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California State Court Finds Statute of Limitations for Filing Legal Action Runs from the Date the Plan First Issued an Explanation of Benefits Underpaying the Claim, Not After the Voluntary Appeal Process
Health Law Perspectives
October 5, 2016

A recent California Court of Appeal decision addressing the statute of limitations created a potential pitfall for health care providers who rely on a plan’s voluntary internal appeals process for underpaid claims as a basis to delay filing formal legal action. See Vishva Dev, M.D., Inc. v. Blue Shield of California Life & Health Insurance Company, Case No. BC270094 (Filed 8-31-16). 

In this case, the Court of Appeal held that the statute of limitations for an out-of-network medical provider’s cause of action against Blue Shield expired while the provider was still navigating the plan’s internal appeals process.  In sum, the Court found that the provider had waited too long to file his lawsuit after the plan underpaid and thus lost the right to pursue formal legal recourse after the internal appeal process failed to yield the requested payments.  As a result, providers who wait to file a lawsuit until having gone through a health plan's voluntary appeal process may be out of luck.

Like many provider-health plan disputes, this case arose from the alleged underpayment of medical claims.  In this case, the provider was a cardiologist, who provided emergency medical care to three patients insured by Blue Shield, and timely submitted his bills to their insurer.  Blue Shield responded by paying less than 15 percent of billed charges.  In the Explanation of Benefits (EOB) for the payment, Blue Shield offered to consider additional information, and invited the provider to appeal, stating:  “If you have questions about your claim or your claim has been denied and you believe that additional information will affect the processing of your claim, you should contact [the] Customer Service Department...If you are not satisfied with [its] response to your inquiry, you may initiate an appeal in writing.”  The provider submitted additional information with multiple appeals to Blue Shield for all three patients.  Blue Shield responded with a small increased payment for one patient that was still significantly lower than the amount billed, and no increase on the other two patients.

The provider asserted an implied contract cause of action in state court to recover the reasonable value of his services.  He filed his lawsuit less than two years after the provider had completed the internal appeals process, but more than two years after he had received the Blue Shield EOBs.  Blue Shield raised a statute of limitations defense on the grounds that the provider’s claims are governed by a two-year statute of limitations.  The provider responded that the statute of limitations had not commenced until he had exhausted the appeals process.  The provider also argued—in the alternative— that Blue Shield should not be allowed to invoke the statute of limitations defense because Blue Shield induced him to delay filing litigation by stating in the EOB that the provider could submit additional information to get reconsideration.

The trial court sided with Blue Shield.  The Court of Appeal agreed.  Recognizing that it could find no California case law in the health care context that addressed the effects of a voluntary internal appeal process on the statute of limitations, the Court of Appeal looked to cases in the home insurance context for guidance.  It compared the denial letters that insurers sent to homeowners with the EOBs that Blue Shield sent to the provider, and found both used near-identical language when denying a claim.  Since the homeowner insurance cases had found this language triggered the statute of limitation, the Court of Appeal here found that Blue Shield’s EOBs constituted an “unequivocal” denial of benefits that was sufficient to trigger the statute of limitations against the provider. 

The Court of Appeal also was unpersuaded by the provider’s alternative argument that Blue Shield’s denial had not become unequivocal while the plan’s voluntary, internal appeals process was occurring.  It found that Blue Shield’s offer in the EOBs to consider additional information did not render its denial unequivocal so as to toll the statute of limitations during the internal appeal process. 

The full extent to which this new case will apply to other claims dispute situations between providers and health plans is unclear.  There can be a variety of specific facts that may allow a party to toll the statute of limitations, such as, for example, the communications between the plan and provider before, during, and after using an appeals process, the specific nature of the appeal process offered by the plan, the conduct of the health plan and the provider, the specific type of health care coverage, the plan’s specific policies, procedures and plan documents, etc.  The outcome may also depend on the legal theories that are advanced, the laws that apply, and the authorities that are presented to the particular court considering the issue. 

However, this case should serve as a reminder to providers who are underpaid to consider the statute of limitations when deciding how long to wait for a plan’s internal appeal process to yield the requested outcome.  The easiest way to avoid the statute of limitations — and the potential for additional legal expenses associated with litigating the issue — is to act sooner rather than later at every step.  In light of this caseproviders who put off filing litigation are more likely to spend time and money addressing issues that relate to the timing — as opposed to the merits – of their legal proceeding than providers who act sooner after claims are partially or entirely denied.

We have successfully represented many types of providers over the years in addressing these and other time-based defenses raised by health plans.  For additional information, please contact Glenn Solomon or Vinay Kohli in Los Angeles at 310.551.8111, or Jennifer Hansen in San Diego at 619.744.7310.

For media assistance, please contact Maura Fisher at 202-580-7714.