Long Beach Memorial Medical etc. v. Kaiser Foundation Health Plan ( 2021 )

Filed 11/4/21
CERTIFIED FOR PARTIAL PUBLICATION*
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
SECOND APPELLATE DISTRICT
DIVISION TWO
LONG BEACH MEMORIAL B304183, consolidated with
MEDICAL CENTER et al., B306322
Plaintiffs and Appellants, (Los Angeles County
Super. Ct. No. NC061310)
v.
KAISER FOUNDATION
HEALTH PLAN, INC., et al.,
Defendants and
Appellants.
APPEAL from a judgment and a postjudgment order of the
Los Angeles Superior Court, Michael P. Vicencia, Judge.
Judgment affirmed; postjudgment order reversed and remanded
for further proceedings.
* This opinion is published as to all but Sections IV and V of
the Discussion.
Jones Day, Erica L. Reilley, David J. Feder, Kevin L.
Kenney; Payne & Fears, C. Darryl Cordero, Robert C. Leventhal,
Damon Rubin, and Randy R. Haj for Plaintiffs and Appellants.
King & Spalding, Marcia Augsburger, Daron Tooch, Anne
Voigts, and Amanda Hayes-Kibreab for California Hospital
Association, Sharp Healthcare, Natividad Medical Center,
Pomona Valley Hospital Medical Center, and Kaweah Delta
Health Care District as Amici Curiae on behalf of Plaintiffs and
Appellants.
Manatt, Phelps & Phillips, Gregory N. Pimstone, Joanna S.
McCallum, John T. Fogarty, Marina Shvarts; Kellog, Hansen,
Todd, Figel & Frederick, David C. Frederick, Daniel G. Bird,
Joseph L. Wenner, and Jayme L. Weber for Defendants and
Appellants.
******
Under federal and state law, a hospital is required to
provide “necessary stabilizing treatment” for any person in an
“emergency medical condition.” (42 U.S.C. § 1395dd, subd. (b);
Health & Saf. Code, § 1317, subd. (a).)1 If that person is covered
by a health care service plan, California’s Knox-Keene Health
Care Service Plan Act of 1975 (the Knox-Keene Act) (§ 1340 et
seq.) requires the plan to reimburse the hospital for providing
such “emergency services and care.” (§ 1371.4, subd. (b).) The
amount of reimbursement depends upon whether the hospital
and plan already have a contract in place: If they do, the plan
must pay the “agreed upon” contractual rate (Cal. Code Regs., tit.
1 All further statutory references are to the Health and
Safety Code unless otherwise indicated.
2
28, § 1300.71, subd. (a)(3)(A)); if they do not, the plan must pay
the “reasonable and customary value for the [emergency] health
care services rendered” (id., subd. (a)(3)(B)). If a plan without a
contract pays reimbursement that the hospital believes is below
the “reasonable and customary value,” the hospital may sue the
plan in quantum meruit for the shortfall. (Prospect Medical
Group, Inc. v. Northridge Emergency Medical Group (2009) 45
Cal.4th 497, 505 (Prospect Medical).)
This appeal raises three issues of first impression
regarding the scope of a hospital’s lawsuit to collect
reimbursement from a plan with which it has no contract, as well
as the law applicable in that lawsuit. First, in addition to
quantum meruit, may a hospital sue for the tort of intentionally
paying an amount that is less than what a jury might later
determine is the “reasonable and customary value” of the
emergency medical services, and thereby obtain punitive
damages? Second, in addition to quantum meruit, may the
hospital sue for injunctive relief under California’s unfair
competition law (Bus. & Prof. Code, § 17200) to enjoin the plan
from paying too little reimbursement for possible future claims
not covered by a contract? Lastly, in the quantum meruit claim
itself, does a trial court err in instructing the jury that the
“reasonable value” of emergency medical services is defined as
“the price that a hypothetical willing buyer would pay a
hypothetical willing seller for the services, [when] neither [is]
under compulsion to buy or sell, and both hav[e] full knowledge of
all pertinent facts”?
For the reasons described more fully below, we hold that
the answer to all three question is “no.” Because we also reject
challenges to several of the trial court’s evidentiary rulings in the
3
unpublished portion of this opinion, we affirm the jury’s verdict
in this case finding that the plan had paid the suing hospital the
reasonable and customary value of its emergency medical
services. However, also in the unpublished portion, we reverse
the trial court’s order categorically denying the plan its costs and
remand the matter for the trial court to examine the specific
challenges the hospital has raised to the plan’s cost bill.
FACTS AND PROCEDURAL BACKGROUND
I. Facts
A. The parties
1. The hospitals
The Long Beach Memorial Medical Center and the Orange
Coast Memorial Medical Center (individually, Long Beach
Memorial and Orange Coast Memorial; collectively, the hospitals)
operate three hospitals in the region encompassing the southern
portion of Los Angeles County as well as the northern portion of
Orange County.
The hospitals price their medical services using two rates—
namely, (1) the full-price rate they bill, which operates like the
“sticker price,” and (2) the discounted rate they agree to accept.
The hospitals collect their full, billed rate only one to 10 percent
of the time. Usually, the hospitals agree to accept a lesser
amount, which is typically expressed as a percentage of the full,
billed rate. That amount varies, depending on whether the payor
is a government program (such as Medicare or Medi-Cal), a
health plan or health insurance company that has negotiated a
contract with the hospitals (a so-called “managed care
agreement”), a member of a so-called “rental network” which
negotiates rates with hospitals on behalf of network members, or
an individual paying cash.
4
For instance, between 2015 and 2017, the hospitals agreed
to accept the following rates from the following groups:
Payor Percentage of full, billed rates
Medi-Cal 10%
Medicare 15%
Health plans with contractual Typically, between 40% and
“managed care agreements” 65%, with between 44% and
52% paid for trauma and
emergency services
Member of a “rental network” Typically, between 60% and
85%
Individuals paying cash 22%
Between 2015 and 2017, the average rate which the hospitals
agreed to accept for emergency medical services—across all of
these categories—was 27 percent of the hospitals’ full, billed
rates.
2. The Kaiser entities
Kaiser Foundation Health Plan, Inc. (Kaiser) is an
“insurance company” that provides medical insurance to its
enrollees. Kaiser Foundation Hospitals is a related entity, and
operates hospitals throughout California, although none in the
communities served by the hospitals.
B. Prior contracts between the hospitals and
Kaiser
In the past, Kaiser had entered into managed care
agreements with the hospitals; Kaiser let its agreement with
Orange Coast Memorial expire in 2008 and let its agreement with
Long Beach Memorial expire in June 2015. Under the most
5
recent iteration of these agreements,2 the hospitals agreed to
accept from Kaiser the following rates for the following medical
services:
Service Percentage of full, billed rates
General medical services 47%
Emergency room services 56%
Outpatient trauma services 73.4%
Inpatient trauma services 76%
C. Postcontractual payments
Although Kaiser allowed its managed care agreements with
the hospitals to expire, Kaiser’s enrollees would still sometimes
seek emergency medical care from the hospitals, and under the
Knox-Keene Act, the hospitals were obligated to provide
emergency medical care to those enrollees.
Between July 2015 and October 2015, Kaiser joined several
different rental networks and, pursuant to those networks’
agreements with the hospitals, ended up paying the hospitals
between 75 and 85 percent of the hospitals’ full, billed rates for
the emergency medical services provided to their enrollees.
In October 2015, Kaiser used an internal methodology for
calculating the reasonable value of medical services. Between
October 2015 and October 2017, the hospitals provided
prestabilization emergency medical services to 3,609 Kaiser
enrollees, and billed Kaiser for those services at their full-billed
rate for a total of $31,007,982. Using its internal methodology,
2 The parties only introduced the rates from the Long Beach
Memorial agreement, and did not distinguish the rates in the
Orange Coast Memorial agreement. We will do the same.
6
Kaiser reimbursed the hospitals $16,524,537—or 53.2 percent of
the full, billed charges.
