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Centinela Freeman Emergency Medical Associates v. Health Net of California, Inc.

California Court of Appeal, Second District, Third Division

February 19, 2014

HEALTH NET OF CALIFORNIA, INC., et al., Defendants and Respondents.


APPEAL from a judgment of the Superior Court of Los Angeles County, John Shepard Wiley, Judge. Reversed and remanded. (Los Angeles County Super. Ct. No. BC449056).

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[168 Cal.Rptr.3d 94] Michelman & Robinson, Andrew H. Selesnick and Jason O. Cheuk, Encino, for Plaintiffs and Appellants.

California Medical Association, Center for Legal Affairs, Francisco J. Silva, Long X. Do, Sacramento, and Michelle Rubalcava as Amicus Curiae on behalf of Plaintiffs and Appellants, California Medical Association, California Hospital Association, California Orthopaedic Association, California Radiological Society and California Society of Pathologists.

Astrid G. Meghrigian as Amicus Curiae on behalf of Plaintiffs and Appellants for California Chapter of the American College of Emergency Physicians.

Reed Smith, Margaret M. Grignon, Kurt C. Petersen, Kenneth N. Smersfelt and Zareh A. Jaltorossian, Los Angeles; Crowell & Moring, William A. Helvestine, Ethan P. Schulman, San Francisco, and Damian D. Capozzola, Los Angeles; Attorneys for Blue Cross of California dba Anthem Blue Cross; Jennifer S. Romano, Los Angeles, Attorney for Pacificare of California dba Secure Horizons Health Plan of America; Manatt, Phelps & Phillips, Gregory N. Pimstone, Joanna S. McCallum and Jeffrey J. Maurer, Los Angeles, Attorneys for California Physicians' Service dba Blue Shield of California; Gonzalez Saggio & Harlan LLP, Don A. Hernandez, La Canada-Flintr, and Jamie L. Lopez, Pasadena, Attorneys for SCAN Health Plan; Gibson, Dunn & Crutcher, Kirk A. Patrick and Heather L. Richardson, Los Angeles, Attorneys for Aetna Health of California; DLA Piper, William P. Donovan, Jr. and Matthew D. Caplan, Los Angeles, Attorneys for Cigna HealthCare of California, Inc., Defendants and Respondents.

Barger & Wolen, John M. LeBlanc and Sandra I. Weishart, Los Angeles, as Amicus Curiae on behalf of Defendants and Respondents, California Association of Health Plans.



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The law imposes a duty on emergency room physicians to treat patients regardless of their ability to pay. When those patients are enrollees in health care service plans (HMO's),[1] the law imposes an obligation on the HMO's to reimburse the physicians for emergency treatment provided to the enrollees, even when the physicians were not under contract to the HMO's. HMO's sometimes delegate their health care obligations to independent practice associations (IPA's); HMO's are statutorily permitted to delegate to IPA's their obligation to reimburse emergency physicians. In this case, the HMO's delegated responsibility for some of their enrollees to an IPA; [2] the delegation included the duty to reimburse emergency physicians. At some point, the IPA began experiencing financial problems and, after a number of years, ultimately ceased operating as a going concern. As the IPA's financial problems increased, it failed to reimburse physicians who had provided emergency services to its enrollees. The unpaid emergency physicians sought payment from the HMO's, which simply instructed the physicians to continue presenting their bills to the IPA, even though it was clear that the IPA [168 Cal.Rptr.3d 95] would not be able to pay those bills. As they were required to do by law, the physicians continued to render emergency services to enrollees in the IPA, and the IPA continued to fail to reimburse them.

The physicians brought suit against the HMO's, alleging a cause of action for, among other things, negligent delegation. The HMO's successfully demurred to the complaint, and the physicians appeal. We hold that where: (1) a physician is obligated by statute to provide emergency care to a patient who

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is enrolled in both an HMO and an IPA with whom the physician has no contractual relationship; (2) the physician provides emergency care to the patient; (3) the HMO, which has a statutory duty to reimburse the physician, chose to delegate that duty to an IPA it knew, or had reason to know, would be unable to fulfill the delegated obligation; and (4) the IPA fails to make the necessary reimbursement, the resulting loss should be borne by the HMO and not the physician. In short, we hold that the HMO has a duty not to delegate its obligation to reimburse emergency physicians to an IPA it knows or has reason to know will be unable to pay. This duty is a continuing one, and is breached by an HMO's failure to act when it learns, after an initial delegation, that its delegatee is no longer able to fulfill its obligations. As the physicians have alleged sufficient facts to reflect the existence of a claim for a negligent delegation by the HMO's in this case, and/or a negligent failure to timely reassume a delegated obligation, we will reverse the judgment and remand the matter for further proceedings.


