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CA Supreme Court Issues Two Rulings Preserving Providers' Ability to Hold Health Plans Accountable

The California Supreme Court recently issued two deeply impactful opinions that bolster access to the courts for health care providers to hold health plans and insurers accountable if they commit widespread managed care abuses.

The Knox-Keene Health Care Service Plan Act and the California Insurance Code establish a broad statutory and regulatory scheme dictating how health insurers and plans deliver or arrange for care and reimburse providers. Several provisions, for instance, safeguard against interference with physicians’ exercise of sound medical judgment and with patients’ right to rely on that judgment. See, e.g., Ins. Code §10133; Bus. & Prof. Code §§510, 2056, and 2056.1. Under the Knox-Keene Act, health plans must reimburse out-of-network providers a reasonable and customary amount for emergency medical services. See Cal. Code Regs., tit. 28, §1300.71(a)(3)(B).

There is no private right of action for individual litigants to legally enforce many of the protections established in the Knox-Keene Act and the Insurance Code. Providers nevertheless have relied on alternate avenues. The Unfair Competition Law (UCL) makes injunctive relief available to curb conduct that is unfair or violates the state managed care laws. See Blue Cross of California, Inc. v. Superior Court, 180 Cal. App. 4th 1237, 1250 (2009). Similarly, courts have recognized a common law claim based on quantum meruit theory to allow out-of-network providers to sue plans directly to recoup payment for emergency care. See Bell v. Blue Cross of California, 131 Cal. App. 4th 211, 216-17 (2005).

The viability of these types of claims were under direct attack in the two cases recently decided by the Supreme Court. On July 10th, the Court issued an opinion in County of Santa Clara v. Superior Court (Doctors Medical Center of Modesto, Inc.),in favor of two out-of-network hospitals that provided emergency medical care to members of a county-owned Knox-Keene health plan. The Court held that such county plans are not immune under the Government Claims Act (Gov. Code §814) but rather, like all other Knox-Keene plans, are subject to quantum meruit, implied-in-fact claims by out-of-network providers seeking reasonable and customary reimbursement for emergency medical care. Quoting the Department of Managed Health Care, the Court observed that “the prompt and appropriate reimbursement of emergency providers ensures the continued financial viability of California’s health care delivery system,” and that “denying emergency providers judicial recourse to challenge the fairness of a health plan’s reimbursement determination allows a health plan to systematically underpay California’s safety-net providers.”

One week after ruling in Santa Clara, the Court decided California Medical Association v. Aetna Health of California, Inc., to confirm and clarify organizational standing under the UCL. This is a critically important case that saw amicus briefs favoring CMA filed by the California Attorney General; the City Attorneys of San Francisco, Oakland, San Diego, and San Jose; labor unions; the American Medical Association; and prominent public interest organizations Consumer Watchdog, AIDS Healthcare Foundation, and Animal Legal Defense Fund.

Proposition 64 in 2004 significantly narrowed the standing requirements to bring a UCL claim to only individuals or organizations that have injury in fact and suffered money or property loss as a result of the unfair or unlawful business practices being challenged. Advocacy organizations like CMA, who are not directly harmed by a challenged practice, nevertheless may wish to seek UCL standing based on their expenditure of staff or internal resources to help members or constituents who are affected by harmful business practices. In CMA, the organization was compelled to divert staff and resources to address a policy by Aetna that harassed or terminated contracted providers who referred Aetna PPO plan members to out-of-network facilities for covered services. Aetna claimed CMA’s activities do not qualify for legal standing under Prop. 64, but the Supreme Court disagreed. It held that UCL’s standing requirements are satisfied when an organization, in furtherance of a bona fide, preexisting mission, incurs costs to respond to perceived unfair competition that threatens that mission, so long as those expenditures are independent of costs incurred in UCL litigation or preparations for such litigation.

Perhaps most helpful for future litigants, the Court elaborated on what types of “incurred costs” would amount to “lost money or property” establishing UCL standing. According to the Court, an organization’s “diversion of salaried staff time and other office resources can constitute the loss of ‘money or property’ [because] every organization, including CMA, has finite resources to devote to its mission.” Moreover, the Court explained, “even if, as here, the personnel involved are paid on a salaried basis rather than by the hour, their time clearly holds economic value to the organization. When staff are diverted to a new project undertaken in response to an unfair business practice, the organization loses the value of their time, which otherwise would have been used to benefit the organization in other ways.”

Taken together, County of Santa Clara and CMA represent a robust endorsement of California’s regulatory scheme, which relies in part on private lawsuits by providers, to hold health plans and insurers accountable to the state laws that are designed to ensure an efficient, affordable, and accessible health care delivery system.

Attorneys at Athene Law were directly involved in both cases and have represented providers to enforce their rights against health plans in dozens of other matters. For more information about the Supreme Court’s recent decisions, contact Long Do.

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