II. Procedural Background
A. Pleadings
1. The hospitals’ complaint(s)
In August 2017, the hospitals sued Kaiser, Kaiser
Foundation Hospitals, Kaiser Permanente Insurance Company,
and The Permanente Medical Group, Inc.
In the operative, second amended complaint filed in May
2018, the hospitals sued Kaiser, Kaiser Foundation Hospitals,
and Kaiser Permanente Insurance Company3 for (1) breach of
contract (namely, breaching the rental network contracts), (2)
breach of an implied contract and recovery of services rendered—
that is, quantum meruit—under the Knox-Keene Act, (3) the tort
of intentionally violating the “statutory duty under the Knox-
Keene Act to provide and pay for the reasonable and customary
value of” emergency medical services by “implement[ing] a
provider reimbursement structure that systematically fails to pay
[and] underpays” the hospitals,4 and (4) violating the unfair
competition law by “systematically failing to pay [and]
underpaying” the reimbursement required by the Knox-Keene
Act. The hospitals sought reimbursement for underpayments
made between October 2015 and October 2017 allegedly totaling
$26,750,000, punitive damages for the intentional tort, and an
3 The hospitals dropped Permanente Medical Group, Inc. as
a defendant.
4 The hospitals also allege that Kaiser “strategically” placed
its medical facilities in geographic locations that would obligate
the hospitals to serve their patients, but they have abandoned
this allegation on appeal.
7
injunction “enjoining Kaiser” from violating the Knox-Keene Act
by underpaying charges in the future.
2. Kaiser’s cross-complaint
Kaiser filed a cross-complaint to recapture any payments it
may have made to the hospitals in excess of the reasonable value
of the emergency medical services provided.
B. Summary adjudication of intentional tort and
unfair competition claims
Kaiser moved for summary adjudication of the hospitals’
intentional tort and unfair competition claims. Following
briefing and a hearing, the trial court granted the motion and
dismissed those two claims. The court ruled that recognizing an
intentional tort for underpayment of reimbursement costs would
“undermine the carefully balanced and comprehensive managed
health care scheme established by the Knox-Keene Act” and
would be “full of pitfalls that [the court] can’t begin to
comprehend.” The court ruled that recognizing an unfair
competition claim for underpayment made no sense because
enjoining Kaiser from “paying inadequate reimbursement” was
not a workable injunction.
As the summary adjudication motion was being litigated,
the hospitals voluntarily dismissed Kaiser Permanente Insurance
Co. as a defendant.
C. Trial
After two days of pretrial hearings, the trial court convened
a three-day jury trial.
The trial was a proverbial battle of the experts. The
hospitals’ expert testified that the reasonable value of the
hospitals’ emergency services was 85 percent of the hospitals’
full, billed rate, which came to $27,137,053.25. Subtracting
8
Kaiser’s previous reimbursements, the hospitals’ expert opined
that Kaiser underpaid by $9,815,080.25. Kaiser’s expert testified
to the charges the hospitals accepted from a variety of different
payors, and opined that Kaiser had overpaid the hospitals by as
little as $222,285 and by as much as $11,755,594.
Midtrial, the court granted a nonsuit as to Kaiser
Foundation Hospitals.
The jury returned a special verdict finding that Kaiser—the
sole remaining defendant—had paid the hospitals “an amount
equal to or greater than [the] reasonable value” of the hospitals’
services, and that the reasonable value of those services was
$16,524,537. Because that amount was precisely the amount
Kaiser had already paid as reimbursement, Kaiser voluntarily
dismissed its cross-claim.
D. Costs
Kaiser filed a memorandum of costs seeking $229,903.96 in
costs as the prevailing party.
The hospitals filed a motion to tax costs, arguing that (1)
Kaiser was not the prevailing party, and (2) many of the line
items were not recoverable or reasonable. Following further
briefing, the trial court granted the hospitals’ motion to tax “in its
entirety” and awarded no costs.
E. Appeal and cross-appeal
Following the entry of judgment, the hospitals filed a
timely notice of appeal. Following the postjudgment order
denying all costs, Kaiser filed a timely notice of cross-appeal.5
5 Kaiser Foundation Hospitals also sought its costs and
cross-appealed the trial court’s denial of those costs. For
convenience, we refer to both parties as “Kaiser” solely when
discussing the costs proceedings and cross-appeal.
9
DISCUSSION
I. Pertinent Background of Regulatory Scheme
Under the federal Emergency Medical Treatment and
Active Labor Act (42 U.S.C. § 1395dd et seq.) and the Knox-
Keene Act, hospitals and other medical providers have a
statutory duty to provide “emergency [medical] services and care”
to persons who are in “danger of loss of life, or serious injury or
illness.” (Health & Saf. Code, § 1317, subd. (a); 42 U.S.C. §
1395dd, subd. (b); Prospect Medical, supra, 45 Cal.4th at p. 501;
T.H. v. Novartis Pharmaceuticals Corp. (2017) 4 Cal.5th 145, 189
(T.H.).) Under the Knox-Keene Act, the health care service plan
(or its “contracting medical providers”) must, within 30 or 45
days, reimburse the hospital or other medical providers for the
“emergency services and care provided to its enrollees” as to (1)
all care necessary for “stabilization” of the enrollee, and (2) for all
poststabilization care the plan authorizes the hospital to provide.
(Health & Saf. Code, § 1371.4, subds. (b) & (c); Cal. Code Regs.,
tit. 28, § 1300.71, subd. (g); T.H., at p. 189.) When the hospital or
other medical providers have a contract with the plan, the plan
must reimburse them for the services at the “agreed upon
contract rate.” (Cal. Code Regs., tit. 28, § 1300.71, subd.
(a)(3)(A).)
However, when the hospital or other medical providers do
not have a contract with the plan, the plan is statutorily
obligated to reimburse the hospital or providers for the
“reasonable and customary value [of] the [emergency] health care
services rendered.” (Cal. Code Regs., tit. 28, § 1300.71, subd.
(a)(3)(B).) “The reasonable and customary value” must “take[]
into consideration” six different factors—namely, (1) “the
[hospital’s or] provider’s training, qualifications, and length of
10
time in practice”; (2) “the nature of the services provided”; (3) “the
fees usually charged by the [hospital or] provider”; (4) “prevailing
[hospital or] provider rates charged in the general geographic
area in which the services were rendered”; (5) “other aspects of
the economics of the [hospital’s or] medical provider’s practice
that are relevant”; and (6) “any unusual circumstances in the
case.”6 (Ibid.)
If a hospital or other medical provider believes that the
amount of reimbursement it has received from a health plan is
below the “reasonable and customary value” of the emergency
services it has provided, the hospital or provider may assert a
quantum meruit claim against the plan to recover the shortfall.
(Bell v. Blue Cross of California (2005) 131 Cal.App.4th 211, 213-
214, 221 (Bell); Prospect Medical, supra, 45 Cal.4th at p. 505;
Children’s Hospital Central California v. Blue Cross of California
(2014) 226 Cal.App.4th 1260, 1273 (Children’s Hospital).) As the
plaintiff in a quantum meruit lawsuit, the hospital or provider
bears the burden of establishing that the plan’s reimbursement
was less than the “reasonable and customary value” of its
services. (Children’s Hospital, at p. 1274.)
II. Propriety of Pretrial Dismissal of the Hospitals’
Intentional Tort and Unfair Competition Claims
The hospitals argue that that the trial court erred in
granting summary adjudication of their claims against Kaiser for
(1) intentionally reimbursing them at an amount below the
“reasonable and customary value” of the emergency medical
6 These factors are borrowed from Gould v. Workers’ Comp.
Appeals Bd. (1992) 4 Cal.App.4th 1059, 1071, which used them to
define how to calculate “reasonable” medical care charges in the
workers’ compensation context.
11
services they provided, and (2) violation of the unfair competition
law.
