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February 14, 2013

Breach of contract claim for allegedly failing to timely collect and submit information to CMS does not arise under the Medicare Act

By Susan L. Smith, JD, MA

Breach of contract and indemnification claims brought by South Central Regional Medical Center (South Central) against Press Ganey Associates, Inc. (Press Ganey), a consulting company, are private causes of action and do not arise under the Medicare Act (South Central Regional Medical Center v Press Ganey Associates, Inc., February 12, 2013, Starrett, K). The court denied Press Ganey’s motion to dismiss and, in the alternative, its request to stay after concluding that neither Medicare beneficiaries nor the federal government have a financial interest in this private breach of contract action and, therefore, dismissal is unwarranted pursuant to 42 U.S.C. sec. 405(h).

Reporting to patient data to CMS. South Central participates in the Medicare program and receives payments for inpatients under the inpatient prospective payment system (IPPS). CMS requires such hospitals to collect and report Hospital Consumer Assessment of Healthcare Providers and Systems (HCAHPS) data to obtain its full IPPS annual payment updates. The HCAHPS survey asks discharged patients 27 questions, covering such topics as communication with hospital staff and hospital cleanliness. Hospitals that fail to submit such data may have their annual payments reduced by 2.0 percentage points. About March 30, 2010, South Central and Press Ganey entered into a Performance Improvement Master Services Agreement (agreement), effective July 1, 2010, under which Press Ganey was to collect information from South Central’s patients regarding their hospital experiences through HCAHPS surveys and report the information to CMS.

Allegations. South Central alleged that it received notice from CMS indicating that its 2012 fiscal year IPPS market basket update would be reduced by two percentage points as a result of Press Ganey’s failure to submit HCAHPS survey data to CMS from July 1 through September 30, 2010. South Central filed suit against Press Ganey seeking compensation for the funds it should have received but for Press Ganey’s alleged breach of the agreement and damages for Press Ganey’s alleged failure to defend, indemnify, and hold South Central harmless from its losses arising out of the alleged breach. South Central alleged that the agreement required Press Ganey to begin conducting the surveys July 1, 2010, but that Press Ganey did not begin conducting the surveys until October of 2010.

Motion to dismiss or stay. The court rejected Press Ganey’s request to dismiss the case based on its contention that South Central failed to exhaust administrative remedies related to the Medicare reimbursement reduction allegedly caused by Press Ganey’s breach of contract. The court said that because no Medicare beneficiaries were seeking benefits in this cause and the federal government has no financial interest in the dispute since South Central seeks damages from Press Ganey, a private party, it could not find that South Central’s “claims are inextricably intertwined with a claim for Medicare benefits.” Therefore, the court concluded that state common law rather than the Medicare Act provides the standing and substantive basis for South Central’s breach of contract and indemnification claims. In addition, the court could not identify any federal administrative process under which South Central may assert its common law claims against a private party such as Press Ganey. Moreover, the potential damages South Central seeks are not limited to the amount of the Medicare Part A reimbursement allegedly withheld because of Press Ganey’s failure to conduct HCAHPS surveys.

The court also rejected Press Ganey’s alternative request for a stay of proceedings based on the argument that the court should defer to the jurisdiction of the HHS Secretary until a final administrative decision is reached as to the Medicare reimbursement reduction issue. Press Ganey contends that under the “doctrine of primary jurisdiction, the court must suspend all proceedings pending South Central’s exhaustion of the administrative remedies afforded by the Social Security Act and the Secretary’s Medicare Part A hearing regulations. The court disagreed and denied a stay of the proceedings.

The case number is 2:12cv103-KS-MTP.

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