Free Answering Brief in Opposition - District Court of Delaware - Delaware

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IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF DELAWARE ____________________________________ NORTHERN MICHIGAN HOSPITALS, : INC. and GIFFORD MEDICAL : CENTER, INC., for themselves and : on behalf of all other similarly : situated class members, : Civil Action No. 07-39 (GMS) : : JURY TRIAL DEMANDED Plaintiffs, : : CLASS ACTION v. : : HEALTH NET FEDERAL SERVICES, : LLC, (f/k/a HEALTH NET FEDERAL : SERVICES, INC.), : : Defendant. : ANSWERING BRIEF OF PLAINTIFFS IN OPPOSITION TO DEFENDANT'S MOTION TO DISMISS

OF COUNSEL John J. Soroko Seth A. Goldberg DUANE MORRIS LLP 30 South 17th St. Philadelphia, PA 19103 215.979.1000 215.979.1020 fax Michael R. Gottfried Patricia R. Rich DUANE MORRIS LLP 470 Atlantic Avenue, Suite 500 Boston, MA 02210 857.488.4290 857.488.4201 fax

Matt Neiderman (Del. Bar No. 4018) DUANE MORRIS LLP 1100 N. Market St., Suite 1200 Wilmington, Delaware 19801 302.657.4900 302.657.4901 fax [email protected]

Gregory A. Brodek DUANE MORRIS LLP 88 Hammond Street, Suite 500 Bangor, ME 04401 207.262.5440 207.262.5401 fax

Attorneys for Plaintiffs Northern Michigan Hospitals, Inc. and Gifford Medical Center, Inc., for themselves and on behalf of all other similarly situated class members Dated: April 16, 2007

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TABLE OF CONTENTS

NATURE AND STAGE OF PROCEEDINGS ...............................................................................1 SUMMARY OF THE ARGUMENT ..............................................................................................3 COUNTER-STATEMENT OF FACTS ..........................................................................................5 I. II. THE "AT-RISK" MCS CONTRACTS ...............................................................................5 REIMBURSEMENT UNDER 32 C.F.R. § 199.14(a)(5)....................................................7

ARGUMENT...................................................................................................................................9 I. STANDARDS OF REVIEW FOR MOTIONS PURSUANT TO FED. R. CIV. P. 12(b)(6), 12(b)(1), AND 12(b)(7)........................................................................................9 THE COMPLAINT STATES CLAIMS FOR BREACH OF CONTRACT IMPLIED-IN-FACT AND UNJUST ENRICHMENT .....................................................11 A. Plaintiffs' Rendering Of Outpatient Services To Defendant's Enrollees In Exchange For Payment By Defendant Results In An Implied-In-Fact Contract Between Plaintiffs And Defendant......................................................... 12 Plaintiffs Have Stated A Valid Claim For Unjust Enrichment Because They Allege That Defendant Refuses To Pay The Full Amount For The Services Plaintiffs Provide To Defendant's Enrollees.......................................... 16

II.

B.

III.

DEFENDANT, AND NOT THE UNITED STATES, IS THE REAL PARTY IN INTEREST IN THIS ACTION .........................................................................................19 THE UNITED STATES IS NOT A NECESSARY OR INDISPENSABLE PARTY ..............................................................................................................................23 A. B. C. The United States Is Not A Necessary Party In This Litigation ........................... 24 The United States Is Not Indispensable Under Rule 19(b)................................... 27 The Bohall Affidavit Should Be Stricken Because It Is Not Probative Of The Indispensability Of The United States In This Action................................... 30

IV.

V.

THE ADMINISTRATIVE EXHAUSTION DOCTRINE IS INAPPLICABLE BECAUSE PLAINTIFFS COULD NOT HAVE APPEALED THIS DISPUTE WITHIN THE TRICARE ADMINISTRATIVE REVIEW PROCESS............................31

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VI.

THE DOCTRINE OF PRIMARY JURISDICTION IS NOT APPLICABLE WHERE THE COURT NEEDS ONLY TO INTERPRET A REGULATION ................33

CONCLUSION..............................................................................................................................37

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TABLE OF AUTHORITIES CASES Angst v. Royal Maccabees Life Ins. Co., 77 F.3d 701 (3d Cir. 1996).................................................................................................23 Auburn v. Brown, 230 N.W.2d 385 (Mich. Ct. App. 1975) ............................................................................12 Baptist Phys. Hosp. Org., Inc. v. Humana Military Healthcare Servs., Inc., 2007 U.S. App. LEXIS 6447 (6th Cir. Mar. 21, 2007)..........................................19, 20, 35 Baptist Phys. Hosp. Org., Inc. v. Humana Military Healthcare Servs., Inc., 368 F.3d 894 (6th Cir. 2004) ..................................................................................... passim Bd. of Trs. of Bay Med. Ctr. v. Humana Military Healthcare Servs., Inc., 447 F.3d 1370 (Fed. Cir. 2006).................................................................................. passim Bd. of Trs. of Bay Med. Ctr. v. Humana Military Healthcare Servs., Inc., 2004 U.S. Dist. LEXIS 22147 (N.D. Fla. Mar. 16, 2004) .................................................19 Bd. of Trs. v. Foodtown, Inc., 296 F.3d 164 (3d Cir. 2002).................................................................................................9 Berardi v. Swanson Memorial Lodge No. 48 of Fraternal Order of Police, 920 F.2d 198 (3d Cir. 1990)...............................................................................................10 Bishop v. Office of Civilian Health & Med. Programs of the Uniformed Servs. (CHAMPUS), 917 F. Supp. 1469 (E.D. Wash. 1996) ...............................................................................22 Booker v. City of Detroit, 668 N.W.2d 623 (Mich. 2003)...........................................................................................16 Brookside Mem'l, Inc. v. Barre City, 702 A.2d 47 (Vt. 1997) ......................................................................................................16 Buckley v. O'Hanlon, 2007 U.S. Dist. LEXIS 22211 (D. Del. Mar. 28, 2007) ................................................9, 11 Christman v. Grays, 2005 WL 3088529 (S.D. Ohio Nov. 17, 2005)..................................................................22 City of El Centro v. United States, 922 F.2d 812 (Fed. Cir. 1990)............................................................................................16

