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Coast Plaza Doctors Hospital v. Blue Cross of California


May 11, 2009


APPEAL from a judgment of the Superior Court of Los Angeles County. William F. Fahey, Judge. Reversed. (Los Angeles County Super. Ct. No. BC365740).

The opinion of the court was delivered by: Tucker, J.*fn13


In California, health care providers are statutorily required to provide emergency care to a patient without regard to the patient's ability to pay for such care. (Health & Saf. Code, § 1317.)*fn1 If a patient who receives emergency care is an enrollee of a health care service plan, section 1371.4, a provision of the Knox-Keene Health Care Service Plan Act of 1975 (Knox-Keene), requires the plan to reimburse the provider for the cost of the emergency care, barring certain exceptions inapplicable here.

In this case, Coast Plaza Doctors Hospital (Coast Plaza) provided emergency care to Patient X, an enrollee of a group health plan insured by Blue Cross of California (Blue Cross). When Blue Cross did not reimburse Coast Plaza for the cost of the emergency care, Coast Plaza sued Blue Cross in superior court, alleging a number of state law claims derived from section 1371.4. Because Patient X's group health plan qualified as an employee benefit plan subject to the Employee Retirement Income Security Act of 1974 (ERISA), the trial court sustained Blue Cross' demurrer on the ground that Coast Plaza's state law claims were subject to ordinary preemption under ERISA.

We conclude that section 1371.4 is a state law that regulates insurance within the purview of ERISA's saving clause. Therefore, we reverse the judgment in favor of Blue Cross and remand for further proceedings.


A. Alleged Facts

Because Coast Plaza appeals from a judgment of dismissal after the court sustained a demurrer, we accept as true the allegations of the complaint. (See Blank v. Kirwan (1985) 39 Cal.3d 311, 318.)

Blue Cross is an insurance company licensed by the Department of Managed Health Care to operate a health care service plan pursuant to Knox-Keene. Prospect Medical Group (Prospect) provides medical care to patients, including those patients whom Blue Cross insures. Nuestra Familia Medical Group (Nuestra) is an affiliate of Prospect.*fn2

Patient X is an insured of Blue Cross.*fn3 In 2006, Coast Plaza admitted Patient X for a partial removal of the thyroid gland. Because Coast Plaza was an "out-of-network provider" (i.e., it did not contract with Blue Cross to provide services to plan participants or beneficiaries), Patient X made a cash payment to Coast Plaza in advance of the surgery. The surgery proceeded without any complications and Patient X was transferred to Coast Plaza's post-operative care unit. A few days after the surgery, Patient X suddenly developed life-threatening acute respiratory distress. An emergency room physician intubated Patient X, placed her on a ventilator, and transferred her to Coast Plaza's intensive care unit (ICU) for further treatment.

After Coast Plaza stabilized Patient X, Patient X informed Coast Plaza that she was insured by Blue Cross or Prospect, or both entities. Coast Plaza called Nuestra to have Patient X transferred to an "in-network provider." Nuestra would not authorize the transfer and refused to be involved with any decisions regarding Patient X's medical care. Patient X remained in Coast Plaza's ICU for approximately two months, after which time she was transferred to another medical facility.

On or about September 25, 2006, Coast Plaza electronically billed Blue Cross for $582,252.97, the amount of medical charges Coast Plaza claims it incurred providing emergency care to Patient X.*fn4 The next day, a representative from Nuestra informed Coast Plaza that Nuestra would not pay any portion of the bill. On or about October 2, 2006, Blue Cross followed up with correspondence stating:

"In order to process this claim, we require an authorization from the patient's assigned medical group . . . unless these services were rendered in connection with a medical emergency. If these services were rendered in connection with a medical emergency, please supply records, as an emergency condition could not be determined from the information that we have."

The complaint contains no allegation as to whether Coast Plaza provided Blue Cross with any records. It simply alleges that Blue Cross and Prospect have refused to pay, and continue to refuse to pay, any money in connection with the services Coast Plaza provided to Patient X.

B. Coast Plaza's Causes of Action

Coast Plaza sued Blue Cross, Prospect, and Nuestra in Los Angeles Superior Court for (1) recovery of services rendered, (2) recovery on an open book account, (3) quantum meruit, (4) breach of implied-in-fact contract, (5) violation of Business and Professions Code section 17200, and (6) declaratory relief. Coast Plaza cited section 1371.4 in the general allegations portion of its complaint and relied on that provision, either expressly or by reference, as a basis for each cause of action.*fn5 Coast Plaza sought compensatory damages in the amount of $582,252.97, plus statutory interest, restitution in the same amount, attorney fees and costs, and a declaration that Blue Cross or Prospect, or both entities were obliged to pay Coast Plaza "all monies owed for services rendered to Patient X."

