Health Law Perspectives

October 2006

In this issue:

DMHC Files Proposed Balance Billing Prohibition Rules

Hospital Peer Review Proceedings are Subject to Anti-SLAPP Motions, Court Rules

HLB Named as a Leading Health Law Firm

HLB Calendar

DMHC Files Proposed Balance Billing Prohibition Rules

The California Department of Managed Health Care (DMHC) has issued proposed regulations in response to the Executive Order issued by Governor Arnold Schwarzenegger on July 25, which directed that DMHC take steps to prevent balance billing of patients for emergency services provided by non-contracted providers and to create an independent dispute resolution process to ensure that non-contracted providers are paid the reasonable value of their services. Public hearings have been scheduled for Burbank (September 13) and Sacramento (October 4). DMHC will accept written comments through October 4, 2006.

The proposed regulations address balance billing by adopting Section 1300.71.39 of Title 28. The new section, titled “Unfair Billing Patterns,” defines a punishable unfair billing pattern to include “the practice by a provider of emergency services of billing an enrollee of a health care service plan for amounts owed to the provider by the health care service plan for the provision of covered services.”

Disputes over payments to non-contracted providers in general, and to physicians who perform emergency services in particular, have resulted in spirited litigation, and the legality of such billing is presently under review by the California Supreme Court. The Governor’s view is that patients should not be caught in the middle of these disputes. According to the newly proposed regulation, “an emergency services provider who provides emergency services to an enrollee of a health care service plan may not collect or attempt to collect from the enrollee any amount due to the provider by the health plan, and instead must seek reimbursement directly from the health care service plan for the provision of covered services.” While this balance billing prohibition will be supported by health plans, emergency care physicians will strongly object to it, arguing, among other things, that DMHC has no legal authority to declare balance billing to be unfair, since it is not prohibited by any law or regulation.

“Also very significant is the fact that this new regulatory proposal adds an independent dispute resolution process (IDRP) for claims that non-contracted providers have against health plans,” said HLB Regulatory Specialist, Brad Tully. “The IDRP is not limited to emergency services,” he noted.

The IDRP regulations, which add a new subsection (n) to existing Section 1300.71.38, call for all health plans (and capitated providers that pay claims on their behalf ) to establish a “fast, fair and cost-effective dispute resolution mechanism” to process and resolve contracted and non contracted provider disputes. Under the proposal, the plan may maintain separate dispute resolution mechanisms for contracted and non-contracted provider disputes, and separate dispute resolution mechanisms for claims and other types of billing and contract disputes, provided that each mechanism complies with various regulatory requirements.

Under the proposal, non-contracted provider claims payment disputes that have not been resolved by a plan to the provider’s satisfaction may be either be reported to the DMHC Provider Complaint Unit for review or submitted to the IDRP that will be administered by an independent organization designated by DMHC.

The independent organization will be required to establish and publish written policies and procedures for resolving claims disputes that include the following standards and requirements:

A “baseball style” arbitration under which each party submits its “final offer,” and the offer of the party that is judged to be most reasonable is adopted;
If a non-contracted provider elects to participate in the IDRP, the plan must also participate;
Before a non-contracted provider can elect to participate in the IDRP, the provider must utilize the plan’s internal dispute resolution mechanism for a minimum of 45 days;
A non-contracted provider may elect to submit the original billed amount or an alternative amount the provider is willing to accept as the final offer;
If the non-contracted provider elects to submit the original billed amount as the final offer, the plan or the plan’s capitated provider must submit as its final offer its originally offered payment amount, plus any additional payment justified by documentation submitted by the non-contracted provider during the plan dispute resolution mechanism;
If the non-contracted provider elects to submit a final offer that is different from the provider’s original billed amount, then the plan may also submit a final offer amount that is different from its prior offered amounts.
Once the process is completed, the arbitrator must render a decision within 60 days of the complaint filing.
The non-prevailing party is required to pay the arbitration award within 15 days of the arbitrator’s decision.
For 60 days following the arbitrator’s decision, either party may appeal the decision in civil court. However, prior to a plan’s appealing the arbitrator’s decision, it must pay any amount awarded to the non-contracted provider.

