DocketNumber: Case No. 17-cv-02929-WHO
Citation Numbers: 342 F. Supp. 3d 980
Judges: Orrick
Filed Date: 10/26/2018
Status: Precedential
Modified Date: 7/25/2022
INTRODUCTION
Plaintiff NorthBay Healthcare Group Hospital Division d/b/a NorthBay Medical Center and VacaValley Hospital ("NorthBay") filed a suit over reimbursements that it believes were not for the reasonable and customary value of the services given to members of defendant Blue Shield of California Life & Health Insurance Company and California Physicians' Service d/b/a Blue Shield of California ("Blue Shield"). Count Eight of NorthBay's complaint alleges that Blue Shield's reimbursement methodology constituted an unfair business practice under California's Unfair Competition Law ("UCL"), California Business and Professions Code Section 17200 et seq. , and Count Nine seeks related declaratory relief. NorthBay asserts that Blue Shield uses a flawed methodology or manipulates data, did not properly apply criteria for setting reimbursement rates, and engaged in an unfair payment pattern.
Blue Shield moves for partial summary judgment on those counts, contending that there is no private right of action to challenge the methodology used to determine reasonable reimbursements and urging that even if there were the court should abstain from functioning like an administrative body on issues of complex economic policy. Given the regulations and oversight of the Department of Manage Health Care ("DMHC") concerning these payments, NorthBay's UCL claim must be predicated *984on an incorrect reimbursement amount that causes it injury rather than the methodology that led to it. Accordingly, I GRANT Blue Shield's motion for partial summary judgment.
BACKGROUND
I. FACTUAL AND LEGAL BACKGROUND
NorthBay is a nonprofit healthcare organization that owns and operates two hospitals in Solano County, California. See First Amended Compl. ¶ 3. The hospitals provide comprehensive care, including emergency care. Id. Blue Shield is a health care service plan in which members receive care from in-network hospitals for more favorable reimbursement terms than if they were out-of-network. See Crawford Decl. ¶¶ 3-5 (Dkt. No. 47-3). The health plan implements a two-tiered benefit structure to control costs and offer lower monthly dues to its members. Id. ¶ 6.
When health plan members visit hospitals that are outside the network, such as Blue Shield members who receive emergency care from NorthBay, hospitals are required to provide treatment. See
California's "prompt-pay" laws also task the Department of Managed Health Care ("DMHC") with regulating the state's health care policy. See
In Section 1300.71(a)(3)(B), the DMHC adopted what are termed the Gould factors (named after Gould v. Workers' Comp. Appeals Bd. ,
Blue Shield submitted its R & C methodology to the DMHC around March 2015. See Vojta Decl. ¶ 5 (Dkt. No. 47-1). Its R & C methodology considers reasonable and customary value of non-contracted services by what other hospitals in the region charge or receive for payment of similar services, the hospital's own reported costs *985of operation, and other considerations.
II. PROCEDURAL BACKGROUND
NorthBay filed suit in May 2017, and voluntarily amended its complaint two months later in July. See Compl. (Dkt No. 1); Amended Compl. (Dkt. No. 17). It brings nine claims against Blue Shield for violations of the Employee Retirement Income Security Act of 1974, various breaches of contract, recovery for services rendered, unfair business practices, and declaratory relief. Blue Shield answered the amended complaint and filed a counterclaim alleging unjust enrichment. See Answer and Counterclaim (Dkt. No. 18). At a June 2018 case management conference, the parties agreed to bifurcate the issues for a jury trial first addressing the reasonable value of NorthBay's services. See Joint Case Management Statement (Dkt. No. 36); Minutes Entry (Dkt. No. 37).
This motion brings two of NorthBay's nine claims to the fore. NorthBay alleges in Count Eight that Blue Shield engaged in unfair business practices under the UCL for failing to compensate NorthBay hospitals for non-contracted services, and manipulating data inputted to a flawed methodology to underpay non-contracted claims. See Amended Compl. ¶ 128. Considering those alleged unfair practices, NorthBay seeks injunctive relief and restitution to stop Blue Shield from using a reimbursement methodology that improperly considers factors required in Section 1300.71 and Gould . See Amended Compl. ¶ 130. Relatedly, Count Nine seeks declaratory relief that Blue Shield's reimbursement methodology is improper, that it manipulates data to underpay claims, and that it will not continue being used for future reimbursements. See Amended Compl. ¶ 136.