Like summary judgment, summary adjudication is
appropriate when the moving party shows “[it] is entitled to a
judgment as a matter of law” (Code Civ. Proc., § 437c, subd. (c))
because, among other things, the nonmoving party (here, the
hospitals) cannot establish “[o]ne or more elements of [its] cause
of action” (id., subd. (o)(1)); see id., subd. (p)(2)). Because a
motion for summary adjudication “necessarily includes a test of
the sufficiency of the complaint” (Centinela Hospital Assn. v. City
of Inglewood (1990) 225 Cal.App.3d 1586, 1595), summary
adjudication is also appropriate if the entire cause of action is
unsupported by the law. Because the propriety of summary
adjudication and the subsidiary question of the validity of a cause
of action involve questions of law, our review is de novo. (Jacks v.
City of Santa Barbara (2017) 3 Cal.5th 248, 273; Bettencourt v.
Hennessy Industries, Inc. (2012) 205 Cal.App.4th 1103, 1111.)
A. Tort of intentional failure to reimburse the
“reasonable and customary value” of emergency medical
services
Because ‘“[a] tort, whether intentional or negligent,
involves a violation of a legal duty . . . owed by the defendant to
the person injured,”’ and because the existence of a legal duty
turns on whether the “‘“sum total”’” of “‘“policy”’”
“‘“considerations”’” favors “‘“say[ing] that the particular plaintiff
is entitled to [the] protection”’” of tort law, our task in deciding
whether to recognize a tort for intentionally failing to reimburse
a hospital or medical provider for the “reasonable and customary
value” of emergency medical services is to “examine and weigh
the relevant ‘considerations of policy’” and to ask whether the
12
“social benefits” of creating such a tort remedy “outweigh[] any
costs and burdens it would impose.” (Cedars-Sinai Medical
Center v. Superior Court (1998) 18 Cal.4th 1, 8 (Cedars), italics in
original; Gregory v. Cott (2014) 59 Cal.4th 996, 1012 [‘“A tort,
whether intentional or negligent, involves a violation of a legal
duty . . .”’];) Centinela Freeman Emergency Medical Associates v.
Health Net of California, Inc. (2016) 1 Cal.5th 994, 1013
(Centinela) [looking to whether “‘public policy . . . dictate[s] the
existence of a duty . . .’”]; The MEGA Life & Health Ins. Co v.
Superior Court (2009) 172 Cal.App.4th 1522, 1527 [“whether to
recognize a new ‘legal wrong’ or ‘tort’ is often governed by policy
factors”].)7 Although our Supreme Court in Biakanja v. Irving
(1958) 49 Cal.2d 647, 650 (Biakanja) and Rowland v. Christian
(1968) 69 Cal.2d 108, 113 (Rowland) identified several factors
bearing on the propriety of recognizing a new tort,8 we need not
7 Although there is language in Fuller v. First Franklin
Financial Corp. (2013) 216 Cal.App.4th 955, 967 (Fuller) that
“‘everyone owes a duty not to commit an intentional tort against
anyone,’” the Fuller court’s use of italics confirms that this
statement is meant, at most, to show that there need not be a
preexisting relationship between the intentional tortfeasor and
the victim. Because Fuller itself involved the underlying legal
duty not to defraud others (id. at pp. 958-959), Fuller does not
stand for the broader proposition that courts may entirely skip
the precursor question of whether there is an underlying legal
duty when it comes to intentional torts. And to the extent Fuller
is read to stand for that proposition, we respectfully disagree.
8 Biakanja lists the factors relevant in the “business context”
as (1) “the extent to which the transaction was intended to affect
the plaintiff,” (2) “the foreseeability of harm to [the plaintiff],” (3)
“the degree of certainty that the plaintiff suffered injury,” (4) “the
13
examine them on a factor-by-factor basis where, as here, the
social benefits and costs of a potential new tort are more aptly
analyzed in the aggregate. (Kurtz-Ahlers, LLC v. Bank of
America, N.A. (2020) 48 Cal.App.5th 952, 961.)
The relevant policy considerations counsel against
recognizing a legal duty by health plans—compensable via a
tort—not to reimburse hospitals and other medical providers of
emergency medical services at an amount less than the
“reasonable and customary value” of those services.
The social benefits of recognizing such a duty are slight.
The hospitals have provided no evidence or argument suggesting
that inadequate reimbursement for emergency medical services
under the Knox-Keene Act is a widespread problem (see Cedars,
supra, 18 Cal.4th at p. 13 [looking whether “problem” to be solved
by tort liability is “widespread”]), or that the problem is not
closeness of the connection between defendant’s conduct and the
injury suffered,” (5) “the moral blame attached to the defendant’s
conduct,” and (6) “the policy of preventing future harm.”
(Biakanja, at p. 650.) Rowland lists the factors relevant outside
the business context: “The first five Rowland [factors] are
identical to the second through sixth Biakanja [factors]. (See
Rowland, at pp. 112-113.) Where the list of [factors] differs is
that (1) Rowland does not consider ‘the extent to which the
transaction was intended to benefit the plaintiff’ (Biakanja, . . . at
p. 650) (because there is no transaction), and (2) Rowland adds
two further [factors] that flesh out ‘the policy of preventing future
harm’ consideration—namely, (a) ‘the extent of the burden to the
defendant and consequences to the community of imposing a duty
to exercise care with resulting liability for breach,’ and (b) ‘the
availability, cost, and prevalence of insurance for the risk
involved.’ (Rowland, at p. 113.)” (QDOS, Inc. v. Signature
Financial, LLC (2017) 17 Cal.App.5th 990, 999.)
14
sufficiently addressed by the quantum meruit remedy already
available to hospitals and other medical providers (see Brennan
v. Tremco (2001) 25 Cal.4th 310, 314 [looking at whether new tort
remedy is “derivative” because “adequate remedies” already
exist]). Amici curiae for the hospitals assert that
underreimbursement is a problem, but provide nothing to
substantiate that assertion, and the jury’s finding of proper
reimbursement in this case, which we conclude below was valid,
would seem to undermine that assertion.
The social costs of recognizing a new tort duty, on the other
hand, are staggering. The trial court lamented that such a new
tort would be “full of pitfalls” too numerous to enumerate. We
agree, but will enumerate a few.
First, recognizing a legal duty—and, on the basis of that
duty, an intentional tort—not to underreimburse a hospital the
“reasonable and customary value” of emergency medical services
runs afoul of the longstanding principle that tort “liability . . . for
purely economic losses is ‘the exception, not the rule.’” (Southern
California Gas Leak Cases (2019) 7 Cal.5th 391, 400; Summit
Financial Holdings, Ltd. v. Continental Lawyers Title Co. (2002)
27 Cal.4th 705, 715; Quelimane Co. v. Stewart Title Guaranty Co.
(1998) 19 Cal.4th 26, 58; Harris v. Atlantic Richfield Co. (1993)
14 Cal.App.4th 70, 81-82 (Harris) [“our Supreme Court has
advised against judicial activism where an extension of tort
remedies is sought for a duty whose breach previously has been
compensable by contract remedies”].) This principle rests on the
premise that economic relationships are typically governed by
contracts or by comprehensive government regulation, and
recognizes that tort liability creates incentives that alter the
conduct of market participants and thus runs the risk of
15
significantly reordering these relationships and the economic
markets in which they are formed. (Foley v. Interactive Data
Corp. (1988) 47 Cal.3d 654, 694 (Foley) [“Significant policy
judgments affecting social policies and commercial relationships
are implicated [by creating a new tort and] . . . ha[ve] the
potential to alter profoundly the nature of [those relationships]”].)
What is more, this principle is fully implicated here because the
economic relationship regarding the payment for emergency
medical services between hospitals and other medical providers
(on the one hand) and health plans (on the other) is governed
both by contracts and by comprehensive government regulation:
The underlying duty to repay is established by the Knox-Keene
Act, which is a “‘comprehensive system of licensing and
regulation under the jurisdiction of the Department of Managed
Health Care’” (Prospect Medical, supra, 45 Cal.4th at p. 504;
Centinela, supra, 1 Cal.5th at p. 1005), while the amount of
repayment is governed either by contract (when the parties have
a preexisting contract) or by the quasi-contractual remedy of
quantum meruit (when they do not) (Federal Deposit Ins. Corp. v.
