Foley & Lardner LLP

13 January 2009
Legal News: Health Care

California Supreme Court Prohibits Balance Billing by Non-Contracting Emergency Room Physicians

On January 8, 2009, the California Supreme Court (Court) issued its decision in Prospect Medical Group, Inc. v. Northridge Emergency Medical Group, et al., a closely watched case that raised the issue of whether emergency room (ER) physicians who have not contracted with a health maintenance organization (HMO) may bill the HMO’s members for the balance of the physicians’ billed charges that were not paid by the HMO. This practice, known as “balance billing,” has generated a great deal of controversy over the last several years. In a unanimous ruling, the Court held that non-contracting ER physicians — and, by implication, certain other non-contracting emergency services providers — may not balance bill HMO beneficiaries.

Background
The case involved a lawsuit filed by Prospect Medical Group, Inc., (Prospect), an independent practice association (IPA), against two ER medical groups, Northridge Emergency Medical Group and St. John’s Emergency Medicine Specialists, Inc. (collectively, Emergency Physicians). Pursuant to agreements with certain HMOs, Prospect had assumed the financial risk for the payment of emergency services for the HMOs’ members and was obligated to pay for emergency services provided to these members. However, Prospect did not have contracts with the Emergency Physicians.

After the Emergency Physicians had provided emergency medical care to HMO members, they submitted reimbursement claims to Prospect. In some cases, Prospect paid less than the Emergency Physicians’ billed charges and in those situations, the Emergency Physicians then balance billed the HMO members for the unpaid balance of the charges. After disputes arose between Prospect and the Emergency Physicians over this and other issues, Prospect filed two related actions against the Emergency Physicians, seeking among other matters, a judicial determination that practice of balance billing was unlawful. The trial court and court of appeal both ruled in favor of the Emergency Physicians on this issue, holding that the Knox-Keene Health Care Service Plan Act of 1975 (the Act) (http://wpso.dmhc.ca.gov/regulations/#statutes#statutes) permits non-contracting ER physicians to balance bill HMO members.

The Supreme Court’s Decision
The Court reversed the lower courts, holding that:

Billing disputes over emergency medical care must be resolved solely between emergency room doctors, who are entitled to reasonable payment for their services, and the HMO, which is obligated to make that payment. A patient who is a member of an HMO may not be injected into the dispute. Emergency room doctors may not bill the patient for the disputed amount.

In its discussion, the Court first focused on Section 1379 of the Act. That section provides:

(a) Every contract between a plan and a provider … shall be in writing, and shall set forth that in the event the plan fails to pay for heath care services as set forth in the subscriber contract, the subscriber or enrollee shall not be liable to the provider for any sums owed by the plan.

(b) In the event that the contract has not been reduced to writing as required by this chapter or that the contract fails to contain the required prohibition, the contracting provider shall not collect or attempt to collect from the subscriber or enrollee sums owed by the plan.

(c) No contracting provider … may maintain any action at law against the subscriber or enrollee to collect sums owed by the plan.

The Emergency Physicians argued that because no contract existed between them and Prospect, this statute did not apply. Prospect contended that although there was not an express contract, an implied contract existed between the parties, thereby triggering the Act’s prohibition against balance billing.

The Court held that Section 1379, originally enacted in 1975 and never amended, does not readily apply to the precise situation raised by Prospect, and that the legislature had not contemplated this precise situation. The Court held, however, that analysis of the overall statutory scheme compelled the conclusion that balance billing should be prohibited. The Court observed that since the enactment of the balance billing ban in 1975, the Act had been amended to impose new obligations on HMOs and providers with respect to emergency care. The Court noted that, for many years, physicians have been obligated to provide emergency care without advance payment arrangements, and HMOs have been obligated to pay for that care. More recently, in 2005, an appellate court in Bell v Blue Cross of California (Bell) held that certain provisions of the Act permit ER physicians to sue HMOs directly over billing disputes. The Court observed that “[t]hese provisions strongly suggest that doctors may not bill patients directly when a dispute arises between doctors and the HMOs.”

The Court also pointed to other provisions, including a section in the Act that requires: (1) ER doctors to render emergency care without questioning a patient’s ability to pay; and (2) provides that patients or their responsible parties must execute an agreement to pay for services “or otherwise supply insurance or credit information promptly after the services are rendered” (emphasis in original). The Court observed that this provision “implies that once patients who are members of an HMO provide insurance information, they have satisfied their obligation towards the doctors.” The Court further stated that the legislature had required that HMOs ensure that a dispute-resolution mechanism be accessible to non-contracting providers for the purpose of: (a) resolving billing and claims disputes and (b) protecting the interests of non-contracting providers by prohibiting HMOs from engaging in unfair payment patterns involving unjust payment reductions, claims denials, and other defined unfair practices.

Interpreting this statutory scheme as a whole, the Court concluded that “doctors may not bill a patient for emergency services that the HMO is obligated to pay.”

The Emergency Physicians, and others supporting their position, argued that balance billing is necessary to ensure that ER physicians receive adequate compensation for their services. The Court rejected this argument, noting that the question of the adequacy of compensation paid to ER physicians was not before it and stated that as a result of the Bell decision, doctors have the right to resolve their disputes over the adequacy of compensation directly with HMOs, instead of placing patients in the middle of the dispute.

While the Prospect case was pending, the California Department of Managed Health Care (DMHC) adopted a regulation that defines balance billing as an unfair billing pattern. The Emergency Physicians argued that DMHC would not have enacted the regulation if the Act already prohibited balance billing. The Court held that the passage of the regulation was not relevant to the outcome of the case.

In a footnote to its decision, the Court implicitly recognized that although the decision arose in the context of a dispute involving ER physicians, its holding also applies to other non-contracting emergency providers, including hospitals, hospital-based physicians, and physicians who provide on-call services to HMO members in a hospital’s ER. However, the decision does not affect the ability of non-contracting ambulance providers to balance bill HMO members, since Section 1367.11 of the Act specifically authorizes them to do so.

Conclusion
The Prospect decision resolves a major and longstanding issue that has generated controversy within California’s managed care system for years. While the decision represents good news for HMOs, their delegated IPAs, and HMO members, it is not welcomed by ER physicians and other non-contracting emergency providers, who lose the benefit of balance billing as a tool to assist in collecting their charges from HMOs. The decision also may increase pressure on the legislature and DMHC to provide a fair and final alternative dispute resolution mechanism for resolving disagreements between HMOs and non-contracting providers over the reasonable value of their services.


Legal News Alert is part of our ongoing commitment to providing up-to-the-minute information about pressing concerns or industry issues affecting our health care clients and colleagues. If you have any questions about this alert or would like to discuss this topic further, please contact your Foley attorney or any of the following individuals:

Charles B. Oppenheim
Los Angeles, California
310.975.7790
coppenheim foley.com

Michael Scarano
San Diego/Del Mar, California
858.847.6712
mscarano foley.com

Judith A. Waltz
San Francisco, California
415.438.6412
jwaltz foley.com

Carl Weissburg
Los Angeles, California
310.975.7750
cweissburg foley.com