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Costanzo Coal Min. Co. v. Weirton Steel Co., 150 F.2d 929 (4th Cir. 1945) .............................................................................................13 Cushman & Wakefield, Inc. v. Backos, 1991 U.S. Dist. LEXIS 11906 (E.D. Pa. Aug. 22, 1991).............................................11, 31 Dawley v. Erie Indem. Co., 100 F. App'x 877 (3d Cir. 2004)........................................................................................31 In re Deemer Steel Casting Co., 117 B.R. 103 (Bankr. D. Del. 1990) ..................................................................................16 Dorsey v. Tompkins, 917 F. Supp. 1195 (S.D. Ohio 1996) .....................................................................25, 29, 35 Elkin v. Bell Tel. Co., 420 A.2d 371 (Pa. 1980) ....................................................................................................34 FHM Constructors, Inc. v. Village of Canton Housing Auth., 779 F. Supp. 677 (N.D.N.Y. 1992)....................................................................................25 Far E. Conference v. United States, 342 U.S. 570 (1952).....................................................................................................34, 35 Fox v. Mt. W. Elec., 52 P.3d 848 (Idaho 2002)...................................................................................................13 Francis Oil & Gas, Inc. v. Exxon Corp., 661 F.2d 873 (10th Cir. 1981) ...........................................................................................27 Friends of Concord Creek v. Springhill Farm Wastewater Treatment Facility Ass'n, 2003 U.S. Dist. LEXIS 3123 (E.D. Pa. Feb. 13, 2003) .....................................................24 Gardiner v. V.I. Water & Power Auth., 145 F.3d 635 (3d Cir. 1998).............................................................................27, 28, 29, 30 Healthcare Servs. Group, Inc. v. Integrated Health Servs. of Lester, Inc., 1998 U.S. Dist. LEXIS 6470 (D. Del. Apr. 23, 1998).......................................................12 Helzberg Diamond Shop, Inc. v. Valley West Des Moines Shopping Ctr., Inc., 564 F.2d 816 (8th Cir. 1977) .............................................................................................27 Janney Montgomery Scott, Inc. v. Shepard Niles, Inc., 11 F.3d 399 (3d Cir. 1993).................................................................................................24

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Jordan v. Fox, Rothschild, O'Brien & Frankel, 20 F.3d 1250 (3d Cir. 1994).................................................................................................9 Jurimex Kommerz Transit G.M.B.H. v. Case Corp., 65 F. App'x 803 (3d Cir. 2003) ...................................................................................11, 31 Jurimex Kommerz Transit G.m.b.H. v. Case Corp., 201 F.R.D. 337 (D. Del. 2001) ..........................................................................................11 Local 670, United Rubber, Cork, Linoleum & Plastic Workers of Am. v. Int'l Union, United Rubber, Cork, Linoleum & Plastic Workers of Am., 822 F.2d 613 (6th Cir. 1987) .............................................................................................10 Luden's Inc. v. Local Union No. 6 of the Bakery, Confectionery & Tobacco Workers Int'l Union, 28 F.3d 347 (3d Cir. 1994).................................................................................................12 Lummi Nation v. Golder Assocs., Inc., 236 F. Supp. 2d 1183 (W.D. Wash. 2002)...................................................................24, 25 M.B. Guran Co., Inc. v. City of Akron, 546 F.2d 201 (6th Cir. 1976) .............................................................................................24 MCI Telecomms. Corp. v. Teleconcepts, Inc., 71 F.3d 1086 (3d Cir. 1995)...............................................................................................34 McCurdy v. Esmonde, 2003 U.S. Dist. LEXIS 1349 (E.D. Pa. Jan. 30, 2003) ................................................10, 30 Merkle v. Health Options, Inc., 940 So. 2d 1190 (Fl. Dist. Ct. App. 2006) .........................................................................17 Metrophones Telecommunications., Inc. v. Global Crossing Telecommunications., Inc., 423 F.3d 1056 (9th Cir. 2005) ...............................................................................13, 18, 24 Michael Reese Hosp. & Med. Ctr. v. Chi. HMO, Ltd., 554 N.E.2d 472 (Ill. App. Ct. 1990) ............................................................................16, 17 Mortensen v. First Fed. Sav. & Loan Ass'n, 549 F.2d 884 (3d Cir. 1977).........................................................................................10, 19 Murray v. Northrop Grumman Information Technology, Inc., 444 F.3d 169 (2d Cir. 2006)...............................................................................................15 OAO Healthcare Solutions, Inc. v. Nat'l Alliance of Postal & Fed. Employees, 394 F. Supp. 2d 16 (D.D.C. 2005) ............................................................................. passim

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Pharm. Research & Mfrs. of Am. v. Walsh, 538 U.S. 644 (2003)...........................................................................................................34 Precision Pay Phones v. Qwest Communc'n Corp., 210 F. Supp. 2d 1106 (N.D. Cal. 2002) .............................................................................18 Prevo v. Evarts, 500 A.2d 227 (Vt. 1985) ....................................................................................................12 Puerto Rico Maritime Shipping Auth. v. Valley Freight Sys., Inc., 856 F.2d 546 (3d Cir. 1988)...............................................................................................34 R.C. Hedreen Co. v. Crow Tribal Housing Auth., 521 F. Supp. 599 (D. Mont. 1981).....................................................................................25 Ricci v. Chicago Mercantile Ex., 409 U.S. 289 (1973)...........................................................................................................34 Riley v. Taylor, 2006 U.S. Dist. LEXIS 88661 (D. Del. Dec. 7, 2006).........................................................9 River Park Hosp., Inc. v. BlueCross BlueShield of Tenn., Inc, 173 S.W.3d 43 (Tenn. Ct. App. 2002) .........................................................................17, 18 Rosado v. Wyman, 397 U.S. 397 (1970)...........................................................................................................34 Shiloh Indus. v. Rouge Indus., 326 B.R. 55 (Bankr. D. Del. 2005) ....................................................................................10 Special Jet Servs., Inc. v. Fed. Ins. Co., 83 F.R.D. 596 (W.D. Pa. 1979) .........................................................................................27 Temple Univ. Hosp., Inc. v. Healthcare Mgmt. Alternatives, Inc., 832 A.2d 501 (Pa. Super. Ct. 2003)...................................................................................17 Trauma Serv. Group v. Keating, 907 F. Supp. 110 (E.D. Pa. 1995) ......................................................................................32 United States v. W. Pac. R.R. Co., 352 U.S. 59 (1956).......................................................................................................34, 35 Winkler v. Interim Servs., Inc., 36 F. Supp. 2d 1026 (M.D. Tenn. 1999)......................................................................25, 29

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STATUTES & REGULATIONS 10 U.S.C. § 1072(7) .......................................................................................................................19 32 C.F.R. § 199.1 ...........................................................................................................5, 10, 19, 21 32 C.F.R. § 199.2(b) ..................................................................................................................7, 32 32 C.F.R. § 199.10(a)(6)........................................................................................................ passim 32 C.F.R § 199.14(a)(5)......................................................................................................... passim 32 C.F.R. § 199.16(d)(1)................................................................................................................22 Fed. R. Civ. P. 12(b)(1)..............................................................................................................9, 10 Fed. R. Civ. P. 12(b)(6)........................................................................................................9, 10, 19 Fed. R. Civ. P. 12(b)(7)..................................................................................................................10 Fed. R. Civ. P. 19................................................................................................................... passim Fed. R. Civ. P. 56(e) ......................................................................................................................31 TRICARE Ops. Man. 6010.51-M Ch. 1, § 2 ...................................................................................5 TRICARE Ops. Man. 6010.51-M Ch. 1, § 6 .................................................................6, 20, 22, 26 TRICARE Ops. Man. 6010.51-M Ch. 3, § 6 .................................................................................21 TRICARE Ops. Man. 6010.51-M Ch. 13, § 1 ...............................................................................26 TRICARE Ops. Man. 6010.51-M Ch. 13, § 2 ...............................................................................32

BOOKS & TREATISES 2 James Wm. Moore et al., Moore's Federal Practice (2006) ......................................................10 Richard A. Lord, Williston on Contracts (4th ed. 2006) .........................................................12, 16 E. Alan Farnsworth, Contracts (3d ed. 1999)...............................................................................14 Restatement (Second) Contracts (1981) ..................................................................................12, 14