1. The Parties

As this case was resolved on demurrer, we consider the facts as pleaded by the emergency physicians and all reasonable inferences arising therefrom. This appellate matter arises out of two separate, but related, cases. Both cases arose out of the failure of three related IPA's, known collectively by the parties as " La Vida." [3] La Vida was alleged to have contracted with a number of HMO's, known, collectively, as " the HMO's" or " the plans." [4]

The plaintiffs are two different groups of physicians. In one case, the plaintiffs are several partnerships of emergency room physicians working at several hospitals.[5] In the other case, the plaintiff is a medical group of radiologists,[6] who also allegedly perform medical services on an emergency

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basis. None of the plaintiff physician groups are alleged to have contracted with La Vida or any of the [168 Cal.Rptr.3d 96] HMO's.[7] As a result, our reference in this opinion to " plaintiffs" is limited to the physicians who have performed emergency room medical services and emergency radiological services for enrollees of the defendant HMO's and who do not have any contractual relationship with such HMO's or La Vida. Our references to " emergency physicians" refer, in general, to physicians who provide emergency services to enrollees in HMO's and IPA's with whom the physicians have no contractual relationship.[8]

2. Law Governing HMO's and IPA's

In order to understand plaintiffs' allegations, a brief background in the law governing HMO's and IPA's is helpful. HMO's are governed by the Knox-Keene Health Care Service Plan Act of 1975 (Knox-Keene Act). (Health & Saf.Code, § 1340; Van de Kamp v. Gumbiner (1990) 221 Cal.App.3d 1260, 1269, 270 Cal.Rptr. 907.) While the Knox-Keene Act had many goals, two of them identified by the Legislature were: (1) " [h]elping to ensure the best possible health care for the public at the lowest possible cost by transferring the financial risk of health care from patients to providers" (Health & Saf.Code, § 1342, subd. (d)); and (2) " [e]nsuring the financial stability [of HMO's] by means of proper regulatory procedures." (Health & Saf.Code, § 1342, subd. (f).) As to the former, HMO's are required to provide basic health care services to their enrollees. (Health & Saf.Code, § 1367, subd. (i).) This requirement includes emergency health care services. (Health & Saf.Code, § 1345, subd. (b)(6).) As to the latter legislative goal, HMO's must prove to the Department of Managed Health Care (Department) that they are financially sound. (Health & Saf.Code, § 1375.1, subd. (a)(1).)

An HMO may contract with an IPA, which is considered a type of " risk-bearing organization." (Health & Saf.Code, § 1375.4, subd. (g)(1).)

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The IPA is a group of physicians that contracts with an HMO to provide services for the plan's enrollees, for which it receives compensation on a capitated or fixed payment basis. ( Ibid. ) As a risk-bearing organization, the IPA is also statutorily responsible for processing and paying claims made by physicians for services rendered by those physicians that are covered under the payments made by the plan to the IPA. ( Id. at subd. (g)(1)(C).)

As HMO's which contract with IPA's are, basically, transferring responsibility for some or all of their enrollees to the IPA's, the IPA's are subject to certain [168 Cal.Rptr.3d 97] financial condition requirements. Indeed, in determining whether an HMO is financially sound, the Department is to consider the " financial soundness of the plan's arrangements for health care services" and its agreements with providers. (Health & Saf.Code, § 1375.1, subds. (b)(1) & (b)(3).) Moreover, the Knox-Keene Act imposes specific requirements on any contract between an HMO and an IPA, including a contractual provision requiring the IPA to provide regular financial information to the HMO to " assist the [HMO] in maintaining the financial viability of its arrangements for the provision of health care services...." (Health & Saf.Code, § 1375.4, subd. (a)(1).) The Department has also promulgated regulations requiring the IPA to make direct financial reports to the Department. (Cal.Code Regs., tit. 28, § 1300.75.4.2.)