Dintino (2008) 167 Cal.App.4th 333, 346 [quantum meruit is a
type of “‘contract implied in law’” or “‘[q]uasi-contract’”]; Durell v.
Sharp Healthcare (2010) 183 Cal.App.4th 1350, 1370 [same];
Newfield v. Insurance Co. of the West (1984) 156 Cal.App.3d 440,
445 [cause of action for breach of an implied contract does not
“sound in tort”]).
Second, recognizing a legal duty—and, on the basis of that
duty, an intentional tort—not to underreimburse a hospital the
“reasonable and customary value” of emergency medical services
would inevitably lead to an outcome fundamentally at odds with
one of the avowed purposes of the Knox-Keene Act to “help[]
16
ensure the best possible health care for the public at the lowest
possible cost by transferring the financial risk of health care from
patients to providers.” (§ 1342, subd. (d), italics added; Pacific
Bay Recovery, Inc. v. California Physicians’ Services, Inc. (2017)
12 Cal.App.5th 200, 207.) If we recognize a legal duty not to
underreimburse hospitals and other medical providers for the
“reasonable and customary value” of emergency medical services,
that duty would ostensibly give rise to a negligence-based tort
claim as well as the intentional tort claim the hospitals explicitly
urge us to create here. A health plan would be liable for
negligence if it acted unreasonably in anticipating the
“reasonable and customary value” of the services its enrollees
received. But such a negligence-based tort would be both useless
and impossible to comply with. It is useless because the alleged
damages—the amount by which it shorted the hospital or medical
provider—are already recoverable in a quantum meruit action. It
is impossible to comply with because a health plan’s liability
would turn on whether the reimbursement amount it pays on day
45 ends up being reasonably or unreasonably below the amount
that a jury in the quantum meruit action will fix on day 200 as
being the “reasonable and customary value” of the services
rendered. Health plans trying to avoid negligence liability for
this tort would have every incentive to pay more just to be safe,
which would drive up the cost of health care to the public—a
result, as noted above, that is at odds with one of the Knox-Keene
Act’s purposes. A health plan would be liable for the intentional
tort if it intended to pay less than the amount that a jury at some
point in the future fixes as being the “reasonable and customary
value” of the services rendered. But health plans do not
accidentally select the amount of reimbursement they remit to a
17
hospital or other medical provider; the payment amount is
always intentionally selected. As a result, the only way to avoid
liability for such an intentional tort is to err on the side of paying
too much—which will also drive up the cost of health care, and
thus is also at odds with one of the Knox-Keene Act’s purposes.
Third, recognizing a legal duty—and, on the basis of that
duty, an intentional tort—not to underreimburse a hospital the
“reasonable and customary value” of emergency medical services
would create a powerful incentive for a hospital or other medical
provider to bring such a tort claim in every case. By statute,
punitive damages are available whenever a tortfeasor is “guilty of
oppression, fraud, or malice” (Civ. Code, § 3294, subd. (a)), and
this finding turns on the tortfeasor’s alleged motive (Applied
Equipment Corp. v. Litton Saudi Arabia Ltd. (1994) 7 Cal.4th
503, 516). The hospitals in this case assert that Kaiser is
deserving of punitive damages because it intentionally underpaid
them with the alleged bad motive of trying to save money and
turn a profit. Given that health plans’ payments are always
intentional and that health plans always act to varying extents
with a profit motive, health plans would be potentially liable for
punitive damages in every case. And given that punitive
damages can be imposed up to a constitutional maximum of 10
times the amount of the underpayment (see Simon v. San Paolo
U.S. Holding Co., Inc. (2005) 35 Cal.4th 1159, 1182 (Simon)
[“ratios between the punitive damages award and the plaintiff’s
actual or compensatory damages significantly greater than 9 or
10 to 1 are suspect”]), hospitals and other medical providers
would have every reason to bring an intentional tort claim in
every case in the hopes of convincing a jury to award them up to
11 times the amount of underpayment. Where, as here, the
18
“imposition of a tort duty of care” is “likely to add an unnecessary
and potentially burdensome . . . volume of . . . litigation,” that
potentiality counsels strongly against such a duty.
(Goonewardene v. ADP, LLC (2019) 6 Cal.5th 817, 841; Centinela,
supra, 1 Cal.5th at pp. 1017-1018 [same]; Cedars, supra, 18
Cal.4th at p. 15 [discouraging creation of a duty when “[a]
separate tort remedy would be subject to abuse”]; see Harris,
supra, 14 Cal.App.4th at p. 81 [discouraging “[p]roposals to
extend tort remedies to commercial contracts[, which] create the
potential of turning every breach of contract dispute into a
punitive damage claim”].) And even if it is desirable to try to
draw a line between an ordinary, “healthy” profit motive that
does not warrant punitive damages and a truly venal profit
motive that does, that line is far too illusory to offset the
otherwise powerful incentive to take one’s chances by suing for
punitive damages. (Accord, Foley, supra, 47 Cal.3d at p. 697
[refusing to create a tort when “it would be difficult if not
impossible to formulate a rule that would assure that only
‘deserving’ cases give rise to tort relief”].)
The hospitals and their amici respond with what boil down
to two arguments.
First, the hospitals argue that Kaiser is already under a
tort duty not to violate the Knox-Keene Act’s provisions because
Centinela, supra, 1 Cal.5th 994, previously recognized a
negligence-based tort grounded in the Knox-Keene Act, and
because a negligent violation of this duty must necessarily be
subsumed within an intentional violation of the same duty. This
argument rests on an incorrect and overgeneralized reading of
Centinela. Centinela held that a health plan has a legal duty,
enforceable in a tort claim, (1) not to negligently “delegate its
19
financial responsibility” to reimburse hospitals and other medical
providers under the Knox-Keene Act to other entities known as
risk-bearing organizations if the plan knows or should know that
its delegate “would not be able to pay” the reimbursements, and
(2) not to negligently “continu[e] or renew[] a delegation contract”
with its delegate “when it knows or should know that there can
be no reasonable expectation that its delegate will be able to” pay
reimbursements. (Centinela, at pp. 1002, 1017-1022; T.H., supra,
4 Cal.5th at p. 189.) Because a health plan’s act of delegation
absolves the plan of any further liability under the Knox-Keene
Act (Centinela, at pp. 1010, 1014), the legal duty recognized in
Centinela operated to fill a gap in the provisions of the Knox-
Keene Act that would have otherwise allowed health plans to
make reckless—and hence “morally blameworthy”—delegations
of the duty to pay and thereby to leave hospitals and other
medical providers “without any reasonable prospect of payment”
despite their statutory entitlement to such remuneration. (Id. at
p. 1017.) Contrary to what the hospitals suggest, Centinela did
not purport to create a free-floating tort duty attaching to every
provision of the Knox-Keene Act, including those where there is
no gap, such as in the context of this case, where the hospitals
and other medical providers already have the right to sue for
quantum meruit to recover any underpayment. Second, amici
seem to suggest that a tort remedy is warranted because the
existing quantum meruit remedy is inadequate. Specifically,
they urge that the quantum meruit remedy inevitably
undervalues emergency medical services because “reasonable and
customary value” is keyed to the market value for those services
and the market includes contractually agreed-upon rates, yet
those contract-based rates are lower because hospitals and other
20
providers are willing to offer discounts in exchange for benefits
like being able to market and cross-sell their full range of medical
services to the health plans’ enrollees. A market value that does
not add a premium to account for the absence of the benefits of a
contract, amici continue, is inadequate and creates a disincentive
for health plans to form contracts in order to get lower rates. We
disagree. The quantum meruit remedy by definition looks to the
reasonable, market-based value of the services provided: That
value is calculated by looking at the “full range of fees” charged
in the market (e.g., Sanjiv Goel, M.D., Inc. v. Regal Medical
Group Inc. (2017) 11 Cal.App.5th 1054, 1060, 1062 (Goel)), and
thus encompasses the lower rates grounded in contracts as well
as the higher rates charged where no contract exists. As a result,
the quantum meruit remedy is not inadequate simply because it
does not require the trier of fact to add a premium across the
board. More to the point, creating a tort remedy with the
extensive drawbacks outlined above in order to fine-tune the
complex market for health care services is, in any event, a bit like
swatting a fly with Thor’s hammer. Such fine-tuning is better
left to our Legislature. (Foley, supra, 47 Cal.3d at p. 694
[“Significant policy judgments affecting social policies and
commercial relationships” that “ha[ve] the potential to alter
profoundly . . . the cost of products and services . . . is better
suited for legislative decisionmaking”].)