“This process is specified as being aimed at identifying the usual, customary and reasonable value of services,” said Mr. Tully. “It therefore cuts strongly against a Knox-Keene health care service plan’s having the ability to set an arbitrarily low fee schedule for non-contracted providers.”

For additional information or assistance with filing comments on the proposal, please contact Mr. Tully at 310.551.8160.

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Hospital Peer Review Proceedings are Subject to Anti-SLAPP Motions, Court Rules

Hospitals now have one more layer of protection on their peer review proceedings.

The California Supreme Court recently ruled that certain types of lawsuits arising from hospital peer review proceedings can be specially stricken as harassing complaints because hospital peer review is an “official proceeding authorized by law” within the meaning of California’s anti SLAPP statute.

In Kibler v. Northern Inyo County Local Hospital District (Cal. Sup.Ct., 39 Cal.4th 192, #S131641, July 20, 2006), the Court considered whether a trial court had correctly dismissed Dr. George Kibler’s lawsuit against Northern Inyo Hospital and certain physicians and nurses (the hospital defendants) on the basis that his complaint arose solely from a hospital peer review proceeding. The hospital’s peer review committee had suspended Dr. Kibler, who had medical staff privileges at Northern Inyo Hospital, due to his unprofessional and hostile conduct directed towards the hospital’s nursing and administrative personnel.

Although Dr. Kibler was reinstated, he later filed a lawsuit against the hospital defendants seeking damages for defamation, abuse of process and interference with his practice of medicine. The hospital defendants responded to Dr. Kibler’s complaint by filing a special motion to strike that is commonly known as an “anti-SLAPP” motion. According to the hospital defendants, Dr. Kibler’s lawsuit arose out of the hospital’s peer review proceeding against Dr. Kibler, which the hospital defendants argued was an “official proceeding” qualifying for the protection of California’s anti SLAPP statute. The trial court agreed with the hospital defendants and, as a result, dismissed Dr. Kibler’s lawsuit. On appeal, the Supreme Court ultimately ruled that Dr. Kibler’s lawsuit was correctly dismissed.

Anti-SLAPP motions are commonly used by defendants at the outset of litigation to strike harassing lawsuits, known as “SLAPP suits” (strategic lawsuits against public participation), which are designed to chill the valid exercise of the constitutional rights of freedom of speech. The statute that gives rise to this procedure sets forth the types of free speech acts that are accorded special protection by the anti-SLAPP procedure. They include “any written or oral statement or writing made in connection with an issue under consideration or review by a legislative, executive, or judicial body, or any other official proceeding authorized by law.” (Emphasis added.)

In Kibler, the hospital argued that hospital peer review is an “official proceeding authorized by law” because it is required under California Business and Professions Code section 805, and therefore qualifies for the anti-SLAPP statute’s special motion to strike. The trial court agreed with this argument, and struck Dr. Kibler’s complaint on the basis that Dr. Kibler’s lawsuit had arisen out of oral or written statements or writings made in connection with the hospital’s peer review proceeding against him. Both the Court of Appeal and the California Supreme Court held that this was the correct result.

In deciding that the hospital peer review process is an “official proceeding” for purposes of the anti-SLAPP statute, the Supreme Court focused on the statutory framework for peer review set forth in the Business and Professions Code sections 805 and 809, et seq. The Court held that peer review of physicians serves an important public interest because it “is essential to preserving the highest standards of medical practice” throughout California. “Because a hospital’s disciplinary action may lead to restrictions on the disciplined physician’s license to practice or to the loss of that license, its peer review procedure plays a significant role in protecting the public against incompetent, impaired, or negligent physicians.” The Court also held that hospital peer review proceedings constitute official proceedings authorized by law because the hospital’s decisions resulting from peer review proceedings are subject to judicial review by administrative mandate. The Court reasoned that the anti-SLAPP statute is a procedural device designed to screen out meritless claims, and therefore rejected the argument that the phrase “any other official proceeding authorized by law” in the anti-SLAPP statute pertains only to proceedings before governmental entities.

