Health Law Perspectives
August 2006
In this issue:
Executive Order Prohibits Balance Billing for ER Services State High Court Rules on Attorneys’ Fees Bill Protects Hospital District Physicians Participating in Peer Review Activities HLB Calendar Executive Order Prohibits Balance Billing for ER Services
On July 25, Governor Arnold Schwarzenegger issued an Executive Order (S-13-06), directing the Department of Managed Health Care to take steps to prevent balance billing of patients for emergency services provided by non-contract providers. The Executive Order directs DMHC to:
- Take all necessary steps to protect Californians from balance billing, including fully enforcing existing regulations and developing new regulations to protect consumers from balance billing, if necessary.
- Increase efforts to enforce the Knox-Keene Health Care Service Plan Act of 1975’s provisions relating to fair and prompt payment of non-contracted provider claims.
- Review the criteria used by health plans to determine the reasonable and customary value of non-contracted emergency services to ensure that it results in fair reimbursement for the provider, while not affecting the financial viability of the state’s health care delivery system.
- Implement a fair, fast, inexpensive and independent dispute resolution process that avoids placing enrollees in the middle of payment disputes between health plans and providers and ensures that noncontract providers who deliver critical services without regard to a patient’s ability to pay are paid the reasonable and customary value for their services.
It is questionable whether the Governor and the DMHC have the legal authority to prevent non contracted providers from balance billing patients. In a recent decision, the California Court of Appeal held that the Knox-Keene Act did not prohibit noncontracted physicians from balance billing. Prospect Medical Group, Inc. v.Northridge Emergency Medical Group, 136 Cal. App. 4th 1155 (2006) (rev. granted).
On May 24, 2006, however, the California Supreme Court granted review of the Court of Appeal decision. Hooper, Lundy & Bookman, Inc. believes that the Supreme Court should affirm the Court of Appeal decision for a number of reasons. First, as the Court of Appeal noted, the language of the Knox-Keene Act prohibiting billing of health plan enrollees only applies to contracting providers – i.e., providers who have written contracts with health plans. Second, the DMHC does not have the legal authority engage in rate setting for non-contracted providers.
In California Healthcare Association v. Department of Managed Health Care, (Case No. 03CS01643), a case HLB handled on behalf of the California Hospital Association, the Court recognized that the AB 1455 regulations, which defined a reasonable value standard for non-contracted claims, were not binding upon an arbitrator or court.
Finally, as a practical matter, if the DMHC were to establish the rates for all healthcare services in the state, and prohibit providers from billing patients for differences between those rates and the rates paid by health plans, there would be no reason for providers to enter into contracts for discounted rates with health plans.
For more information, please contact Daron Tooch or Glenn Solomon at 310.551.8111 in Los Angeles, Craig Cannizzo in San Francisco at 415.875.8511 or Mark Johnson in San Diego at 619.744.7301.
State High Court Rules on Attorneys’ Fees
The California Supreme Court has issued a new decision which may provide the basis for providers to obtain attorneys’ fees when seeking payment from health plans on an assignment of benefits basis. Essex Ins. Co. v. Five Star Dye House, Inc., —- Cal.4th ——, 2006 WL 1843278 ( Jul 06, 2006).
For quite some time, California law has permitted an insured to sue an insurer for bad faith denial of coverage under a policy, which if proved, exposes the insurer to paying the insured’s attorneys’ fees as part of the damages for a breach of the implied covenant of good faith and fair dealing. Prior to this new case, however, it was unclear whether an assignee of the insured’s rights under the policy could likewise pursue attorneys’ fees for bad faith denial. The California Supreme Court has now confirmed that assignees also have such rights to recover attorneys’ fees.
Although the new case did not arise in a health care context, the principles appear the same regardless of the type of insurance benefits being assigned. In the health care industry, providers routinely obtain an “assignment of benefits” from patients of their rights to coverage under insurance policies for the cost of treatment that will be or has been provided. The language of these assignments vary among providers, but when sufficiently broad in scope, should include the insured’s rights to any claims for bad faith denial of coverage under a policy. Accordingly, coupling an effective assignment of benefits form with the holding in this new case provides another potential tool that providers can use in disputes with insurers over unpaid benefits.
There are two notes of caution. First, whether an assignment form is adequate is a legal determination that depends on the actual language used, which should be as broad as possible. Second, there are circumstances under which the law might permit an insurer to preclude assignment in the policy; but also circumstances under which the law prohibits insurers from enforcing such preclusions. Whether assignments are precluded, or not subject to preclusion, depends on sometimes complex jurisdictional considerations about the source and type of the patient’s health care insurance product.