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NATURE AND STAGE OF PROCEEDINGS Defendant's Motion to Dismiss (the "Opening Brief") attempts to pass off to the United States certain obligations that Defendant itself assumed when it entered into a TRICARE Managed Care Support contract ("MCS Contract"). Under its MCS Contract, Defendant

operates a "for-profit" TRICARE managed health care network, and is responsible for paying for the health care of beneficiaries of the Civilian Health and Medical Program of the Uniformed Services ("CHAMPUS") enrolled in Defendant's TRICARE managed care plan ("Defendant's enrollees"). Pursuant to its MCS Contract, Defendant enters into separate "network contracts" with health care providers and reimburses them at negotiated, contracted rates. In the absence of such "network contracts," however, Defendant reimburses "non-network" providers at rates provided by the regulations governing TRICARE, such as 32 C.F.R. § 199.14(a)(5), which covers hospital outpatient services. Notwithstanding these obligations, Defendant has failed to pay Plaintiffs, who are non-network providers, the rates established by the TRICARE regulations. Defendant now argues that it owes Plaintiffs nothing despite the services rendered by Plaintiffs to Defendant's enrollees, and that the United States, and only the United States, is ultimately responsible for any payment owed to Plaintiffs. However, this argument does not comport with the basic common law principles of contract implied-in-fact and unjust enrichment. Under these principles, Plaintiffs' rendering of outpatient services to Defendant's enrollees, and the parties' mutual understanding that reimbursement would be in accordance with § 199.14(a)(5), gives rise to a contract implied-in-fact. Defendant's failure to reimburse Moreover, by having

Plaintiffs accordingly constitutes a breach of this implied contract.

rendered services that Defendant has agreed in its MCS Contract to provide, Plaintiffs have conferred a benefit upon Defendant for which it must pay. Indeed, it is self-evident that a 1

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publicly-traded company, like Defendant, benefits when health care services that it underwrites are rendered to its enrollees. Defendant's failure to pay Plaintiffs fully for such services is improper and results in its unjust enrichment. Given the favorable inferences the Court must afford Plaintiffs' allegations, there is no question that Plaintiffs' First Amended Complaint ("Complaint") states claims for breach of contract implied-in-fact and unjust enrichment. Nor is there any question that Defendant alone is responsible for these claims. The very purpose of TRICARE was to transfer the risk of administering the CHAMPUS program from the United States Treasury to privately-held companies that would endeavor to contain program costs in order to maximize their own profits. To achieve this cost-shifting objective, the MCS Contracts are "at-risk," meaning that the United States has not indemnified, and does not indemnify, Defendant for claims arising out of its failure to meet its payment obligations to providers. Thus, Defendant, and Defendant alone ­ not the United States Treasury ­ bears the financial burden of a judgment in Plaintiffs' favor. See Bd. of Trs. of Bay Med. Ctr. v. Humana Military Healthcare Servs., Inc., 447 F.3d 1370 (Fed. Cir. 2006) (hereinafter "Bay Medical I"); Baptist Phys. Hosp. Org., Inc. v. Humana Military Healthcare Servs., Inc., 368 F.3d 894 (6th Cir. 2004) (hereinafter "Baptist I"). For these reasons, and others, which are discussed more fully below, Plaintiffs respectfully request that Defendant's Motion to Dismiss be denied in its entirety.

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SUMMARY OF THE ARGUMENT 1.0 Accepting the allegations in the Complaint as true, and viewing all inferences

therefrom in the light most favorable to Plaintiffs, the Court should conclude that the Complaint states claims for breach of contract implied-in-fact and unjust enrichment. 1.1 A contract of legal force equal to a "network contract" must be implied

from Plaintiffs' "participation" in TRICARE and Defendant's MCS Contract. In the absence of a "network contract," Plaintiffs provide outpatient services to Defendant's enrollees, and Defendant pays for those services, all with the mutual understanding that § 199.14(a)(5) supplies the method of reimbursement for such services. Accordingly, the Complaint alleges a claim for breach of contract implied-in-fact. See First Am. Compl. ¶¶ 3, 7-8, 18, 20-21, 26-28, 35-36, 53. 1.2 Defendant entered into its "at-risk" MCS Contract with full knowledge

that it would have to pay Plaintiffs for services provided to Defendants' enrollees. Plaintiffs provided services to Defendants' enrollees, thereby conferring a benefit on Defendant, but for which Defendant has not paid Plaintiffs, and thus it would be unjust for Defendant to retain the benefit conferred. Plaintiffs have stated a claim for unjust enrichment. See First Am. Compl. ¶¶ 9, 20, 24, 27, 33-35, 57-60. 2.0 The United States is not the real party in interest. Defendant's MCS Contract

with the United States is an "at-risk" contract, whereby the United States has not agreed to indemnify Defendant for Plaintiffs' claims. Defendant accepted this risk in entering into the MCS Contract. Moreover, Plaintiffs have no privity of contract with the United States, and Plaintiffs' claims are directed at Defendant only, not the United States. A money judgment against Defendant will be paid from Defendant's funds solely, not from the United States Treasury.

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3.0

This action can and should proceed without the United States as a party. 3.1 The United States is not a "necessary party" under Rule 19(a).

Consequently, the Court can grant the complete relief requested without impairing any regulatory interest of the government or subjecting the Defendant to a risk of inconsistent obligations. Any dispute between Defendant and TMA regarding Defendant's duties under the MCS Contract can be resolved in a separate action between those parties. 3.2 The United States is not an "indispensable party" under Rule 19(b). This

action does not risk prejudice to either Defendant or the United States. Instead, while a judgment in Plaintiffs' favor here would provide it with the full relief it has requested, dismissal for failure to join the United States would leave the Plaintiffs without a remedy to vindicate their right to be reimbursed properly for services rendered. 4.0 The administrative exhaustion doctrine is inapplicable here because Plaintiffs

could not have appealed this dispute within the CHAMPUS/TRICARE administrative review process. Plaintiffs' claims constitute a "dispute regarding the requirement of a law or

regulation," which is, by definition, a "non-appealable issue" under the CHAMPUS/TRICARE regulations. 5.0 The doctrine of primary jurisdiction is also inapplicable here. The Court is being

asked to interpret a regulation, which is obviously well within the Court's conventional experience. Moreover, having defined this dispute as a "non-appealable issue," TMA has

necessarily abdicated its jurisdiction over claims like those asserted by Plaintiffs here.

