Centinela Freeman v. Health Net

Filed 2/19/14
CERTIFIED FOR PUBLICATION
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
SECOND APPELLATE DISTRICT
DIVISION THREE
CENTINELA FREEMAN EMERGENCY B238867
MEDICAL ASSOCIATES et al.,
(Los Angeles County
Plaintiffs and Appellants, Super. Ct. No. BC449056)
v.
HEALTH NET OF CALIFORNIA, INC.,
et al.,
Defendants and Respondents.
APPEAL from a judgment of the Superior Court of Los Angeles County,
John Shepard Wiley, Judge. Reversed and remanded.
Michelman & Robinson, Andrew H. Selesnick and Jason O. Cheuk for Plaintiffs
and Appellants.
California Medical Association, Center for Legal Affairs, Francisco J. Silva,
Long X. Do and Michelle Rubalcava as Amicus Curiae on behalf of Plaintiffs and
Appellants, California Medical Association, California Hospital Association, California
Orthopaedic Association, California Radiological Society and California Society of
Pathologists.
Astrid G. Meghrigian as Amicus Curiae on behalf of Plaintiffs and Appellants
for California Chapter of the American College of Emergency Physicians.
Reed Smith, Margaret M. Grignon, Kurt C. Petersen, Kenneth N. Smersfelt and
Zareh A. Jaltorossian; Crowell & Moring, William A. Helvestine, Ethan P. Schulman
and Damian D. Capozzola; Attorneys for Blue Cross of California dba Anthem Blue
Cross; Jennifer S. Romano, Attorney for Pacificare of California dba Secure Horizons
Health Plan of America; Manatt, Phelps & Phillips, Gregory N. Pimstone,
Joanna S. McCallum and Jeffrey J. Maurer, Attorneys for California Physicians’ Service
dba Blue Shield of California; Gonzalez Saggio & Harlan LLP, Don A. Hernandez and
Jamie L. Lopez, Attorneys for SCAN Health Plan; Gibson, Dunn & Crutcher,
Kirk A. Patrick and Heather L. Richardson, Attorneys for Aetna Health of California;
DLA Piper, William P. Donovan, Jr. and Matthew D. Caplan, Attorneys for Cigna
HealthCare of California, Inc., Defendants and Respondents.
Barger & Wolen, John M. LeBlanc and Sandra I. Weishart as Amicus Curiae on
behalf of Defendants and Respondents, California Association of Health Plans.
_______________________________________
2
The law imposes a duty on emergency room physicians to treat patients
regardless of their ability to pay. When those patients are enrollees in health care
service plans (HMO’s),1 the law imposes an obligation on the HMO’s to reimburse the
physicians for emergency treatment provided to the enrollees, even when the physicians
were not under contract to the HMO’s. HMO’s sometimes delegate their health care
obligations to independent practice associations (IPA’s); HMO’s are statutorily
permitted to delegate to IPA’s their obligation to reimburse emergency physicians. In
this case, the HMO’s delegated responsibility for some of their enrollees to an IPA;2 the
delegation included the duty to reimburse emergency physicians. At some point, the
IPA began experiencing financial problems and, after a number of years, ultimately
ceased operating as a going concern. As the IPA’s financial problems increased, it
failed to reimburse physicians who had provided emergency services to its enrollees.
The unpaid emergency physicians sought payment from the HMO’s, which simply
instructed the physicians to continue presenting their bills to the IPA, even though it
was clear that the IPA would not be able to pay those bills. As they were required to do
by law, the physicians continued to render emergency services to enrollees in the IPA,
and the IPA continued to fail to reimburse them.
1
“Health care service plans are often called HMO’s (health maintenance
organizations).” (Watanabe v. California Physicians’ Service (2008) 169 Cal.App.4th
56, 59, fn. 3.)
2
It is not clear from the limited factual record before us whether, when an HMO
delegates the obligations associated with an enrollee to an IPA, the enrollee is
considered to be an enrollee in the IPA itself. We will, however, refer to such a patient
as an enrollee in both the HMO and the IPA.
3
The physicians brought suit against the HMO’s, alleging a cause of action for,
among other things, negligent delegation. The HMO’s successfully demurred to the
complaint, and the physicians appeal. We hold that where: (1) a physician is obligated
by statute to provide emergency care to a patient who is enrolled in both an HMO and
an IPA with whom the physician has no contractual relationship; (2) the physician
provides emergency care to the patient; (3) the HMO, which has a statutory duty to
reimburse the physician, chose to delegate that duty to an IPA it knew, or had reason to
know, would be unable to fulfill the delegated obligation; and (4) the IPA fails to make
the necessary reimbursement, the resulting loss should be borne by the HMO and not
the physician. In short, we hold that the HMO has a duty not to delegate its obligation
to reimburse emergency physicians to an IPA it knows or has reason to know will be
unable to pay. This duty is a continuing one, and is breached by an HMO’s failure to
act when it learns, after an initial delegation, that its delegatee is no longer able to fulfill
its obligations. As the physicians have alleged sufficient facts to reflect the existence of
a claim for a negligent delegation by the HMO’s in this case, and/or a negligent failure
to timely reassume a delegated obligation, we will reverse the judgment and remand the
matter for further proceedings.
FACTUAL AND PROCEDURAL BACKGROUND
1. The Parties
As this case was resolved on demurrer, we consider the facts as pleaded by the
emergency physicians and all reasonable inferences arising therefrom. This appellate
matter arises out of two separate, but related, cases. Both cases arose out of the failure
4
of three related IPA’s, known collectively by the parties as “La Vida.”3 La Vida was
alleged to have contracted with a number of HMO’s, known, collectively, as “the
HMO’s” or “the plans.”4
The plaintiffs are two different groups of physicians. In one case, the plaintiffs
are several partnerships of emergency room physicians working at several hospitals.5 In
the other case, the plaintiff is a medical group of radiologists,6 who also allegedly
perform medical services on an emergency basis. None of the plaintiff physician groups
are alleged to have contracted with La Vida or any of the HMO’s.7 As a result, our
reference in this opinion to “plaintiffs” is limited to the physicians who have performed
emergency room medical services and emergency radiological services for enrollees of
the defendant HMO’s and who do not have any contractual relationship with such
3
The precise names of the three La Vida entities are unclear. They were named
as: (1) La Vida Medical Group & IPA, dba La Vida Prairie Medical Group; (2) La Vida
Multispecialty Medical Centers, Inc.; and (3) Prairie Medical Group, Inc. However,
when the first La Vida entity answered the initial complaint, it indicated its actual name
was “La Vida Medical Group, Inc.”
4
The HMO’s are: Blue Cross of California dba Anthem Blue Cross of California,
Health Net of California, Inc., Cigna Healthcare of California, Inc., Aetna Health of
California, Inc., Pacificare of California dba Secure Horizons Health Plan of America,
Care 1st Health Plan, California Physician’s Service dba Blue Shield of California, and
SCAN Health Plan.
5
The emergency room physician plaintiffs are Centinela Freeman Emergency
Medical Associates, Sherman Oaks Emergency Medical Associates, Valley Presbyterian
Emergency Medical Associates, and Westside Emergency Medical Associates.
6
The radiology plaintiff is Centinela Radiology Medical Group.
7
The radiology plaintiff had a prior contract with La Vida, but terminated it
effective April 1, 2005. Its complaint is based on facts occurring after it terminated the
contract.
5
HMO’s or La Vida. Our references to “emergency physicians” refer, in general, to
physicians who provide emergency services to enrollees in HMO’s and IPA’s with
whom the physicians have no contractual relationship.8
2. Law Governing HMO’s and IPA’s
In order to understand plaintiffs’ allegations, a brief background in the law
governing HMO’s and IPA’s is helpful. HMO’s are governed by the Knox-Keene
Health Care Service Plan Act of 1975 (Knox-Keene Act). (Health & Saf. Code, § 1340;
Van de Kamp v. Gumbiner (1990) 221 Cal.App.3d 1260, 1269.) While the Knox-Keene
Act had many goals, two of them identified by the Legislature were: (1) “[h]elping to
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” (Health & Saf.
