On August 25, 2020, the Department of Managed Healthcare Services (DMHC) fined Aetna $500,000 for wrongfully denying claims for emergency medical services. It also ordered Aetna to correctly reprocess all its emergency room denials dating back to February 1, 2017.
DMHC imposed these severe measures in response to Aetna’s long-running failure to correctly apply California’s standard for reimbursing emergency room claims. California law requires a health plan to pay for emergency medical services unless it “reasonably determines” that (1) the emergency medical services were never performed or (2) the enrollee did not require emergency medical services and reasonably should have known that an emergency did not exist. See Health & Safety Code §§ Section 1371.4(c), 1317.1(b).
Unfortunately, while Aetna had long paid lip service to California’s standard, Aetna was actually applying its “national standard,” also known as the “prudent layperson” standard. Under this standard, emergency room claims will only be paid if, under the circumstances, a prudent layperson with an average knowledge of health and medicine would have known if she was in an emergent condition. The formal orders issued by the DMHC indicate that Aetna acknowledged that it had been doing this as far back as 2010 – but had continued doing so even after entering into settlement agreements with DMHC in 2015 and 2016, pursuant to which it paid $135,000 in administrative penalties.
DMHC emphasized that California’s standard differs because it does not require a plan enrollee to have an average level of medical knowledge. Section 1371.4 applies a subjective standard based on the enrollee’s reasonable belief there was an emergency. Interestingly, in its formal orders and an accompanying press release, DMHC has clarified that in order for a plan’s determination to be reasonable, the plan must be “in possession of evidence to show” that services were not actually performed or that the enrollee subjectively did not believe there was an emergency.
DMHC’s actions followed the findings from a 2018-2019 audit in which DMHC reviewed a sample of approximately 30 Aetna-denied emergency claims and determined that all but 2 of them – over 93% of the claims reviewed – had improperly applied the prudent layperson standard. DMHC also determined that Aetna’s commercial emergency medical services denial policies and procedures didn’t follow California law.
Somewhat unbelievably, when DMHC pointed this out to Aetna in 2019, Aetna merely re-reviewed the sample claims and announced to DMHC that every single one of the denials were also upheld under the California standard. This obstinance – which DMHC formally determined to be an “unfair payment pattern” in violation of Health & Safety Code 1371.37(c)(2) – is what ultimately resulted in the regulatory actions at issue. In addition to the $500,000 fine, Aetna must now “immediately conduct a review” of all emergency claims that it denied going back to February 1, 2017 "and re-adjudicate and overturn each such denial unless it is in possession of evidence” that meets one or more of the exceptions set forth in the California standard. See August 25, 2020 Order to Cease and Desist, p. 8, ¶ 3 (emphasis added).
This incident offers a vivid illustration of how the national commercial payors routinely ignore the greater protections offered to providers and enrollees under the Knox-Keene Act and the California Insurance Code. Athene Law has significant experience representing healthcare providers who are facing unfair payment patterns in violation of California law. For questions, please contact Eric Chan (firstname.lastname@example.org), Long Do (email@example.com), or Felicia Sze (firstname.lastname@example.org).