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COUNTER-STATEMENT OF FACTS I. THE "AT-RISK" MCS CONTRACTS The parties agree that: (1) TRICARE is a "comprehensive managed care program that coordinates the provision of health care services for active duty and retired uniform services members and their families;" (2) TRICARE Management Activity ("TMA") manages TRICARE, enters into MCS Contracts with MCS Contractors, and allocates and executes TRICARE funding; and (3) Defendant, as an MCS Contractor, is "required by the MCS contract to establish a network of civilian health care providers for the provision of care to TRICARE beneficiaries" in the TRICARE North Region. See Def. Op. Br. 1, 3-4; TRICARE Ops. Man. 6010.51-M, August 1, 2002, Ch. 1, § 2, ¶ 1.0 (Appendix B2) ("The foundation of the business relationship between TMA and the Managed Care Support contractor is the contract."). However, Defendant fails to acknowledge the critical fact that its MCS Contract is "atrisk." In other words, Defendant has the opportunity to profit, and indeed does profit, from the delivery of CHAMPUS benefits, as long as the cost of financially underwriting CHAMPUS benefits does not exceed revenues that Defendant earns from, among other things, the monthly capitation payments made by the United States based on the value of its fixed-price MCS Contract. See 32 C.F.R. § 199.1(e) (MCS Contractors are "reimbursed for the adjudication and payment of CHAMPUS claims at a rate (generally fixed-price) prescribed in their contracts."). Another fact Defendant omits from its Opening Brief, and which is a critical component of the "at-risk" structure of TRICARE, is that the current MCS Contracts, unlike the former "Fiscal Intermediary Contracts," do not contain indemnification clauses, under which the United

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States, and not the MCS Contractor, would be liable for claims like those of Plaintiffs.1 See First Am. Compl. ¶ 12; Bay Medical I, 447 F.3d at 1372. Instead, payment of such claims comes directly from the MCS Contractors' funds, and not from the United States Treasury. See

generally TRICARE Ops. Man. 6010.51-M, August 1, 2002, Ch. 1, § 6 (Appendix B5-7). In fact, in contrast to the Fiscal Intermediary Contracts, under TRICARE, the United States merely reserves the right to determine whether the government should be a party to the legal process, whether "the contractor is to be indemnified against judgments, settlements and costs," and whether "the government is the real party in interest to an action which challenges a TRICARE determination." See id. Although Defendant was required to notify TMA immediately upon the commencement of this action, and to forward to TMA a copy of the Complaint, Plaintiff is not aware of any efforts, and Defendant has not pointed to any in its Opening Brief, by the United States to intervene, or to participate in some other way, as a party in this action. See TRICARE Ops. Man. 6010.51-M, August 1, 2002, Ch. 1, § 6, ¶¶ 1.1-1.3 (Appendix B6) ("The Office of General Counsel, TMA, shall be notified by telephone immediately upon receipt of any summons, writ,

The "at-risk" scheme introduced by TRICARE transformed the delivery and financing of CHAMPUS benefits. See First Am. Compl. ¶ 13. Prior to TRICARE, the Department of Defense contracted with "fiscal intermediaries" ("Fiscal Intermediary Contracts") to process claims, and the United States indemnified the fiscal intermediaries for claims arising out of the discharge of their duties under their "Fiscal Intermediary Contracts." See First Am. Compl. ¶¶ 11-12; Bay Medical I, 447 F.3d at 1372. In fact, in entering into the "Fiscal Intermediary Contracts," the Department of Defense expressly reserved for the United States the status of "real party in interest" for claims against the fiscal intermediaries because payment of such claims came directly from the U.S. Treasury. See First Am. Compl. ¶¶ 11-12; Bay Medical I, 447 F.3d at 1372 (quoting from the fiscal intermediary contract as follows: "In civil law suits which seek the disbursement of funds, the United States is the real party in interest since the funds disbursed are United States Treasury funds appropriated by Congress to the Department of Defense.").

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or other legal process which develops as a result of performance under a TRICARE contract . . . . [C]opies of all documentation shall be transmitted to TMA by facsimile as soon as possible."). II. REIMBURSEMENT UNDER 32 C.F.R. § 199.14(a)(5) The parties also agree that: (1) there are different categories of providers; (2) that Plaintiffs are "non-network participating providers;" and (3) "when paying TRICARE claims to non-network participating providers such as Plaintiffs, [Defendant] is required to adhere to the TRICARE regulations." The parties agree further that 32 C.F.R. § 199.14(a)(5)2 establishes the methodology for determining the reimbursement of certain outpatient services provided by nonnetwork participating providers, including "Facility Charges," which are to be "paid as billed." See Def. Op. Br. 4-6 (quoting 32 C.F.R. § 199.14(a)(5)(xi) ("TRICARE payments for hospital outpatient facility charges that would include the overhead costs of providing for outpatient service would be paid as billed.")); First Am. Compl. ¶¶ 28-30.3 TMA recently confirmed the requirement of § 199.14(a)(5)(xi) that facility charges relating to hospital outpatient services are to be reimbursed "as billed," in a letter to Defendant, dated April 14, 2006, which was attached to the Complaint, and which provides, in part: [A] thorough research of TRICARE Systems Manual was conducted and findings coordinated and staffed between TMA Office of General Counsel, Medical Benefits & Reimbursement Systems (MB&RS) Office and Contracting

Effective July 1, 2007, reimbursement of hospital outpatient services will no longer be paid in accordance with § 199.14(a)(5) because TMA has adopted the Outpatient Prospective Payment System, which is a system of reimbursement that is entirely different than reimbursement under § 199.14(a)(5). The term "facility charges" means "the charge, either inpatient or outpatient, made by a hospital or other institutional provider to cover the overhead costs of providing the service. These costs would include building costs, i.e. depreciation and interest; staffing costs; drugs and supplies; and overhead costs, i.e., utilities, housekeeping, maintenance, etc." 32 C.F.R. § 199.2(b).
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Management. Below are the results to the research with the applicable manual references: ***** For outpatient services, SCHs [Sole Community Hospitals] are reimbursed based on the allowable charge when the claim has sufficient HCPCS coding information, as stated in TRM, Chapter 1, Section 24. Other services without allowable charges, such as facility charges, are reimbursed based on billed charges. ***** For outpatient services, CAHs [Critical Access Hospitals] are reimbursed based on the allowable charge when the claim has sufficient HCPCS coding information, as stated in TRM, Chapter 1, Section 24. Other services without allowable charges, such as facility charges, are reimbursed based on billed charges. ***** The March 10, 2000, Policy Manual issuance was the agency's formal statement of its interpretation. It was not a new interpretation. These reimbursement requirements apply to all hospital outpatient billings, unless there is an exemption. Regarding sole community hospitals and critical access hospitals and the outpatient hospital services they provide, the Regulation does not give an exemption. See Letter from Office of the Assistant Secretary of Defense, Health Affairs, to Health Net (Apr. 14, 2006) (emphasis added) (hereinafter "TMA Letter, Apr. 14, 2006"), attached to the Complaint as Exhibit A.4 Notwithstanding this regulatory scheme, Defendant has not paid Plaintiffs for their facility charges "as billed." Defendant's failure to make such payment, despite the requirement to do so, as reflected in TMA's guidance on this point, has resulted in this action.

4

Because TMA's letter of April 14, 2006 was attached to the Complaint it may be considered by the Court in evaluating all aspects of Defendant's Opening Brief.

