California court: Balance billing sometimes OK

A column analyzing the impact of recent court decisions on physicians

By Bonnie Boothis a longtime staffer and former editor of the Professional Issues section, left the paper to study law. She wrote the "In the Courts" column during 2005-08. Posted April 10, 2006.

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A California court has ruled that if a physician provides emergency services to a health plan enrollee and the doctor doesn't have a contract with the health plan, the physician can balance bill the patient for the reasonable cost of the services if the health plan doesn't provide adequate reimbursement.

The California Medical Assn., which filed amicus briefs on behalf of the physicians at the trial and the appellate court levels, called the ruling a significant victory for physicians.

A ruling in the other direction would have had "profound quality of care implications," according to the brief the CMA filed. By not allowing doctors to balance bill, the health plan was trying to force noncontracted physicians to accept reimbursement rates physicians have not had the opportunity to negotiate or might already have rejected, the association told the court.

"Empowering plans to dictate rates to noncontracting providers destroys any chance of real bargaining and, indeed, eliminates the plans' incentive to maintain contracted networks," the CMA wrote in its brief to the appellate court. "Plans may readily reject good-faith attempts to negotiate fair contracted rates, if they know that in the end their payment levels for noncontracting physicians can remain fairly low and that, because of the Emergency Medical Treatment and Labor Act, noncontracted emergency care providers will have to provide the services regardless of how unreasonable their rates may be."

But fortunately for physicians, the Court of Appeal of the State of California, Second Appellate District, upheld a lower court ruling that wouldn't let the IPA, Prospect Medical Group, stop two emergency physician groups from balance billing the plan's enrollees. The two physician groups, Northridge Medical Group and St. John's Emergency Medicine Specialists, have exclusive licenses at two California hospitals to provide emergency department care but do not have a contract with Prospect.

According to court records, Prospect sometimes paid the groups less than the amount the groups invoiced for emergency care of Prospect's enrollees. After Prospect paid what it believed reflected a "reasonable" amount for the physicians' services, the physician groups billed the patient for the difference. Prospect said billing patients was wrong and in 2003 sued St. John's and Northridge in Los Angeles Superior Court.

Determining a fair price

Prospect's lawsuits alleged that physicians from the two groups charged unreasonable rates for services they provided between September 2002 and July 2003. The complaints asked the court to issue an injunction preventing the physicians from balance billing the patients. The health plan alleged that the California Health and Safety Code prohibited doctors from balance billing.

Because the lawsuits were similar, the Superior Court assigned them to the same judge, who dismissed the complaints in December 2003. But Prospect appealed to the Court of Appeal, arguing that the trial court had erred in refusing to hear its case.

Lawyers for the health plan argued that the collision between a physician's statutory obligation to treat emergency department patients regardless of their insurance or ability to pay and a health plan's statutory obligation to reimburse emergency physicians for emergency care created an implied contract between the two parties that would be regulated under the California Health and Safety Code.

The code, Prospect argued, prohibits physicians who have contracted with managed care plans from balance billing patients for any amount above the amount agreed upon under the contract.

But the appeals court didn't buy it.

Instead, the court in February ruled that no such implied contract could be inferred.

It held that the code is based upon "traditional contract principles such as a meeting of the minds" and does not include within its scope implied contracts.

The justices noted that interpreting the code to include an implied contract would mean that every time an emergency department physician provided care to a patient covered by a health care plan with which the physician did not have a contract, the physician would be legally deemed to have entered into an implied contract with that health plan.

Such an interpretation would be "untenable," the court said, because the parties would be forced to negotiate contractual rights after the medical services were provided.

Medicare rate not appropriate

The court also refused to accept Prospect's contention that the emergency physicians were required to accept Medicare rates as full payment for their services.

It said Prospect had "provided no authority, statutory or otherwise," for the court to conclude that it can, or should, set the rates of emergency department physicians using any across-the-board mechanism, including Medicare rates.

The court noted that the California Dept. of Managed Health Care had adopted a six-part test for determining a rate for noncontracted physicians; consequently, the court said, using an across-the-board mechanism for setting payment levels would be inappropriate.

Prospect argued that the fee disputes in this case had occurred before the test was implemented, and therefore it would be appropriate to use the Medicare rate, but the appellate court disagreed. It noted that the DMHC in 2002, as part of its rule-making authority, said the Medicare rate was not appropriate.

One issue Prospect raised in its original lawsuit remains unresolved: whether the emergency physicians' charges were unreasonable. The appellate court sent that question back to Superior Court for a decision.

The appellate court ruled that because Prospect had a statutory obligation to reimburse the two emergency physician groups for the services provided, Prospect must have a forum to contest whether the rates charged were reasonable.

The court noted that the DMHC consistently had given doctors the opportunity to challenge a health plan's determination of what is reasonable payment to a physician. And, the judges said, it's a two-way street.

"Given that [physicians] have standing to litigate whether a health care services plan (or its delegate) is reimbursing too little, a delegate, like Prospect, must be able to litigate whether providers of health services, including emergency services, are charging reasonable rates," the court said in its opinion.

At press time, Prospect was one week away from asking the California Supreme Court to review the balance billing portion of the appeals court decision, said Prospect's attorney, Kenneth E. Johnson of Los Angeles-based Miller and Holguin.

He called the case a business dispute between Prospect and the doctors about what is a reasonable amount of charges, and he will argue that it is bad public policy to have patients stuck in the middle of these disputes.

Johnson said the litigation over whether the physicians' rates were unreasonable, which the appellate court returned to the trial court, will not take place until after the California Supreme Court has finished with the appeal -- either by refusing to hear it or by hearing it and issuing a decision.

Bonnie Booth is a longtime staffer and former editor of the Professional Issues section, left the paper to study law. She wrote the "In the Courts" column during 2005-08.

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