Heinz v. Cal. Pub. Emps.' Ret. Sys.

• Decision Date: 19 April 2021
• Docket Number: B300089
• Court: California Court of Appeals Court of Appeals
• Parties: BRADLEY HEINZ et al., Plaintiffs and Appellants, v. CALIFORNIA PUBLIC EMPLOYEES' RETIREMENT SYSTEM et al., Defendants and Respondents.

BRADLEY HEINZ et al., Plaintiffs and Appellants, v. CALIFORNIA PUBLIC EMPLOYEES' RETIREMENT SYSTEM et al., Defendants and Respondents.

B300089

COURT OF APPEAL OF THE STATE OF CALIFORNIA SECOND APPELLATE DISTRICT DIVISION SEVEN

April 19, 2021

NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS

California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.

(Los Angeles County Super. Ct. No. BC664844 and BS169444)

APPEAL from a judgment and an order of the Superior Court of Los Angeles County, Amy D. Hogue, Judge. The judgment of dismissal is reversed. The order denying the petition for writ of administrative mandamus is affirmed.

Law Offices of John Michael Jensen and John Michael Jensen for Plaintiff and Appellant.

Reed Smith, Raymond A. Cardozo, Amir Shlesinger and Todd Kim for Defendants and Respondents.

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Bradley Heinz, a former state employee, on behalf of himself and a putative class of individuals enrolled in preferred provider organization (PPO) health insurance offered or administered by the California Public Employees' Retirement System and its Board of Administration (collectively CalPERS) and BlueCross of California dba Anthem Blue Cross (Anthem), sued CalPERS and Anthem alleging they had falsely represented the methodology for calculating reimbursements for costs incurred when seeing a nonpreferred (out-of-network) healthcare provider for nonemergency services and failed to properly reimburse their members for those costs. As part of his lawsuit Heinz also petitioned for a writ of administrative mandamus under Code of Civil Procedure section 1094.5 to overturn CalPERS's rejection of his requests for additional reimbursement for out-of-network services provided to him in 2008 and 2009.

The trial court denied the writ petition and thereafter sustained CalPERS and Anthem's demurrer to Heinz's first amended complaint without leave to amend, entering judgment on their behalf. The court ruled the adverse administrative decision and order denying Heinz's writ petition precluded his contract and tort causes of action and, to the extent any cause of action alleged claims separate from those presented in the administrative proceeding, they were time-barred.

We affirm the trial court's order denying the petition for writ of administrative mandamus but reverse the judgment dismissing the action and remand with directions to enter a neworder sustaining in part and overruling in part the demurrer to the first amended complaint.

FACTUAL AND PROCEDURAL BACKGROUND

1. CalPERS Health Plans

In addition to administering the retirement system for employees of the State of California and other public entities, CalPERS, a unit of the Government Operations Agency (Gov. Code, § 20002), offers its members PPO and other types of managed care health plans as required by the Public Employees' Medical and Hospital Care Act (Gov. Code, § 22750 et seq.). CalPERS contracts with Anthem to administer its PPO plans: PERSCare, PERS Choice and PERS Select.

The evidence of coverage (EOC) establishes the terms and conditions of coverage and governs a health plan's obligations to its members and their dependents. (Health & Saf. Code, § 1345, subd. (d) ["'[e]vidence of coverage' means any certificate, agreement, contract, brochure, or letter of entitlement issued to a subscriber or enrollee setting forth the coverage to which the subscriber or enrollee is entitled"].) The EOC's contents are regulated by the Department of Managed Health Care. (Cal. Code Regs., tit. 28, § 1300.63.1.)

Reimbursement for services under PPO plans differs depending on whether members use in-network (preferred) providers or out-of-network (nonpreferred) providers. In-network providers have contracts with Anthem to accept its payment for services, plus any applicable member deductible and copayment, as payment in full for covered services. Out-of-network providers have no contract with Anthem.

Reimbursements are structured to encourage members to seek services from in-network preferred providers. In general, amember's copayment responsibility for any particular healthcare service is a higher percentage of the "Allowable Amount" for out-of-network providers (40 percent) than for in-network providers (10 percent or 20 percent, depending on the service and the plan).¹

Plan members are not responsible to pay preferred providers any amounts above the approved Allowable Amount. In contrast, as stated in the EOC's for the 2008 PERSCare plan and the 2009 PERS Choice plan, at issue in this case, "The Allowable Amount for covered services provided by Non-Preferred Providers is usually lower than what they customarily charge. . . . Non-Preferred Providers may bill the Member for the difference between the Allowable Amount and the Non-Preferred Provider's billed charges in addition to applicable Member deductibles and copayments."