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ARGUMENT I. STANDARDS OF REVIEW FOR MOTIONS PURSUANT TO FED. R. CIV. P. 12(b)(6), 12(b)(1), AND 12(b)(7)____________________________________________ Defendant's motion to dismiss the Complaint under Rule 12(b)(6) should be denied. Where, as here, the Court evaluates a motion to dismiss for failure to state a claim or for failure to exhaust administrative remedies under Rule 12(b)(6), "the defendant must show `beyond doubt' that the plaintiff can prove no set of facts which would entitle him to relief." Buckley v. O'Hanlon, 2007 U.S. Dist. LEXIS 22211, at *3 (D. Del. Mar. 28, 2007) (Sleet, J.) (citing Conley v. Gibson, 355 U.S. 41, 45-46 (1957)). Defendant cannot do so in this case. Indeed, by accepting "as true all allegations in the complaint," and giving "Plaintiff the benefit of every favorable inference that can be drawn from the allegations," it is clear, as set forth below, there is no basis to dismiss Plaintiffs' claims. Bd. of Trs. v. Foodtown, Inc., 296 F.3d 164, 168 (3d Cir. 2002); Jordan v. Fox, Rothschild, O'Brien & Frankel, 20 F.3d 1250, 1261 (3d Cir. 1994). See also Riley v. Taylor, 2006 U.S. Dist. LEXIS 88661, at *12-15 (D. Del. Dec. 7, 2006) (Sleet, J.) (applying Rule 12(b)(6) standard to question of administrative exhaustion). Moreover, despite Defendant's inclusion of extrinsic evidence in its Opening Brief, the Court should look "only to the facts alleged in the complaint and its attachments without reference to other parts of the record." Jordan, 20 F.3d at 1261. Defendant fairs no better on its assertions that the Complaint should be dismissed pursuant to Rule 12(b)(1) on the grounds of sovereign immunity. Defendant facially challenges the Court's subject matter jurisdiction, and does not rely on its purported evidence, i.e., the affidavit of Pamela A. Bohall ("Bohall Affidavit"), in making its arguments that the Court lacks

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subject matter jurisdiction.5 See McCurdy v. Esmonde, 2003 U.S. Dist. LEXIS 1349, at *11 (E.D. Pa. Jan. 30, 2003) ("[A] facial challenge under 12(b)(1) argues that the complaint fails to allege subject matter jurisdiction, or contains defects in the jurisdictional allegations"). Having made only a facial challenge to the Court's subject matter jurisdiction, the Court must, as it would under Rule 12(b)(6), accept all of Plaintiffs' allegations as true and construe them in the light most favorable to Plaintiffs. See Mortensen v. First Fed. Sav. & Loan Ass'n, 549 F.2d 884, 891 (3d Cir. 1977).6 Lastly, Defendant's contention that the Complaint should be dismissed under Rule 12(b)(7) utterly fails because Defendant cannot meet its burden of demonstrating that the United States "must be joined for a just adjudication." Shiloh Indus. v. Rouge Indus., 326 B.R. 55, 58 (Bankr. D. Del. 2005); see also 2 James Wm. Moore et al., Moore's Federal Practice ¶ 12.35 (2006) ("Any party moving under Rule 12(b)(7) has the burden of showing that the absent person should be joined under Rule 19."). Rule 19 "is not to be applied in a rigid manner but should instead be governed by the practicalities of the individual case." Here, those practicalities dictate that the United States is not indispensable. Local 670, United Rubber, Cork, Linoleum & Plastic Workers of Am. v. Int'l Union, United Rubber, Cork, Linoleum & Plastic Workers of Am., 822 F.2d 613, 618 (6th Cir. 1987). Moreover, while the Court may consider relevant evidence outside of the pleadings for the purposes of a Rule 12(b)(7) motion, as discussed more fully
5

In this case, the parties cite to the TRICARE manuals, which are not extrinsic evidence because they are adopted as part of the CHAMPUS/TRICARE regulations pursuant to the regulatory authority granted to TMA under 32 C.F.R. § 199.1.

To the extent that the Court determines that Defendant's Rule 12(b)(1) motion is a factual challenge and that the facts of record are insufficient to deny the motion to dismiss, Plaintiffs request leave to take discovery to create a complete factual record on which this Court may consider the motion. Berardi v. Swanson Memorial Lodge No. 48 of Fraternal Order of Police, 920 F.2d 198, 200 (3d Cir. 1990).

6

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herein, much of the extrinsic evidence upon which Defendant relies, i.e., the Bohall Affidavit, does not relate in any way, and is not probative of, the indispensability of the United States in this action, and must therefore be ignored. Jurimex Kommerz Transit G.m.b.H. v. Case Corp., 201 F.R.D. 337, 340 (D. Del. 2001).7 II. THE COMPLAINT STATES CLAIMS FOR BREACH OF CONTRACT IMPLIED-IN-FACT AND UNJUST ENRICHMENT______________ ________ Accepting as true all of the allegations in the Complaint, and giving Plaintiff the benefit of every favorable inference that may be drawn therefrom, as the Court is required to do, Defendant has not shown "beyond doubt" that Plaintiffs can prove no set of facts entitling them to relief. Buckley, 2007 U.S. Dist. LEXIS 22211, at *3. To the contrary, Plaintiffs have unquestionably alleged claims for breach of contract implied-in-fact and unjust enrichment.

As discussed more fully below, the Bohall Affidavit, see Def. Op. Br. A15-18, is not probative, in any respect, of the indispensability of the United States in this action, and, therefore, is "evidence" that is not properly before the Court and should not be considered in addressing Defendant's motion to dismiss. Not a single paragraph in the Bohall Affidavit addresses the United States' purported indispensability and nothing in Defendant's argument relating to indispensability depends upon the Bohall Affidavit. The Bohall Affidavit is simply a ploy to introduce extrinsic evidence in support of Defendant's other arguments. Further, the Bohall Affidavit contains hearsay and bald assertions without any factual or documentary foundation or support. It is therefore inadmissible. For example, the affidavit is devoid of any details of how the audits are conducted, what information Defendant provides to TMA during the course of the audit, and whether the audits review Defendant's payment of facility charges. However, should the Court disagree and consider the Bohall Affidavit, Plaintiffs should be granted leave to take discovery so that they have a fair opportunity to challenge the assertions and present a complete factual record to the Court on this matter. Jurimex Kommerz Transit G.M.B.H. v. Case Corp., 65 F. App'x 803, 807 (3d Cir. 2003); Cushman & Wakefield, Inc. v. Backos, 1991 U.S. Dist. LEXIS 11906, at *4 (E.D. Pa. Aug. 22, 1991); see also Fed. R. Civ. P. 19 advisory committee's note (noting it is not inappropriate to "defer decision until the action [is] further advanced").

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A.

Plaintiffs' Rendering Of Outpatient Services To Defendant's Enrollees In Exchange For Payment By Defendant Results In An Implied-In-Fact Contract Between Plaintiffs And Defendant________ ___________ _____

The elements of an implied-in-fact contract are identical to those of an express contract: (1) mutuality of intent, (2) consideration, and (3) lack of ambiguity in offer and acceptance. Richard A. Lord, 1 Williston on Contracts § 1:5 (4th ed. 2006).8 The only difference between an implied-in-fact contract and an express contract is that an implied-in-fact contract is proven by the conduct of the parties in light of the surrounding circumstances. Luden's Inc. v. Local Union No. 6 of the Bakery, Confectionery & Tobacco Workers Int'l Union, 28 F.3d 347, 355 (3d Cir. 1994) (citing Restatement (Second) Contracts § 19(1) (1981)); Healthcare Servs. Group, Inc. v. Integrated Health Servs. of Lester, Inc., 1998 U.S. Dist. LEXIS 6470, at *8 (D. Del. Apr. 23, 1998). An implied-in-fact contract has the same legal effect as an express contract. Healthcare Servs., 1998 U.S. Dist. LEXIS 6470, at *8. Here, Plaintiffs have alleged mutuality of intent and legal consideration, and Defendant's arguments to the contrary are both incorrect and are also contradicted by the TRICARE program itself. See Def. Op. Br. 31. In the absence of a network contract, the CHAMPUS/TRICARE regulations serve a "rate-setting" function so that MCS Contractors and non-network participating providers have a common understanding, i.e., a meeting of the minds, on the terms of reimbursement. For hospital outpatient services, 32 C.F.R. § 199.14(a)(5) sets the rates of