LEGAL STANDARD
A party is entitled to summary judgment where it "shows that there is no genuine dispute as to any material fact and [it] is entitled to judgment as a matter of law." FED. R. CIV. P. 56(a). To prevail, a party moving for summary judgment must show the lack of a genuine issue of material fact with respect to an essential element of the non-moving party's claim, or to a defense on which the non-moving party will bear the burden of persuasion at trial. See Celotex Corp. v. Catrett ,
On summary judgment, the court draws all reasonable factual inferences in favor of the non-movant.
DISCUSSION
Blue Shield moves for partial summary judgment, arguing: (i) NorthBay has no private right of action to challenge *986Blue Shield's R & C methodology under the UCL, and (ii) even if it did, the court should abstain from interpreting complex economic policy and deny declaratory and injunctive relief.
I. UNFAIR COMPETITION LAW CLAIM
The UCL prohibits "any unlawful, unfair or fraudulent business act or practice." CAL. BUS. & PROF. CODE § 17200. "Each of these three adjectives captures a separate and distinct theory of liability." Rubio v. Capital One Bank ,
A. "Unlawful" Prong
The "unlawful" prong of the UCL "borrows violations of other laws and treats them as independently actionable." Daugherty v. Am. Honda Motor Co., Inc. ,
(i) the provider's training, qualifications, and length of time in practice; (ii) the nature of the services provided; (iii) the fees usually charged by the provider; (iv) prevailing provider rates charged in the general geographic area in which the services were rendered; (v) other aspects of the economics of the medical provider's practice that are relevant; and (vi) any unusual circumstances in the case.
In general, private rights of action are permitted to challenge violations of the *987Knox-Keene Act under the UCL and common law. See, e.g., Cal. Pac. Reg'l Med. Ctr. v. Global Excel Mgmt., Inc. , No. 13-CV-00540-NC,
Ample case law supports a right to predicate UCL claims for inadequate or unpaid reimbursements on violations of Section 1371.4. See Children's Hosp. Cent. Cal. v. Blue Cross of Cal. ,
Yet NorthBay's UCL claim seeks to enjoin the methodology Blue Shield uses under Section 1300.71(a)(3)(B) and the Gould factors, not challenge the actual reasonable and customary value derived from that methodology. Neither party has provided cases on the precise issue of a challenge to the methodology required in Section 1300.71(a)(3)(B). Blue Shield's citation to a California Superior Court case, NorthBay Healthcare Group, et al. v. Kaiser Foundation Health Plan, Inc., at al. , No. FCS 026967 (Cal. Super. Ct. April 14, 2008), appears intended to show NorthBay has failed once before when it brought an identical claim in state court. While on point, the case is not helpful and contains no reasoning in support of its holding that "even if [the health plan's] methodology violated any one of [the provisions of the Knox-Keene Act], such violation may not serve as a basis for an action for unfair business competition." Briggs Decl. Ex. B (Dkt. No. 47-2).
Several of Blue Shield's other cases, though factually distinct, merely reaffirm that UCL claims must be based on unlawful conduct. See, e.g. , Samura v. Kaiser Found. Health Plan, Inc. ,
The California Court of Appeal's decision in Children's Hosp. ,
Here, there is no unlawful conduct that can be deduced from NorthBay's claim that Blue Shield "improperly" applied the considerations. As stated in Children's Hosp. , the regulation and the Gould factors it is based on, are considered minimum criteria. The regulation defines "Reimbursement of a Claim" in the non-contracted context as "the payment of the reasonable and customary value for the health care services rendered based upon statistically credible information that is updated at least annually and takes into consideration ..." the equivalent of the Gould factors.
B. "Unfair" Prong
The "unfair" prong of the UCL prohibits a business practice if it "violates established public policy or if it is immoral, unethical, oppressive or unscrupulous and causes injury to consumers which outweighs its benefits." McKell v. Wash. Mut., Inc. ,
Regardless of the test applied, however, this district has held that "where the unfair business practices alleged under the unfair prong of the UCL overlap entirely with the business practices addressed in the fraudulent and unlawful prongs of the UCL, the unfair prong of the UCL cannot survive if the claims under the other two prongs of the UCL do not *989survive." Hadley ,
NorthBay's cause of action under the unfair prong of the UCL fails under either test. Applying the tethering test, NorthBay's claim that Blue Shield is engaged in an unfair payment pattern for improperly considering the Gould factors or Section 1300.71 does not violate any "legislatively declared policy" for the same reasons it is not predicated on an unlawful action or a violation of any provision in the Knox-Keene Act. Even though NorthBay argues that the existing R & C methodology harms Blue Shield members, NorthBay is not bringing a representative claim seeking relief on behalf of consumers, nor is it clear that it could establish such standing. As Blue Shield asserts, private actions under the UCL may be "brought exclusively by a person who has suffered injury in fact and has lost money or property as a result of the unfair competition." Amalgamated Transit Union, Local 1756, AFL-CIO v. Superior Court ,
A UCL claim for restitution or injunctive relief cannot proceed if the plaintiff's claim rests, as NorthBay's does here, on an allegation that Blue Shield has failed to comply with Section 1371.4 and Section 1300.71 by "improperly" considering the factors outlined in the Knox-Keene Act. See Oppo. at 22. Accordingly, the motion for partial summary judgment of Count Eight is GRANTED.
