Centinela Freeman Emergency Medical Associates v. Health Net of California, Inc. (Nov. 14, 2016, S218497) ___ Cal.5th ___ [2016 WL 6678432].
Federal and California statutes require emergency healthcare providers to treat patients regardless of their ability to pay, so providers sometimes treat enrollees of an HMO with whom they have no contractual relationship. In that event, California law obligates the HMO to reimburse the providers for the emergency treatment, but the HMO is permitted by statute to delegate this obligation to individual practice associations (IPAs). In this case, noncontracting emergency service providers whose fees were not paid by financially struggling (and later insolvent) IPAs sued HMOs for negligently delegating to those IPAs the HMOs’ obligation to pay for the emergency services provided to the HMOs’ enrollees. The superior court sustained the HMOs’ demurrers. The Court of Appeal reversed, holding (in part) that providers could properly plead claims against the HMOs for negligent initial delegation, and negligent failure to continually monitor IPAs’ fulfillment, of the obligation to pay for HMO enrollees’ emergency medical expenses. The Supreme Court granted review.
The Supreme Court affirmed the Court of Appeal’s decision that the emergency care providers had pleaded colorable claims. The Supreme Court noted that the providers had no direct cause of action against the HMOs under the Knox-Keene Act, subsequent legislative amendments, or implementing regulations. But the Supreme Court rejected an argument that this nearly comprehensive scheme of statutes and regulations governing risk-shifting contracts between HMOs and IPAs displaced common-law remedies. Instead, the Supreme Court applied the well-known factors in Biakanja v. Irving (1958) 49 Cal.2d 647 and held that the HMOs owe providers common-law tort duties (opening the door to negligence claims) in this situation because: (1) the HMOs’ delegation to the IPAs was intended to affect providers; (2) the harm to the providers was foreseeable because the HMOs knew or should have known the IPAs were struggling or insolvent; (3) the injury to the providers (non-payment) was undisputed; (4) the HMOs’ delegation was closely connected to that injury; (5) the HMOs’ conduct was morally blameworthy; and (6) recognizing a common-law duty would advance the public policy of preventing future economic harm to noncontracting emergency care providers. The Supreme Court cautioned that a negligence claim alleging an HMO’s continuing duty to monitor the financial condition of its IPA delegate was more “narrow” (seemingly hinting that such claims will less frequently succeed) than a negligence claim challenging the initial delegation to an IPA, and that in many instances an HMO may reasonably rely on the DMHC’s corrective action plan process to protect providers from IPA insolvency.
Peder K. Batalden
Horvitz & Levy LLP
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