Centinela Freeman Emergency Med. Assocs. v. Health Net of Cal., Inc. — Nov. 2016 (Summary)

HEALTH PLANS

Centinela Freeman Emergency Med. Assocs. v. Health Net of Cal., Inc.
No. S218497 (Cal. Nov. 14, 2016)

The Supreme Court of California affirmed the Court of Appeal’s order holding that a health care service plan may be liable to noncontracting emergency service providers for negligently delegating its financial responsibility to an individual practice association (“IPA”) or other contracting medical provider group that it knew or should have known would not be able to pay for emergency service and care provided to the health plan’s enrollees.

Two health care service plans delegated their emergency services financial responsibility to contracting medical providers.  Their contracting medical providers were three IPAs.  After the IPAs contracted with the health care service plans, they failed to comply with multiple state financial solvency requirements, resulting in their failure to reimburse noncontracting service providers for the emergency care that they provided to enrollees of the health care service plans.  The providers brought a claim against the health care service plans alleging that they knew or should have known that the IPAs were insolvent, that they lacked any reasonable expectation that the IPAs would reimburse the providers, and that they should be held responsible for the reimbursements.  To the contrary, the plans believed once they delegated their financial duty to the IPAs, they owed no further duty of care to the providers.

Health care service plans are governed by the Knox-Keene Health Care Service Plan Act of 1975.  The Act expressly allows contracts in which health care service plans delegate to the plans’ contracting medical providers the plans’ financial responsibility to reimburse emergency service providers’ claims.  Under this delegation, noncontracted emergency service providers are entitled to reimbursement at the reasonable and customary rate for the emergency services they perform.  Allowing delegation also carries the risk that the provider group, or IPA, will become insolvent.  Solvency regulations provide that every plan must have adequate procedures in place to ensure that it undertakes appropriate review of its financial status and appropriate action in the event of any notification of deficiency.  The solvency regulations do not prevent a health care service plan from terminating its risk arrangement contract if the provider group is fiscally unsound.  Under both the Act and the regulations, providers play no role, and must continue to provide services regardless of the arrangements, but neither the Act nor the regulations preclude the existence of a duty to pay the providers regardless.

The court used the six-factor test laid out in Biakanja to determine that the plans owed a duty to the providers to reimburse their claims if the IPAs to which they delegated their financial responsibility became insolvent.  They held that the health care service plans owe a duty of care to noncontracting emergency service providers when they enter their initial delegation contracts with IPAs.  They further held that a health care service plan’s duty to reassume the financial responsibility it has delegated to a contracting medical provider group is triggered by the plan’s receipt of information through which the plan becomes aware or should become aware that there can be no reasonable expectation that its delegate will be able to reimburse covered claims from noncontracting emergency service providers.  By imposing a continuing duty of care on health care service plans, future economic harm to noncontracting emergency service providers can be prevented.