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Court of Appeal:
PPO Insurers Are Off Hook for Some Direct Reimbursements
Opinion Says Fact That Hospitals Are Statutorily Obligated to Provide Emergency Services to Everyone Does Not Create Duty to Pay all Facilities Like In-Network Ones Even if HMOs Are so Required
By a MetNews Staff Writer
Div. Five of this district’s Court of Appeal held yesterday that traditional insurance companies are not obligated to directly reimburse out-of-network health care facilities for the reasonable, customary value of emergency services rendered to patients, saying that just because a hospital is statutorily obligated to provide such care does not mean that it is entitled to receive the payments absent legislative directives.
In an unpublished opinion, authored by Presiding Justice Brian M. Hoffstadt and joined in by Justices Lamar Baker and Carl H. Moor, the court also rejected the view that such a duty may be inferred from corollary provisions of the Knox-Keene Health Care Service Plan Act, governing health maintenance organizations (“HMOs”), that make such payments mandatory for those providers.
Characterizing the issue as whether the Insurance Code imposes “a similar duty to directly reimburse out-of-network hospitals for the reasonable and customary value of any emergency services they provide exist for [traditional] health insurance companies,” Hoffstadt wrote:
“We hold that it does not: The Insurance Code does not explicitly impose such a duty and the canons of statutory construction counsel against inferring such a duty from other provisions of the Insurance Code…, by analogy to the Knox-Keene Act, or from the common law. Because the question whether insurance companies should have a duty to directly reimburse for such services is one of public policy, it is a question for the Legislature and not this court.”
Complaint Filed
The question arose after Prime Healthcare Centinela LLC and four of its Southern California hospitals filed a complaint against United Healthcare Insurance Company Inc. in March 2022, alleging that the insurance giant has failed to “pay the reasonable value of emergency medical services provided” and asserting quantum meruit and unfair competition claims, among others.
In April 2023, Los Angeles Superior Court Judge Lawrence P. Riff sustained United’s demurrer to the complaint, concluding that the fundamental premise behind each claim fails because no statute requires direct reimbursement at a reasonable rate. He said:
“[A]n insurer’s statutory duty to provide insurance coverage to insureds does not necessarily imply a duty to reimburse providers the reasonable and customary value of the providers’ services.”
Yesterday’s decision affirms Riff’s decision.
Saying that the question is one of statutory interpretation, Hoffstadt pointed out that “Prime concedes that the Insurance Code nowhere explicitly imposes a duty upon health insurers to directly reimburse out-of-network providers for emergency services at the ‘reasonable and customary’ value for those services” but the plaintiff “nevertheless offers…reasons why we should infer such a duty.”
Rejecting the plaintiffs’ assertion that the obligation on hospitals to cover emergency services creates a duty to directly reimburse, he opined:
“Although [the Insurance Code] obligates a health insurance company to ‘cover’ emergency services provided by an out-of-network provider…, covering those services and directly reimbursing the provider of those services are not synonymous. To illustrate, the Knox-Keene Act imposes a duty to cover and a duty to directly reimburse a provider in separate statutory provisions….Given our Legislature’s practice of separately imposing the duty to cover services and the duty to directly reimburse providers, it contravenes legislative intent to treat the duty to cover as including the duty to directly reimburse providers and to thereby impose a duty upon insurance companies to directly reimburse where the Legislature has chosen not to do so.”
Mirroring Legislation
As to Prime Healthcare’s contention that the Insurance Code was “inten[ded] to mirror” the Knox-Keene Act, he remarked:
“To be sure, the Insurance Code and the Knox-Keene Act both function as a mechanism for providing a form of health coverage….To be sure, the Insurance Code and the Knox-Keene Act both function as a mechanism for providing a form of health coverage….Thus, the statutory provision in the Knox-Keene Act imposing a duty upon health care service plans to directly reimburse out-of-network providers for emergency services cannot be copied-and-pasted into the Insurance Code. To do so is to ignore the maxim…that statutes dealing with the same topic and with a similar purpose are not to be treated the same if the Legislature has employed different language.”
Addressing the argument that denying emergency service providers a right to sue health insurance companies for direct reimbursement at a reasonable and customary rate under the Insurance Code—while granting that right to health care service plans under the Knox-Keene Act—is bad public policy, Hoffstadt noted that the facilities are still entitled to some recovery from the insurance companies under federal law in place at the time of the billing at issue.
Under those circumstances, he reasoned:
“[I]t is not our place—as part of the judicial branch—to weigh in on the wisdom of public policy enacted by our Legislature….We may intervene only if the statute before us leads to absurd results or is unconstitutional….Neither ground exists here.”
Narrow Task
He added:
“In the end, our task is a narrow one. Prime’s arguments about the disparate treatment of health insurance companies and health care service plans when it comes to direct reimbursement for emergency services is not without persuasive force. But the branch that needs to be persuaded by these policy arguments is not us—it is the legislative branch.”
In a footnote, the jurist noted that, prior to 2022, traditional insurers were permitted to engage in “balance billing” to recoup unpaid portions of the bills from the insureds who sought emergency care at out-of-network facilities. As of Jan. 1, 2022, the federal No Surprises Act prohibits the practice and confines a hospital’s recovery from a patient to copays and deductibles.
The law also replaces the statutory minimum payments with a rule requiring insurers to engage in “open negotiation” and arbitration to set the rate for reimbursement to out-of-network providers for emergency care. The set recovery scheme remained in effect for Prime Healthcare’s claims.
The case is Prime Healthcare Centinela LLC v. United Healthcare Insurance Company, B334746.
Representing Prime Healthcare were Robert M. Dato, Damaris Medina, Devan McCarty, Efrat Cogan, and Karen George of the Irvine offices of Buchalter APC. Acting for the defendant were Nathanial Wood and Marlee Santos of Crowell & Moring LLP as well as Kahn A. Scolnick, Matt A. Getz, and Allison Roy Kawachi of the Los Angeles offices of Gibson, Dunn & Crutcher LLP.
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