The definition section of the 2008 PERSCare and 2009 PERS Choice EOC's provide the Allowable Amount for a service will be the lesser of the provider's billed charge or Anthem's allowance, defined as, "1. [T]he amount that [Anthem] has determined is an appropriate payment for the services(s) rendered in the provider's geographic area, based on such factors as the Plan's evaluation of the value of the service(s) relative to the value of other services, market considerations, and provider charge patterns; or [¶] 2. [S]uch other amount as the Preferred Provider and [Anthem] have agreed will be accepted as payment for the service(s) rendered; or [¶] 3. [I]f an amount is not determined as described in either (1) or (2) above, the amountthat [Anthem] determines is appropriate considering the particular circumstances and the services rendered." That is, the Allowable Amount is the usual, customary and reasonable (UCR) rate, a recognized method for determining health care prices (option one); the contracted rate (option two); or the amount Anthem determines in its discretion is appropriate (option three).

2. Heinz's Reimbursed Amounts for Out-of-network Services

Heinz was enrolled in the PERSCare PPO from 2006 through 2008 and the PERS Choice PPO from 2009 through 2014. Heinz received treatment from Dr. Joe A. Walker, a psychiatrist, for nonemergency healthcare services on a regular basis between 2006 and 2015.

Before May 2008 Dr. Walker was a member of a medical group and under contract with Anthem as a preferred provider. As of April 2008 Dr. Walker billed $420 for a 50-minute visit. Anthem had approved a contract payment rate for Dr. Walker of $299.57 per visit (the Allowable Amount). Heinz made a relatively small ($20) copayment to Dr. Walker, and Anthem paid Dr. Walker the balance of the contract rate.

In May 2008 Dr. Walker terminated his affiliation with the medical group with which he had been practicing and ceased to contract with Anthem as a preferred provider. Dr. Walker continued to state his hourly rate was $420, but billed Heinz $250 per visit, which he subsequently increased to $275 per visit. Anthem reimbursed Heinz for seeing Dr. Walker as an out-of-network provider at the rate of 60 percent of the Allowable Amount, which it reduced from $299.57 per visit to $113.31 per visit for the period from May 2008 through 2009. Anthem thus paid approximately $68 per visit; Heinz was responsible for the balance of $182 per visit.

3. Heinz Pursues Anthem's and CalPERS's Administrative Review Process

Anthem issued Heinz his first explanation of benefits form for treatment by Dr. Walker as an out-of-network provider on September 24, 2008, covering visits in May 2008. Dissatisfied with the reduced reimbursement he received, Heinz on September 25, 2008 submitted a member grievance form to Anthem in accordance with its prescribed process for reviewing claims. Heinz contended, under the EOC, the Allowable Amount for Dr. Walker's treatment should be the customary and reasonable amount for the services provided. Anthem denied Heinz's claims for additional reimbursement, which had been expanded through additional grievance filings to include billings and reimbursements through 2009.²

After exhausting Anthem's internal grievance and appeals process, on June 15, 2009 Heinz appealed the reimbursement issue to CalPERS. Throughout the appeal process Heinz, now represented by counsel, asserted (through "amended appeals" and in his trial and posttrial briefs) arguments beyond the specific issue of the amount of reimbursement for his 2008 and 2009 visits with Dr. Walker, contending denial of out-of-network reimbursements based on the methodology being used violated constitutional, statutory and regulatory requirements governing CalPERS and Anthem.³ CalPERS staff advised Heinz he couldnot raise claims other than the specific issue of reimbursement presented to Anthem by his 2008 and 2009 grievances.

Heinz requested a formal hearing before an administrative law judge from the Office of Administrative Hearings following CalPERS's administrative denial of his claims for additional reimbursements (commonly referred to as a "paper review"). The statement of issues prepared by CalPERS staff and filed pursuant to Government Code section 11504 stated only calculation of 2008 and 2009 reimbursements was at issue and the only question presented was whether Anthem had complied with the terms of the applicable EOC's.⁴ At the hearing, where Heinz again attempted to broaden the scope of the proceedings, the administrative law judge ruled Heinz could not expand the issues beyond those he had presented to Anthem.

The administrative law judge's February 3, 2017 proposed decision rejected Heinz's claims for greater reimbursement, finding Anthem had complied with the terms of the EOC in determining the Allowable Amount for Dr. Walker's services. The...