Code, § 1342, subd. (d)); and (2) “[e]nsuring the financial stability [of HMO’s] by
means of proper regulatory procedures.” (Health & Saf. Code, § 1342, subd. (f).) As to
the former, HMO’s are required to provide basic health care services to their enrollees.
8
In their complaint, the radiology plaintiff alleged that its members provided
services on both an emergency and non-emergency basis, and argued that the HMO’s
were obligated to reimburse them for both types of services. As to the non-emergency
services, the radiology plaintiff alleged that, as its members work in a hospital setting,
they “are powerless to do anything to control their income model or ensure payment of
their claims, lacking the ability to pick and choose which patients to treat. Rather, they
must perform their services for all patients who are at the hospital.” As such, they
argued they were entitled to compensation for their non-emergency services. On
appeal, in which the emergency room and radiology plaintiffs filed consolidated
briefing, it appears that the radiology plaintiff focuses solely on the services its
members provided on an emergency basis. To the extent the radiology plaintiff
continues to pursue its claim for reimbursement of non-emergency services, we reject
the argument. As we shall discuss, the statutory requirements and policy concerns
which motivate our result in this case and to which this opinion is limited, relate only to
compulsory services provided on an emergency basis.
6
(Health & Saf. Code, § 1367, subd. (i).) This requirement includes emergency health
care services. (Health & Saf. Code, § 1345, subd. (b)(6).) As to the latter legislative
goal, HMO’s must prove to the Department of Managed Health Care (Department) that
they are financially sound. (Health & Saf. Code, § 1375.1, subd. (a)(1).)
An HMO may contract with an IPA, which is considered a type of “risk-bearing
organization.” (Health & Saf. Code, § 1375.4, subd. (g)(1).) The IPA is a group of
physicians that contracts with an HMO to provide services for the plan’s enrollees, for
which it receives compensation on a capitated or fixed payment basis. (Ibid.) As
a risk-bearing organization, the IPA is also statutorily responsible for processing and
paying claims made by physicians for services rendered by those physicians that are
covered under the payments made by the plan to the IPA. (Id. at subd. (g)(1)(C).)
As HMO’s which contract with IPA’s are, basically, transferring responsibility
for some or all of their enrollees to the IPA’s, the IPA’s are subject to certain financial
condition requirements. Indeed, in determining whether an HMO is financially sound,
the Department is to consider the “financial soundness of the plan’s arrangements for
health care services” and its agreements with providers. (Health & Saf. Code, § 1375.1,
subds. (b)(1) & (b)(3).) Moreover, the Knox-Keene Act imposes specific requirements
on any contract between an HMO and an IPA, including a contractual provision
requiring the IPA to provide regular financial information to the HMO to “assist the
[HMO] in maintaining the financial viability of its arrangements for the provision of
health care services . . . . ” (Health & Saf. Code, § 1375.4, subd. (a)(1).) The
7
Department has also promulgated regulations requiring the IPA to make direct financial
reports to the Department. (Cal. Code Regs., tit. 28, § 1300.75.4.2.)
There are minimal financial criteria which every IPA must meet on a regular
basis. (Health & Saf. Code, § 1375.4, subd. (b)(1)(A).) Should the IPA fail to meet
those requirements, the IPA and the HMO’s with which it contracts should agree to
a “corrective action plan,” approved by the Department,9 designed to bring the IPA back
into compliance. (Health & Saf. Code, § 1375.4, subd. (b)(4).)
When an HMO’s contract with its IPA requires the IPA to pay claims,
regulations impose certain conditions on the contract. Among other things, the contract
must require the IPA to submit to the plan a quarterly claims payment performance
report 30 days after the close of each quarter, disclosing its compliance status with
relevant statutes. (Cal. Code Regs., tit. 28, § 1300.71, subd. (e)(3)(i).) The IPA’s
quarterly report shall include records of each physician dispute the IPA received, and
the disposition of each dispute. (Id. at subd. (e)(3)(ii).) Finally, the contract shall
include a provision “authorizing the plan to assume responsibility for the processing and
timely reimbursement of provider claims in the event that the [IPA] fails to timely and
accurately reimburse its claims.” (Id. at subd. (e)(6).) The regulation further indicates
that the plan’s “obligation to assume responsibility for the processing and timely
9
Should the plans and the IPA fail to agree on the terms of the corrective action
plan, the Department shall determine the terms. (Health & Saf. Code, § 1375.4,
subd. (b)(4).)
8
reimbursement of . . . claims may be altered to the extent that the [IPA] has established
an approved corrective action plan . . . . ”10 (Ibid.)
3. Law Governing Emergency Medical Services and
Reimbursement Therefor
Under state and federal law, emergency services and care “shall be provided to
any person requesting the services or care” at any hospital with appropriate facilities
and qualified personnel. (Health & Saf. Code, § 1317, subd. (a); 42 U.S.C.
§ 1395dd(b).) Such services and care are to be provided without regard to the patient’s
“insurance status, economic status [or] ability to pay.” (Health & Saf. Code, § 1317,
subd. (b).) Indeed, the emergency services and care shall be provided without first
questioning the patient as to insurance or ability to pay. (Health & Saf. Code, § 1317,
subd. (d); 42 U.S.C. § 1395dd(h).)
As the Knox-Keene Act requires emergency services and care to be provided
without questioning the patient as to insurance or ability to pay, the Act also requires
that, when emergency services have been provided to plan enrollees, the HMO or its
IPA “shall reimburse” the physicians.11 (Health & Saf. Code, § 1371.4, subd. (b).) That
section also provides that “[a] health care service plan may delegate the responsibilities
10
We note that while the first sentence of this subdivision provides that the contract
between the HMO and its IPA must “authoriz[e]” the plan to assume responsibility
when the IPA fails to timely and accurately reimburse provider claims, the second
sentence refers to an “obligation” to assume that responsibility. In other words, the
regulation does not merely direct the HMO to contractually guarantee that it may
reassume the obligation, it implies that in some circumstance the HMO must do so.
11
The reimbursement is to be “the reasonable and customary value” for the
services provided. (Cal. Code Regs., tit. 28, § 1300.71, subd. (a)(3)(B).)
9
enumerated in this section to the plan’s contracting medical providers.”12 (Health &
Saf. Code, § 1371.4, subd. (e).)
4. Allegations of the Complaints
We now turn to the allegations of the two complaints. Plaintiffs allege that,
pursuant to their statutory duties, they provided services and care on an emergency basis
to La Vida enrollees. Plaintiffs allege that they provided emergency services to La Vida
enrollees in the HMO’s, although plaintiffs were not parties to any provider agreement
with either La Vida or the HMO’s. After plaintiffs provided emergency services to
La Vida enrollees, they sought reimbursement from La Vida.
According to the allegations of the complaints, however, La Vida was unable to
pay. It is unclear at what point La Vida became financially unsound. Plaintiffs allege,
however, that at the time the HMO’s delegated their responsibilities to La Vida and
throughout the duration of those contracts, the HMO’s “knew or should have known of
La Vida’s insolvency based on [1] financial reports submitted periodically by La Vida,
[2] notice directly from La Vida and indirectly from Plaintiffs and other health care
providers, and [3] the inadequate amounts of their own capitation payments to
12
We do note, however, that the regulations provide that “[a] plan’s contract with
a . . . capitated provider shall not relieve the plan of its obligations to comply with”
several enumerated statutes, including Health and Safety Code section 1371.4. (Cal.
Code Regs., tit. 28, § 1300.71, subd. (e)(8).)
10
La Vida.” Nonetheless, the HMO’s “delegated and continued delegating their payment
obligations to La Vida.”13
Plaintiffs allege that “[r]ather than helping to resolve the growing number of
Plaintiffs’ unpaid claims, the [HMO’s] instead advised Plaintiffs to continue submitting
claims directly to La Vida and continued their insufficient capitation payments, despite
lacking any reasonable expectation that Plaintiffs’ claims would be properly reimbursed
and the mountain of evidence to the contrary.” This allegedly continued until
mid-2010, when the HMO’s ultimately terminated their contracts with La Vida.