For additional information about how to draft your assignment of benefits form to be in the best position to obtain attorneys’ fees when pursuing payment of such claims, or other managed care issues, please contact Glenn Solomon at 310.551.8179 or Daron Tooch at 310.551.8192 in Los Angeles, Craig Cannizzo at 415.875.8511 in San Francisco, or Mark Johnson at 619.744.7301 in San Diego.
Bill Protects Hospital District Physicians Participating in Peer Review Activities
California local hospital districts would be required to include a provision in their rules to indemnify non-employee medical staff members for damages and for any costs associated with the legal defense of a medical staff member arising from participation in the medical peer review activities of the district, under a bill currently wending its way through the California Legislature.
The bill, AB 1316 introduced by Assemblymembers Salinas and Cohn, also would prohibit indemnification of medical staff members for punitive or exemplary damages, but allow districts to pay the costs of such judgments under certain circumstances.
“The bill will provide critical assurances to districts and their physician medical staffs at a time when many smaller district hospitals are already struggling to find willing participants on their staffs to agree to take on the time consuming and increasingly precarious duties of peer review,” said HLB attorney Laurence Getzoff.
Specifically, the bill:
- Authorizes a hospital district board of directors to indemnify participating physicians or other non-employee members of the medical staff who are named as defendants in a civil action arising out of opinions rendered, statements made, or actions taken by medical staff members as part of the medical peer review activities of the district for damages and for costs associated with their legal defense.
- Authorizes a district to pay costs associated with a judgment that is for punitive or exemplary damages arising from peer review activities if the board of the district finds all of the following:
- the judgment is based on opinions rendered, statements made, or actions taken as a necessary part of participation in the medical peer review activities of the district;
- the non-employee member of the medical staff was acting in good faith, without malice, and in the apparent best interests of the district; and,
- payment of the claim or judgment against the non-employee member of the medical staff would be in the best interests of the district.
- Authorizes a district to pay that part of a judgment that is for punitive or exemplary damages against a nonemployee member of the medical staff arising out of participation in peer review activities.
- Provides that if a plaintiff prevails in a claim for punitive or exemplary damages against a non-employee member of the medical staff, the defendant shall, at the option of the board of directors of the district, be liable to the district for any costs incurred in providing representation to the defendant.
The bill is in part the result of a recent Attorney General’s opinion that casts doubt on whether hospital districts have the authority to indemnify physicians serving on peer review panels. In order to ensure that physicians are willing to participate in peer review activities, hospital districts must be able to indemnify them for damages arising from their participation, according to the authors.
According to the Attorney General’s opinion (Opinion No. 05-205, dated June 1, 2005) a hospital district may not provide unconditional indemnification to non-employee members of its medical staff who are defendants in litigation as a result of their activities as members of a hospital peer review committee. The opinion found that while medical peer review committees serve a critical hospital function and are essential to preserving the highest standards of medical practice, the use of unconditional indemnification to encourage peer review participation does not appear “necessary” to carry out the provisions of the Local Hospital District Law because existing law already provides limited immunity protections to physicians and other health care professionals who participate in hospital peer review functions.
In particular, the opinion cites Sections 43.7 and 43.8 of the Civil Code as providing protections to health care professionals serving on medical peer review committees if the professional society, committee, or board member acts without malice, has made a reasonable effort to obtain the facts of the matter as to which he, she, or it acts, and acts in reasonable belief that the action taken by him, her, or it is warranted by the facts known to him, her, or it after the reasonable effort to obtain facts.
The Association of California Healthcare Districts, which sponsored AB 1316, argues that medical peer review panels are critical to preserving the highest standards of medical practice and patient care and are required for JCAHO accreditation, Medicare provider status, and some health plan contracts. In order to ensure that physicians are willing to participate in peer review activities, hospital districts must be able to indemnify physicians for costs arising from civil lawsuits.
At press time, the bill was under consideration by the Senate Judiciary Committee and had no registered opposition.
For additional information, please contact Laurence Getzoff in Los Angeles at 310.551.8190 or Cary Miller in San Diego at 619.744.7302.
HLB Calendar
August 13 |
Employee Pharmacists Association, San Diego. HLB Attorneys Stacie Neroni, Hope Levy-Biehl and Mark Hardiman join DEA officials to present a seminar on Inspections, Investigations, and other Regulatory Requirements. |
August 17 |
HFMA Southern California Chapter Educational Seminar, San Diego. HLB |
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Health Law Perspectives is produced monthly, 10 times per year and is provided as an educational service only to assist readers in recognizing potential problems in their health care matters. It does not attempt to offer solutions to individual problems but rather to provide information about current developments in California and federal health care law. Readers in need of legal assistance should retain the services of competent counsel. Occasionally articles produced in Health Law Perspectives will reference California Health Law Monitor, a biweekly publication covering legislation, litigation, and regulation. For more information on California Health Law Monitor, contact M. Lee Smith Publishers at (800) 274-6774.