Profession

California courts to sort out balance-billing issues

Two cases have evolved from confusion over a state law that bans the practice for contracted care but is less clear on noncontracted care.

By Amy Lynn Sorrel — Posted Aug. 18, 2008

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Disagreements over the scope of a California law regulating balance billing have fueled an ongoing legal fight that has physicians demanding more accountability from health insurers they say routinely underpay for noncontracted care.

In the latest feud, state insurance regulators sued Prime Healthcare Services to stop the hospital system from billing patients for out-of-network emergency care costs not covered by health plans. The lawsuit, filed in June, comes amid confusion over a state law that generally bans the practice for contracted care but is less clear when it comes to noncontracted services. In a separate case, the state Supreme Court is poised to clarify the issue, as physicians, insurance regulators and health plans weigh in on opposing sides.

The California Dept. of Managed Health Care alleged Prime Healthcare illegally billed as many as 6,000 Kaiser Permanente members for outstanding balances the hospital chain claims it was owed by the insurer. The lawsuit also mentions similar actions against members of several other health plans. Prime Healthcare denied any wrongdoing.

"Prime Healthcare's ongoing practice of putting consumers in the middle of billing disputes between providers and health plans is the largest example of this egregious practice we've seen to date, and it must be stopped," DMHC Director Cindy Ehnes said in a statement. "Consumers who have purchased health coverage in good faith deserve to know that it will cover them in a medical emergency and not result in crushing medical debt."

The DMHC contends state law prohibits balance billing for emergency care because doctors and hospitals that are not part of a health plan have an implied contract to treat patients in emergencies -- as required by federal law -- and insurers are legally obligated to pay for those services.

But doctors say that interpretation would allow health plans to reimburse whatever they please and force noncontracted physicians to accept unfair rates for emergency services they are obligated to provide.

"If insurers are allowed to unilaterally [set payment rates] and physicians have no way to respond, [insurers] can underfund not only physicians themselves, but the whole health care delivery system," said Francisco Silva, general counsel to the California Medical Assn. The CMA is not involved in the DMHC's lawsuit.

"Right now the burden is on physicians to chase the money, and it should be reversed because insurers are supposed to bear the risk and be responsible for paying their enrollees' bills," Silva said.

As the Dept. of Managed Health Care pursues regulations to ban balance billing altogether -- following a 2006 order from Gov. Arnold Schwarzenegger -- the CMA continues to advocate for alternatives that would require insurers to pay a bill in full before resolving disputes over the amount, whether through arbitration or court. Silva noted that New Jersey and Colorado have similar measures.

Doctors and hospitals maintain that balance billing for emergency services is legal, pointing to a 2006 appeals court ruling.

Judges found state law did not prohibit balance billing outside of a contractual relationship because the law applied only to written contracts. "The term 'contracting provider' refers to physicians who have freely negotiated a contract with health care service plans," the court said.

High court resolution is pending

The decision was appealed, and the state Supreme Court will resolve the dispute over the scope of the law. Oral arguments have not been scheduled.

The CMA filed a friend-of-the-court brief in the case supporting the appeals court's interpretation. The DMHC maintains its stance in an opposing brief.

Michael J. Sarrao, Prime Healthcare's vice president and general counsel, contended the DMHC's lawsuit was invalid in light of the appeals court ruling. "The simple way to keep patients out of the middle is to have HMOs pay fairly and properly," he said.

Prime Healthcare sued Kaiser in January, claiming it was owed as much as $28 million.

A trial court in June ordered Prime Healthcare to stop billing Kaiser's members pending the outcome of the lawsuit. Prime Healthcare is considering an appeal.

Kaiser alleged, among other things, that the hospital system inflated its bills. Sarrao denied the allegation, saying Prime Healthcare's fees were "consistent with market rates."

Health plans, meanwhile, say they have a duty to balance providing fair compensation for doctors and hospitals with keeping health care affordable for patients.

Part of the problem is that "there is a very wide variety of what hospitals and physicians are charging for the same procedure, even in the same region," said Nicole Evans, a spokeswoman for the California Assn. of Health Plans.

The group also filed a friend-of-the-court brief in the state Supreme Court supporting the DMHC's view.

Evans said payment quarrels should be addressed between plans and doctors through an independent dispute resolution process to "keep patients out of the middle."

DMHC spokeswoman Lynne Randolph said the agency also is considering measures to help define the value of medical services.

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ADDITIONAL INFORMATION

Case at a glance

Does California law prohibit balance billing by out-of-network emergency physicians?

The state Supreme Court will decide.

Impact: Physicians say banning the practice would give insurers license to underpay for noncontracted emergency care, which doctors are obligated to provide under federal law. State insurance regulators and health plans say balance billing unfairly puts patients in the middle of payment disputes.

Prospect Medical Group v. Northridge Emergency Medical Group, California Supreme Court

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