Thereafter, La Vida went out of business.
As against the HMO’s,14 plaintiffs alleged causes of action for negligence, unfair
competition, quantum meruit, open book account, and services rendered. Both groups
of plaintiffs were represented by the same counsel, and the two complaints were
virtually identical.15 The cases were deemed related.
13
Plaintiffs clearly alleged that the HMO’s knew or should have known of
La Vida’s insolvency at the time of their initial delegation to La Vida. However, the
pleadings are not clear as to when that occurred. Indeed, while the plaintiffs indicate
that, “beginning in 2007 and continuing through each quarter thereafter,” La Vida failed
to meet the Department’s minimal financial criteria, they do not allege whether any act
of delegation occurred after that date. Nor do plaintiffs specifically allege that the
HMO’s knew or should have known of La Vida’s insolvency prior to 2007.
14
Plaintiffs’ complaints also named La Vida as a defendant. La Vida is not a party
to this appeal.
15
One of the HMO’s, SCAN Health Plan, was named in the radiology plaintiff’s
action only.
11
5. The Demurrers
The HMO’s demurred to the complaints, arguing that the delegation of their
statutory obligation to compensate emergency physicians for emergency services was
both statutorily-permitted and absolute. That is, once the plans had permissibly
delegated the obligation to La Vida, the emergency physicians had no recourse to the
HMO’s for payments La Vida was unable to make. As to negligence, the plans argued
that no duty arose for them to protect the financial interests of the third-party plaintiffs
under the seminal case of Biakanja v. Irving (1958) 49 Cal.2d 647 (Biakanja).16
Additionally, the HMO’s argued that, to the extent the complaints sought equitable
relief for unfair competition, the court should abstain from resolving the claim, as it
involved complex issues of economic health care policy better determined by the
Legislature and the Department.
The HMO’s also represented that, from 2007 through 2009, La Vida was subject
to a Department-approved corrective action plan.17 The HMO’s argued that, while
16
Biakanja identified several factors to be considered in determining whether
a duty exists. “The determination whether in a specific case the defendant will be held
liable to a third person not in privity is a matter of policy and involves the balancing of
various factors, among which are the extent to which the transaction was intended to
affect the plaintiff, the foreseeability of harm to him, the degree of certainty that the
plaintiff suffered injury, the closeness of the connection between the defendant’s
conduct and the injury suffered, the moral blame attached to the defendant’s conduct,
and the policy of preventing future harm. [Citations.]” (Biakanja, supra, 49 Cal.2d at
p. 650.)
17
It does not appear to be seriously disputed that La Vida was subject to
a corrective action plan. However, the fact is not technically before this court. The
HMO’s sought to establish the existence of a corrective action plan by means of
a request for judicial notice of a letter and e-mail from the Department which referenced
12
La Vida was subject to the corrective action plan, the HMO’s could not have terminated
their delegation contracts with La Vida, “which is what Plaintiffs claim the [HMO’s]
should have done.”18 As we shall discuss, however, the plaintiffs do not argue that the
plans should have terminated their delegation contracts with La Vida in their entirety;
the corrective action plan. Plaintiffs opposed the request for judicial notice of these two
documents. The trial court did not rule on the request for judicial notice. On appeal, the
HMO’s have not requested that this court take judicial notice of these documents.
18
This argument is something of an oversimplification. The applicable regulation
provides that if a plan proposes to transfer enrollees away from an IPA “that is
compliant” with a corrective action plan, and if the reassignment is based, on part, on
the IPA’s failure to meet financial requirements, the plan must request Department
approval for the transfer. The Department may disapprove the transfer if it determines
that: (1) the proposed reassignment will likely cause the IPA’s failure within three
months; (2) the IPA “has the financial and administrative capacity to provide timely
access to care through an adequate network of qualified health care providers”; and
(3) the IPA is not denying or delaying basic health care services or continuity of care to
its enrollees. (Cal. Code Regs., tit. 28, § 1300.75.4.5, subd. (a)(6).) Although the
HMO’s sought judicial notice of the fact that La Vida was subject to a corrective action
plan, they did not provide any evidence that La Vida was “compliant” with its
corrective action plan. The HMO’s also did not provide evidence that they had
requested a transfer and the Department denied it; or, in the alternative, that a request
would have been denied because the three criteria above would have been established as
a matter of law. In fact, to the extent there is evidence on these matters, it is to the
contrary. At some point in the process, it appears that the Department was amenable to
the termination of the delegation contracts to La Vida; one HMO apparently terminated
La Vida shortly before the Department ultimately ordered the remaining HMO’s to do
so. Indeed, the HMO’s conceded the point by implication, stating that “[a]t no time
from 2007 through the first three quarters of 2009” did the Department permit the
Health Plans to terminate their La Vida delegations. But the Health Plans did not
actually terminate La Vida until May or June of 2010, leaving some three quarters of
a year in which they could have terminated La Vida, but did not. Moreover, given that
the regulations provide that corrective action plans are generally to be completed within
one year (Cal. Code Regs., tit. 28, § 1300.75.4.8, subd. (a)(5)), the plans’ assertion that
La Vida was subject to a corrective action plan from 2007 through 2009 strongly
suggests that La Vida may not have been “compliant” with its plan.
13
they alleged only that the plans should have reassumed the responsibility to reimburse
them for emergency services rendered.
In opposition to the demurrer, the plaintiffs again argued that the HMO’s
“delegated their own payment responsibilities to IPA[’]s that the [p]lans knew were
financially insolvent. Despite being informed on an ongoing basis that claims were not
being paid and the IPA[’]s were unlikely to ever pay them, the [HMO’s] continued to
delegate as long as they possibly could.”
6. Ruling, Judgment and Appeal
The trial court sustained the demurrers without leave to amend. The trial court
concluded that the Knox-Keene Act permits delegation, and there is no liability for the
delegator if the delegatee fails to pay. As the delegation was permissible, all causes of
action based on La Vida’s failure to pay (unfair competition, quantum meruit, open
book account, and services rendered) fail. As to the negligence cause of action, the
court concluded that Biakanja bars relief. Specifically, the trial court concluded that
there can be no cause of action for negligence unless the alleged negligent act was
intended to harm the plaintiff specifically, as opposed to a class to which the plaintiff
happens to belong. Here, the trial court found no intent to harm plaintiffs specifically.
The court found that this fact alone required sustaining the demurrer, regardless of the
remaining Biakanja factors, although it noted that the other factors weighed against
recognizing a duty. In the course of its discussion, the court noted that the plaintiffs
“have not alleged any facts to suggest the insolvency of [La Vida] was foreseeable to
14
the health plans at the time the health plans delegated their payment obligations to
[La Vida].”19
Judgment was entered in favor of the HMO’s. The plaintiffs filed timely notices
of appeal. We consolidated the cases on appeal.20
ISSUES ON APPEAL
The main issue on appeal is whether a cause of action exists, on behalf of
emergency physicians, against HMO’s, for the negligent delegation of the obligation to
reimburse the emergency physicians, when the HMO’s have delegated their duty to an
IPA they knew or had reason to know was financially unable to satisfy it. After
resolving this question in the affirmative, we then address the related question of
whether the cause of action necessarily includes a negligent failure to reassume the
reimbursement obligation, once the HMO’s know or should know that the delegatee is
unable to execute the duty delegated to it. We answer this question in the affirmative as
well. We reject the HMO’s argument that we should abstain from resolving this
dispute.
19
As noted above (see footnote 13, ante), this is correct. However, plaintiffs did
allege that the HMO’s knew or should have known of La Vida’s financial problems at
the time of the initial delegation. Given the procedural posture of the case, if the trial
court had concluded this fact was important to its reasoning and rationale, we assume
leave to amend would have been granted.
20
Amicus curiae briefs have been filed by the California Chapter of the American
College of Emergency Physicians, California Medical Association, California Hospital
Association, California Orthopaedic Association, California Radiological Society, and
California Society of Pathologists, in support of plaintiffs; and California Association of
Health Plans and California Association of Physician Groups in support of the HMO’s.