Because we conclude that there is no legal duty not to
negligently or intentionally underreimburse a hospital or other
medical provider, the trial court properly dismissed the hospitals’
intentional tort claim based on that duty’s nonexistence.
21
B. Unfair competition law
“As its name suggests, California’s unfair competition law
bars ‘unfair competition’ and defines the term as a ‘business act
or practice’ that is (1) ‘fraudulent,’ (2) ‘unlawful’, or (3) ‘unfair.’”
(Shaeffer v. Califia Farms, LLC (2020) 44 Cal.App.5th 1125, 1135
(Shaeffer), quoting Bus. & Prof. Code, § 17200; see Cel-Tech
Communications, Inc. v. Los Angeles Cellular Telephone Co.
(1999) 20 Cal.4th 163, 180.) “Each is its own independent ground
for liability under the unfair competition law.” (Shaeffer, at p.
1135; Aryeh v. Canon Business Solutions, Inc. (2013) 55 Cal.4th
1185, 1196 (Aryeh) [noting independent “prong[s]”].)
Because a plaintiff states a claim under the unlawful prong
of the unfair competition law by showing that the challenged
practice violates a California “statute or regulation” (Gutierrez v.
Carmax Auto Superstores California (2018) 19 Cal.App.5th 1234,
1265 (Gutierrez); Aryeh, supra, 55 Cal.4th at p. 1196), a plaintiff
may as a general matter state a claim under the unfair
competition law for a violation of the Knox-Keene Act. (See Bell,
supra, 131 Cal.App.4th at pp. 217, fn. 6, 221 & fn. 9 [unfair
competition claim based on failure to reimburse under section
1371.4 viable]; Coast Plaza Doctors Hospital v. UHP Healthcare
(2002) 105 Cal.App.4th 693, 699, 704-706 [same]; California
Emergency Physicians Medical Group v. PacifiCare of California
(2003) 111 Cal.App.4th 1127, 1134 [same], disapproved on
another ground in Centinela, supra, 1 Cal.5th 994; Northbay
Healthcare Group - Hospital Div. v. Blue Shield of California Life
& Health Insurance (N.D.Cal. 2018) 342 F.Supp.3d 980, 986-987
(Northbay) [same]; see generally California Medical Assn., Inc. v.
Aetna U.S. Healthcare of California, Inc. (2001) 94 Cal.App.4th
151, 169 [unfair competition claims based on “acts made unlawful
22
by Knox-Keene” Act viable]; Blue Cross of California, Inc. v.
Superior Court (2009) 180 Cal.App.4th 1237, 1250-1251 [same];
cf. Samura v. Kaiser Foundation Health Plan, Inc. (1993) 17
Cal.App.4th 1284, 1297-1299 [prior to enactment of section
1371.4, Knox-Keene Act did not require reimbursement, such
that the failure to reimburse was “lawful on its face” and hence
not actionable under unfair competition law); Regents of the Univ.
of California v. Global Excel Mgmt. (C.D.Cal. Jan. 10, 2018, No.
SA CV 16-0714-DOC (Ex)) 2018 U.S.Dist. Lexis 89413, p. *62
(Regents) [entering judgment declining relief under unfair
competition law due to lack of proof].)
The unfair competition law affords two types of relief—
namely, restitution and injunctive relief. (Bus. & Prof. Code, §
17203; Kasky v. Nike, Inc. (2002) 27 Cal.4th 939, 950.) Of the
two, injunctive relief is the ‘“primary form of relief.”’ (Kwikset
Corp. v. Superior Court (2011) 51 Cal.4th 310, 337). Relief does
not, however, include damages, whether they be consequential or
punitive. (Korea Supply Co. v. Lockheed Martin Corp. (2003) 29
Cal.4th 1134, 1148; Inline, Inc. v. Apace Moving Systems, Inc.
(2005) 125 Cal.App.4th 895, 904.)
As applied to a violation of the Knox-Keene Act’s
requirement for reimbursement of emergency medical services,
the restitution available under the unfair competition law would
be entirely duplicative. The hospitals may certainly seek
restitution for Kaiser’s violation of its Knox-Keene Act duty to
reimburse them for the “reasonable and customary value” of the
emergency medical services they provided to Kaiser enrollees, but
that restitutionary award is indistinguishable from the award
they would receive through their quantum meruit claim.
23
(Hartford Casualty Ins. Co. v. J.R. Marking, L.L.C. (2015) 61
Cal.4th 988, 996 [quantum meruit allows for “restitution”].)
What is more, the injunctive relief the hospitals seek—that
is, an order enjoining Kaiser from violating the Knox-Keene Act
by underpaying for emergency medical services in the future—is
legally unavailable. To the extent it requires Kaiser more
specifically not to underpay reimbursement when its enrollees
receive emergency medical services in every future instance, it is
difficult to see how Kaiser could comply: It is impossible for
Kaiser to definitively know the “reasonable and customary value”
of emergency medical services until a jury fixes that value, but
Kaiser is statutorily obligated to pay some reimbursement
amount within 30 or 45 days of rendering those services. If
Kaiser incorrectly estimates the “reasonable and customary”
value and underpays, it will have violated the injunction and will
ostensibly be subject to contempt penalties. To us, such an
injunction would be ‘“so vague that [persons] of common
intelligence must necessarily guess at its meaning and differ as
to its application”’; as such, it would be invalid and could not form
the basis for the “potent weapon” of contempt. (In re Berry (1968)
68 Cal.2d 137, 156; People v. Uber Technologies, Inc. (2020) 56
Cal.App.5th 266, 316; see generally People ex rel. Gascon v.
HomeAdvisor, Inc. (2020) 49 Cal.App.5th 1073, 1082 [“‘An
injunction must be sufficiently definite to provide a standard of
conduct for those whose activities are to be proscribed . . .”].) To
the extent it requires Kaiser more generally to “obey the law,”
such an injunction would be equally invalid. (City of Redlands v.
County of San Bernardino (2002) 96 Cal.App.4th 398, 416 [“a
court may not issue a broad injunction to simply obey the law . .
24
.”]; Connerly v. Schwarzenegger (2007) 146 Cal.App.4th 739, 752
[same].)
Thus, the trial court properly dismissed the hospitals’
unfair competition claim to the extent it sought injunctive relief
but erred in dismissing that claim to the extent it sought
restitution.9 The latter error was harmless, however, given that
the hospitals were able to effectively pursue restitution as part of
their quantum meruit claim. (Cf. Guz v. Bechtel Nat. Inc. (2000)
24 Cal.4th 317, 352 [where cause of action is duplicative of
another cause of action in the complaint, it is “superfluous” and
subject to summary adjudication].)
III. Propriety of the Jury Instruction Defining
“Reasonable and Customary Value”
The hospitals and their amici level two different complaints
at the trial court’s jury instruction defining “reasonable and
customary value.” We independently examine instructional
issues. (People v. Scully (2021) 11 Cal.5th 542, 592.)
