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Children's Hospital Central California v. Blue Cross of California

California Court of Appeals, Fifth District

June 10, 2014

CHILDREN

APPEAL from a judgment of the Superior Court No. MCV048512 of Madera County. Dale J. Blea, Judge.

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COUNSEL

Reed Smith, Margaret M. Grignon; Wilke Fleury Hoffelt Gould & Birney, Thomas G. Redmon, Curtis S. Leavitt, Daniel L. Baxter; Kennaday, Leavitt & Daponde and Curtis S. Leavitt for Defendants and Appellants.

Marion’s Inn, Kennedy P. Richardson and Mark Palley for California Association of Health Plans as Amicus Curiae on behalf of Defendants and Appellants.

Hooper, Lundy & Bookman, Glenn E. Solomon and Lillie A. Werner for Plaintiff and Respondent.

DLA Piper, Stephen L. Goff, Todd M. Noonan; and Jana Dubois for California Hospitals Association as Amicus Curiae on behalf of Plaintiff and Respondent.

OPINION

LEVY, Acting P.J.

This appeal concerns a dispute between respondent Children’s Hospital Central California (Hospital), and appellants Blue Cross of California and Blue Cross of California Partnership Plan, Inc. (Blue Cross), over the reasonable value of the post-stabilization emergency medical services provided by Hospital to Medi-Cal beneficiaries enrolled in Blue Cross’s Medi-Cal managed care plan. The services at issue were rendered during a 10-month period when Hospital and Blue Cross did not have a written contract that covered those beneficiaries.

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Blue Cross paid Hospital approximately $4.2 million based on the Medi-Cal rates paid by the government. However, Hospital demanded its full billed charges of $10.8 million. The jury found there was an implied-in-fact contract between Hospital and Blue Cross and awarded Hospital approximately $6.6 million, the difference between the full billed charges and the $4.2 million Blue Cross had already paid.

Blue Cross contends the damages award was the result of erroneous discovery and evidence rulings that were predicated on the trial court’s misconstruction of California Code of Regulations, title 28, section 1300.71, subdivision (a)(3)(B) (hereafter section 1300.71(a)(3)(B)). This regulation defines “Reimbursement of a Claim” for non-contracted providers as the payment of “the reasonable and customary value for the health care services rendered.” (§ 1300.71(a)(3)(B).) This value is based on several factors. According to Blue Cross, the trial court incorrectly concluded that section 1300.71(a)(3)(B) provided the exclusive standard for determining the reasonable and customary value of the medical services in this action. Blue Cross is correct. Because of this error, the evidence of the reasonable and customary value was improperly limited to Hospital’s full billed charges. This error was prejudicial. Accordingly, the case will be reversed and remanded for a retrial on damages.

BACKGROUND

Hospital specializes in providing medical services to children. Approximately 75 percent of Hospital’s patients are in Medi-Cal programs. Hospital has a contract with the State Department of Health Care Services (DHCS), the responsible state agency, to render services to the majority of these Medi-Cal patients in the fee for service Medi-Cal plan. Under this program, Hospital is paid the average California Medical Assistance Commission (CMAC) rate for the geographic region for the services it performs.

However, Hospital also serves Medi-Cal patients who are enrolled in a Medi-Cal managed care plan. Unlike the fee for service plan, with a managed care plan the DHCS does not pay for services actually rendered. Rather, the DHCS pays a fixed rate per person per month to the health plan, whether or not services are rendered. (Lackner v. Department of Health Services (1994) 29 Cal.App.4th 1760, 1762, fn. 2 [35 Cal.Rptr.2d 482].) When services are rendered, the health plan pays the provider.

Blue Cross contracts with the DHCS to provide a Medi-Cal managed care plan. Accordingly, the DHCS pays Blue Cross a negotiated rate per month

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per beneficiary enrolled in Blue Cross’s plan. In turn, Blue Cross manages that beneficiary’s health care service needs. This management includes entering into contracts with various health care providers.

Up until July 2007, Hospital and Blue Cross had a written contract setting rates for inpatient and outpatient medical services provided to Blue Cross Medi-Cal beneficiaries. However, after that contract expired on July 31, 2007, the parties were unable to agree on the contract terms. Eventually, the parties entered into a new contract effective June 1, 2008. Accordingly, there was a 10-month period during which Hospital and Blue Cross had no written contract.