15
DISCUSSION
1. Standard of Review
“In reviewing the sufficiency of a complaint against a general demurrer, we are
guided by long-settled rules. ‘We treat the demurrer as admitting all material facts
properly pleaded, but not contentions, deductions or conclusions of fact or law.
[Citation.] We also consider matters which may be judicially noticed.’ [Citation.]
Further, we give the complaint a reasonable interpretation, reading it as a whole and its
parts in their context. [Citation.] When a demurrer is sustained, we determine whether
the complaint states facts sufficient to constitute a cause of action. [Citation.] And
when it is sustained without leave to amend, we decide whether there is a reasonable
possibility that the defect can be cured by amendment: if it can be, the trial court has
abused its discretion and we reverse; if not, there has been no abuse of discretion and
we affirm. [Citations.] The burden of proving such reasonable possibility is squarely
on the plaintiff. [Citation.]” (Blank v. Kirwan (1985) 39 Cal.3d 311, 318.)
2. Existing Authority
As noted above, the main issue on appeal is whether a cause of action exists for
negligent delegation of an HMO’s statutory obligation to reimburse emergency
physicians. In addressing this question, we are not writing on a clean slate. Two courts
have addressed the question directly, reaching contradictory results. (Compare
California Emergency Physicians Medical Group v. PacifiCare of California (2003)
111 Cal.App.4th 1127, 1135-1136 (CEP) [finding no negligence cause of action] with
Ochs v. PacifiCare of California (2004) 115 Cal.App.4th 782, 796-797 (Ochs) [finding
16
such a cause of action exists].) We will ultimately conclude that Ochs is the better
reasoned of the two opinions, and follow it. As these cases are best understood in
context of the development of the law, we must begin with two cases predating CEP
and Ochs.
a. Cases Involving Physicians Who Had Contracted
With the IPA
Unfortunately, La Vida is not the first IPA to fail, leaving physicians unpaid.
The first cases involving physicians seeking compensation from an HMO for services
rendered to enrollees in IPA’s for which the IPA’s were unable to pay, involved
physicians who had directly contracted with the IPA’s. The first such case was
California Medical Assn. v. Aetna U.S. Healthcare of California, Inc. (2001)
94 Cal.App.4th 151 (California Medical). In that case, the plaintiff physicians21 argued
that, in order to have access to the majority of insured patients in the state, it was
necessary to participate in HMO’s. In order to participate in the defendant HMO, the
plaintiff physicians were required to enter into agreements with the IPA’s.22 When the
IPA’s were unable to pay “due to their actual or imminent insolvency,” the physicians
brought suit against the HMO.
The physicians relied on Health and Safety Code section 1371, which provides
that a plan must reimburse a physician’s claim within a certain number of days. The
21
The named plaintiff was actually the physicians’ assignee.
22
Indeed, in their agreements with the IPA’s, the plaintiff physicians agreed to
look solely to the IPA’s for payment. (California Medical, supra, 94 Cal.App.4th at
p. 157, fn. 7.)
17
statute further provides, “The obligation of the plan to comply with this section shall not
be deemed to be waived when the plan requires its medical groups, independent practice
associations, or other contracting entities to pay claims for covered services.” The
physicians argued that this provision required the HMO to make timely payment when
its IPA’s failed to do so. In California Medical, supra, 94 Cal.App.4th at p. 161,
Division One of the Fourth Appellate District disagreed. Construing the non-waiver
clause in the context of the full statute, the entire Knox-Keene Act, and legislative
history, the court concluded that the clause simply provided that the procedural
requirements of Health and Safety Code section 1371 apply to an HMO’s delegatees as
well as the HMO itself. (California Medical, supra, 94 Cal.App.4th at pp. 161-163.)
A similar factual situation arose later that same year, before Division Two of the
Fourth Appellate District, in Desert Healthcare Dist. v. PacifiCare FHP, Inc. (2001)
94 Cal.App.4th 781 (Desert Healthcare). In Desert Healthcare, the plaintiff physician
group had directly contracted with the IPA, and the group was unpaid when the IPA
failed. (Id. at p. 785.) The physician group brought suit against the HMO, alleging
a cause of action for negligence. Specifically, it sought to pursue a cause of action for:
(1) negligent failure to ensure the financial stability of the IPA; (2) negligence per se for
violating Health and Safety Code section 1371; and (3) negligence arising from the
special relationship between the plaintiff physician group and the HMO. (Desert
Healthcare, supra, 94 Cal.App.4th at p. 785.) The court concluded there was no duty to
ensure the financial stability of the IPA. Specifically, the Desert Healthcare court
looked to the Biakanja factors. The first such factor is “the extent to which the
18
transaction was intended to affect the plaintiff.” (Biakanja, supra, 49 Cal.2d at p. 650.)
The Desert Healthcare court found that this factor could not be met, stating, “The
conduct alleged to have been negligent must have been intended to affect that particular
plaintiff, rather than just a class of persons to whom the plaintiff happens to belong.
[Citation.] The failure to show a particularized effect precludes a finding of a special
relationship giving rise to a duty, because, to the extent the plaintiff was merely affected
in the same way as other members of the plaintiff class, the case is nothing more than
a traditional products liability or negligence case in which economic damages are not
available. [Citation.] The most that [plaintiffs] can show is that [the HMO]’s
transaction with [the IPA] was intended to affect any hospitals that were unfortunate
enough to contract with [the IPA], thus precluding a finding of duty.” (Desert
Healthcare, supra, 94 Cal.App.4th at p. 792.)
The Desert Healthcare court went on to state that, even if other Biakanja factors
weighed in favor of finding a duty, it would not find a duty due to policy reasons.
(Id. at p. 792.) The court explained that recognition of a duty to manage one’s business
affairs so as to prevent purely economic loss to third parties in their financial
transactions is the exception, not the rule, in negligence law. In particular, the court
stated, when plaintiffs are sophisticated, knowledgeable entities, they should be
encouraged to rely on their own prudence, diligence, and contracting power, as well as
other informational tools. (Id. at pp. 792-793.) As plaintiff was “a large corporate
entity well versed in the intricacies of the health care financing system,” it was “more
19
than capable of protecting itself through diligence and prudence, and by exercising its
own considerable contracting power.” (Id. at p. 793.)
Before addressing CEP and Ochs, we emphasize the fundamental distinction
between the two cases just discussed and the instant case. In California Medical and
Desert Healthcare, the plaintiffs had voluntarily contracted with the IPA; in the instant
case, the plaintiffs had not contracted with La Vida or any of the HMO’s. While the
plaintiff in Desert Healthcare could have “protect[ed] itself through diligence and
prudence, and by exercising its own considerable contracting power,” the plaintiffs in
the instant case were required by statute to provide emergency services and care to
La Vida enrollees, and had no means to protect themselves from La Vida’s insolvency.
As we shall discuss, we find this distinction critical.
b. CEP Extends Desert HealthCare to Emergency Physicians
In 2003, Division One of the Fourth Appellate District was presented with the
case of emergency physicians who had not contracted with the IPA. When the IPA
(which ultimately went bankrupt) failed to reimburse the plaintiff emergency physician
group for emergency services provided to its enrollees, the emergency physician group
sued the HMO which had delegated responsibility for the enrollees to the IPA. (CEP,
supra, 111 Cal.App.4th at pp. 1129-1130.)
This case concerned not Health and Safety Code section 1371, but Health and
Safety Code section 1371.4, which specifically provides that the plans must reimburse
the emergency physicians. As discussed above, that section also provides that
“[a] health care service plan may delegate the responsibilities enumerated in this section
20
to the plan’s contracting medical providers.” 23 (Health & Saf. Code, § 1371.4,
subd. (e).) The CEP court concluded, based on its reading of the statutory language and
legislative history, that the Legislature’s use of the word “delegate” was intended to
mean the duty was fully delegable and that, if a health plan delegated its statutory duty,
it retained no liability. (CEP, supra, 111 Cal.App.4th at pp. 1132-1133.)
The CEP plaintiff had alleged a cause of action for negligence, based on an
alleged duty to use due care so as not to cause harm to plaintiff’s financial interests.