There are minimal financial criteria which every IPA must meet on a regular basis. (Health & Saf.Code, § 1375.4, subd. (b)(1)(A).) Should the IPA fail to meet those requirements, the IPA and the HMO's with which it contracts should agree to a " corrective action plan," approved by the Department, [9] designed to bring the IPA back into compliance. (Health & Saf.Code, § 1375.4, subd. (b)(4).)

When an HMO's contract with its IPA requires the IPA to pay claims, regulations impose certain conditions on the contract. Among other things, the contract must require the IPA to submit to the plan a quarterly claims payment performance report 30 days after the close of each quarter, disclosing its compliance status with relevant statutes. (Cal.Code Regs., tit. 28, § 1300.71, subd. (e)(3)(i).) The IPA's quarterly report shall include records of each physician dispute the IPA received, and the disposition of each dispute. ( Id. at subd. (e)(3)(ii).) Finally, the contract shall include a provision " authorizing the plan to assume responsibility for the processing and timely reimbursement of provider claims in the event that the [IPA] fails to timely and accurately reimburse its claims." ( Id. at subd. (e)(6).) The regulation further

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indicates that the plan's " obligation to assume responsibility for the processing and timely reimbursement of ... claims may be altered to the extent that the [IPA] has established an approved corrective action plan...." [10] ( Ibid. )

3. Law Governing Emergency Medical Services and Reimbursement Therefor

Under state and federal law, emergency services and care " shall be provided to any person requesting the services or care" at any hospital with appropriate facilities and qualified personnel. (Health & Saf.Code, § 1317, subd. (a); 42 U.S.C. § 1395dd(b).) Such services and care are to be provided without regard to the patient's " insurance status, economic status [or] ability to pay." (Health & Saf.Code, § 1317, subd. (b).) Indeed, the emergency services and care shall be provided without first questioning the patient as to insurance or ability to [168 Cal.Rptr.3d 98] pay. (Health & Saf.Code, § 1317, subd. (d); 42 U.S.C. § 1395dd(h).)

As the Knox-Keene Act requires emergency services and care to be provided without questioning the patient as to insurance or ability to pay, the Act also requires that, when emergency services have been provided to plan enrollees, the HMO or its IPA " shall reimburse" the physicians.[11] (Health & Saf.Code, § 1371.4, subd. (b).) That section also provides that " [a] health care service plan may delegate the responsibilities enumerated in this section to the plan's contracting medical providers." [12] (Health & Saf.Code, § 1371.4, subd. (e).)

4. Allegations of the Complaints

We now turn to the allegations of the two complaints. Plaintiffs allege that, pursuant to their statutory duties, they provided services and care on an emergency basis to La Vida enrollees. Plaintiffs allege that they provided emergency services to La Vida enrollees in the HMO's, although plaintiffs

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were not parties to any provider agreement with either La Vida or the HMO's. After plaintiffs provided emergency services to La Vida enrollees, they sought reimbursement from La Vida.

According to the allegations of the complaints, however, La Vida was unable to pay. It is unclear at what point La Vida became financially unsound. Plaintiffs allege, however, that at the time the HMO's delegated their responsibilities to La Vida and throughout the duration of those contracts, the HMO's " knew or should have known of La Vida's insolvency based on [1] financial reports submitted periodically by La Vida, [2] notice directly from La Vida and indirectly from Plaintiffs and other health care providers, and [3] the inadequate amounts of their own capitation payments to La Vida." Nonetheless, the HMO's " delegated and continued delegating their payment obligations to La Vida." [13]

Plaintiffs allege that " [r]ather than helping to resolve the growing number of Plaintiffs' unpaid claims, the [HMO's] instead advised Plaintiffs to continue submitting claims directly to La Vida and continued their insufficient capitation payments, despite lacking any reasonable expectation that Plaintiffs' claims would be properly reimbursed and the mountain of evidence to the contrary." This allegedly continued until mid-2010, when the HMO's ultimately terminated their contracts with La Vida. Thereafter, La Vida went out of business.

As against the HMO's,[14] plaintiffs alleged causes of action for negligence, unfair competition, quantum meruit, open book account, and services rendered. Both groups of plaintiffs were represented [168 Cal.Rptr.3d 99] by the same counsel, and the two ...

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