During this off-contract period, Hospital was required to provide emergency services to Blue Cross Medi-Cal beneficiaries under federal and state law. A hospital with an emergency department must provide a patient with “an appropriate medical screening examination” and “such treatment as may be required to stabilize” any emergency medical condition without regard to the patient’s insurance or ability to pay. (42 U.S.C. § 1395dd(a), (b); see Health & Saf. Code, § 1317.) Further, a hospital generally may not transfer or discharge a patient until it has been determined that the emergency medical condition has been stabilized. (42 U.S.C § 1395dd(c), (e)(3); Health & Saf. Code, §§ 1317.1, subd. (j). 1317.2.)

Blue Cross, as a Medi-Cal managed care organization, had a corresponding obligation to pay for emergency services rendered to the Medi-Cal beneficiaries enrolled in its plan during the off-contract period. (42 U.S.C § 1396u-2(b)(2)(A); Health & Saf. Code, § 1371.4; Prospect Medical Group, Inc. v. Northridge Emergency Medical Group (2009) 45 Cal.4th 497, 504 [87 Cal.Rptr.3d 299, 198 P.3d 86] (Prospect).) This obligation continued until such time as the enrollees could be transferred to a contracted provider or discharged. (Welf. & Inst. Code, § 14454, subd. (a).) Hospital, as the provider of those emergency services without a contract with Blue Cross, was required to accept as payment in full the amount the DHCS would have paid directly for emergency services under the Medi-Cal fee for service system, i.e., the average CMAC rate. (42 U.S.C. § 1396u-2(b)(2)(D.)

However, once the treating provider has determined that the emergency medical condition has been stabilized, a Medi-Cal managed care organization’s obligation to pay for emergency services ends and the organization “may require prior authorization as a prerequisite for payment for necessary” post-stabilization medical care. (Health & Saf. Code, § 1371.4, subd. (c).) “[I]f the hospital emergency department or emergency physician

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fails to obtain prior authorization, ” the managed care organization “may deny reimbursement.” (Cal. Code Regs., tit. 22, § 53855, subd. (a).) But, upon receipt of a request from an out of contract hospital for authorization for post-stabilization medical care, the Medi-Cal managed care organization must render a decision within 30 minutes, or “the request shall be deemed to be approved.” (Ibid.)

Here, during the off-contract period, 896 Blue Cross Medi-Cal beneficiaries received emergency care at Hospital followed by post-stabilization inpatient medical services. Blue Cross paid Hospital for the emergency medical care at the average CMAC rate as required by statute. These payments are not in dispute.

Hospital also submitted claims to Blue Cross for the post-stabilization services provided to the 896 Blue Cross Medi-Cal beneficiaries. Blue Cross paid those claims at the average CMAC rate of $1, 275 per day. When in October 2008, the DHCS established a new CMAC rate of $1, 779 per day retroactive to services rendered on or after January 1, 2007, Blue Cross made an additional payment to Hospital covering the difference. In total, Blue Cross paid $4, 211, 958 to Hospital for post-stabilization services provided to Blue Cross Medi-Cal beneficiaries during the off-contract period.

Hospital filed this action in July 2009 seeking additional payments from Blue Cross. Hospital alleged that: it had provided emergency and post-stabilization medical services to Blue Cross Medi-Cal beneficiaries during the off-contract period; it had timely requested pre-authorization from Blue Cross to provide post-stabilization services to these beneficiaries; and Blue Cross had failed to either appropriately respond or arrange for the patients’ transfer, or had approved the requests. Hospital further alleged that, by its actions, Blue Cross had impliedly agreed to pay the reasonable and customary value for all the post-stabilization services provided to its Medi-Cal beneficiaries.

In alleging that it was entitled to the reasonable and customary value for these post-stabilization services, Hospital relied on section 1300.71(a)(3)(B). This regulation provides that, for non-contracted providers, the reimbursement of a claim means

“the payment of the reasonable and customary value for the health care services rendered based upon statistically credible information that is updated at least annually and takes into consideration: (i) the provider’s training, qualifications, and length of time in practice; (ii) the nature of the services provided; (iii) the fees usually charged by the provider; (iv) prevailing provider rates charged in the ...


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