A. Pertinent facts
In its initial instructions given prior to the presentation of
evidence, the trial court instructed the jury that (1) it would be
“asked to decide” the “reasonable value” of the emergency medical
services the hospitals provided, (2) “reasonable value” is defined
as “what a hypothetical buyer would have offered and what a
hypothetical seller would have accepted” for those services, (3) in
assessing reasonable value, the jury may “consider” (a) “all of the
9 In light of this conclusion, we have no occasion to consider
whether injunctive relief is also barred by the doctrine of judicial
abstention. (E.g., Alvarado v. Selma Convalescent Hospital
(2007) 153 Cal.App.4th 1292, 1297-1298; Hambrick v. Healthcare
Partners Medical Group, Inc. (2015) 238 Cal.App.4th 124, 150.)
25
people in the market,” and (b) “what” Kaiser and the hospitals
“agreed on before” because “these folks are in the market,” but
that their prior agreements do not “dictate” the “reasonable
value.”
At the conclusion of trial, the court instructed the jury in
pertinent part:
“The measure of recovery in quantum meruit is
the reasonable value of the services. Reasonable
value is the price that a hypothetical willing buyer
would pay a hypothetical willing seller for the
services, neither being under compulsion to buy or
sell, and both having full knowledge of all pertinent
facts. Reasonable value can be described as the
‘going rate’ for those services in the market.
“In determining reasonable value, you should
consider the full range of transactions presented to
you, but you are not bound by them. You may choose
to use the transactions you believe reflect the price
that a hypothetical willing buyer would pay a
hypothetical willing seller for the services. On the
other hand, you may reject transactions you believe
do not reflect the price that a hypothetical willing
buyer would pay a hypothetical willing seller for the
services.”
(Italics added.)
B. Analysis
The hospitals argue that the trial court erred in telling the
jury to determine “reasonable value” by looking at what a
“hypothetical willing buyer” would pay a “hypothetical seller” for
the services. Amici, by contrast, argue that the trial court erred
26
in not telling the jury to give the parties’ prior agreements
greater—if not dispositive—weight in assessing that value.
Neither argument has merit.
In Children’s Hospital, supra, 226 Cal.App.4th 1260, the
court held that the “reasonable and customary value” of
reimbursement for emergency medical services under the Knox-
Keene Act is pegged to the “[r]easonable” or “fair market value” of
those services. (Id. at p. 1274.) Children’s Hospital went on to
define that value as “the price that ‘“a willing buyer would pay to
a willing seller, neither being under compulsion to buy or sell,
and both having full knowledge of all pertinent facts.”’
[Citation.]” (Ibid.) As one would anticipate given the quantum
meruit claim at issue, Children’s Hospital borrowed its
“reasonable market value” standard from the law of quantum
meruit. (Id. at pp. 1274-1275.) That law looks to the “reasonable
value of [the] services” in the “open market,” and explicitly
acknowledges that this value may be different than the price
fixed by a prior contract between the parties to that case.
(Maglica v. Maglica (1998) 66 Cal.App.4th 442, 450 (Maglica).)
The determination of reasonable value is to account for a “wide
variety of evidence.” (Children’s Hospital, at p. 1274.)
Under this law, the trial court’s reference to a “hypothetical
buyer” and “hypothetical seller” was entirely appropriate. “Fair
market value” is defined in many other contexts as that amount
that “hypothetical buyers and sellers” would pay in a
“hypothetical transaction.” (South Bay Irrigation Dist. v.
California-American Water Co. (1976) 61 Cal.App.3d 944, 976;
People v. Seals (2017) 14 Cal.App.5th 1210, 1217; Xerox Corp. v.
County of Orange (1977) 66 Cal.App.3d 746, 752-753; County of
San Diego v. Assessment Appeals Board No. 2 (1983) 140
27
Cal.App.3d 52, 57; People ex rel. Dept. of Transportation v.
Clauser/Wells Partnership (2002) 95 Cal.App.4th 1066, 1083, fn.
15.) This makes sense. Where, as here, the reimbursement
transactions at issue between the hospitals and Kaiser are
compelled by the Knox-Keene Act and federal law, and where fair
market value by definition looks to a fully consensual transaction,
a determination of fair market value is necessarily hypothetical.
As a result, and contrary to what the hospitals strenuously urge,
the absence of the word “hypothetical” in the definition of
“reasonable value” set forth in Children’s Hospital is of no
consequence.
Not only is it legally appropriate to key “reasonable value”
to the price fixed by a willing “hypothetical buyer” and willing
“hypothetical seller” in a “hypothetical transaction,” but it is
affirmatively helpful because it emphasizes another pertinent
legal principle—namely, that the parties’ prior actual
transactions are not dipositive. (Maglica, supra, 66 Cal.App.4th
at p. 450.) For much the same reason, amici’s argument that the
prior transactions should be accorded extra weight—rather than
be treated as one of the colors in the prism of the “wide variety of
evidence” relevant to reasonable value—is legally incorrect. (See
Children’s Hospital, supra, 226 Cal.App.4th at p. 1274.)
At oral argument, the hospitals articulated a new challenge
to the instruction—namely, that the portion of the instruction
allowing the jury to “reject transactions you believe do not reflect
the price that a hypothetical willing buyer would pay a
hypothetical willing seller for the services” improperly
empowered the jury to capriciously disregard relevant evidence
bearing on the “reasonable and customary value” of the services
provided, and thereby undercut the earlier portion of the
28
instruction advising the jury to “consider the full range of
transactions presented.” We are unpersuaded. The discretion
accorded by the jury to reject some transactions does no more
than reflect the reality that some market transactions will more
closely resemble the transactions at issue in the case before the
jury, and some will bear less resemblance, and thus gives the jury
the ability to give greater weight to the former and less weight to
the latter in fixing what a hypothetical buyer and seller would
pay for the specific services at issue in that case.
IV. Propriety of Evidentiary Rulings
The hospitals and amici challenge the trial court’s (1)
limitation on their expert witness’s testimony and (2) rulings
regarding four categories of evidence bearing on the “reasonable
and customary” value of the emergency medical services at issue
in this case. We review evidentiary rulings for an abuse of
discretion (People v. Dworak (2021) 11 Cal.5th 881, 895), but
independently review any subsidiary questions of law (Goel,
supra, 11 Cal.App.5th at p. 1060).
A. Limitation on expert opinion testimony
1. Pertinent facts
In accordance with the trial court’s pretrial ruling, the
hospitals’ expert witness opined to the jury that the “reasonable
and customary value” of the emergency medical services provided
to Kaiser’s enrollees should be fixed at 90 percent of the hospitals’
full, billed rates. The expert calculated his 90 percent figure by
taking the average of the following three percentages: (1) 83
percent, which represented the “course of dealing” between
Kaiser and the hospitals, and was calculated by (a) taking the
percentage from the parties’ most recent contract (51 percent), (b)
adding 15 percent to reflect that the hospitals, without a contract,
29
no longer received the contract-based rate of 51 percent for the
subset of Kaiser enrollees who were also enrolled in Medicare
(which reimburses at a much lower rate), and (c) adding another
15 percent to reflect that the hospitals, without a contract, did
not receive any of the ancillary benefits (such as cross-marketing
opportunities) that come with having a contract (the expert did
not explain where the other two percent comes from); (2) 87
percent, which represented the most analogous “comparison”
point, and was calculated by (a) taking the average percentage
for rental network contracts (72 percent), and (b) adding an
additional 15 percent to reflect that the hospitals, without an
actual rental network contract, did not receive any of the
ancillary benefits that come with having a contract; and (3) 100
percent, which represents the hospitals’ full, billed rates, which
was appropriate because the hospitals’ billed rates are in the
“lower third” of rates in the “region.”
Partway through the expert’s testimony, the trial court
questioned the expert outside the jury’s presence. After the
expert was unable to answer several of the court’s questions, the
court ruled that the third percentage in the expert’s calculation—
that is, 100 percent for the hospitals’ full, billed rate—must be
excluded. The court cited three reasons for its ruling: (1) the
expert could not explain why the hospitals’ full, billed rate
accounted for one-third of his calculation when only eight percent
of the hospitals’ clientele paid the full rate; (2) the expert did not
show that the small percentage of transactions where the full,
billed rate was paid had any resemblance to the transactions at
issue here; and (3) the expert did not explain why the hospitals’
full, billed rates being on the lower end of full, billed rates vis-à-
30
vis other hospitals made it appropriate to use that rate for one-
third of his calculation.