II. ABSTENTION
Blue Shield asks the court to abstain from interpreting or enforcing the prompt-pay laws in the Knox-Keene Act even if a private right of action existed under the UCL. It contends the court is "ill-equipped" to make "complex economic and actuarial determinations" on the proper way to consider the Gould factors in its R & C methodology and would improperly assume the administrative functions of the DMHC by attempting to do so. See Mot. Summ. J. at 12, 14 (Dkt. No. 47). Because I agreed with Blue Shield that no UCL claim can be predicated on improperly applying Section 1300.71 and improperly considering the Gould factors in developing an R & C methodology, I need not opine on the abstention arguments presented by the parties. However, even if I were to allow NorthBay's UCL claim to proceed, since the DMHC did not mandate a specific methodology to be applied I would not attempt to either. See Alvarado v. Selma Convalescent Hosp. ,
III. INJUNCTIVE AND DECLARATORY RELIEF
Blue Shield also contends the court should deny injunctive relief because enjoining use of the R & C methodology would require the court to direct Blue Shield how it could fashion any alternative lawful methodology. I disagree that enjoining any application of the existing R & C methodology would necessarily require the court to devise a replacement methodology for Blue Shield. Nevertheless, NorthBay's claim for injunctive relief is not successful for the reasons discussed. Count Nine for *990declaratory relief is DENIED AS MOOT because each declaratory judgment it seeks relates to Blue Shield's allegedly improper application of the Section 1300.71 considerations in devising its R & C methodology.
IV. DISCOVERY DISPUTES
In addition to the merits, the parties filed a joint statement regarding discovery disputes on September 20, 2018. See Statement (Dkt. No. 57). Blue Shield has asked NorthBay for documents explaining how NorthBay reached its billed charges and documents showing NorthBay's profitability. NorthBay disclaims any intent to introduce this cost-related evidence. See id. at 5. Once again, Children's Hosp. is informative. See
CONCLUSION
For the reasons stated, Blue Shield's motion for partial summary judgment is GRANTED. Blue Shield's motion for partial summary judgment on Count Eight, which alleges unfair business practices, is GRANTED with respect to challenging whether Blue Shield properly considered Section 1300.71 when developing its R & C methodology. Blue Shield's motion for partial summary judgment of Count Nine, seeking declaratory relief, is also GRANTED, as each declaratory judgment NorthBay seeks is related to the issues dismissed in Count Eight.
IT IS SO ORDERED.
NorthBay's opposition was filed along with an administrative motion to file materials under seal that were designated as confidential by Blue Shield. With dispositive motions the strong presumption of access can be overcome by demonstrating a compelling reason to do so, such as an articulated interest favoring secrecy that outweighs the public interest in understanding the judicial process. Kamakana v. City & Cty. of Honolulu ,
This determination is also evident from the DMHC's letter to health plans detailing that R & C methodologies are not unfair or unjust when they incorporate factors including "...(4) adequate procedures to timely and fully consider the remaining 'Gould ' criteria upon the provider's submission of relevant supporting documentation as part of either the original claim submission or the payor's appeal process/dispute resolution mechanism." Blue Shield Req. for Judicial Not. Ex. 2 (Dkt. No. 48) (emphasis added). The DMHC's "consideration" requirement, rather than specifically dictating payment rates for health plans, recognizes that no unlawful conduct arises from how the health plan ultimately derives and applies its methodology.
The parties requested judicial notice of various public records including a court case, government website, and public administrative records. See Requests for Judicial Notice (Dkt. Nos. 48 & 53). DMHC's letter to health plans is an undisputed public record from an administrative agency, and judicial notice is appropriate to the extent it is relied on in this Order. See Blue Shield Req. for Judicial Not. Ex. 2 (Dkt. No. 48); see also Interstate Nat. Gas Co. v. S. California Gas Co. ,