Cma v. Aetna U.S. Healthcare of Cal., Inc., No. D036140.

• Court: California Court of Appeals
• Writing for the Court: Kremer
• Citation: 114 Cal.Rptr.2d 109,94 Cal.App.4th 151
• Parties: CALIFORNIA MEDICAL ASSOCIATION, INC., Plaintiff and Appellant, v. AETNA U.S. HEALTHCARE OF CALIFORNIA, INC., et al., Defendants and Respondents.
• Docket Number: No. D036140.
• Decision Date: 05 December 2001

114 Cal.Rptr.2d 109 94 Cal.App.4th 151 CALIFORNIA MEDICAL ASSOCIATION, INC., Plaintiff and Appellant,
v.
AETNA U.S. HEALTHCARE OF CALIFORNIA, INC., et al., Defendants and Respondents. No. D036140. Court of Appeal, Fourth District, Division 1. December 5, 2001. Rehearing Denied December 28, 2001. Review Denied March 27, 2002.^*

[114 Cal.Rptr.2d 112]

[94 Cal.App.4th 154]

Catherine I. Hanson, Astrid G. Meghrigian, San Francisco; Sullivan, McDonald, Bramley & Brody, Sullivan & Bramley, William A. Bramley, San Diego; Raffee & Edwards and John C. Edwards, La Jolla, for Plaintiff and Appellant.

Gibson, Dunn & Crutcher, J. Anthony Sinclitico III and Kevin R. Nowicki, Irvine, for Defendants and Respondents Aetna U.S. Healthcare of California, Inc. and Prudential Health Care Plan of California, Inc.

Chadbourne & Parke and Robin D. Ball, Los Angeles, for Defendant and Respondent Blue Cross of California.

Latham & Watkins and Gregory N. Pimstone, Los Angeles, for Defendant and Respondent Blue Shield of California.

[94 Cal.App.4th 155]

Epstein, Becker & Green and William A. Helvestine, San Francisco, for Defendant and Respondent Health Net.

Jay R. Davis, Los Angeles, for Defendant and Respondent Maxicare.

Konowiecki & Rank, Peter Roan and Thomas C. Knego, Los Angeles, for Defendant and Respondent Pacificare of California.

Nossaman, Guthner, Knox & Elliott and Stephen N. Roberts, San Francisco, for Defendant and Respondent United Healthcare of California, Inc.

KREMER, P.J.

Plaintiff California Medical Association, Inc. (CMA) appeals a judgment dismissing this lawsuit after the court sustained without leave to amend the demurrer of defendants Aetna U.S. Healthcare of California, Inc., et al.¹ to CMA's second amended complaint. CMA contends the court erred in sustaining defendants' demurrers to CMA's second amended complaint's claim for the reasonable value of services rendered (quasi-contract) and to CMA's first amended complaint's claims for violation of Health and Safety Code² section 1371³ and unlawful practices under Business and Professions Code section 17200 et seq. (the unfair competition law—UCL).⁴ We affirm the judgment of dismissal.

114 Cal.Rptr.2d 113

94 Cal.App.4th 156

I INTRODUCTION

In July 1999, as the assignee of claims assertedly owned by various physicians and medical groups (together Physicians), CMA brought this lawsuit seeking recovery from defendants of payments allegedly owed to Physicians for services provided by Physicians to enrollees in health care service plans⁵ operated by defendants.

For purposes of determining the propriety of the orders sustaining defendants' demurrers to CMA's claims for violation of section 1371, unlawful practices under the UCL and quasi-contract, we state the facts properly alleged by CMA in its first and second amended complaints. (Orange Unified School Dist. v. Rancho Santiago Community College Dist. (1997) 54 Cal. App.4th 750, 757, 62 Cal.Rptr.2d 778; Ellenberger v. Espinosa (1994) 30 Cal. App.4th 943, 947, 36 Cal.Rptr.2d 360.)

Defendants were licensed by the DOC to arrange for the provision of health services and to enter into agreements to provide such services. In operating their health care service plans, defendants entered into "Defendant-Enrollee Agreements" with their enrollees that imposed obligations upon defendants to pay for services rendered by Physicians to those enrollees. Defendants also entered into "Defendant-Intermediary Agreements" with various contracting entities including large medical groups, independent practice associations and limited Knox-Keene license plans (together Intermediaries). Under those Defendant-Intermediary Agreements, defendants paid their agent Intermediaries to perform specific tasks on defendants' behalf, including managing and arranging for medical services for defendants' enrollees by signing up panels of primary care and specialty physicians, processing claims and making payments to the physicians providing such services.⁶ In turn, Intermediaries entered into "Intermediary-Physician Agreements" with Physicians to provide health services to defendants'

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enrollees.⁷ Physicians' access to the majority of insured patients in the state depended upon Physicians' participation in managed care plans. To participate in the managed care plans offered by defendants, Physicians were required to enter into the Intermediary-Physician Agreements or otherwise be accepted onto panels.