When the jury returned, the court informed the jury that,
after “a long discussion,” “the court concluded that the third
prong [regarding the full, billed rates] doesn’t belong there.” The
expert then opined that the relevant percentage was 85 percent
(that is, the average of the other two percentages—83 percent
and 87 percent).
2. Analysis
A witness may testify as an expert if he possesses the
requisite “special knowledge, skill, experience, training, or
education,” on any “subject that is sufficiently beyond common
experience that the opinion of an expert would assist the trier of
fact” if it is “[b]ased on a matter . . . perceived by or personally
known to the [expert]” and “is of a type that reasonably may be
relied upon by an expert in forming an opinion upon the subject .
. . .” (Evid. Code, §§ 720, 801, subds. (a) & (b).) To enforce these
requirements as well as those in Evidence Code section 802, a
trial court must “act[] as a gatekeeper to exclude expert opinion
testimony that is (1) based on a matter of a type on which an
expert may not reasonably rely, (2) based on reasons unsupported
by the material on which the expert relies, or (3) speculative.”
(Sargon Enterprises, Inc. v. University of Southern California
(2012) 55 Cal.4th 747, 771-772 (Sargon).) As part of this
responsibility, a trial court may exclude expert testimony if it
concludes that “‘there is simply too great an analytical gap
between the data and the opinion offered.’ [Citation.]” (Id. at p.
771.)
The trial court did not abuse it discretion in prohibiting the
expert from relying upon the hospitals’ full, billed rates as one-
31
third of his proffered calculation because the court’s further
inquiry revealed “too great an analytical gap between the data
and the opinion [he] offered.” Despite many opportunities to do
so, the expert was unable to explain why it made “logic[al]” or
“rational” sense to treat the hospitals full, billed rate as one of
three ingredients going into the reasonable value of the hospitals’
services when very few patrons actually paid that full rate, when
there was no showing that those patrons’ transactions were in
any way similar to the transactions at issue in this case, and
when the expert could not explain why the relative low amount of
the hospitals’ full, billed rates justified treating those rates as one
of three ingredients.
The hospitals respond with three arguments.
First, they argue that their full, billed rates are relevant.
This is true, but beside the point. The issue here is not whether
they are relevant, but whether the expert offered any rational
reason for giving the full, billed rate such prominence in his
calculation. He did not, and this was “too great a . . . gap” in his
analysis.
Second, the hospitals assert that the trial court went
beyond the gatekeeper role approved by Sargon, supra, 55
Cal.4th at pp. 771-772, because (1) the three bases Sargon
articulated for excluding expert testimony do not include
exclusion for expert testimony with analytical gaps, and (2) the
trial court merely disagreed with their expert’s conclusions,
which is an impermissible basis for excluding testimony under
Sargon. These assertions lack merit. There is no question that
Sargon expressly empowered a trial court to exclude expert
testimony whenever “there is simply too great an analytical gap
between the data and the opinion offered.’ [Citation.]” (Id. at p.
32
771.) We reject the hospitals’ argument that our Supreme Court
did not mean what it said. Further, the trial court in this case
did not disagree with the expert’s conclusion; instead, the court
excluded the evidence because the expert could not explain the
part of his “‘methodology’” that the court excluded, which is
precisely what Sargon contemplates. (Id. at p. 772 [“the
gatekeeper’s focus ‘must be solely on principles and methodology,
not on the conclusions that they generate’ [citation]”].)
Third, the hospitals contend that the trial court exuded
“palpable” “hostility” toward their expert, which they imply taints
the court’s evidentiary rulings and otherwise prejudiced the
hospitals. This contention finds no support whatsoever in the
record. To be sure, the court told the expert to remain on the
stand as the court excused the jury in order to probe the basis for
the expert’s opinion, vigorously examined the expert regarding
the reasons for treating the full, billed rate as one-third of his
calculation, and ultimately told the jury that it had ruled that the
full, billed rate “doesn’t belong there.” But this conduct confirms
that the trial court was merely doing what Sargon requires—
namely, acting as a gatekeeper to ensure that the trier of fact is
not presented with expert testimony based on logically
unsupported methodologies. The court’s conduct, as well as its
demeanor in undertaking that conduct, was nowhere near the
type of “persistent[]” “discourteous and disparaging remarks”
aimed at “discredit[ing]” one party that crosses over the line into
judicial misconduct. (People v. Santana (2000) 80 Cal.App.4th
1194, 1206-1207.)
33
B. Exclusion of categories of evidence bearing on
“reasonable and customary value”
The hospitals and their amici argue that the trial court
erred in excluding from the jury’s consideration four “relevant
data point[s]” bearing on the “reasonable and customary value” of
the emergency medical services the hospitals provided: (1) what
Kaiser paid other hospitals for emergency medical services, (2)
the hospitals’ full, billed rates, (3) what Kaiser received when its
affiliated hospitals provided emergency medical services to the
hospitals’ enrollees (because the hospitals self-insured their
employees), and (4) what methodology Kaiser used internally to
calculate the “reasonable and customary” value it would pay the
hospitals for emergency medical services.10
We reject the first two challenges at the outset for the
simple reason that the trial court never excluded those “data
point[s].” Although the trial court did not allow the hospitals’
expert to discuss what Kaiser paid other hospitals for emergency
medical services because those rates were not part of the expert’s
methodology or opinion, the contracts setting forth those
payments were admitted into evidence. The court also admitted
evidence of what percentage of the hospitals’ full, billed rates
10 The hospitals repeatedly assert that Kaiser’s internal
methodology changed “overnight” because Kaiser’s
reimbursement amounts dropped significantly when Kaiser went
from participating in a rental network to making payments based
on its methodology. On these facts, however, the drop reflects a
shift from one external methodology for paying (that is, the rental
networks’ contract rates) to an internal methodology—not from
one internal methodology to another. Thus, the evidence at trial
does not support the notion that Kaiser altered its internal
methodology to reduce reimbursement amounts.
34
various entities paid for services as well as the dollar amount
corresponding with 85 percent of those full, billed rates; from
these, the jury could calculate the rates themselves. The absence
of the rates themselves is hardly surprising, as the hospitals
repeatedly told the trial court that they preferred the evidence to
be presented as “a percentage of the full, billed rates” rather than
with the rates themselves.
We now turn to the two categories of evidence that were
excluded.
1. Pertinent facts
a. The hospitals’ payments to Kaiser
During the direct examination of one of the hospitals’ vice
presidents, the hospital asked if there were “situations in which
[the hospitals are] the party who pays Kaiser for emergency
trauma services.” When the vice president answered that such
situations exist because the hospitals “self-insure[] [their]
employees,” the trial court said, “Oh, no. Move on.”
b. Kaiser’s internal methodology
In two different motions in limine, Kaiser moved to exclude
evidence of its internal methodology on the grounds that it was
both irrelevant and subject to exclusion under Evidence Code
section 352 due to any probative value being substantially
outweighed by undue consumption of time, by danger of
confusing the jury, and by undue prejudice. The trial court
deferred ruling until trial. In the midst of trial, however, the
court excluded any evidence of Kaiser’s internal methodology on
two mutually reinforcing grounds: (1) what Kaiser offered to
pay—and its internal deliberations regarding how to come up
with that offer—was “really irrelevant,” and (2) even if Kaiser’s
methodology was relevant, a single “market participant’s
35
subjective view of value without knowing whether or not it would
be accepted,” had only “marginal” relevance that was
“substantially outweighed” (a) “by the risk” of confusing the jury,
when that “reasonable value” issue is to be adjudged objectively,
and (b) by the risk that the jury might misuse evidence bearing
on Kaiser’s subjective intent to paint Kaiser’s staff as “awful
people trying to do underhanded things,” when Kaiser’s motive is
not “material” to the sole question of reasonable value at issue in
the case. Curiously, the hospitals told the trial court that they
agreed that Kaiser’s subjective motive was irrelevant.