Perhaps most significantly, the Court also concluded that hospital peer review proceedings should be considered official proceedings subject to anti-SLAPP motions so that participation in the peer review process will not be further discouraged due to disciplined physicians filing harassing lawsuits against hospitals and their peer review committee members. The Court recognized that disciplined physicians who disagree with the peer review committee’s decision can still seek redress by means of a petition for administrative mandate.

“This is an important victory for California hospitals and physicians on their medical staffs who participate in peer review,” said HLB attorney John A. Mills. “In upholding the dismissal of Dr. Kibler’s lawsuit, the Court is sending a strong message that hospitals and physicians should not be discouraged from participating in the peer review process because they fear being sued. California courts will not hesitate to throw out harassing lawsuits that arise from peer review proceedings.”

For additional information, please contact Mr. Mills or Laurence Getzoff in Los Angeles at 310.551.8111 or Cary Miller in San Diego at 619.744.7300.

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HLB Named as a Leading Health Law Firm

Hooper, Lundy & Bookman, Inc., has been named one of the top four health care law firms in California and one of the leading health care law firms in the country according to the latest edition of Chambers USA. The directory is published by the prestigious Chambers & Partners, which produces law firm directories of top-rated law firms throughout the United States and Europe, ranking law firms primarily based on outside interviews with General Counsel, high profile entrepreneurs and other significant purchasers of legal services. In addition to the firm ranking, five HLB attorneys were recognized as top performers in the state for the second year in a row. Following is a reprint of the firm’s profile.

We thank all of our clients and friends who contributed to the Chambers article.

The Firm: Upheld by market commentators as the “premier boutique reimbursement firm” this outfit reaches out to compete across California and nationwide. Clients are impressed by the firm’s outstanding presence and note that it is home to a “deep pool of strong and focused attorneys,” who tackle the most complex of healthcare issues. Its overarching experience includes acting for hospitals, physician practices, associations and the long-term care industry, providing advice on acquisitions, business transactions, financing options and litigation. The group continues to be involved in Tenet Healthcare’s divestiture of hospitals across the United States.

The Lawyers: The eminent Pat Hooper “does a superb job” on Medicare appeals and is cited as “one of the best” on fraud and kickback issues. In fact, “his experience and craftsmanship across healthcare counseling and litigation are unmatched,” according to commentators. He is also recognized as a driving force in terms of drawing in business and “getting the right people on the job.” Lloyd Bookman stands out as “one of the brightest reimbursement lawyers there is,” often acting on top-level matters. His 25 years of experience in the field have seen him build up a deep understanding of Medicaid and Medicare financing programs. John Hellow is nationally regarded for his leading practice in Medicare and Medicaid reimbursement and regulatory procedure. He has represented hospitals in payment disputes and advised clients on the reimbursement implications of their business transactions. Robert Lundy is cited to be “extremely successful in healthcare business transactions.” He has brought his experience to bear on a myriad of joint ventures, the structuring of physician organizations and licensing and certification matters.He is particularly active in the multifaceted area of hospital finance and acquisitions. Bradley Tully has “a strong reputation and a solid book of business in the fraud and abuse arena.” He is skilled in guiding hospitals, physicians and health providers through the maze of transactional and regulatory issues in this complex field.

Clients/Work Highlights: the firm acts for health care providers, from hospitals to individual physician practices, including Tenet Healthcare and HCA.

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HLB Calendar

October 24, 25

HLB presents a half-day Pay for Performance Seminar in San Francisco (10/24) and in Los Angeles (10/25). For more information, contact Jodi Berlin at 310.551.8135.

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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.