GIBSON, DUNN & CRUTCHER LLP's LEGAL INSIGHTS

Orange County Business Journal, Feb 2-Feb 8, 2009 by Reeves, Jeffrey, Kennedy, Scot, Hearne, Heather

California Supreme Court deals a blow to healthcare providers in Prospect Medical Group decision

Picture yourself falling - then landing. A landing so hard that you break your arm. You rush to the nearest emergency clinic, where doctors whisk you off for consults, and mending. Weeks later your arm is still in a sling and simple tasks still seem difficult. You fumble with the mail after a frustrating day at work and among the advertisements and other junk mail, you pluck an envelope from some sort of medicai company that you do not recognize. You open the envelope to find a bill for services rendered by a radiologist and emergency physician. Surprised, you examine the bill and discover that your insurance company only paid half of the charges. The medical group wants you - the patient - to pay the balance.

Now picture yourself on the other side of that letter. You own an emergency medical practice. Your practice has contracts with many HMOs to provide care for their enrollees. But there are a number of HMOs that just would not agree to pay what your services were worth - in many cases, they would not even agree to pay enough for you to break even. Ev- ery month, your practice sees hundreds of patients with medical emergen- cies. You are required by law and ethics to render treatment to these patients without regard to ability to pay - and you gladly do so. After the emergen- cy has passed, your business office collects insurance information and, as so often happens, the patient offers an HMO with which you have no contract. You have your business office send a bill to the HMO, which agrees to pay what it says is "reasonable" - less than half the bill and not even enough to cover y our cost for rendering the treatment. At that point you decide to bill the patient for the remainder of your charges, hoping that either the patient will pay personally, or that he or she will bring sufficient pressure on the HMO to cause the HMO to relent and pay the balance.

The above scenarios represent two sides of a three-party dispute that potentially arises every time a patient seeks emergency medical care. The result is known as "balance billing" - a health care provider billing a patient for the portion of its bill not covered by the patient's insurance. The patient believes that he or she is insured. The patient's HMO needs to keep its costs down and the medical provider wants to be paid a fair sum for its work. The law requires health care providers to provide emergency care without regard to a patient's ability to pay. When that patient is a member of an HMO, the law also requires the HMO to pay "the reasonable and customary value for the health care services rendered," but there is no agreed formula for determining the amount of a reasonable fee, nor is there a ready mechanism for efficiently resolving such disputes.

Faced with what they believed was an unreasonably small payment from the HMO, emergency medical providers resorted to balance billing the patient. But no more. The California Supreme Court's decision in Prospect Medical Group, Inc. v. Northridge Emergency Medical Group, Case No. S 142209 (Jan. 8, 2009) appears to have foreclosed that option. In its decision, the Supreme Court held that balance billing was illegal where an insured patient receives emergency treatment, regardless of whether the emergency medical provider has a contract with that patient's HMO.

In Prospect, the HMO (Prospect) sued an emergency physicians' group (Northridge) seeking a judicial determination that the practice of balance billing is unlawful. The Court unanimously decided that it was. California's Knox-Keene Act, the Court concluded, implied a contract between emergency healthcare provider and patient that prohibited billing the patient in the event of a payment dispute between the HMO and the provider. The Court's decision imparts some muchneeded clarity, but the Court took pains to limit its ruling to the precise facts before it.1 The possibility of balance billing by nonemergency room physicians or in situations where a patient does not have health insurance remains' and the Prospect opinion never ventures toward the root of the problem, which is the lack of an efficient mechanism to resolve billing disputes. The Court's solution for disputes over the amount owed to the physician seems simple enough: "doctors may directly sue HMOs to resolve billing disputes in order to avoid the necessity of balance billing." Id. at 1 1 (citing Bell v. Blue Cross of California, 131 CaI. App. 4th 211 (2005)). But in practice, it is difficult to imagine many providers pursuing such claims against HMOs in court, especially when the amount in dispute is sure to be dwarfed in comparison to the cost of litigation.

So, the latest round in the long-waged battle over how to allocate healthcare costs in California appears to have gone to the HMOs. The HMOs now have increased leverage in dictating reimbursement amounts to healthcare providers, whose only option is to sue on their own if they are dissatisfied. And, the plaintiffs' bar has wasted no time in bringing Prospect to the attention of the California courts.2 Some lawyers are already pressing for a broad application of the Prospect decision to further class and individual claims against healthcare providers and insurance companies in an effort to recover for alleged damages caused by past balance billing practices. It seems clear, therefore, that the Prospect decision will hardly be the last word from the California appellate courts in this debate.