Foreign Providers, Same Channel: First Circuit Holds that Medicare Act Exhaustion Applies to Overseas Hospitals’ State-Law Claims Against Medicare Advantage Organizations

Introduction

Hospital Amerimed Cancún S.A. de C.V. and Hospital Quirúrgica del Sur (collectively, “the Hospitals”)—both incorporated and operating in Mexico—treated two United States patients who were enrolled in Medicare Advantage (“MA”) plans administered by Martin’s Point Health Care, Inc., a Maine-based MA organization. After providing extensive emergency care, the Hospitals sought full reimbursement based on verification-of-benefits forms that described the patients’ coverage as “unlimited.” Martin’s Point, however, later limited payment to USD 25,000 per enrollee, citing the out-of-country supplemental-benefit cap in the relevant MA policies.

The Hospitals sued in diversity in the District of Maine, pleading negligent misrepresentation and promissory estoppel under Maine law. The district court dismissed both cases for lack of subject-matter jurisdiction, holding that the claims “arose under” the Medicare Act and therefore had to be first pursued through Medicare’s Part C administrative review process. The First Circuit affirmed, crafting a precedent of first impression within the Circuit on two key points:

1. State-law tort and quasi-contract claims by foreign, non-contract providers that seek additional reimbursement from an MA plan are “inextricably intertwined” with Medicare benefits determinations.
2. The exhaustion requirement of 42 U.S.C. § 405(g)–(h), as incorporated into Part C by § 1395w-22(g)(5) and § 1395ii, applies regardless of the provider’s foreign status and regardless of whether the federal defendant is the government, the Secretary, or a private MA organization.

Summary of the Judgment

Writing for a unanimous panel, Judge Aframe concluded that:

• The Hospitals’ common-law claims “arise under” the Medicare Act because their resolution necessarily requires a determination of the scope of MA supplemental benefits—precisely the type of question Congress routed through administrative channels.
• Section 405(h)’s jurisdictional bar applies to suits brought under diversity jurisdiction (§ 1332) just as it does to federal-question suits.
• The so-called Illinois Council safety valve does not apply. The Hospitals failed to demonstrate that administrative review was legally or practically unavailable to them simply because they are “foreign hospitals.”
• Because no final agency decision had been rendered, the district court properly dismissed for lack of subject-matter jurisdiction and correctly denied the Hospitals’ Rule 59(e) motions.

Analysis

Precedents Cited

• Shalala v. Illinois Council on Long Term Care, Inc., 529 U.S. 1 (2000) – Established that § 405(h) channels virtually all Medicare-related claims through agency review unless doing so would mean “no review at all.” The First Circuit relied on this rule and found no true denial of all judicial review.
• Heckler v. Ringer, 466 U.S. 602 (1984) – Articulated the “inextricably intertwined” test; invoked to show that clever pleading cannot evade § 405(h).
• Weinberger v. Salfi, 422 U.S. 749 (1975) – Origin of the “standing and substantive basis” formulation for deciding when a claim arises under the Act.
• Global Rescue Jets, LLC v. Kaiser Foundation Health Plan, Inc., 30 F.4th 905 (9th Cir. 2022) – Ninth Circuit precedent holding that MA organizations are treated as “officers or employees” of the United States for § 405(h) purposes; cited to frame the issue though the First Circuit noted the Hospitals had waived objection.
• RenCare, Ltd. v. Humana Health Plan of Texas, Inc., 395 F.3d 555 (5th Cir. 2004) & Caris MPI, Inc. v. UnitedHealthcare, Inc., 108 F.4th 340 (5th Cir. 2024) – Relied on by the Hospitals, but the First Circuit distinguished them because those disputes hinged on separate contracts or post-payment recoupment, not an initial organization determination.