8

Defendant notes that either Vermont or Michigan law would most likely apply to Plaintiffs' claims. As there are no material state-by-state differences in the substantive law with regard to the present issues before the Court, the disposition of Defendant's motion does not hinge upon the Court's choice of law at this time. See, e.g., Prevo v. Evarts, 500 A.2d 227, 228 (Vt. 1985) ("A contract implied in fact arises under circumstances which, according to the ordinary course of dealing and common understanding, of men, show a mutual intention to contract.") (citing Erickson v. Goodell Oil Co., 180 N.W.2d 798, 800 (Mich. 1970)); Auburn v. Brown, 230 N.W.2d 385, 389 (Mich. Ct. App. 1975) (stating same).

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reimbursement by Defendant. Indeed, such a meeting of the minds is consistent with the fact that terms of an implied-in-fact contract may be provided by industry practices and standards, including regulatory rates. See generally Costanzo Coal Min. Co. v. Weirton Steel Co., 150 F.2d 929, 936 (4th Cir. 1945) (holding that, as the federal Bituminous Coal Act of 1937 set minimum price for coal, "there arose upon the acceptance of the goods by the buyer an implied contract on its part to pay for them at [that] price") (citing Pittsburgh, Cincinnati, Chi. & St. Louis R. Co. v. Fink, 250 U.S. 577, 581 (1919)); Fox v. Mt. W. Elec., 52 P.3d 848, 854 (Idaho 2002) (affirming district court's determination "that there was an implied-in-fact contract using the industry standard's flow-down method of compensation for the change orders"). Defendant itself

recognizes that it "is required to process those claims in accordance with applicable laws, TRICARE payment regulations, and TMA guidance." Def. Op. Br. 36. Metrophones Telecommunications., Inc. v. Global Crossing Telecommunications., Inc., 423 F.3d 1056 (9th Cir. 2005), a case involving a rate-setting system that is analogous to TRICARE's system, exemplifies Plaintiffs' claim for breach of implied-in-fact contract. In Metrophones, FCC regulations provided a "per-call" payphone default rate that long distance carriers were required to pay payphone service providers in the absence of express contracts. 423 F.3d at 1062. The court summarized the plaintiff's claim as follows: In its claims for breach of "implied contract," Plaintiff characterizes the interaction between itself and Defendant as conduct evidencing a mutual intention to enter into a contract. Plaintiff's theory is that, by making its payphones available to the general public, Plaintiff impliedly offered them for the use of Defendant's customers at the rates established by the FCC. Then, "[b]y accepting, transporting, and completing calls made from Plaintiff's payphones by Defendant['s] customers, Defendant[ ] impliedly accepted Plaintiff's offer of service," forming a contract for payphone compensation in the exact amount set by the FCC. Id. at 1075.

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Similarly, Plaintiffs' "participation" in the TRICARE system as non-network providers, and Defendant's participation in TRICARE as an MCS Contractor, implies mutuality of intent. First Am. Compl. ¶¶ 3, 7-8, 18, 20-21, 26-27, 35-36. The absence of a network contract implies Defendant's intent to reimburse non-network participating providers for outpatient services in accordance with § 199.14(a)(5), as opposed to at pre-negotiated, contracted rates. Def. Op. Br. 4; First Am. Compl. ¶¶ 26-27. Correspondingly, the participation of non-network providers in TRICARE, like Plaintiffs, through "accepting assignment" of benefits, also implies an intent to be reimbursed for outpatient services in accordance with § 199.14(a)(5). First Am. Compl. ¶¶ 26, 28, 35-36, 53. Defendant's suggestion that its failure to reimburse Plaintiffs in accordance with § 199.14(a)(5) somehow vitiates the underlying meeting of the minds between Plaintiffs and Defendant defies logic. Rather, Defendant's failure to pay facility charges in accordance with § 199.14(a)(5) constitutes the breach of the implied-in-fact contract with Plaintiffs that is at the heart of this case. Defendant's reliance on the "pre-existing legal duty" rule is also misplaced. The preexisting legal duty rule protects a promissor when a promissee attempts to modify an existing agreement by demanding additional consideration for a performance that he has already agreed to carry out. See E. Alan Farnsworth, Contracts, 276-80 (3d ed. 1999). Consequently,

Defendant may not avail itself of the rule vis-à-vis Plaintiffs by arguing that it owes a preexisting duty to TMA "to administer claims in accordance with the TRICARE regulations." See Def. Op. Br. 34. Certainly, Defendant's explicit promise to TMA that it would underwrite CHAMPUS benefits pursuant to the TRICARE regulations is not the same as Defendant's implied promise to reimburse Plaintiffs for their services. The two promises made by Defendant represent separate, independent bargained-for-exchanges. See Restatement (Second) Contracts

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§§ 71(1)-(2) ("To constitute consideration, a performance or a return promise must be bargained for. A performance or return promise is bargained for if it is sought by the promisor in exchange for his promise and is given by the promisee in exchange for that promise.") In exchange for Defendant's explicit promise to TMA, Defendant has been paid the $10 billion fixed-price amount of the MCS Contract. In exchange for Defendant's implied promise to Plaintiffs,

Plaintiffs have provided services to Defendant's enrollees. See OAO Healthcare Solutions, Inc. v. Nat'l Alliance of Postal & Fed. Employees, 394 F. Supp. 2d 16, 20 (D.D.C. 2005) (finding the relationship between a federal contractor, who administered a health insurance plan for federal employees under the Federal Employee Health Benefits Program ("FEHBP"), and its subcontractor, who provided administrative services for claims filed by FEHBP beneficiaries, to be "distinct from any relationship between the [federal contractor] and [the federal agency administering FEHBP]"). Accordingly, Plaintiffs have stated a claim for breach of implied-infact contract. Moreover, Murray v. Northrop Grumman Information Technology, Inc., 444 F.3d 169 (2d Cir. 2006), does not support Defendant's position. In Murray, the court held only that the beneficiaries of a government program could not bring a breach of implied-in-fact contract claim against a government contractor because they had provided nothing to the contractor for which they could have expected anything in return. 444 F.3d at 178. Thus, as applied here, Murray stands for the unremarkable proposition that an implied-in-fact contract may not be created between the United States and TRICARE beneficiaries merely as a result of the beneficiaries' enrollment in TRICARE. Yet, it is not beneficiaries of TRICARE who have brought this lawsuit. Rather, Plaintiffs are subcontractors of Defendant, who have been hired, based on the promise of reimbursement. First Am. Compl. ¶¶ 7-8. Murray is therefore completely inapposite.

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B.

