S.C. Rules for Providers in Payment Dispute With HMOs

Tuesday, November 15, 2016

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S.C. Rules for Providers in Payment Dispute With HMOs

By KENNETH OFGANG, Staff Writer

Emergency room doctors may recover damages from a health care service plan that has negligently delegated its responsibility for paying those doctors to an insolvent entity, the state Supreme Court unanimously ruled yesterday.

The justices affirmed a decision of this district’s Court of Appeal, reinstating suits by emergency room doctors at Centinela Freeman Medical Center. The plaintiffs contend that the defendants should have known that La Vida Independent Physicians Association was not complying with state solvency requirements and was unable to pay the plaintiffs’ fees.

The dispute is related to federal requirements that hospitals with emergency rooms accept all patients needing emergency care, without regard to ability to pay.

Under California law, If the patient belongs to a health care service plan, better known as a health maintenance organization or HMO, that entity is required to pay the doctors’ reasonable charges, even if the doctors are outside its network of contracting physicians. The law does, however, allow the delegation of that responsibility to an independent, risk-bearing organization known as an independent practice association, or IPA.

Emergency physicians, and the hospitals where they work, have long complained that the law benefits the HMOs, who collect premiums from the patients, while creating problems for the doctors and hospitals, who frequently have trouble collecting from the IPAs.

No Immunity

The HMOs have contended that by allowing them to delegate payment responsibility, the law relieves them of any liability for nonpayment. The Centinela Freeman doctors, in their complaints against the HMOs, argued that the defendants were liable for ignoring warnings by the plaintiffs and others that La Vida was unable to pay.

Those defendants include Anthem Blue Cross, Health Net of California, Inc., Secure Horizons Health Plan of America, Blue Shield of California, SCAN Health Plan, Aetna Health of California, and Cigna HealthCare of California, Inc. The plaintiffs contended that those companies should have acted when the state imposed a corrective action plan on La Vida in 2007.

Instead, the plaintiffs say they were told to continue billing La Vida. The IPA, which is said to have had obligations to about 120,000 patients and 1,400 providers, closed its doors in 2009. Its chief executive was quoted at the time as saying it “doesn’t even have enough funds to buy a stamp.”

Trial Court Ruling

Los Angeles Superior Court Judge John S. Wiley Jr. sided with the HMOs and sustained their demurrers. The Court of Appeal, however, consolidated the plaintiffs’ appeals and reversed.

Chief Justice Tani Cantil-Sakauye, writing yesterday for the high court, said the Court of Appeal was correct.

“We conclude that a health care service plan may be liable to noncontracting emergency service providers for negligently delegating its financial responsibility to an IPA or other contracting medical provider group that it knew or should have known would not be able to pay for emergency service and care provided to the health plan’s enrollees,” she wrote.

In addition, the chief justice said, even if the initial delegation was not negligent, an HMO may be held liable for “negligently continuing or renewing a delegation contract with an IPA when it knows or should know that there can be no reasonable expectation that its delegate will be able to reimburse noncontracting emergency service providers for their covered claims.”

HMOs Duties

Imposition of an initial duty to select a solvent delegate, Cantil-Sakauye wrote, is consistent with common law negligence principles and does not conflict with the state’s HMO statutes or the regulations implementing them. She specifically rejected the argument that Health and Safety Code §1371.25, which immunizes HMOs against vicarious liability for the torts of their delegates, precludes liability for a plan’s direct negligence in selecting a delegate that cannot maintain financial responsibility.

As for the continuing duty to step in when an IPA or similar entity becomes insolvent, the chief justice said it’s a narrow one.

If the initial delegation is reasonable, she explained, it is also reasonable to expect that any financial difficulties on the part of the IPA will be addressed through the state’s corrective action process.

“However, a plan at all times retains a continuing duty to monitor and assess whether such an expectation is in fact reasonable under the particular circumstances presented and to timely take available, appropriate action to protect noncontracting emergency service providers when it knows or should know that there can be no reasonable expectation that its delegated IPA or other [risk-bearing organization] will be able to reimburse their covered claims for emergency services,” she wrote.

Centinela Freeman Emergency Medical Associates v. Health Net of California, Inc., 16 S.O.S. 5669, was argued in the Supreme Court by Andrew H. Selesnick of Michelman & Robinson for the plaintiffs and by Margaret M. Grignon for the defendants. The former Court of Appeal justice left Reed Smith LLP earlier this year to form the Long Beach-based Grignon Law Firm, with her daughter Anne Grignon.