C. Proceedings in Federal Court

Defendants removed the action to federal district court on the ground that Coast Plaza was seeking benefits under an employee benefit plan governed by ERISA, and thus the action was completely preempted by ERISA section 502(a). (29 U.S.C. § 1132(a).)*fn6

Defendants maintained that Patient X had assigned her right to benefits under the group health plan to Coast Plaza. Without confirming or denying the existence of an assignment, Coast Plaza maintained that it was not bringing the action as Patient X's assignee.

The district court concluded that ERISA section 502(a) did not completely preempt Coast Plaza's action because Coast Plaza was neither a participant nor a beneficiary of Patient X's health plan. Without complete preemption under ERISA section 502(a), the district court concluded removal was improper and remanded the action to superior court. In its remand order, the district court left open the possibility that Blue Cross could raise ordinary preemption under ERISA section 514(a) (29 U.S.C. § 1144(a)) as a defense to the action in superior court.*fn7

D. Proceedings in Superior Court After Remand

Defendants demurred to the action in superior court, arguing that Coast Plaza's claims "related to" ERISA, and thus were subject to ordinary preemption under ERISA section 514(a). The trial court sustained the demurrer and granted Coast Plaza leave to amend its complaint. Coast Plaza elected not to amend the complaint and the trial court subsequently entered judgment in favor of defendants. Coast Plaza timely appealed from the final judgment.


I. Standard of Review

"We review a trial court's ruling on a demurrer independently. [Citation.]" (Liska v. Arns Law Firm (2004) 117 Cal.App.4th 275, 281.) Our task in reviewing a judgment of dismissal following the sustaining of a demurrer is to determine whether the complaint states a cause of action. (Crowley v. Katleman (1994) 8 Cal.4th 666, 672.)

II. Ordinary Preemption*fn8

A. Statutory Framework

Three provisions of ERISA expressly address the issue of ordinary preemption:

1. The preemption clause: "Except as provided in [the saving clause], the provisions of this subchapter and subchapter III of this chapter shall supersede any and all State laws insofar as they may now or hereafter relate to any employee benefit plan." (§ 514(a), as set forth in 29 U.S.C. § 1144(a).)

2. The saving clause: "Except as provided in [the deemer clause], nothing in this subchapter shall be construed to exempt or relieve any person from any law of any State which regulates insurance, banking, or securities." (§ 514(b)(2)(A), as set forth in 29 U.S.C. § 1144(b)(2)(A).)

3. The deemer clause: "Neither an employee benefit plan . . . nor any trust established under such a plan, shall be deemed to be an insurance company or other insurer, bank, trust company, or investment company or to be engaged in the business of insurance or banking for purposes of any law of any State purporting to regulate insurance companies, insurance contracts, banks, trust companies, or investment companies." (§ 514(b)(2)(B), as set forth in 29 U.S.C. § 1144(b)(2)(B).)

For purposes of our analysis, we accept, without deciding, that section 1371.4 relates to employee benefit plans so as to come under the preemption clause of ERISA section 514(a). (See, e.g., Hewlett-Packard v. Barnes (9th Cir. 1978) 571 F.2d 502, which adopted in full the district court's decision in the same case, Hewlett-Packard v. Barnes (N.D. Cal. 1977) 425 F.Supp. 1294 (Hewlett-Packard).) Hence, we must determine the following: (1) whether section 1371.4 regulates insurance so as to come under the saving clause of ERISA section 514(b)(2)(A), and (2) if section 1371.4 does regulate insurance, whether it nonetheless is subject to preemption under the deemer clause of ERISA section 514(b)(2)(B).

B. ERISA Section 514(b)(2)(A) - Saving Clause

We turn to whether section 1371.4 regulates insurance so as to fall under the purview of ERISA's saving clause.

In Kentucky Association of Health Plans, Inc. v. Miller (2003) 538 U.S. 329 (Miller), the Supreme Court established a two-part test to determine whether a state law regulates insurance within the purview of ERISA section 514(b): "First, the state law must be specifically directed toward entities engaged in insurance. [Citations.] Second . . . the state law must substantially affect the risk pooling arrangement between the insurer and the insured." (Miller, supra, 538 U.S. at p. 342.)*fn9

Under the first prong of the Miller test, a state law "must be 'specifically directed toward' the insurance industry in order to fall under ERISA's saving clause." (538 U.S. at p. 334.) In Miller, the Court considered Kentucky's Any Willing Provider statute, which prohibited health insurers from discriminating against providers who were willing to meet the terms and conditions for participation established by the health insurers. (Id. at p. 332.) The insurers argued the statute was not "specifically directed" at the insurance industry because it did not regulate the relationship between insurers and insureds. The Court rejected this argument, reasoning that the statute regulated insurance because it "impos[ed] conditions on the right to engage in the business of insurance" within Kentucky. (Id. at p. 338.)