2. Analysis
Evidence is “relevant” if it has “any tendency in reason to
prove or disprove any disputed fact that is of consequence to the
determination of the action.” (Evid. Code, § 210; People v.
Sanchez (2019) 7 Cal.5th 14, 54.) Even if an item of evidence is
relevant, a trial court has “broad discretion” to “exclude” that
item “if its probative value is substantially outweighed by the
probability that its admission will (a) necessitate undue
consumption of time or (b) create substantial danger of undue
prejudice, of confusing the issues, or of misleading the jury.”
(Evid. Code, § 352; People v. Rodrigues (1994) 8 Cal.4th 1060,
1124.) A trial court may raise and sustain its own objection to
evidence under Evidence Code section 352. (E.g., Gherman v.
Colburn (1977) 72 Cal.App.3d 544, 581.)
a. The hospitals’ payments to Kaiser
The trial court did not abuse its discretion in excluding
evidence of what the hospitals (in their role as self-insurers of
their employees) paid Kaiser for emergency medical services for
two reasons.
36
First, this evidence was properly excluded under Evidence
Code section 352. To be sure, this evidence is relevant. It is well
settled that “any evidence bearing upon the ‘reasonable market
value’ of” emergency medical services is “relevant,” including “the
full range of fees” charged and paid in the market. (Goel, supra,
11 Cal.App.5th at pp. 1060, 1063; Children’s Hospital, supra, 226
Cal.App.4th at pp. 1274, 1277; Northbay Healthcare Group -
Hospital Div. v. Blue Shield of California Life & Health Ins.
(N.D.Cal. Apr. 2, 2019, No. 17-cv-02929-WHO) 2019 U.S.Dist.
Lexis 227356, p. *3; Regents, supra, 2018 U.S.Dist. Lexis 89413,
at p. *55). The amount that the hospitals paid Kaiser for
emergency services certainly fits within this definition because it
is a transaction for emergency medical services in the pertinent
market. But, as the trial court elsewhere noted, the hospitals
and Kaiser are just a very small subset of participants in that
market. “Cherry-picking” and placing undue focus on
transactions involving those two participants, the trial court
feared, would risk presenting the jury with a “skewed market”
when the law requires an evaluation of the “full range of fees”
charged and paid in the market. The extent of this skew may
have been ever greater if, as the hospitals argued, Kaiser was
“unique” in that market as both a medical insurance provider and
a hospital operator. As noted above, Evidence Code section 352
grants a trial court the power to exclude evidence where, as here,
its probative value is substantially outweighed by the substantial
danger of confusing the issues or misleading the jury. That the
trial court did not articulate any specific basis for its exclusion of
this evidence is of no consequence because we review the court’s
ruling, not its reasoning. (People v. Kirvin (2014) 231
Cal.App.4th 1507, 1516.)
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Second, even if the trial court erred, the hospitals have not
demonstrated that they were prejudiced by this error because
they never proffered to the trial court the rate at which the
hospitals reimbursed Kaiser for the emergency medical services.
(People v. Anderson (2001) 25 Cal.4th 543, 580 [“the reviewing
court must know the substance of the excluded evidence in order
to assess prejudice”]; see also Evid. Code, § 354.) Without
knowing whether that rate is higher or lower than the rate at
which Kaiser paid the hospitals in this case, the hospitals cannot
carry their burden of proving that a different outcome was
reasonably probable had this evidence been admitted. (People v.
Masters (2016) 62 Cal.4th 1019, 1064 (Masters).)
The hospitals’ sole argument on appeal is that evidence of
what they paid Kaiser is relevant. As explained above, we agree
with the hospitals on this point but nevertheless conclude there
was no abuse of discretion to exclude the evidence under
Evidence Code section 352, a provision the hospitals did not
address in their briefs on appeal. To the extent the hospitals are
asserting that the general mandate that the trier of fact fixing
the “reasonable and customary value” of emergency medical
services must consider a “wide variety of evidence” overrides a
trial court’s discretion to exclude specific pieces of evidence under
Evidence Code section 352, we reject that assertion both because
this non-constitutionally-based case law cannot wipe away our
Legislature’s statutory grant of discretion and because this
mandate is not absolute in any event: The pertinent cases
acknowledge that “[s]pecific criteria might or might not be
appropriate for a given set of facts” (Children’s Hospital, supra,
226 Cal.App.4th at p. 1275), such that the mandate “leaves
considerable discretion to trial courts to determine what billing
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and payment evidence might be relevant to a particular case”
(Goel, supra, 11 Cal.App.5th at p. 1060, fn. 3).
b. Kaiser’s internal methodology
The trial court did not abuse its discretion in excluding
evidence of Kaiser’s internal methodology for calculating its
reimbursement payments to the hospitals. We need not address
whether a health plan’s internal methodology is relevant in the
first place because, assuming its base relevance, the trial court
acted within its discretion in excluding the evidence under
Evidence Code section 352 because (1) a health plan’s subjective
view of the value as to what it should offer for a hospital’s or
other medical provider’s emergency medical services is of
marginal relevance to the question of what the value of those
services are in the market, which is a function of what price is
offered and accepted (e.g., Northbay, supra, 342 F. Supp. 3d at p.
987 [what matters is “not the methodology,” but rather “the
results of a value determination—the reasonable reimbursements
and the amount paid”]), and (2) that marginal relevance is
substantially outweighed by the dangers that a jury might give
the plan’s subjective view more weight than it deserves and that
the jury might punish the plan for its subjective
parsimoniousness. Even Children’s Hospital, supra, 226
Cal.App.4th at p. 1278, acknowledges that “subjective” criteria
such as “costs” are of little relevance to the issue of reasonable
value. What is more, the marginal relevance of Kaiser’s internal
methodology to the question of reasonable value means that its
exclusion was not reasonably probable to alter the jury’s
assessment of that value. (Masters, supra, 62 Cal.4th at p. 1064.)
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V. Propriety of Denial of Costs
In its cross-appeal, Kaiser argues that the trial court erred
in flatly denying its motion for costs, seemingly on the ground
that Kaiser was not the “prevailing party” because its failure to
prevail on its cross-complaint for overpayment canceled out its
victory in defending against the hospitals’ claims. We
independently review whether a party is entitled to costs as a
matter of right (Charton v. Harkey (2016) 247 Cal.App.4th 730,
739), and conclude that the trial court erred.
The statute governing costs expressly specifies that a
“defendant” is a prevailing party entitled to costs “where neither
plaintiff nor defendant obtains any relief.” (Code Civ. Proc., §
1032, subd. (a)(4); Zintel Holdings, LLC v. McLean (2012) 209
Cal.App.4th 431, 438.) As the hospitals concede, this language
perfectly describes Kaiser in this case. The hospitals invite us to
fashion a special exception to this statutory mandate just for
cases adjudicating the “reasonable and customary value” of
emergency medical services under the Knox-Keene Act, but this
is an invitation we must decline because it is not our role to
rewrite statutes. (State Dept. of Public Health v. Superior Court
(2015) 60 Cal.4th 940, 956.) Because the trial court’s categorical
ruling obviated the need for the court to consider the hospitals’
multifarious objections to specific cost items requested by Kaiser,
we reverse the order denying costs and remand the proceeding on
the hospitals’ motion to strike or tax Kaiser’s costs to the trial
court to consider the hospitals’ objections in the first instance.
(E.g., Ellis v. Toshiba America Information Systems, Inc. (2013)
218 Cal.App.4th 853, 887.)
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DISPOSITION
The judgment is affirmed. The order denying costs is
reversed and remanded for the trial court to consider the
hospitals’ previously raised objections to specific cost items.
Kaiser and Kaiser Foundation Hospitals are entitled to their
costs on the appeal and cross-appeal.
CERTIFIED FOR PARTIAL PUBLICATION.
______________________, J.
HOFFSTADT
We concur:
_________________________, Acting P. J.
ASHMANN-GERST
_________________________, J.
CHAVEZ
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