Legal Reasoning

1. Statutory Channeling Mandate
   • 42 U.S.C. § 405(h) removes district-court jurisdiction over any claim “arising under” the Medicare Act unless the plaintiff first secures a “final decision” via § 405(g).
   • Section 1395ii imports § 405(h) into all parts of Medicare, including Part C (MA).
   • Because Martin’s Point’s refusal to pay beyond USD 25,000 was an organization determination, it triggers the Part C appeal ladder (42 C.F.R. §§ 422.566–422.634).
2. “Arising Under” Test Applied
   • The Hospitals’ tort and estoppel theories require proving the false scope of MA coverage and thus hinge on interpreting the MA contracts and CMS rules.
   • Therefore the state-law causes of action are not “wholly collateral,” are “inextricably intertwined,” and fall squarely within § 405(h).
3. Diversity Jurisdiction No Safe Harbor
   • The Court treated the Hospitals’ silence on the § 1332 carve-out issue as waiver, but flagged that other circuits likewise apply § 405(h) to diversity suits.
4. Illinois Council Exception Rejected
   • To bypass exhaustion a plaintiff must show agency review is foreclosed, not merely inconvenient.
   • The Hospitals’ affidavit claiming CMS summarily rejects foreign appeals was unsupported and legally undeveloped.
   • The regulations allow “any provider that furnishes, or intends to furnish, services” to request an organization determination (42 C.F.R. § 422.566(c)(1)), and parties with an “appealable interest” (id. § 422.574(d)) can pursue appeals.

Impact of the Decision

• Clarifies Exhaustion Duty for Overseas Providers – Foreign hospitals treating Medicare Advantage enrollees must either (a) pursue the Part C appeal chain themselves, or (b) obtain a valid assignment and have the enrollee do so, before seeking U.S. court relief.
• Reinforces Broad Scope of § 405(h) – The ruling underscores that creative state-law pleadings (tort, contract, statutory) cannot circumvent exhaustion when the essence of the dispute is benefit payment.
• Practical Pressure on MA Organizations – MA plans may rely on this precedent to compel providers—domestic or foreign—to use administrative remedies first, reducing immediate litigation exposure.
• Strategic Considerations for Providers – Providers should secure written network or single-case agreements or obtain explicit assignments of benefits to ensure standing and streamlined appeals.
• Potential CMS Response – The case highlights regulatory ambiguity about foreign provider standing; CMS might clarify procedures for non-contract, non-U.S. entities in future rulemakings.

Complex Concepts Simplified

• Medicare Advantage (Part C): A program allowing private insurers (“MA organizations”) to offer Medicare-approved plans. They get a fixed per-member payment from CMS and must at minimum provide “basic” Part A & B benefits; they may add “supplemental benefits” (e.g., foreign emergency care) funded by extra premiums or plan savings.
• Organization Determination: The MA plan’s initial decision on whether a requested service is covered or whether payment is owed. A refusal—full or partial—triggers appeal rights.
• Administrative Exhaustion: Before suing, a claimant must (1) seek an organization determination, (2) request reconsideration, (3) appeal to an Independent Review Entity, (4) possibly request an ALJ hearing, (5) appeal to the Medicare Appeals Council, and only then (6) file in federal court, subject to an amount-in-controversy threshold.
• Illinois Council Exception: Judicially crafted escape valve: if channeling through the agency would leave the plaintiff with “no review at all,” the court may take jurisdiction immediately.
• Inextricably Intertwined: If deciding the plaintiff’s non-Medicare claim necessarily requires deciding a Medicare benefits question, the claim “arises under” the Act and is channeled.

Conclusion

The First Circuit’s decision cements a straightforward rule: when the real issue is how much an MA plan owes for a service, the Medicare Act’s administrative review pathway is mandatory—even for foreign hospitals asserting state-law tort or estoppel claims and even in diversity jurisdiction. By foreclosing an end-run around § 405(h), the Court preserves the uniform, agency-first model Congress envisioned for Medicare disputes and signals that geography (overseas providers) does not alter the jurisdictional calculus. Future litigants—providers, MA organizations, and beneficiaries—must carefully evaluate whether their claims are “inextricably intertwined” with benefits determinations, lest they find the federal courthouse doors temporarily closed until the administrative record is fully made.