Desert Healthcare Dist. v. Pacificare, FHP, Inc.

Desert Healthcare Dist. v. Pacificare, FHP, Inc.,
No. E026961 (Cal. Ct. App. Nov. 30, 2001)

A hospital sued a health care service plan for fees owed on services the hospital
provided to the plan’s members. The health plan entered into a capitation agreement
with a physician’s association to provide physicians and obtain hospital services.
The physician’s association then contracted with the plaintiff hospital to obtain
hospital services for the health plan’s subscribers. The physician’s association
owed the hospital millions of dollars for services provided when it filed for
bankruptcy and extinguished its debt. The hospital argued that the health plan
was liable for the fees owed to it by the physician’s association, that the
plan violated a duty to ensure the financial stability of the physician’s association,
and that the plan violated the unfair competition law. The trial court dismissed
the complaint and the hospital appealed.

The Court of Appeal, Fourth District, California affirmed the trial court’s
ruling. The court held that the state statute regulating health service plans
merely imposes certain procedural requirements on the processing of claims;
it does not create a new, independent basis for liability. The court additionally
held that there was no duty on behalf of the plan to ensure the financial viability
of the physician’s association. The court found that the hospital, as a large
entity knowledgeable about the intricacies of health care finance, was capable
of protecting itself from losses through diligence, prudence and by exercising
its own considerable contracting power. Finally, the court ruled that judicial
intervention under the plaintiff hospital’s unfair competition claim would be
improper, as it would require the court to determine the appropriate levels
of capitation and oversight between health plans and risk-bearing entities,
which it is ill-equipped to do.

(For a related decision, see California
Med. Ass’n, Inc. v. Aetna U.S. Healthcare of Cal., Inc.)