The court found there was no such duty, relying on the Desert Healthcare court’s
analysis of the Biakanja factors. (CEP, supra, 111 Cal.App.4th at pp. 1135-1136.) The
court acknowledged that the factual scenario was somewhat different as the CEP
plaintiff had not contracted with the intermediary, but nonetheless concluded that Desert
Healthcare’s analysis of the first Biakanja factor applied. The CEP court stated that,
“the most [plaintiff] can show is that [the HMO’s] contract with [the IPA] was intended
to affect any emergency services provider whom [the IPA] had an obligation to pay.”
(Id. at p. 1136.) This was insufficient, in the view of the CEP court, to establish that the
HMO’s conduct was directed toward the plaintiff. (Ibid.) Moreover, the CEP court
stated that, even if the other Biakanja factors applied, it would not find a duty existed,
23
Health and Safety Code section 1371.4 , subdivision (b) provides that “[a] health
care service plan, or its contracting medical providers, shall reimburse providers for
emergency services and care provided to its enrollees . . . . ” (Italics added.) At the
time of the CEP case, the italicized language was not part of the statute. That language
was added by a 2008 amendment. (Stats. 2008, ch. 603, § 4.) The legislative history of
the statute gives no explanation for the amendment, and the parties in the instant appeal
attach no significance to it. We assume that the amendment was a clarification of
existing law, as the language added to subdivision (b) follows from the delegation
allowed pursuant to subdivision (e).
21
because such a duty would be contrary to the absolute right to delegate found in Health
and Safety Code section 1371.4, subdivision (e). (CEP, supra, 111 Cal.App.4th at
p. 1136.)
c. Ochs Takes a Different Position
In 2004, Division Six of the Second Appellate District24 addressed the same
factual scenario as in CEP,25 but reached the opposite result. The plaintiff emergency
physician had not contracted with the IPA or the defendant HMO. When the IPA failed,
the plaintiff emergency physician sought compensation from the HMO, alleging causes
of action for, among other things, a statutory violation of Health and Safety Code
section 1371.4, and negligence.
On appeal from an order sustaining the HMO’s demurrer without leave to
amend, the Ochs court agreed with CEP that the language and legislative history of
Health and Safety Code section 1371.4 compel the conclusion that the duty to pay
emergency physicians is delegable, and that the delegating HMO retains no liability.
24
We identify the courts from which these cases originated only for the purpose of
noting that, at the time the Ochs court addressed the issue, the three existing opinions
had originated from the same appellate district. Thus, there was hardly a statewide
unanimity of opinion on the issue.
25
Indeed, it appears that both cases arose out of the failure of the same IPA, Family
Health Network. (CEP, supra, 111 Cal.App.4th at p. 1130; Ochs, supra,
115 Cal.App.4th at pp. 787-788.)
22
Thus, no cause of action existed against the HMO for violating Health and Safety Code
section 1371.4.26 (Ochs, supra, 115 Cal.App.4th at pp. 789-793.)
On appeal, the emergency physician argued that he could allege that the HMO
knew or should have known that the IPA was insolvent, at the time it contracted with
the IPA. The court concluded that the plaintiff should be granted leave to amend to
plead a negligence cause of action based on this fact. (Ochs, supra, 115 Cal.App.4th at
pp. 796-797.) The court enumerated the Biakanja factors and concluded that they could
support the existence of a duty. (Id. at p. 797.) The court specifically disagreed with
CEP and Desert Healthcare to the extent that those cases held that, when economic
damages are sought, the conduct must have been intended to affect the specific plaintiff,
rather than persons of the class to which the plaintiff belongs. Instead, the Ochs court
stated, “it is well established that liability for negligent conduct may be imposed when
26
The court added, in language with which we agree, the following commentary:
“Ochs argues that it is unjust to allow PacifiCare to delegate its statutory duty to pay for
noncontract emergency services when physicians are required by law to provide such
services regardless of a patient’s inability to pay. We have no quarrel with the
proposition that emergency care providers should be paid for the important services they
provide, and, were we writing on a clean slate, we might well conclude that it is
preferable for the health care service plan to bear the ultimate cost when an intermediary
that it has selected becomes insolvent. But we are not at liberty to rewrite the relevant
statutes or review their legislative history to comport with a generalized sense of
fairness. The Knox-Keene Act is a comprehensive scheme for regulating health care
plans, and its provisions are the product of a variety of interests and concerns. The
Legislature addressed some of the concerns of emergency room physicians when it
enacted section 1371.4 in 1994 and required health care service plans to pay for
emergency services by noncontracting physicians. But this new right was tempered by
a provision that specifically allowed plans to delegate their payment responsibilities,
thus allowing them to better manage their costs and pass the savings along to their
insureds. Whatever the flaws of the current system, the solution must come from the
Legislature and not the courts.” (Ochs, supra, 115 Cal.App.4th at p. 793.)
23
a duty is owed to the plaintiff or to a class of which the plaintiff is a member.
[Citations.]” (Id. at p. 797.)
d. Balance Billing is Prohibited
In Ochs, the plaintiff had also sought a declaration that if the IPA and the HMO
did not pay the plaintiff emergency physician’s bills, the plaintiff could bill the patients
directly. The Ochs court rejected the argument based on misjoinder of defendants.
(Ochs, supra, 115 Cal.App.4th at p. 796.) However, it noted, in dicta, that it appeared
that the emergency physician may, in fact, have a remedy against the individual
patients, who would then have a remedy against the HMO with whom they had
contracted. (Ibid.)
This analysis was based on Health and Safety Code section 1379, a statute which
prohibits a physician which has contracted with a plan from billing the patient for any
sums owed by the plan (a practice known as “balance billing.”) As the statute clearly
applies to physicians who have contracted with HMO’s, the Ochs court took the
position that emergency physicians who have not contracted with HMO’s are not barred
from balance billing. (Ochs, supra, 115 Cal.App.4th at p. 796.) Five years after Ochs,
however, the Supreme Court rejected this interpretation, concluding that emergency
physicians may not balance bill patients, even if they had not contracted with the plans.
(Prospect Medical Group, Inc. v. Northridge Emergency Medical Group (2009)
45 Cal.4th 497 (Prospect).)
Prospect is important to our analysis for both what it did decide and what it did
not decide. In Prospect, there was no issue of an insolvent IPA; indeed, for the
24
purposes of its discussion, the Supreme Court used the term “HMO’s” to refer to both
the HMO’s and their delegatee organizations. In that context, the court concluded that
balance billing was inappropriate. Interpreting the Knox-Keene Act as a whole, the
court concluded “that billing disputes over emergency medical care must be resolved
solely between the emergency room doctors, who are entitled to a 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.” (Prospect, supra, 45 Cal.4th
at p. 502.) The court stated in a footnote, however, that its holding was limited to the
situation before it, “billing the patient for emergency services when the doctors have
recourse against the patient’s HMO. We express no opinion regarding the situation
when no such recourse is available; for example, if the HMO is unable to pay or
disputes coverage.” (Id. at p. 507, fn. 5.)
As Prospect was not concerned with an insolvent IPA, and, in fact, considered
IPA’s and HMO’s the same for the purposes of its analysis, it did not expressly resolve
the issue of whether an emergency physician can balance bill a patient when the IPA is
insolvent and the HMO refuses to pay. However, language in the opinion suggests that
the court would not permit balance billing in that situation either. Specifically, the court
rejected the Ochs dicta suggesting balance billing may be possible, explaining that
Health and Safety Code “[s]ection 1371.4, subdivision (b), does not say that patients
must pay the emergency room doctors and then turn to their HMO’s for reimbursement.
Rather it states that the ‘health care service plan . . . shall reimburse providers for
25
emergency services and care provided to its enrollees . . . . ’ This language does not
authorize the roundabout route of the doctor collecting from the patient, who must then
collect from the HMO. Rather, it mandates that the HMO pay the doctor directly. It
does not involve the patient in the payment process at all.” (Id. at p. 509.) This strongly
suggests that the Supreme Court would not permit an emergency physician, unpaid by
an insolvent IPA, to balance bill the patient, who would then have a remedy against the
HMO. “[U]nder the Knox-Keene Act, HMO members are not liable to pay for
emergency care.” (Id. at p. 510.) Emergency physicians should instead resolve their
disputes directly with the HMO’s.27 (Id. at p. 508.)
