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Paul Zimmerman
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California Supreme Court Denies Petition for Review in Children’s Hospital Case

In a potential windfall for payers, on October 15, 2014, the California Supreme Court denied Children’s Hospital’s petition for review (and depublication) of the Fifth Circuit Court of Appeal’s published decision in Children’s Hospital v. Blue Cross of California. 

In the case, the Court of Appeal overturned the  trial court’s jury verdict of $6.6 million in favor of Children’s Hospital. At issue, was payment for post-stabilization emergency medical services provided to nearly 900 Blue Cross Medi-Cal beneficiaries over a 10-month period where there was no contract between the hospital and the health plan. During this off-contract period, Blue Cross paid only a little over $4.2 million. Subsequently, the hospital filed an action seeking the total reimbursement amount, arguing that under Title 28, section 1300.71 (a)(3)(B) (also known as the “Gould” regulations), Blue Cross was required to pay “the reasonable and customary value for the health services rendered.” The trial court jury agreed, and awarded the hospital an additional $6.6 million.

The Court of Appeal overturned the decision, stating that Blue Cross had not been given a chance to put on a complete defense. Additionally, the Court held that in addition to the factors outlined in Title 28, section 1300.71 (a)(3)(B), a provider’s contracts with other payers, as well as what the government reimburses for Medi-Cal and Medicare beneficiaries, could be considered in determining the “reasonable value” of post-stabilization emergency services. 

M&R filed an Amicus Curiae letter on behalf of the California Chapter of the American College of Emergency Physicians (California ACEP) on August 21, 2014, urging the California Supreme Court to grant review of the case.  In the letter, California ACEP urged the Court to overturn the appellate court’s ruling, which it argued will have a chilling effect on the provision of emergency care in California, and will also create a disincentive for providers to contract. Multiple other interested parties, including the California Medical Association, filed letters urging the Court to grant review of the case.  

For out of network providers who provide post-stabilization care to enrollees covered by the Department of Managed Health Care (DMHC), Children’s now could be read to allow juries to consider contract and government rates when considering fair and reasonable reimbursement. However, Children’s does not mandate that juries must follow the rates, only that they are factors to be considered or rejected.

For out of network providers who provide pre-stabilization emergency services to enrollees covered by the DMHC, we have already seen HMOs argue that Children’s applies. While we believe the Supreme Court should have granted review, the Court of Appeal’s holding should ultimately be limited in scope. Children’s  dealt exclusively with the payment of services to hospitals for post-stabilization services.  It did not deal with pre-stabilization services which are subject to EMTALA. The decision itself indicates that the Court was specifically considering post-stabilization services. Providers of pre-stabilization emergency services are required to provide care to all patients regardless of their ability to pay.  Further, both the Courts and the DMHC have rejected the use of Medicare in determining the value of pre-stabilization emergency services. For these reasons, Children’s should be read to be limited to post-stabilization services. In our view, the decision does not allow HMO’s to consider contracted rates, Medicare, or Medi-Cal rates in determining the reasonable and customary value of pre-stabilization emergency services.     

Please feel free to contact Damaris L. Medina if you would like more information:  dmedina@mrllp.com or 818-783-5530.

This article is not offered as, and should not be relied on as, legal advice. You should consult an attorney for advice in specific situations.