Carol Lucas
July 2006

CAPG Update

In May the California Supreme Court agreed to review the decision of the Court of Appeal in Prospect v. Northridge Emergency Medical Group et al. The Court of Appeal held earlier this year that Health & Safety Code §1379 (b) does not prohibit balance billing in the case of emergency medical services rendered by non-contracted providers. The Court of Appeal acknowledged that an implied-inlaw contract exists between emergency providers and payors, but held that §1379(b) only applies in the case of “voluntarily negotiated contracts.”

As a result of the Supreme Court’s agreement to review the Court of Appeal’s decision, the decision cannot be cited for any proposition. In terms of its precedential value, the Supreme Court’s decision to hear the Prospect case effectively erases it from the landscape. This means the Court of Appeal’s decision in Bell v. Blue Cross of California is the leading case in the area of quantum meruit and the non- contracted emergency provider’s right to be paid the fair value of services.

Prospect v. Northridge Emergency Medical Group The Prospect case involved an IPA (Prospect), which sued two noncontracted ER groups, seeking a declaration that balance billing of HMO enrollees was illegal. The trial court had dismissed the cases against the emergency physicians and Prospect appealed. Prospect argued that there was an impliedin- law contract between providers of emergency services, on the one hand, and payors (whether health plans or IPAs) on the other, which required the payors to compensate non-contracted providers when they rendered emergency services to HMO enrollees. This implied contract, Prospect argued, brought the parties within the provisions of §1379 (b) of the Health and Safety Code, which prohibits contracted providers without a written contract from balance billing HMO enrollees.

The Prospect court agreed that an implied- in-law contract exists in the emergency context but nonetheless held that balance billing by noncontracted providers was legal in California. The court’s theory was that §1379(b)’s prohibition on balance billing by “contracted providers without a written contract” applied only to voluntary or intentional contracts. The court held that §1379(b) does not apply in the case of implied contracts. This is the issue that the Supreme Court has agreed to review. Meanwhile, as noted above, while the case is pending, the Bell decision represents the current state of the law in California.

Bell v. Blue Cross of California In the vacuum created by the Supreme Court’s decision to review Prospect, the Bell decision assumes critical importance in the area on non-contracted provider billing.

Dr. Bell is an emergency physician who brought a class-action lawsuit against Blue Cross asserting that §1371.4 of the Health and Safety Code, which requires a health plan to pay for emergency services, requires a plan to pay a reasonable and customary amount, not “any amount it chooses, no matter how little.” Blue Cross demurred to Dr. Bell’s complaint and prevailed in the trial court on an argument that the DMHC has exclusive enforcement power with respect to the Knox-Keene Act so providers do not even have standing to sue payors directly. The Court of Appeal disagreed, and explicitly recognized a provider’s standing to bring an action for payment. While the Bell decision, at first blush, appears to be a win for the noncontracted emergency provider, the decision is favorable to the position of delegated groups in three significant respects. First, Blue Cross had contended that Dr. Bell had no private right of action under the Knox-Keene Act, and therefore could not even pursue Blue Cross for compensation under §1371.4. If this contention had prevailed, it would have fueled one of the main justifications for balance billing, i.e. that emergency physicians must be able to balance bill enrollees because they have no recourse against a health plan or IPA that arbitrarily pays less than their services are worth. Another respect in which the Bell case constitutes significant favorable precedent for delegated groups is in holding that Dr. Bell had a right to pursue a quantum meruit recovery against Blue Cross for the reasonable value of his services. CAPG has consistently contended that noncontracted providers, under well established common law precedents, are entitled to be paid the reasonable value of their services, no more and no less. To the extent that the Bell Court adopted these common law principles, the stage is set for a thorough examination of the components of reasonable value.

Finally, the Bell Court quoted the amicus brief submitted by the DMHC deploring the practice of balance billing: “If collection actions are pursued, unsuspecting enrollees can be forced to reimburse the full amount of a provider’s billed charges even though those charges are in excess of the reasonable and customary value of the services rendered.” Although this statement is not technically part of the holding in the case, the Bell case, in quoting the DMHC, is an unambiguous statement against the practice of balance billing.

The Current Landscape for Delegated Groups The Supreme Court’s agreement to review the Prospect decision is important for a number of reasons. First, the Court of Appeal’s decision in Prospect had been touted by the CMA and the emergency groups as an affirmative statement that balance billing is legal in California. The Supreme Court’s action effectively nullifies that argument. No one can now argue that California’s courts have declared balance billing to be an acceptable practice.

Meanwhile, under Bell, determining reasonable value is the immediate area of focus. Bell stands for the proposition that non-contracted emergency providers are entitled to be paid fair and reasonable reimbursement for their services. While the Bell court quotes the AB 1455 Regs in the opinion, it also refers to Dr. Bell’s right as a common-law quantum meruit right. In fact, the court went out of its way to avoid having the Gould factors enshrined as the determinants of reasonable value. In a footnote to the quotation of the Gould factors the court noted:

“For the record, we emphasize that our reference to the regulation is just that, and does not constitute a finding that the regulation is the sine qua non of the ultimate issue in this case – which is not before us on this appeal.” This means that providers and payors will necessarily define the contours of reasonable value in light of common law principles, which clearly recognize the distinction between charges and value.

Carol Lucas is a Shareholder in the Los Angeles office of Buchalter Nemer, a professional law corporation. She can be reached at .