No ERISA Preemption of California Statute Requiring Health Care Service Plans to Reimburse Providers for Cost of Emergency Care

Posted on May 20, 2009 by Jenny Wang

Coast Plaza Doctors Hospital v. Blue Cross of Calif., 2009 WL 1272631 (Cal. App. 2nd Dist. May 11, 2009)

The California Court of Appeal has held that a claim against a health care insurer that is violated California Health and Safety Code Section 1371.4 (“Section 1371.4”) is not preempted by ERISA. In Coast Plaza Doctors Hospital v. Blue Cross of Calif., 2009 WL 1272631 (Cal. App. 2nd Dist. May 11, 2009), Coast Plaza Doctors Hospital (“Coast Plaza”) provided emergency care to a patient who was enrolled in a group health plan insured by Blue Cross of California (“Blue Cross”).  Coast Plaza was an “out-of-network” provider because it did not contract with Blue Cross to provide services to Blue Cross plan participants or beneficiaries. Coast Plaza billed Blue Cross over $580,000 in costs incurred to provide emergency care to the patient. Blue Cross refused to pay the bill, contending that Coast Plaza did not submit sufficient information to demonstrate that the services were rendered in connection with a medical emergency. 

Coast Plaza sued Blue Cross under various theories, including an allegation that Blue Cross violated Section 1371.4, a provision of the Knox-Keene Health Care Service Plan Act of 1975 that requires a health care service plan to reimburse a provider for the cost of emergency care. Blue Cross demurred to Coast Plaza’s complaint on that basis that Coast Plaza’s claims were preempted by ERISA, 29 U.S.C. Section 1144(a), because the claims related to an ERISA plan. The trial court sustained the demurrer, and the Court of Appeals overturned. 

The appellate court held that Coast Plaza’s claims came within ERISA’s “saving clause” which saves from ERISA preemption state laws that regulate insurance. The court reasoned that Section 1371.4 regulates insurance because: (1) it dictates to the insurer the conditions under which the insurer must pay for the risk it has assumed; (2) it expands the number of providers from whom an insured may receive services; and (3) it tells the insurer and insured that they cannot enter into a bargain whereby the insurer only pays for emergency services rendered by providers inside the insured’s network. For these reasons, the court determined that Coast Plaza’s claims against Blue Cross were not preempted by ERISA.
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Health Care Service Plan Not Liable for Provider's Failure to Diagnose Illness

Posted on May 11, 2009 by Barger & Wolen LLP

Watanabe v. California Physicians' Service, 169 Cal. App. 4th 56 (2008)

On February 25, 2009, the California Supreme Court denied a petition to review the Court of Appeal decision in Watanabe v. California Physicians' Service, 169 Cal. App. 4th 56 (2008). This decision let stand the opinion by Judge Flier which held Health Care Service Plans and plan providers are separately liable for their own acts or omissions under the Knox-Keene Health Care Service Plan Act of 1975 (the “Act”), notwithstanding the delegation of duties from one to the other.  Blue Shield of California, a Health Care Service Plan under the Act, delegated to the plan provider the task of initially determining whether a particular service or treatment was medically necessary (what is called a “utilization review”). Plaintiff sued Blue Shield on the grounds that it wrongfully delegated the utilization review to the plan provider and, as a result, should be vicariously liable for the provider’s failure to diagnose the Plaintiff’s brain tumor. The provider settled with the Plaintiff before trial which continued against Blue Shield. 

The California Court of Appeal rejected the Plaintiff’s arguments and held that (1) the Act permitted Blue Shield to delegate utilization review to a plan provider, and (2) the Act unequivocally precluded imposition of vicarious liability against Blue Shield for the plan provider’s acts or omissions. The Court of Appeal agreed with the trial court which instructed the jury that Blue Shield and the plan provider was each liable for its own acts and omissions. Plaintiff argued that the third sentence of The Act at section 1367 imposed vicarious liability on Blue Shield for the plan provider’s acts or omissions. Section 1367 states:

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.

 

The court clarified this section, noting “under the third sentence an entity that has committed an act or omission for which it is liable remains liable for that act or omission, even if it shares liability with another entity.” However, the first two sentences of section 1367 are “unmistakably clear in precluding the imposition of vicarious liability.” 

Judicial Opinion Available Here

 
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