Plaintiffs Have Stated A Valid Claim For Unjust Enrichment Because They Allege That Defendant Refuses To Pay The Full Amount For The Services Plaintiffs Provide To Defendant's Enrollees__ _ __________________

A claim for unjust enrichment under a quasi-contractual theory is legally sufficient if it alleges: (1) a benefit conferred on the defendant by the plaintiff; (2) an appreciation or knowledge by the defendant of the benefit; and (3) the acceptance or retention by the defendant of the benefit under such circumstances as to make it inequitable for the defendant to retain the benefit without payment. See 26 Williston on Contracts § 68:5; In re Deemer Steel Casting Co., 117 B.R. 103, 108 (Bankr. D. Del. 1990).9 The Complaint properly alleges these elements. Contrary to Defendant's assertions, Defendant has realized a benefit from the services Plaintiffs provided to Defendant's enrollees.10 Defendant has agreed under the MCS Contract to assume the risk of providing health care to CHAMPUS beneficiaries for a profit that undoubtedly benefits Defendant. Courts have recognized that providers, such as Plaintiffs, confer a benefit upon managed care organizations ("MCOs"), similar to Defendant, when services are rendered to Medicaid beneficiaries enrolled in an MCO's Medicaid managed care plan that is operated pursuant to a government contract. See, e.g., Michael Reese Hosp. & Med.

See also Booker v. City of Detroit, 668 N.W.2d 623, 623 (Mich. 2003) (finding unjust enrichment where the "city has received a benefit from plaintiff, which benefit it would be inequitable for the city to retain"); Brookside Mem'l, Inc. v. Barre City, 702 A.2d 47, 49 (Vt. 1997) ("Under a quasi-contract theory of unjust enrichment, the law implies a promise to pay when a party receives a benefit and retention of the benefit would be inequitable."). In support of its argument that Plaintiff fails to state a claim for unjust enrichment, Defendant cites City of El Centro v. United States, 922 F.2d 812, 817 (Fed. Cir. 1990), in which a hospital sued the United States government for the value of the treatment it rendered to illegal aliens who were injured while fleeing from INS agents. See Def. Op. Br. 36. City of El Centro is completely inapplicable because the United States Court of Appeals for the Federal Circuit did not even address the elements of unjust enrichment, as the court below had held that Congress did not waive sovereign immunity with respect to implied-in-law contractual obligations and neither party disputed that holding on appeal. 922 F.2d at 820.
10

9

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Ctr. v. Chi. HMO, Ltd., 554 N.E.2d 472, 474-75 (Ill. App. Ct. 1990) (hospital sufficiently alleged unjust enrichment when it asserted that it treated public aid recipients for whose medical services an MCO was required, under government contract, to pay); Temple Univ. Hosp., Inc. v. Healthcare Mgmt. Alternatives, Inc., 832 A.2d 501, 507 (Pa. Super. Ct. 2003) (hospital conferred benefit on MCO by treating Medicaid recipients whose medical services were administered by MCO pursuant to its contract with Pennsylvania's Department of Public Welfare); River Park Hosp., Inc. v. BlueCross BlueShield of Tenn., Inc, 173 S.W.3d 43, 59-60 (Tenn. Ct. App. 2002) (hospital sufficiently alleged unjust enrichment against MCO, where hospital asserted that it treated Medicaid recipients whose medical services were administered by the MCO according to the MCO's government contract with State of Tennessee); see also Merkle v. Health Options, Inc., 940 So. 2d 1190, 1199 (Fl. Dist. Ct. App. 2006) (complaint sufficiently stated an unjust enrichment claim because "Merkle alleged facts sufficient to support its argument that Merkle's treatment of the subscribers conferred a benefit on the HMOs"). In each of these cases, as in this case, allegations of the MCO's failure to pay the reasonable value for services provided to its enrollees stated a claim for unjust enrichment. Moreover, a "disagreement over payment methodology," which is what is presented here, is precisely what constitutes unjust enrichment when one party has not been paid the value of the services it rendered to another party. Indeed, courts have found that an unjust enrichment claim will lie in cases where the dispute between private MCOs and providers amounts to a disagreement over payment rates for medical services rendered to Medicaid beneficiaries enrolled in the MCOs' Medicaid managed care plans. See, e.g., Merkle, 940 So. 2d at 1193; Michael Reese Hosp., 554 N.E.2d at 474-75; River Park Hosp, 173 S.W.3d at 55; Temple Univ. Hosp., 832 A.2d at 507.

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Metrophones is paradigmatic on this point as well. There, the plaintiff's claim for unjust enrichment was based on the defendant's failure to pay the plaintiff the full default rate set by FCC regulations, and as the Court explained, under the theory of unjust enrichment "[t]he obligation to pay is imposed by law, not by the defendant's agreement to enter into a contract; it is imposed to prevent the defendant from being unjustly enriched by services provided in the absence of a contract for which the plaintiff deserves, and expected, payment." 423 F.3d at 1076 (emphasis added); see also Precision Pay Phones v. Qwest Communc'n Corp., 210 F. Supp. 2d 1106, 1112 (N.D. Cal. 2002) (finding plaintiff stated a claim for unjust enrichment when defendant failed to pay FCC-default rates). Here, the Complaint alleges that Defendant became an MCS Contractor pursuant to an "at-risk" contract, with full knowledge that it would have to pay non-network "participating" providers, such as Plaintiffs, for services provided by Plaintiffs to Defendants' enrollees. First Am. Compl. ¶¶ 20-27; see also River Park, 173 S.W.3d at 59 ("under its risk agreement with the State, BlueCare [an MCO] is required to pay for emergency services for its enrollees, whether the services are provided by an in-network provider or by an out-of-network provider"). Plaintiffs' allegations demonstrate that they have provided services to Defendant's enrollees, thereby conferring a benefit on Defendant, but for which Defendant has not paid Plaintiffs for their facility charges "as billed." Id. at 59-60. See First Am. Compl. ¶¶ 9, 24, 33-35, 57-60. Accordingly, Plaintiffs have unquestionably stated a claim for unjust enrichment.

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III.

DEFENDANT, AND NOT THE UNITED STATES, IS THE REAL PARTY IN INTEREST IN THIS ACTION_____________________________________________ Defendant's attempt to dismiss this case on the basis of sovereign immunity

fundamentally mischaracterizes Defendant's role in the TRICARE program and the legal effect of Defendant's "at-risk" MCS Contract.11 In fact, Defendant, not the United States, is the real party in interest because the "at-risk" nature of Defendant's contract with TMA puts only Defendant's funds at stake in this action.12 As described above, prior to the establishment of TRICARE, the Department of Defense provided CHAMPUS benefits through "fiscal intermediary contracts," under which the United States expressly agreed to be the real party in interest and to indemnify fiscal intermediaries for any judgment, settlement, or costs arising thereunder. Bd. of Trs. of Bay Med. Ctr. v. Humana Military Healthcare Servs., Inc., 2004 U.S. Dist. LEXIS 22147, at *6-7 (N.D. Fla. Mar. 16, 2004) (hereinafter Bay Medical II). In contrast, the entire premise of TRICARE is different. TRICARE is a "managed health care program" under which managed care providers ­ such as Defendant ­ enter into "at-risk" contracts with the United States for the provision of health care to beneficiaries. 10 U.S.C. § 1072(7); 32 C.F.R. §§ 199.1(e) & (f)(1). Under TRICARE, the United States reserves the right not to indemnify an MCS Contractor for claims arising out of the discharge of duties under an MCS Contract and itself decides, on a case-by-case basis, whether the United States is the real

