No tort for underpayment of hospital bills by the insurer | Tyson & Mendes LLP

On November 4, 2021, the Second District, Division 2 Court of Appeal dismissed the establishment of tort liability for insurers who paid less than what the hospital believed to be “reasonable and customary value.”1 This partially published opinion is based on the underlying lawsuit between the plaintiffs Long Beach Memorial Medical Center and Orange Coast Memorial Medical Center (collectively “the Hospitals”) and the defendant Kaiser Foundation Health Plan, Inc. (“Kaiser”) resulting from ‘Kaiser’s alleged underpayment for emergency medical services rendered in hospitals. The Court of Appeal considered the following questions:

  1. whether a hospital can sue for the tort of intentional payment for an amount less than what a jury could later determine to be the “reasonable and customary value” of emergency medical services, and thereby obtain damages -punitive interests;

  2. whether the hospital can sue for an injunction under California’s unfair competition law to prevent the plan from paying too little in reimbursement for possible future claims not covered by a contract;

  3. whether in the quantum meruit claim itself, a trial court erred in telling the jury that the “reasonable value” of emergency medical services is defined as “the price that a hypothetical willing buyer would pay to a hypothetical willing seller for the services, when neither is forced to buy or sell, and both have full knowledge of all relevant facts …2

Generally, the Knox-Keene Health Care Service Plan Act of 1975 (the Knox-Keene Act) (§ 1340 et seq.) Requires the plan to reimburse the hospital for the provision of such emergency care and services.3 The plan must reimburse either a pre-determined value if the hospital and the plan have an existing contract, or, if there is no such contract, the “reasonable and customary value” of the services provided.4

Here, Kaiser and the hospitals did not have a current contract because they let existing contracts expire. Kaiser calculated the payment of the medical bills accumulated by its enrolled in hospitals from 2015 to 2017 based on its own “internal methodology”. In the end, Kaiser reimbursed the hospitals $ 16,524,537, or 53.2% of the full fees billed. “5

Tort claim

The court ruled that a hospital could not sue in tort for underpayment, ruling that the costs of establishing such a tort outweighed the benefits. Among other concerns, the court held that establishing such an offense would inevitably lead to an outcome fundamentally at odds with one of the stated purposes of the Knox-Keene Act to help ensure the best possible health care for the public at the lowest possible cost by shifting the financial risk of healthcare from patients to providers.6

Unfair competition

The court ruled that the restitution available under the unfair competition law would completely duplicate what was already granted to the hospital on the basis of its quantum meruit action.seven Further, the court ruled that the injunction sought by the hospitals, i.e. an order directing Kaiser to violate the Knox-Keene Act by underpaying for emergency medical services at the future, is not legally available.8 Although the trial court erred in rejecting the claim insofar as it sought restitution, the court found the error to be harmless due to this duplicate remedy already provided through the quantum meruit lawsuit.9

Jury instruction

At trial, the jury was instructed as follows on the definition of “reasonable value”:

The measure of quantum recovery is the reasonable value of the services. Reasonable value is the price that a hypothetical the willing buyer would pay a hypothetical willing seller for the services, neither of them being compelled to buy or sell, and both having full knowledge of all relevant facts. Reasonable value can be described as the “going rate” for these services in the market.

To determine the reasonable value, you must take into account all of the transactions presented to you, but you are not bound by them. You can choose to use the transactions that you think reflect the price that a hypothetical the willing buyer would pay a hypothetical seller willing for services. On the other hand, you may reject transactions that you believe do not reflect the price that a hypothetical willing buyer would pay a hypothetical willing seller for the services.ten

Hospitals challenged those instructions, particularly the use of the word “hypothetical,” while amici challenged by not asking jurors to give more weight to earlier agreements. The court was not convinced by any of these arguments. In particular, the court found that the use of the word “hypothetical” was entirely appropriate, since “fair market value” is defined the same way in other situations as the amount that “buyers and sellers hypothetical ”would pay in a“ hypothetical transaction ”.11

Furthermore, the tribunal said, it is also useful to phrase it this way as it emphasizes another relevant legal principle, namely that the anticipation of the parties real transactions are not decisive.12 In fact, the discretion given by the jury to reject certain transactions only reflects the reality that some market transactions will look more like the transactions at issue in the case before the jury, and some will have less resemblance, giving the jury the the possibility of giving more weight to the first and less weight to the second in determining what a hypothetical buyer and seller would pay for the specific services at issue in this case.13

To take with

The Court discusses many principles integral to the California Supreme Court’s decision, Howell v. Hamilton Meats14 that a bodily injury claimant can recover only the lesser of the amount paid or the reasonable value of the medical services rendered. Here, the Court notes that hospitals receive their full billed rate only 1% to 10% of the time. In addition, the average rate that hospitals agreed to accept as payment for emergency medical services was only 27% of the rates charged by hospitals.

When it comes to physicians providing care to personal injury claimants on the basis of a lien, a similar investigation should be conducted as to the number of times these physicians have received their full billed fee, as well as the actual amounts. that the doctors accepted as payment. in full from various health insurance entities and in cash to patients for the same service provided in the past to establish the reasonable value of the medical services provided.

1 Long Beach Memorial Medical Center v. Kaiser Foundation Health Plan, Inc. (Cal. Ct. App., November 4, 2021, # B304183) 2021 WL 5118888.

2 Id. To 1.

3 Id., Citing (§ 1371.4, subd. (B).)

4 Id., Citing Cal. Code Reg., Tit. 28, § 1300.71, subd. (a) (3) (B).

5 Id. At 2 o’clock.

6 d. at 7, citing § 1342, subd. (d), emphasis added; Pacific Bay Recovery, Inc. v. California Physicians’ Services, Inc. (2017) 12 Cal.App.5th 200, 207, 218 Cal.Rptr.3d 562.

7 Id. At 9 a.m.

8 Id.

9 Id.

10 Id. (Emphasis added by court.)

11 Id. To 10.

12 Id. At 11 a.m.

13 Id.

14 Howell v. Hamilton Meats, (2011) 52 Cal. 4th 541.


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