20 agreements with NAMM. Consequently, their dispute concerns not whether = the=20 services were covered under Medicare, but rather who should bear the = loss=20 associated with NAMM=92s failure to pay. Aetna staunchly alleges it = discharged its=20 duties by making monthly payments to NAMM; the Hospitals, on the other = hand,=20 assert that Aetna is nonetheless = ultimately=20 responsible under the Texas Insurance Code and federal law.

&nbs= p;=20 Aetna asserts that NAMM=92s (and subsequently Aetna=92s own) failure to = pay the=20 claims is tantamount to a denial of coverage, and the Hospitals should = have=20 exhausted administrative remedies under the Medicare Act before = proceeding in=20 state court. We disagree. Aetna=92s = contention=20 that the Hospitals must first seek an administrative determination of = some 6,000=20 claims misconstrues a claim seeking payment for services provided to = Medicare=20 patients as a claim for Medicare benefits. That is, failing to pay due = to=20 insolvency or a dispute about who is contractually obligated to pay is = different=20 from failing to pay due to lack of coverage. The Hospitals are not = challenging=20 an organization determination, as they must to fall under the mandatory=20 statutory scheme, and the court of appeals erred in concluding = otherwise.=20 See 42 C.F.R. =A7 422.566(b); 167 S.W.3d at 887. As in = RenCare, no=20 enrollee has been denied covered services or been required to pay for a = service,=20 and the federal government=92s risk has been extinguished. = RenCare, 395=20 F.3d at 559. Aetna=92s petition against NAMM asserted that NAMM breached = its=20 agreement with Aetna by failing to pay for =93covered services=94; = Aetna=92s=20 contention that its refusal to pay now means there is no coverage = confuses=20 Medicare coverage with Aetna=92s = potential=20 liability for NAMM=92s default. The federal administrative scheme = exists, first=20 and foremost, to protect enrollees=92 rights to health care, not to act = as a de=20 facto claims administrator for Medicare Advantage organizations and = their=20 delegates. Amicus curiae HHS urges that requiring the Hospitals to = exhaust=20 administrative remedies before coverage decisions have been made would = turn the=20 administrative scheme on its head, and we agree.

&nbs= p;=20 Nor is it dispositive that there apparently was no contract directly = between=20 Aetna and the Hospitals. The = regulations make=20 it clear that enrollees cannot incur liabilities for payment of any fees = that=20 the Medicare Advantage organization is legally obligated to pay. 42 = C.F.R.=20 422.504. This prohibition on enrollee liability extends to providers who = contract directly with the Medicare Advantage organization as well as = those that=20 do not. Id. =A7 422.504 (g) (Medicare Advantage organization must = =93[e]nsure=20 that all contractual or other written arrangements with providers = prohibit the=20 organization=92s providers from holding any beneficiary enrollee liable = for=20 payment=94 of fees that are the legal obligation of the [Medicare = Advantage]=20 organization and =93[i]ndemnify the beneficiary enrollee for payment of = any fees=20 that are the legal obligation of the Medicare Advantage organization for = services furnished by providers that do not contract, or that have not = otherwise=20 entered into an agreement with the [Medicare Advantage] organization, to = provide=20 services to the organization=92s beneficiary enrollees=94). As CMS told = the=20 Hospitals in its March 30, 2001 letter, =93the lack of a contract = directly with an=20 HMO does not necessarily exempt a provider from the prohibition against = balance=20 billing,=94 and =93the 42 C.F.R. 422.502(g)(1) provision applies to = contracted=20 downstream providers.=94 As in RenCare, therefore, enrollees are = protected=20 from liability for fees that the Medicare Advantage organization must = pay, and=20 the only interest at issue here is the Hospitals=92 interest in = receiving payment=20 from the Medicare Advantage organization. Whether those fees are in fact = Aetna=92s=20 legal obligation is a matter within the trial court=92s jurisdiction. =

Conclusion

&nbs= p;=20 At this time, there has been no organization determination for the = Hospitals to=20 appeal through the federal administrative channels. The state-law claims = the=20 Hospitals have asserted are within the trial court=92s = jurisdiction, and the=20 court of appeals erred in concluding otherwise. We reverse the court of = appeals=92=20 judgment and remand to the trial court for further proceedings. Tex. R. App. P. 60.2(d).

______________________________

Wallace B.=20 Jefferson

Chief Justice=20

OPINION=20 DELIVERED: August 31,=20 2007 &nb= sp; &nbs= p; = ; = =20

^[1]=20 CMS was previously known as the Health Care Financing Administration. = Press=20 Release, Department of Health and Human Services, The New Centers for = Medicare=20 and Medicaid Services (CMS) (June 14, 2001), available at: http://www= .hhs.gov/news/press/2001pres/20010614a.html;=20 see also Acquisition Regulation for Department of Health and = Human=20 Services, 70 Fed. Reg. 38, 39 (Jan. 3, 2005).

^[2]=20 The Medicare Advantage program replaced the Medicare + Choice program. = 70 Fed.=20 Reg. 4588, 4741 (Jan. 28, 2005).

^[3]=20 A capitation payment is =93a fixed per enrollee per month amount paid = for=20 contracted services without regard to the type, cost, or frequency of = services=20 furnished.=94 42 C.F.R. =A7 422.350(b) (2006).

^[4]=20 =93Aetna=94 refers to Aetna, Inc. and Aetna Health, Inc., respondents=20 herein.

^[5]=20 As a Medicare Advantage organization, NYLCare was authorized to provide = Medicare=20 benefits to participants in its NYLCare 65 plan. For ease of reference, = we use=20 =93NYLCare=94 to refer both to NYLCare and to NYLCare 65.

^[6]=20 Petitioners assert that NAMM was composed of two entities: IPA = Management=20 Associates, L.P. d/b/a North American Medical Management =97 Texas and = IPA=20 Management Services, Inc. We use =93NAMM=94 to refer to both.

^[7]=20 The Texas Hospital Association and the United States Department of = Health and=20 Human Services (=93HHS=94) submitted amicus curiae briefs. Tex. R. App. P. 11. =

^[8]=20 See Penrod Drilling Corp. v. Williams, 868 S.W.2d 294, 296 (Tex. = 1993)=20 (=93While Texas courts may certainly draw upon the precedents of the = Fifth Circuit=20 . . . in determining the appropriate federal rule of decision, they are=20 obligated to follow only higher Texas courts and the United = States=20 Supreme Court.=94)

^[9]=20 Disputes between enrollees and Medicare Advantage organizations or any = other=20 entity or individual through which the Medicare Advantage organization = provides=20 health care services, over any other matter are not subject to the same = appeals=20 process as organizational determinations, but instead have their own = =93grievance=20 procedure.=94 42 C.F.R. =A7=A7 422.562(a)(1)(i), 422.564.=20