Defendant's motion under 12(b)(1) presents a facial challenge only, meaning Plaintiffs' allegations must be taken as true and construed in the light most favorable to Plaintiffs, as under Rule 12(b)(6). See Mortensen, 549 F.2d at 891. As Defendant acknowledges, sovereign immunity is only an obstacle here if the United States is the real party in interest. See Def. Op. Br. 18.
12

11

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party in interest to any such action. Bay Medical II, 2004 U.S. Dist. LEXIS 22147, at *7; TRICARE Ops. Man. 6010.51-M, August 1, 2002, Ch. 1, § 6, ¶¶ 1.2-1.3 (Appendix B6).13 The "at-risk" nature of the TRICARE program was the basis for the decision of the Court of Appeals for the Federal Circuit in Bay Medical I. In that case, Humana argued, as Defendant does here, that the United States was the real party in interest for contract claims alleging improper reimbursement for services provided to CHAMPUS beneficiaries. The court

disagreed, holding that the plaintiff-hospitals could proceed against Humana alone as the real party in interest because: (1) the plaintiffs' complaint explicitly targeted Humana for damages, not the federal government; (2) the MCS Contract, unlike the pre-TRICARE "Fiscal Intermediary Contracts," lacked an indemnification clause declaring that the United States was the real party in interest in all CHAMPUS-related disputes; and (3) there was no privity of contract between the hospitals and the United States. Bay Medical I, 447 F.3d at 1375. These same conclusions apply with equal force here. Plaintiffs' claims, like those of the plaintiffs in Bay Medical I, are for money damages "directed against" the MCS Contractor, and not against the United States. First Am. Compl. ¶¶ 53-55, 58-60; see also First Am. Compl. 15 (Prayer for Relief) (seeking "judgment and relief against Defendant"). Second, as the court in Bay Medical I noted, TMA's shift from contracting with fiscal intermediaries to contracting with MCS Contractors means that the United States cannot be haled into court each time a CHAMPUS contractor is sued because the United States is
13

Even if Defendant requests indemnification from the United States for Plaintiffs' claims, that would still not render the United States the real party in interest because, as the court of appeals in Bay Medical I noted, such indemnification would be determined in a separate action between Defendant and the United States. See Bay Medical I, 447 F.3d at 1375 ("[T]hat Humana may seek reimbursement from the government after a finding of liability in this case does not mean that the government is the `real party in interest' on the Hospitals' contract claims." (emphasis added)).

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no longer necessarily the real party to every lawsuit involving the provision of CHAMPUS benefits. 447 F.3d at 1375. Third, while an at-risk contractual relationship exists between the United States and Defendant, and a separate contractual relationship exists between Defendant and Plaintiffs, Plaintiffs have no direct relationship or privity of contract with the United States. Id. Moreover, the mere fact that the reimbursement checks from MCS Contractors to network and non-network providers bear the statement "This payment is made with Federal funds" does not make the United States the real party in interest. Def. Op. Br. 18 (citing TRICARE Ops. Man. 6010.51-M, August 1, 2002, Ch. 3, § 6, ¶ 1.0 (Appendix B9)). Unquestionably, the funds used to pay Defendant under its MCS Contract are appropriated by Congress in the first instance. 32 C.F.R. § 199.1(e). But once those funds are disbursed by the federal government to the MCS Contractor, then the MCS Contractor "`has ownership over the funds.'" Baptist I, 368 F.3d at 901 (quoting Bay Medical II, 2004 U.S. Dist. LEXIS 22147, at *24); see also Bay Medical I, 447 F.3d at 1374 (agreeing with plaintiffs' position that "the money given to Humana each month from the government becomes Humana's money when it receives it"). Additionally, Defendant is the real party in interest in this case because it forms an independent contractual relationship with Plaintiffs when Plaintiffs provide services to Defendant's enrollees in exchange for payment by Defendant at rates set by TMA. Defendant owes one contractual obligation to the government to administer CHAMPUS benefits and owes a separate, enforceable contractual duty to providers to make proper payments under negotiated or default rates of reimbursement. The "at-risk" MCS Contract provides that Defendant, and not the government, may be solely liable for claims arising out of the independent contractual

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relationship between Defendant and Plaintiffs.

See Bay Medical I, 447 F.3d at 1375-76

(rejecting claim that government was real party in interest for network provider's contract claim against MCS Contractor); Baptist I, 368 F.3d at 900 (holding that MCS Contractor could establish separate contractual duties owed to providers); TRICARE Ops. Man. 6010.51-M, August 1, 2002, Ch. 1, § 6, ¶¶ 1.2-1.3 (Appendix B6) (providing that the United States will not be involved in "private matter[s]" involving an MCS Contractor and a subcontractor). Defendant would have this Court entirely overlook the MCS Contract so as to reach the conclusion that, because TMA has a statutory obligation to set the rates at which non-network participating providers are reimbursed, the United States, and only the United States, may be held liable for Defendant's failure to pay according to those terms. Def. Op. Br. 19. However, this argument ignores the risk-shifting that occurs with the MCS Contract, under which Defendant alone makes the decision, and bears the risk, of whether to enter into express contracts with providers or to accept the default rates set by TMA. In either case, separate contracts are formed between Defendant and providers, the terms of which include rates of reimbursement that may be enforced by providers against Defendant, like any other contractual right. To allow Defendant to avoid the independent legal obligations it owes to subcontracting non-network providers would undermine the sea change that occurred when TMA moved from the pre-TRICARE "fiscal intermediary contracts" to the "at-risk" MCS Contracts.14 By making

Defendant relies on two cases that are inapposite here. Christman v. Grays, 2005 WL 3088529 (S.D. Ohio Nov. 17, 2005), is clearly distinguishable from the instant case because it involved an action for medical expenses brought by a non-network provider against a patient beneficiary, not an MCS Contractor. Because, under 32 C.F.R. § 199.16(d)(1), the provider's only recourse for payment was the government, neither the provider nor the government challenged the substitution of the United States as the defendant in Christman. Id. at *2. There is no such concession in this case, and the claims made here by TRICARE participating providers are directed against the MCS Contractor, and not against a TRICARE beneficiary. (Continued...) 22

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this shift, TMA made MCS Contractors accountable to providers for failing to make payment in accordance with their subcontracts.15 See Bay Medical I, 447 F.3d at 1375-76; Baptist I, 368 F.3d at 900. The mere fact that Plaintiffs have certain appeal rights in the TRICARE administrative review process is irrelevant to this action because, as discussed below, disputes regarding a requirement of a regulation, such as the payment requirements of § 199.14(a)(5), are not appealable within the TRICARE administrative review process. With regard to such a dispute, a non-network participating provider must turn to the courts for a determination of its rights. IV. THE UNITED STATES IS NOT A NECESSARY OR INDISPENSABLE PARTY The United States is neither a necessary nor indispensable party to this action. Under Rule 19, the Court must first decide whether the United States is necessary to the litigation and thus must be joined. If the Court determines that the United States must be joined, but that joinder is not feasible, the Court must then consider whether the United States is indispensable under Rule 19(b). Only if the Court determines that the United States is both nec