3. A Cause of Action Exists for Negligent Delegation
Given the agreement of CEP and Ochs on the issue, it is too late in the day to
argue that emergency physicians have a direct cause of action against HMO’s under
Health and Safety Code section 1371.4 when the IPA’s fail to reimburse the emergency
physicians for services provided to their enrollees. Indeed, plaintiffs in this case do not
expressly allege such a cause of action. Instead, they argue, pursuant to Ochs, that they
have a cause of action against the defendant HMO’s for negligent delegation of the
Health and Safety Code section 1371.4 duty. In other words, it is clear that the HMO’s
have a duty under Health and Safety Code section 1371.4, subdivision (b) to reimburse
27
Prior to the Prospect decision, Bell v. Blue Cross of California (2005)
131 Cal.App.4th 211 held that an emergency physician may directly sue a plan for
reasonable reimbursement, even when the physician had not contracted with the plan.
(Id. at p. 220.) In Prospect, the Supreme Court stated, “Because emergency room
doctors prevailed in Bell [citation] and won the right to resolve their disputes directly
with HMO’s, no reason exists to permit balance billing.” (Prospect, supra, 45 Cal.4th
at p. 508.)
26
plaintiffs for emergency services provided to the HMO’s enrollees. It is also clear that
under Health and Safety Code section 1371.4, subdivision (e), the HMO’s may delegate
that duty to their “contracting medical providers” (e.g., IPA’s). The critical question
raised by this case is (1) whether HMO’s may delegate their reimbursement duty to any
IPA, regardless of the financial stability of that IPA, or (2) whether the HMO’s have
a duty not to delegate their Health and Safety Code section 1371.4 reimbursement
obligation to an IPA that the HMO’s know, or have reason to know, is financially
unable to meet that duty.
The parties agree that the resolution of this question is governed by Biakanja and
its progeny. The law imposes no liability for alleged wrongdoing unless the defendant
owed a duty to the plaintiff to avoid the asserted wrongdoing. “Whether such a duty
existed is a question of law and depends on a judicial weighing of the policy
considerations for and against the imposition of liability under the circumstances.”
(Goodman v. Kennedy (1976) 18 Cal.3d 335, 342.) “Privity of contract is no longer
necessary to recognition of a duty in the business context and public policy may dictate
the existence of a duty to third parties.” (Quelimane Co. v. Stewart Title Guaranty Co.
(1998) 19 Cal.4th 26, 58.) “Even when only injury to prospective economic advantage
is claimed, recovery is not foreclosed. Where a special relationship exists between the
parties, a plaintiff may recover for loss of expected economic advantage through the
negligent performance of a contract although the parties were not in contractual
privity.” (J’Aire Corp. v. Gregory (1979) 24 Cal.3d 799, 804.)
27
The factors to be considered in determining the existence of a duty, as set forth in
Biakanja, include: (1) the extent to which the transaction was intended to affect the
plaintiffs; (2) the foreseeability of harm to the plaintiff; (3) the degree of certainty that
the plaintiff suffered injury; (4) the closeness of the connection between the 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, supra, 49 Cal.2d at
p. 650.) Later cases have considered additional factors, including whether extending
liability would impose an undue burden on the defendant’s profession. (Giacometti v.
Aulla, LLC (2010) 187 Cal.App.4th 1133, 1137.) We consider each of these factors.
a. The Transaction Was Intended to Affect the Plaintiffs
First, we consider the extent to which the transaction was intended to affect the
plaintiffs. The HMO’s had a statutory duty of reimbursement to emergency physicians;
by means of the transaction in question, they delegated that duty, allegedly to an IPA
they knew or had reason to know was unable to fulfill that duty. The delegation
transaction was necessarily intended to have an effect on the plaintiffs; it had a direct
impact on whether they would receive compensation for the emergency services that
they provided to the HMO’s enrollees.
In this case, the trial court, in reliance on Desert Healthcare, concluded that the
transaction was not intended to affect the plaintiffs, as the factor could only be found
true if the conduct was intended to affect the particular plaintiff physicians, rather than
a class of persons to which the plaintiffs happen to belong. The law is not so absolute.
Our Supreme Court “has repeatedly eschewed overly rigid common law formulations of
28
duty in favor of allowing compensation for foreseeable injuries caused by a defendant’s
want of ordinary care.” (J’Aire Corp. v. Gregory, supra, 24 Cal.3d at p. 805.) Liability
may be imposed when there is a duty of care owed by the defendant to the plaintiff or to
a class of which the plaintiff is a member. (Ott v. Alfa-Laval Agri, Inc. (1995)
31 Cal.App.4th 1439.) Such a duty can arise from statute or contract, the nature of the
defendant’s activity, the relationship between the parties, or even the interdependent
nature of human society. (Id. at p. 1449; J’Aire Corp. v. Gregory, supra, 24 Cal.3d at
p. 803.)
We agree that the standard formulation, requiring a duty to be owed to the
plaintiff specifically, rather than a class to which the plaintiff belongs, is sufficient in
the usual case, in which the plaintiff and defendant are strangers to one another.
(E.g., Ott v. Alfa-Laval Agri, Inc., supra, 31 Cal.App.4th at pp. 1455-1456 [plaintiffs
simply purchased defendant’s product]; cf. Quelimane Co. v. Stewart Title Guaranty
Co., supra, 19 Cal.4th at p. 58 [plaintiffs wanted defendants to sell title insurance for
properties plaintiffs sought to sell].) This matter, however, is not the usual case. The
defendant HMO’s owed a statutory duty to emergency physicians; it is their allegedly
negligent delegation of that duty which is at issue. The existence of the HMO’s
statutory duty owed to the entire class of emergency physicians who provide emergency
services and care to the plans’ enrollees justifies the conclusion that the plans’ conduct
was intended to affect the plaintiffs, even though they were part of a class.
29
b. The Harm to Plaintiffs Was Foreseeable
The second factor is the foreseeability of harm to the plaintiffs. It is alleged that
the defendant HMO’s knew or should have known of La Vida’s financial difficulties at
the time of the initial delegations. Indeed, the plaintiffs further allege that the HMO’s
“knew or should have known that their neglect of La Vida’s financial shortcomings
would result in the failure of Plaintiffs to receive reasonable reimbursement for their
covered services.” If proven, this would establish the second factor.
c. It Is Certain That Plaintiffs Were Injured
The third Biakanja factor is the degree of certainty that the plaintiff suffered
injury. Had the HMO’s delegated their Health and Safety Code section 1371.4
reimbursement duty to a financially stable IPA, or had not delegated it at all, the
plaintiffs would have been reimbursed in a reasonable amount for the emergency
services they provided defendants’ enrollees. Thus, the plaintiffs were injured by
defendants’ allegedly negligent delegation.
d. There Is a Close Connection Between the Allegedly
Negligent Delegation and the Harm Suffered
The fourth factor is the closeness of the connection between the defendants’
conduct and the injury suffered. While it can be said that La Vida’s failure was the
direct cause of the plaintiffs not being reimbursed, La Vida’s failure would have had no
impact on them (as they had not contracted with La Vida), had defendant HMO’s not
delegated their statutory reimbursement duty to La Vida. The plaintiffs allege that the
HMO’s knew or had reason to know of La Vida’s financial difficulties at the time of the
30
delegation; thus, there is a close connection between the delegation of the statutory
reimbursement duty to a financially troubled IPA and the result that the plaintiffs were
not reimbursed.
e. Substantial Moral Blame Attaches to Defendants’ Alleged Conduct
The fifth factor is the moral blame attaching to the defendants’ conduct. Here,
we consider the somewhat unique position in which the plaintiffs find themselves. They
are required by law to provide emergency services to all patients in need, regardless of
ability to pay. Emergency physicians cannot pick and choose their patients, but must
simply treat all emergency patients. The law then imposes a duty on the HMO’s – those
entities which had contracted with the patients and agreed, for receipt of a premium, to
provide them with basic medical care, including emergency services – to reimburse the
emergency physicians for the emergency services provided to their enrollees. In other
words, the HMO’s had contracted with the patients to provide them, for a price, with
health care services, including emergency services, with the understanding that those
services may be provided by physicians whom the HMO’s would be required to
reimburse even though there was no contractual relationship between the HMO’s and
the emergency physicians involved.