Likewise, section 1371.4 regulates insurance because it imposes conditions on the right of insurers, like Blue Cross, to conduct their business in California. The language of the provision is mandatory and insurers who elect not to comply may not engage in the business of insurance within California. (Accord Bell v. Blue Cross of California (2005) 131 Cal.App.4th 211, 215 ["The Knox-Keene Act is a comprehensive system of licensing and regulation under the jurisdiction of the Department of Managed Health Care" and section 1371.4 "compels [insurers] to reimburse emergency health care providers for emergency services to the plans' enrollees"].) Thus, we conclude section 1371.4 is specifically directed toward the insurance industry.*fn10

Under the second prong of the Miller test, a statute substantially affects the risk pooling arrangement between the insurer and the insured by "expanding the number of providers from whom an insured may receive services" and "alter[ing] the scope of permissible bargains between insurer[] and insured[]." (538 U.S. at p. 338.) A statute need not "actually spread risk" in order to affect the pooling arrangement between the insurer and insured. (Id. at p. 339, fn. 3.) So long as the statute "dictates to the insurance company the conditions under which it must pay for the risk that it has assumed," the second prong is satisfied. (Ibid.)

Defendants argue that "[o]n its face, Section 1371.4 does not address risk pooling arrangements between insurer and insured." We disagree for a number of reasons.

First, section 1371.4 requires the insurer to pay for emergency services rendered to the insured until the insured is stabilized. This is tantamount to dictating to the insurer the conditions under which the insurer must pay for the risk it has assumed, namely the risk that the insured may require emergency services. (Miller, supra, 538 U.S. at p. 339, fn. 3.)

Second, section 1371.4 expands the number of providers from whom an insured may receive services. Under the statute, "a health care service plan shall not require a provider to obtain authorization prior to the provision of emergency services and care necessary to stabilize the enrollee's medical condition." (§ 1371.4, subd. (b).) Absent section 1371.4, an insured requiring emergency care bears the risk of receiving delayed care, or no care at all, if an emergency care provider must obtain authorization from the insurer before treatment. By prohibiting an insurer from requiring authorization before a provider renders emergency care, section 1371.4 expands the insured's access to hospitals "by removing [an] obstacle to treatment." (Louisiana Health Service & Indem. Co. v. Rapides Healthcare System (5th Cir. 2006) 461 F.3d 529, 545 [state law that removes an obstacle to treatment substantially affects risk pooling agreement between insurer and insured].)

Third, section 1371.4 alters the scope of permissible bargains between the insurer and insured by telling them what bargains are acceptable and what bargains are unacceptable. (Miller, supra, 538 U.S. at p. 338; Benefit Recovery Inc. v. Donelon (5th Cir. 2008) 521 F.3d 326, 331 [state law that tells parties what bargains are acceptable in an insurance contract substantially affects risk pooling arrangement].) Section 1371.4 tells the insurer and insured that they cannot enter into a bargain whereby the insurer only pays for emergency services rendered by providers inside the insured's network.

Based on the foregoing, we conclude that section 1371.4 meets Miller's two-part test for regulating insurance and, therefore, falls within the scope of ERISA's saving clause.

C. ERISA Section 514(b)(2)(B) -- Deemer Clause

We next turn to whether the "deemer clause" applies. If it applies in this case, then section 1371.4 is preempted. If it does not, then section 1371.4 is saved from preemption.

Under the "deemer clause," a state law that regulates "self-funded" ERISA plans, even if it regulates insurance within the meaning of the saving clause, is not "saved" from preemption. (FMC Corp. v. Holliday (1990) 498 U.S. 52, 61 (FMC).) A "self-funded" employee benefit plan "does not purchase an insurance policy from any insurance company in order to satisfy its obligations to its participants." (Id. at p. 54.)

Here, we are not dealing with a self-funded plan. A representative of Blue Cross averred in a declaration that "Blue Cross and [employer] are parties to a group healthcare plan, Group Plan No. [], established or maintained by [employer] for the purpose of providing medical, surgical and hospital care benefits to participants in this Group Plan." Thus, the "deemer clause" does not apply in this case because Patient X's group health plan purchased insurance from Blue Cross, an insurer, in order to satisfy its obligations to its participants, including Patient X. Because the "deemer clause" does not apply, the "saving clause" saves section 1371.4 from preemption.*fn11

For the foregoing reasons, we conclude that section 1371.4 is not subject to ordinary preemption under ERISA because it falls under the purview of ERISA's saving clause. Thus, the trial court committed reversible error by sustaining Blue Cross' demurrer to Coast Plaza's complaint.


The judgment is reversed and remanded for further proceedings consistent with this decision.*fn12 Coast Plaza shall recover its costs on appeal.


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