Upon providing covered medical services to defendants' enrollees, Physicians submitted to defendants via Intermediaries uncontested claims for such services. However, due to their actual or imminent insolvency, many Intermediaries failed to pay Physicians for those services. Not having any control over Intermediaries' business practices or financial stability, Physicians depended upon defendants to ensure that Intermediaries were financially

114 Cal.Rptr.2d 114

stable and capable of paying Physicians for services rendered to defendants' enrollees. Nonetheless, despite knowing that Intermediaries were financially unstable and unable to pay Physicians, defendants maintained their contractual arrangements with Intermediaries and continued to make payments to Intermediaries. Further, although continuing to receive premiums from their enrollees, defendants declined Physicians' numerous demands for payments for services rendered to such enrollees.

CMA's first amended complaint, filed in September 1999, sought to state various claims based upon defendants' alleged statutory violations and contractual breaches. In particular, CMA alleged defendants did not comply with their obligations under section 1371 to reimburse Physicians in a timely manner for uncontested claims for health services provided by Physicians to defendants' enrollees. CMA's first amended complaint's prayer sought compensatory damages, restitution, injunctive relief and declaratory relief. In January 2000, in sustaining without leave to amend defendants' demurrer to CMA's first amended complaint's claim for violation of section 1371 and its derivative claim for unlawful practices under the UCL, the superior court concluded section 1371 did not create the duties alleged by CMA.⁸ Further, in sustaining defendants' demurrer to CMA's first amended complaint's claims for breach of express contract, breach of implied contract, and breach of third party beneficiary contracts (to wit, the Defendant-Enrollee Agreements and the Defendants-Intermediary Agreements), the superior court granted CMA leave to amend to attempt to allege a claim for quasi-contract.

94 Cal.App.4th 158

Later in January 2000, CMA filed a second amended complaint seeking to state a quasi-contract claim against defendants for recovery of the amount of the reasonable value of services rendered to defendants' enrollees by Physicians. In May 2000, in sustaining without leave to amend defendants' demurrer to CMA's second amended complaint for quasi-contract, the superior court rejected CMA's argument that it had pleaded facts bearing on "the relative relationship" of Intermediaries with defendants "on the one hand" and the "relationship" of Intermediaries with Physicians "on the other" sufficient to show that defendants were unjustly enriched. Later that month, the court dismissed CMA's action in its entirety. CMA appeals.⁹

II DISCUSSION

Seeking reversal of the judgment of dismissal, CMA contends the superior court

114 Cal.Rptr.2d 115

should have concluded that CMA adequately pleaded that defendants abdicated their alleged obligations under Knox-Keene and principles of equity to "arrange for the provision of health care services" by not reimbursing Physicians for providing medically necessary services to defendants' enrollees when Intermediaries became insolvent. Further, asserting Knox-Keene "unequivocally mandates" appropriate reimbursement to Physicians as the providers under contract of covered medical services to defendants' enrollees, CMA contends the ultimate responsibility for payment for such services rested with defendants, despite any agreements to the contrary that defendants had demanded from Intermediaries and Physicians. CMA also faults the superior court for relying upon an interpretation of law issued by the DOC, an administrative agency no longer having regulatory authority over defendants.¹⁰ We conclude the superior court properly sustained defendants' demurrers and dismissed CMA's lawsuit.

94 Cal.App.4th 159

A CMA's Claim for Defendants' Alleged Violation of Section 1371 1 The Statute

At relevant times, section 1371 provided in pertinent part:

"A health care service plan, including a specialized health care service plan, shall reimburse claims or any portion of any claim, whether in state or out of state, as soon as practical, but no later than 30 working days after receipt of the claim by the health care service plan, or if the health care service plan is a health maintenance organization, 45 working days after receipt of the claim by the health care service plan, unless the claim or portion thereof is contested by the plan in which case the claimant shall be notified, in writing, that the claim is contested or denied, within 30 working days after receipt of the claim by the health care service plan, or if the health care service plan is a health maintenance organization, 45 working days after receipt of the claim by the health care service plan. The notice that a claim is being contested shall identify the portion of the claim that is contested and the specific reasons for contesting the claim. "If an uncontested claim is not reimbursed by delivery to the claimants' address of record within the respective 30 or 45 working days after receipt, interest shall accrue at the rate of 10 percent per annum beginning with the first calendar day after the 30- or 45-working day period....

"For the purposes of this section, a claim, or portion thereof, is reasonably contested where...