There is no bar to a plan transferring a portion of its received premiums for an
enrollee to an IPA in the form of capitation payments, and transferring responsibility for
that enrollee’s medical care to the IPA. But when the plan, as was alleged in this case,
transfers its obligations to an IPA it knows, or has reason to know, will be financially
unable to fulfill its obligations, the result is that the emergency physicians will be forced
31
(by statute) to continue providing emergency services to the IPA’s enrollees, with no
possibility of receiving their (statutorily-mandated) reimbursement.28
We cannot sanction such a result. “ ‘The prompt and appropriate reimbursement
of emergency providers ensures the continued financial viability of California’s health
care delivery system.’ ” (Bell v. Blue Cross of California, supra, 131 Cal.App.4th at
p. 218.) The burden of providing services to the poor cannot be accomplished at the
expense of one particular group of people. (Cunningham v. Superior Court (1986)
177 Cal.App.3d 336, 348 [court’s attempt to compel an attorney to work pro bono
denies attorney equal protection of the law].) Forcing emergency physicians to work for
free would be unconscionable. (Bell v. Blue Cross of California, supra,
131 Cal.App.4th at p. 220.)
HMO’s which would shirk their statutory obligation to reimburse emergency
physicians by delegating that obligation to an IPA they know or have reason to know is
financially unable to meet that obligation would, in effect, have the emergency
physicians treat their enrollees for free. This is morally blameworthy.
f. Future Harm Would Be Prevented by Imposing Liability
for Negligent Delegation
The sixth factor is the policy of preventing future harm. Imposing a duty on
HMO’s to not delegate their reimbursement duty to IPA’s they know, or have reason to
know, are financially unsound would protect emergency physicians from future
economic harm they cannot otherwise avoid.
28
As discussed above, it does not appear that balance billing would be a viable
option for the emergency physicians.
32
g. No Undue Burden Would Be Imposed on HMO’s
In addition to the original six Biakanja factors, we also consider policy issues,
such as whether extending liability would impose an undue burden on the defendants’
profession. We do not believe that imposing liability for negligent delegation would
impose an undue burden on HMO’s. Initially, an HMO liable for negligent delegation
would only be forced to reimburse the physicians the amount for which the HMO would
have been statutorily-liable to pay had the HMO made no delegation of that obligation.
In other words, the obligation to reimburse emergency physicians was originally
imposed on the HMO; we are simply holding that if the HMO intends to delegate that
responsibility to another, it must delegate it to an entity which it reasonably believes can
meet it. If the HMO cannot delegate non-negligently, it should not delegate at all. If it
does, it should do so at its own risk and not place that burden on the non-contracting
emergency physicians who are legally unable to protect themselves.29
Moreover, as a practical matter, liability for negligent delegation will not impose
additional burdens on HMO’s to research the financial status of their delegatee IPA’s.
As we have discussed, HMO’s are already required to prove their own financial
soundness to the Department, and part of the Department’s inquiry in that regard
involves a review of the HMO’s contracts with its IPA’s. (Health & Saf. Code,
29
The HMO’s argue that, if they are required to pay for the emergency services
when they have delegated that responsibility to the IPA, they will be paying for the
services twice – once by means of the capitated payments to the IPA, and again by
paying the emergency physicians. But the HMO can avoid such double payments by
the simple expedient of not choosing to delegate its obligations to an IPA it knows or
has reason to know is unable to meet those obligations. Put another way, the HMO can,
by its actions, avoid such a loss whereas the emergency physicians cannot.
33
§ 1375.1, subds. (b)(1) & (b)(3).) Thus, an HMO should already be well aware of the
financial soundness of the IPA’s with which it contracts, and should avoid contracting
with IPA’s whose financial condition is questionable.
h. Conclusion on Negligent Delegation
As each of the Biakanja factors weighs in favor of finding a cause of action for
negligent delegation, and policy considerations weigh in favor of such a result as well,
we agree with the Ochs court and conclude that a cause of action for negligent
delegation exists in favor of emergency physicians who allege an HMO negligently
delegated its Health and Safety Code section 1371.4 duty to an IPA it knew or had
reason to know was financially unsound.
Our conclusion is not barred by Health and Safety Code section 1371.4,
subdivision (e). We agree that HMO’s are permitted to delegate their reimbursement
duty to IPA’s, and an emergency physician, as a general rule, has no recourse against
the HMO if the IPA fails to meet its obligation. However, when the HMO is alleged to
have negligently delegated the obligation, the emergency physician has a cause of
action.30
30
The distinction is significant. The Knox-Keene Act provides that “[a] plan, any
entity contracting with a plan, and providers are each responsible for their own acts or
omissions, and are not liable for the acts or omissions of, or the costs of defending,
others. Any provision to the contrary in a contract with providers is void and
unenforceable. Nothing in this section shall preclude a finding of liability on the part of
a plan, any entity contracting with a plan, or a provider, based on the doctrines of
equitable indemnity, comparative negligence, contribution, or other statutory or
common law bases for liability.” (Health & Saf. Code, § 1371.25.) This provision
means that there is no vicarious liability for another entity’s acts or omissions, but,
instead, each entity is liable for its own acts and omissions. (Watanabe v. California
34
i. The Result Is Different for Non-Emergency Services
We emphasize again that our conclusion applies only to non-contracting
physicians who have provided emergency services, as mandated by statute, to patients
enrolled in the IPA and HMO. The Biakanja factors compel a different result with
respect to non-emergency services. Consider the non-emergency services provided by
the radiology plaintiff. The radiology physicians seeks reimbursement for services
provided on a non-emergency basis, which they were contractually required to provide
by their hospital employer. As already noted, we recognize that the first Biakanja
factor—whether the transaction was intended to affect the plaintiff—is, as a general
rule, not satisfied when the defendant’s conduct was intended to affect a class of
persons to which the plaintiff belongs, rather than the particular plaintiff. However, the
element can be satisfied when the defendant owes a statutory duty to the class in which
the plaintiff is a member, and the alleged negligence relates to the satisfaction (in this
case, the delegation) of that duty. Here, when considering non-emergency radiological
services, the HMO’s have no statutory duty to reimburse the radiology plaintiff for such
services. Thus, the normal formulation of the rule applies, and the radiology physicians
cannot show that the HMO’s delegation of the reimbursement obligation was intended
to affect them. The first Biakanja factor could not be satisfied by the radiology plaintiff
with respect to non-emergency services.
Physicians’ Service, supra, 169 Cal.App.4th at p. 64.) We do not hold that the HMO’s
are liable for their IPA’s failure to pay; that would be improper vicarious liability. We
hold, instead, that the HMO’s are liable for their own negligence in delegating to IPA’s
which they knew, or had reason to know, would be unable to pay.
35
The analysis of the fifth Biakanja factor – the moral blame attaching to
defendants’ conduct – also does not support the radiology physicians’ claim for
reimbursement for non-emergency services. The radiology physicians are not
compelled by any statute to provide non-emergency treatment to enrollees in
a financially unsound IPA; if they are required to do so by contract with their hospital,
entry into that contract was their choice. While there is moral blame attached to HMO’s
who would shirk their obligation to compensate emergency physicians and thereby
force emergency physicians to work for free, due to their statutory obligations, no such
blame attaches to HMO’s when the radiologists may be forced to perform
non-emergency services for free due to the radiologists’ own contractual obligation to
do so. They have voluntarily accepted the risk of non-payment for their services.
Finally, we are concerned with the burden which would be placed on the HMO’s
if we found a duty running to the radiology physicians to not delegate to a financially
unsound IPA. While the radiology physicians had no contract with the HMO’s or IPA,
and thus are admittedly not a preferred provider of the HMO’s or IPA, they are seeking
compensation for services provided in a non-emergency context which they were
contractually committed to perform. There is no statutory duty compelling them to
provide such services and, as far as the HMO’s and IPA are concerned, those services
are provided as volunteers.31 If a physician chooses to contract with an IPA, the
physician has effectively chosen to accept the risk of that IPA’s failure. When
31
The HMO’s and IPA may have a contractual duty to their enrollees to partially
compensate the non-preferred provider radiologists, but this is not alleged as a basis for
the radiology physicians to recover in this case.
36
a physician chooses to voluntarily provide services to an IPA enrollee, the result should
be the same. If we find a duty in either of such circumstances, physicians would be
encouraged to provide non-emergency services to patients when the physicians have no
contractual relationship with the HMO or IPA, which could undermine the entire HMO
system as we know it.
4. The HMO’s Duty Not To Negligently Delegate Is A Continuing One
As the physicians have alleged that the HMO’s were negligent in their initial
delegation decision, and we have concluded a cause of action exists for negligent
delegation, the HMO’s demurrers should not have been sustained. However, as the
parties have briefed the issue, we also discuss whether the duty of the HMO’s is
a continuing one.
Preliminarily, we note the difficulty in determining at this stage of the litigation,
as a matter of law, the difference between a negligent delegation and a negligent failure
to de-delegate. If, for example, a plan’s contract with an IPA was renewed annually, is
each renewal to be considered a new delegation? When an HMO adds a new enrollee,
and that enrollee’s risk is assigned to the IPA, is the delegation of the obligation to pay
reimbursement for services rendered to that enrollee a new delegation? When an
emergency physician treats a patient, is the obligation to pay for that particular
treatment newly delegated at the time the obligation arises? The record before us does
not include any of the delegation contracts, and we therefore cannot determine whether
any particular decision occurring after the initial contract between the HMO and the
37
IPA is a new delegation or simply a failure to reassume the delegated obligation or to
“de-delegate.”
In any event, it is clear to this court that the factors which compel us to find
a cause of action for negligent delegation also mandate our conclusion that the duty to
not delegate to an IPA which the HMO knows, or has reason to know, to be financially
unsound is a continuing one, and a cause of action therefore exists for the failure to
promptly reassume the obligation when an HMO knows or has reason to know that the
IPA to which it has made an initial delegation is now financially unable to meet the
delegated duty.32
Consideration of the seven factors discussed above, when the HMO is alleged to
have known or had reason to know that the IPA is financially unsound and is not, in
fact, fulfilling its duty to reimburse emergency physicians, is largely the same: (1) the
transaction is still intended to affect the emergency physicians; (2) the foreseeability of
harm, if the IPA has already begun to fail to perform, is even stronger; (3) the
emergency physicians will clearly have suffered injury; (4) the closeness of the
connection between the failure to reassume the obligation to pay and the injury is the
32
We are not suggesting that the HMO has a duty to “de-delegate” the IPA in its
entirety. We are simply holding that, when the HMO knows or has reason to know that
its IPA cannot meet its financial obligation of reimbursing emergency physicians, the
HMO must reassume that obligation to reimburse the emergency physicians. We
emphasize that the applicable regulations require an HMO’s contract with its IPA to
include a term “authorizing the plan to assume responsibility for the processing and
timely reimbursement of provider claims in the event that the [IPA] fails to timely and
accurately reimburse its claims.” (Cal. Code Regs., tit. 28, § 1300.71, subd. (e)(6).) We
are holding that, under appropriate circumstances, the HMO may be required to exercise
this provision, with respect to emergency physician reimbursement. Such an IPA would
continue to provide all non-emergency services to its enrollees.
38
same; (5) the moral blame attaching to the HMO’s conduct is the same or greater;33
(6) the policy of preventing future harm is the same; and (7) no additional burden is
imposed on the HMO’s, as the statutes and regulations require the IPA’s to regularly
report on their financial condition and claims payment performance to the HMO’s.
(Health & Saf. Code, § 1375.4, subd. (a)(1); Cal. Code Regs., tit. 28, § 1300.71,
subd. (e)(3).) As the factors are the same, the result is the same, and plaintiffs may
pursue a cause of action for negligent failure to reassume this previously delegated
obligation.34
33
In the instant case, the plaintiffs allege that, as they were unpaid by La Vida, they
sought help from the HMO’s, whose response was for them to continue submitting their
bills to La Vida. If true, this reflects a certain degree of callousness; it appears that the
HMO’s were content to leave the plaintiffs between the Scylla of the statutes requiring
them to provide emergency treatment and the Charybdis of an IPA which it knew or had
reason to know would never pay them.
34
As we discussed above, the Supreme Court in Prospect explicitly stated that it
was not considering the issue of whether balance billing was appropriate in cases in
which the HMO/IPA was unable to pay. Based on language in the opinion, we took the
position that, if the issue were presented, the Supreme Court would, nonetheless,
ultimately conclude that balance billing is inappropriate in cases in which the IPA, but
not the HMO, is unable to pay. If, however, the Supreme Court takes a different
position, and concludes that balance billing is acceptable when the IPA is unable to pay,
the result would surely be that emergency physicians would balance bill their patients
when the IPA cannot pay, and the patients would then submit the bills to their HMO’s
for payment pursuant to their contracts with their HMO’s (which include coverage for
emergency services). In short, the end result would be the same as the result we reach
here: when the IPA (but not the HMO) is financially unsound, the HMO would
ultimately be responsible to compensate the emergency physicians. Our result, which
allows the emergency physicians to seek their remedy directly from the HMO, is
consistent with the principles which motivated the Prospect decision, as it would
eliminate the patient as an intermediary in the billing dispute.
39
5. The Abstention Defense is Inapplicable
Before the trial court, the HMO’s argued that the doctrine of abstention should
apply to the cause of action for unfair competition. On appeal, the HMO’s extend this
argument to all causes of action, arguing that the courts should abstain from resolving
even a dispute over the existence of a negligence cause of action.
There are various theories underlying the application of judicial abstention.
“Courts may abstain when the lawsuit involves determining complex economic policy,
which is best handled by the Legislature or an administrative agency. [Citation.]”
(Alvarado v. Selma Convalescent Hospital (2007) 153 Cal.App.4th 1292, 1298.)
Abstention may also be appropriate “when granting the requested relief would require
a trial court to assume the functions of an administrative agency, or to interfere with the
functions of an administrative agency.” (Ibid.) However, judicial abstention applies
only in cases of equity. (Shuts v. Covenant Holdco LLC (2012) 208 Cal.App.4th 609,
625; Klein v. Chevron U.S.A., Inc. (2012) 202 Cal.App.4th 1342, 1362.) As the bulk of
plaintiffs’ complaint sounds in negligence and seeks damages, judicial abstention is
simply not applicable. In any event, this is not an appropriate case for abstention. We
do not here involve the courts in complex issues of economic or health care policy, nor
do we interfere with the administrative jurisdiction of the Department. We simply
conclude that when an HMO negligently delegates its duty to reimburse emergency
physicians to an IPA it knows or has reason to know is unable to fulfill that duty, or
40
negligently continues its delegation once it knows or has reason to know that the IPA is
unable to do so, the HMO may be liable to the emergency physicians.35
DISPOSITION
The judgment is reversed, and the matter remanded to the trial court with
directions to conduct further proceedings consistent with this opinion. The plaintiffs
shall recover their costs on appeal.
CERTIFIED FOR PUBLICATION
CROSKEY, J.
WE CONCUR:
KLEIN, P. J.
ALDRICH, J.
35
As we reverse the judgment on the basis that plaintiffs have properly pleaded
a cause of action for negligent delegation (and/or could state a cause of action for failure
to reassume the delegated obligation), we need not discuss the other causes of action
pleaded by plaintiffs. We note, however, that plaintiffs’ cause of action for unfair
competition (Bus. & Prof. Code, § 17200), appears to seek damages, not restitution, and
would therefore fail. (Yanting Zhang v. Superior Court (2013) 57 Cal.4th 364, 371.)
41